Monday, December 7, 2009
"So this remains the Houdini rally — no jobs; no pricing power; no broad participation; and no volume. " - David Rosenberg (M-AA*)
"Over the past decade, the stature of the market as an effective discounting mechanism has gradually eroded. The observation and analysis of potential risks – though essential to long-term investing and loss avoidance – is far less actionable than one might expect. Investors will evidently speculate as long they have dice in their hands and the casino is not visibly on fire."
- John Hussman (M-AA*)
Harvesting Truth... David Bianco separates the wheat from the chaff on 5 myths: 1-the consumer is 70% of US GDP; 2-China is dependent on exports to the US; 3-nothing is made in the US anymore; 4-the US economy is grossly overlevered; 5-profit margins must revert lower... "Although the US remains the largest single country consumer of China’s exports, that share is less than half that of emerging markets"... (4*)Bianco Harvesting the Truth
Winners & Losers as the US$ Falls... click on image to enlarge... http://www.nytimes.com/interactive/2009/12/06/business/metrics.html
World Needs More & Easier Money ?... Joseph Gagnon of the Peterson Institute: The world needs more stimulus now, not a focus on when to withdraw stimulus... recommends central banks push long-term interest rates 75 basis points below the levels they would otherwise take by purchasing a combined $6 trillion in long-term public & private debt securities - this action would boost GDP 3% or more over the next 8 quarters & reduce unemployment rates by between 1 and 3 %... (4*)
11 Startling Forecasts... from Martin Weiss: #1 - The Federal Reserve will not relent in its money printing madness until it’s absolutely forced to do so.
#2 - A continuing, virtually unstoppable long-term decline in the $.
#3 - The entire concept of “RISK” will be REDEFINED by global investors.
#4 - Gold will reach $1,500 if not higher as central banks help drive up its price with massive new buying of their own.
#5 - The overwhelming majority of oil producing nations will demand that the U.S.$ be replaced as the pricing standard for crude oil.
#6 - The U.S. economic recovery of 2010 will go down in history as one of the weakest & shortest in 100 years.
#7 - The economies of Brazil, China and India will grow up to four times faster than the U.S.
#8 - Stocks in countries like China, India and Brazil will rise up to three, four, even FIVE times faster than the S&P 500.
#9 - The best performing stock markets in 2010 will include Indonesia, Thailand and Vietnam.
#10 - Sovereign wealth funds of Asia will become far more aggressive buyers of contra-dollar assets in 2010, helping to drive up their values at a much faster clip than generally expected, especially in Asia.
#11 - Expect a MASSIVE new global boom in mergers & acquisitions, focusing on small- & mid-cap natural resource stocks.
Bonus Forecast - 2010 will bring a NEW phase in Asia’s real estate boom — a boom which is both broader & far more sustainable than America’s real estate boom of the 2000s.
http://www.moneyandmarkets.com/our-11-startling-forecasts-for-2010-7-36761 (4*)
#2 - A continuing, virtually unstoppable long-term decline in the $.
#3 - The entire concept of “RISK” will be REDEFINED by global investors.
#4 - Gold will reach $1,500 if not higher as central banks help drive up its price with massive new buying of their own.
#5 - The overwhelming majority of oil producing nations will demand that the U.S.$ be replaced as the pricing standard for crude oil.
#6 - The U.S. economic recovery of 2010 will go down in history as one of the weakest & shortest in 100 years.
#7 - The economies of Brazil, China and India will grow up to four times faster than the U.S.
#8 - Stocks in countries like China, India and Brazil will rise up to three, four, even FIVE times faster than the S&P 500.
#9 - The best performing stock markets in 2010 will include Indonesia, Thailand and Vietnam.
#10 - Sovereign wealth funds of Asia will become far more aggressive buyers of contra-dollar assets in 2010, helping to drive up their values at a much faster clip than generally expected, especially in Asia.
#11 - Expect a MASSIVE new global boom in mergers & acquisitions, focusing on small- & mid-cap natural resource stocks.
Bonus Forecast - 2010 will bring a NEW phase in Asia’s real estate boom — a boom which is both broader & far more sustainable than America’s real estate boom of the 2000s.
http://www.moneyandmarkets.com/our-11-startling-forecasts-for-2010-7-36761 (4*)
"The aftermath of systemic banking crises involves a protracted & pronounced contraction in economic activity and puts significant strains on government resources. On average, government debt rises by 86 percent during the three years following a banking crisis. As a consequence, a clear inflationary bias throughout history emerges. The handmaiden to inflation is, of course, currency depreciation."- Economists Kenneth Rogoff & Carmen Reinhart
“This Time It's Different – Eight Centuries of Financial Folly”
Credit Crises Require Multi-Year Adjustments... John Hussman (M-AA*) thinks we are likely to have a few more years of sideways stock market movement as the economy "absorbs the full weight of adjustment to the deleveraging of bad debt and massive increase in government liabilities that we have on our hands"... sees further credit losses & likelihood of bigger deficits & eventually inflation - most likely several years out, because over the shorter run, "fresh credit difficulties are likely to boost 'safe haven' demand for... U.S. government liabilities, which will allow the huge new float of these liabilities to be absorbed without an immediate deterioration in their value"... sees the increased supply of US govt debt to be "met by a similar depreciation in their value. I continue to expect that we will observe an approximate doubling of the U.S. consumer price index over the next decade"... http://www.hussmanfunds.com/wmc/wmc091207.htm (4*)
Sunday, December 6, 2009
Sunday Night Special - Why Nations Should Pursue Soft Power... Shashi Tharoor says India is fast becoming a superpower, not just through trade & politics, but through "soft" power, its ability to share its culture with the world through food, music, technology, "Bollywood"... points out Indian restaurants in the UK employ more workers than the UK coal mining, ship building, iron & steel industries combined... argues that in the long run it's not the size of the army that matters as much as a country's ability to influence the world's hearts & minds... click on image above to activate - about 18 minutes...
Requiem for the $...a Classic... James Grant, one of our Most-Admired Advisers (M-AA) has written a "must read" essay for the Wall Street Journal. No use summarizing it. It's an instant classic....click the link below & enjoy....http://online.wsj.com/article/SB10001424052748704342404574575761660481996.html#printMode (5*)
Saturday, December 5, 2009
"Where do we go from here?"...Paul Kedrosky discusses the game of "currency chicken" between China & the US, sees gold higher, oil significantly higher, is strongly in the deflation camp despite the money presses, recommends commodities & real assets, steer away from US stocks... click on image above to activate presentation...
China Reassures US... Terence Poon: China is taking a conservative approach to managing its foreign-exchange reserves... "The composition remains as it was before. There is no major change........" says Wang Xiaoyi, who oversees the reserves, but adds "depreciation of the U.S. $ is a long-term trend"... http://www.gata.org/node/8121 (3*)
Friday, December 4, 2009
Goldman Sachs: Top Trades for 2010... click on image above to activate slide show... courtesy of Business Insider: http://www.businessinsider.com/goldman-here-are-the-top-8-trades-for-2010-2009-12#bet-on-moderating-sp-volatility-1 (4*)
The Government Failed, Not Capitalism?... Brian Wesbury points to 2 factors - #1 - Mark-to-market accounting: A 2006 rule requiring banks to value assets at current spot market (vs. computer-model) prices triggered an unnecessary panic... #2 - Near-zero interest rates: With money seemingly free, of course consumers & investors alike jumped into a buying frenzy...
Lessons From Dubai... Nouriel Roubini (M-AA*) says don't assume govt backing for state-owned businesses... "all is not yet well in the global financial system. Although exposures to Dubai World were relatively diffuse and containable... they are a reminder of the remaining losses stemming from the credit boom, some of which have been obscured by the removal of mark-to-market accounting"... http://www.forbes.com/2009/12/02/dubai-world-debt-default-opinions-columnists-nouriel-roubini.html (3*)
China wary of gold 'bubble’ danger... Ambrose Evans-Pritchard says after quietly doubling its reserves, Chinese authorities have given the clearest indication they view the surge in gold to an all-time high of $1,217 as a speculative frenzy... points out China is aware its $2.3 Trillion reserves are now so big that the central bank cannot buy much gold without distorting the price - "so they have adopted a de facto policy of buying in a calibrated fashion each time prices fall back to their rising trend line – 'buying the dips' in trading parlance. Experts say that China is putting a floor under the gold price but does not chase rallies once they are under way"... http://www.telegraph.co.uk/finance/china-business/6712676/China-wary-of-gold-bubble-danger-after-quietly-doubling-its-reserves.html (3*)
The Economic Reality No One Talks About... Robert Reich discusses the employment challenges for America... says the assumption that jobs will eventually return when the economy recovers is probably wrong... "the reality that no one wants to talk about is a structural change in the economy that's been going on for years but which the Great Recession has dramatically accelerated"... points out American companies have found ways to cut their payrolls for good under the pressure of the economic crisis - "They've discovered that new software and computer technologies have made workers in Asia and Latin America just about as productive as Americans, and that the Internet allows far more work to be efficiently outsourced abroad"... concludes by recommending productivity-enhancing investments to maintain American global competitiveness in the world economy...http://www.huffingtonpost.com/robert-reich/the-economic-reality-that_b_377167.html (3*)
Bank of America Merrill Lynch's Hedge Fund Monitor Report... hedge funds increase equities exposure... courtesy of FINalternatives www.finalternatives.com ...
Bofa Merrill Lynch Quarterly Hedge Fund Report
Bofa Merrill Lynch Quarterly Hedge Fund Report
Correlation - Tall Buildings & Downturns?... Economist Andrew Lawrence came up with the Skyscraper’s Index which shows the correlation between the construction of the world tallest buildings & economic cycles - years in which the tallest building is complete or near completion, the economy downturns...http://www.alphadinar.com/2009/02/15/correlation-between-the-worlds-tallest-buildings-and-economic-downturns/ (3*) (click on chart above to enlarge)
Thursday, December 3, 2009
Run on the US$! Porter Stansberry: "Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion"... cites the Greenspan-Guidotti rule: If you can't pay off all of your foreign debts in the next 12 months, you're a terrible credit risk - Speculators are going to target your bonds & your currency, making it impossible to refinance your debts => A default is assured... "Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the value diminish slowly, or try to escape to gold & see the value of their U.S. bonds plummet"... recommends precious metals, foreign real estate, farmland for protection against the the coming devaluation... "The dollar rout is coming"... http://www.marketoracle.co.uk/Article15449.html (3*)
Deutsche Bank Sees 4 Main Scenarios for 2010... strategist Jim Reid details 4 scenarios & what to expect :•Scenario 1 – This is the most optimistic & is one where the authorities have as good a year as they did in 2009. They likely keep stimulus extremely high without there being any noticeable consequences of their actions (e.g. rates at the short & long-end stay low).
•Scenario 2 – This is the most likely & suggests that we start to see gradual easing off the gas from the authorities but only as it’s proved that there is some momentum in the underlying economy.
•Scenario 3 – The second most likely but one that potentially becomes more likely as the year progresses. Here we are likely to see sharply higher bond yields start to disrupt the positive momentum in markets. These higher yields could be either due to Government supply starting to overwhelm demand (especially as the impact of stimulus schemes wane), or because of inflation fears. It seems unlikely that actual inflation will be a concern in 2010 but it’s quite possible for expectations to become unanchored. We would also have to include the potential for a Sovereign crisis somewhere in the Developed world.
•Scenario 4 – The nightmare: Deflation. Given that much of the world is currently still in negative YoY inflation territory, it is difficult to completely rule out even if we do live in a fiat currency system & even if inflation is expected to return to positive territory in early 2010. For deflation to be sustained we would probably need an exogenous event to hamper the authorities ability to continue to successfully fight this credit crisis.
Here is the link to the research: http://www.zerohedge.com/sites/default/files/Macro%20Credit%20Outlook.pdf ... courtesy of http://www.zerohedge.com/article/four-scenarios-2010 (4*)
Here is the link to the research: http://www.zerohedge.com/sites/default/files/Macro%20Credit%20Outlook.pdf ... courtesy of http://www.zerohedge.com/article/four-scenarios-2010 (4*)
Mirage in the Desert... John Browne writes that Dubai has constructed "the perfect metaphor of the 21st century economy: a mirage built on debt"... points out the holders of Dubai's debt & real estate assets are the major Western banks already weakened by their own debt-ridden problems.. sees the bursting of the Dubai bubble as meaning more write-downs for the Western banks... also sees potential cascade of derivative-related defaults spreading to cause a devastating implosion of international financial markets... recommends precious metals for wealth preservation... http://www.321gold.com/editorials/browne/browne120309.html (3*)
The Resurrection of the Gold Standard... Gary Dorsch (M-AA*) emphasizes one of the consequences of massive global money printing is the resurrection of the gold standard - "That is to say, the proper way to value bond and stock markets, would be through the prism of gold, rather in the host country's currency"... therefore rises in stock markets may be an illusion...http://www.safehaven.com/article-15181.htm (3*)
America Without a Middle Class... Elizabeth Warren asks "Can you imagine an America without a strong middle class?"... points out 1/5 Americans unemployed, underemployed or just out of work, 1/9 cannot make the minimum payment on their credit cards, 1/8 mortgages are in default or foreclosure, 1/8 are on food stamps, more than 120,000 families filing for bankruptcy/month... $5 Trillion of wealth has been wiped out from pensions & savings... "..... the once-solid foundation is shaking"... http://www.huffingtonpost.com/elizabeth-warren/america-without-a-middle_b_377829.html (4*)
The Collapse in World Trade... VoxEU Report provides details on just how bad world trade has collapsed as a result of the economic crisis... the plunge is over 15% Yr-over-Yr & unprecedented... emphasizes global trade imbalances are a problem that needs to be tackled, warns govts should guard against protectionism...(5*)Great Trade Collapse
Wednesday, December 2, 2009
The Last Great $ Crisis... Joel Harris: the more the US becomes financially overextended, the more it is at the mercy of "seemingly insignificant financial events"... China understands "dollar diplomacy" as a tool to make US policies more favorable to protecting the value of its $2 Trillion in reserves: "China appears to be using some of the OPEC playbook, calling for a new global reserve currency & discussing ways to trade with Brazil and Russia without using the dollar"... if the US can not rein in the money supply & national debt on its own, "it faces the prospect of a rival power increasingly constraining U.S. economic policy options or a collapse in global confidence in the dollar"... http://online.wsj.com/article/SB10001424052748703499404574557881193339214.html (4*)
John Paulson's Investor Letter... discusses opportunities in debt... The following is courtesy of "DealBook". "DealBook is a financial news service produced by The New York Times. See the New York Times article: http://dealbook.blogs.nytimes.com/2009/11/18/john-paulson-gives-third-quarter-investor-update/ then view the public domain Scribd :
Paulson & Co. 3Q Letter
Paulson & Co. 3Q Letter
The Kondratieff Cycle... Geir Solem uncovers the secrets of the Kondratieff cycles, a set of major long-term economic cycles identified by Russian Economist Nikolai Kondratieff in 1925... click on graph above to enlarge - societies rise in long waves of approx. 50-60 yrs, each cycle consists of three phases: expansion, stagnation & recession... Geir provides analysis of where we are now - down into 2020-2025, then turning up into the second part of the 21st century... http://www.financialsense.com/fsu/editorials/2009/1201.html (3*)
Competitive devaluations threaten a trade war... Michael Pettis on recent moves by govts to devalue their currency, the most recent being Vietnam, to protect itself from undervaluation of the Chinese currency... "As one group of countries seeks to gain or maintain trade advantage by manipulating their currencies, the historical precedent suggests that countries that are not able to devalue will respond with trade protection, especially tariffs and other barriers, and global trade will suffer"... says the world is now making the same mistake as in the 1930s... http://www.ft.com/cms/s/0/24b5c0c6-dead-11de-adff-00144feab49a.html (4*) (may need to register with FT for free first)
"We are no longer in a golden age. We are in trouble. The correction of .... distortions that have built up over the past twenty years is underway. It is creating serious .... problems, & despite the reassurances of central bankers & investment pundits, there is no easy way to deal with it. The Fed’s standard remedy for treating recessions by lowering interest rates & boosting liquidity has been seriously abused since 1982... for policymakers to expect the most over-borrowed and over-spent consumers in the world to borrow and spend more in order to carry us out of this recession is foolishness..."
- Balestra Capital(4*)
Balestra Bulletin November 2009
- Balestra Capital(4*)
Balestra Bulletin November 2009
Trying to Predict the Next Crisis... article explores where the stresses are in government & companies in debt... "Like overstretched American homeowners, governments & companies across the globe are groaning under the weight of debts....that might never be paid back"... http://www.nytimes.com/2009/12/01/business/global/01debt.html?_r=1&hp (4*) (click on graph above to enlarge)
Larry Summers at the Aspen Institute Innovation Economy conference... about 45 minutes in length...
Innovation and Economic Growth from Innovation Economy on Vimeo.
Tuesday, December 1, 2009
Bank of Japan VS. Deflation... the central bank of Japan offered the govt a $115 billion program to combat continued deflationary pressures in Japan... "The yen slid after reports about the Bank of Japan holding its emergency board meeting spurred speculation...(of steps to limit)...the currency’s appreciation". Cliff Note: We stress that many nations seek currency devaluation to help bear the load of paying their debts. The U.S. is not the only one. This process changes all the old rules. IT IS DIFFERENT THIS TIME http://www.bloomberg.com/apps/news?pid=20601087&sid=aIJs51f_KJ0U&pos=2 (3*)
Gold Price to Double if China increases its gold reserves... David Rosenberg (M-AA*) : "We just came across a Bloomberg News article quoting an official from the state-owned Assets Supervision & Administration Commission as saying 'we recommend China increase its gold reserves to 6,000 metric tons within three-to-five years & possibly to 10,000 tons in eight to 10 years.' China’s reserves, after a 76% buildup since 2003, currently stand at 1,054 tons, so we are talking here about the prospect of some pretty heavy buying in coming years... If China were to lift their gold reserves to 5,000 tonnes, which is equivalent to about two years of global production, that shift in demand would boost the gold price by $800/oz to around $2,000 ($1,978) based on our models. If China moves towards 10,000 tonnes, well, that would end up taking the gold price to $2,623/ounce if our calculations are in the ball-park... Make no mistake, we are gold bulls." 
"What I am seeing and hearing on the news — the reappointment of Bernanke — is too hard for me to bear... I need to withdraw as immediately as possible into the Platonic quiet of my library, work on my next book, find solace in science and philosophy, and mull the next step. I will also structure trades... to bet on the next mistake by Bernanke, Summers, and Geithner.- Nassim Taleb (M-AA*) The Black Swan, Goes Into Exile
Dubai: What the Immediate Future Holds... Mohamed El-Erian (M-AA*) on the implications of Dubai... says countries with strong fundamentals will recover while debt-burdened countries come under pressure... "The Dubai announcement is a reminder that a flood of government-induced liquidity cannot mask all excesses, all the time... Investors should treat last Wednesday's announcement as an illustration of the lagged financial effects of the global financial crisis... Let Dubai be a reminder to all: last year's financial crisis was a consequential phenomenon whose lagged impact is yet to play out ..." Courtesy of The Daily Telegraph & Pimco... (4*)
Dec Viewpoints Telegraph Dubai El-Erian US
Dec Viewpoints Telegraph Dubai El-Erian US
"The Federal Reserve policy of cheapening credit through the purchase of government bonds has been unable to make a dent in the conservatism of borrower or bank lender, in short, every anti-deflationary effort has yet to provide positive results. The depression is sucking more and more bonds into its vortex." - Barron's Editorial, 11 July 1932
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