The latest observations the spread of gold's popularity comes from none other than BRIC expert, Goldman's Jim O'Neill, who advises clients in his latest letter that it may be prudent that in addition to China and India as a source of ever increasing demand for gold, it may be time to also add the Middle East to the ever increasing list of investors (typically quite wealthy) who believe in the yellow metal. "Not because of this particular anecdote, but the Middle East being what it is, my meetings involved more discussion about Gold prices than is usually the case in other parts of the world. While the gold bar machine anecdote adds to all the other colourful stories I pick up, the recent remarkable resilience of gold, despite what has happened to silver and other commodities, is rather impressive. This gold price strength may perhaps be just a simple function of both the extremely low level of G7 real interest rates and the prospect that they might not rise anytime soon. I got the impression that there a quite a few bulls of Gold in the Middle East."
The mechanics of social proof, while somewhat complex, are pretty easy to understand. Simplistically, we humans have a strong tendency to glance over at other members of the herd in an attempt to gauge the correct action or reaction to take in any given circumstance. While this tendency can be useful in identifying the right bread plate to use at a fancy dinner party, it can also have devastating consequences. In one of the most notorious examples of the downside of social proof, in 1964 Kitty Genovese was slowly murdered on a New York sidewalk over the course of about 30 minutes, despite 40 or so witnesses, none of whom took action. They figured someone else would. In any event, understanding the concept of social proof – and its close cousin “social convention” – seems to me to be of fundamental importance to us as members of the human race, and as investors. As far as the former is concerned, if you ever find yourself doing the same thing as everyone else, it should concern you. Stop and ask whether you are doing the thing because you want to or because you think it is the right thing to do – or are you doing it just because it’s what everyone else does? As for the latter, if you rely on the cues coming from the mainstream financial media and officialdom, you would likely believe the country has exited the latest economic crisis and will now steadily make progress towards a return to normalcy. The seeming disconnect between the true state of the world’s economy and the public reaction is actually not a particularly bad thing for those who have their eyes open. After all, anyone who can see what’s coming, while the masses do not, has the opportunity to get positioned in investments that will do well when the truth of the situation becomes evident to all. But there are matters much more important in this life than money-making.
Things That Make You Go Hmmm - Such As Mass "Dumbing Down" Courtesy Of 24 Non-Stop "News" (And The Emergence Of Captain Obvious)Submitted by Tyler Durden on 05/28/2011 - 11:25
Two days ago, we presented Dylan Grice's latest thoughts on the substantial futility of trading the news cycle. Yet as Grice readily pointed out, and as even Taleb would glumly admit, what humans lose in the noise factor by avoiding the constant blasting of news, they make up for in entertainment value. And therein lies the rub: more than anything, people (or at least the vast majority)want to be entertained, ostensibly even more than the desire to make money on actionable, and properly filtered, ideas. The human brain has gotten accustomed to an information barrage of 140 letter updates, often times on a second by second basis, which in turn has crippled the ability to filter out the important from the irrelevant. Grant Williams of "Things that make you go hmmm" takes the idea one step further, and makes the claim that ever since the emergence of the 24 Hour newscycle, from its inception by CNN (also known as the CNN Effect), and currently peaking with each and every major news network having its own business new channel, accompanied by dramatic "breaking news" music, the net effect has been the substantial stupefaction of the broader global population: "Somewhere between the early 1990s and today, however, the 24-hour news cycle has, in your humble scribe’s opinion at least, become largely responsible for the ‘dumbing-down’ of the masses." Elsewhere this is also known as the "keep your eyes off the ball" effect, so well manipulated by those in control to mask what is really important with the repeated blasting of that which is truly irrelevant. Yet in another example of self-referential, deprecating and allegoric prose fit for TS Eliot (who pushed the premise of contextual and voluntary hyperlinking 70 years before the invention of the Internet), Williams makes his piece "entertaining" by presenting that number one construct of modern media: Captain Obvious. "In the investment world, this tear in the headspace/time continuum has meant that investors are unable to focus on all the issues brought to their attention and consequently they tend to suffer bouts of panic or euphoria over a certain subject before being distracted by the next piece of news and moving on (remember Fukushima? It’s still not completely under control in case you were wondering). This strange situation in turn led to the spectacular resurgence in recent years of a Superhero – a man who, for years, has been omniscient in playgrounds the world over but has now become a fixture in more adult environs. Ladies and gentlemen, I give you Captain Obvious." In case it is not obvious where this is headed, read on...
It only took Goldman less than 5 months to roundtrip on its latest S&P 500 forecast (from January 7, "We are raising both our 2011 and 2012 S&P 500 earnings estimates by $2 per share to $96 and $106...we are raising our year-end 2011 price-target to 1500") - much better than the 3 weeks it took the firm to flip flop on oil. Just out from Goldman's David Kostin, who has finally started his retreat, which we believe will end at 1,250 before QE3 is formally announced: "We have reduced our S&P 500 2012 EPS estimate to $104 from $106 and lowered our 2011 year-end price target to 1450 from 1500. We now expect S&P margins to peak in 2011 and decline slightly in 2012. Those changes reflect forecast revisions for lower global GDP growth, higher oil prices and more inflation. At the sector level we recommend overweight positions in Energy and Consumer Staples and underweight in Consumer Discretionary and Utilities. We expect stocks with strong revenue growth to outperform those relying on margin expansion to grow earnings and recommend buying our High Revenue Growth basket."
Commerce is the lifeblood of a nation. Without the free flow of trade, without financial adaptability, without intuitive markets driven by the natural currents of supply, demand, and innovation, cultures stagnate, countries whither, and one generation after the next finds itself deeper in the somber doldrums of economic disintegration. In an environment of transparency, honesty, and the absence of monopoly (government or corporate), on the rare occasions in history that these conditions are actually present in one place at one time, we often see an explosion of prosperity and true wealth creation. When local, decentralized markets are given precedence over subversive elitist leviathans like mercantilism or globalism, a wellspring of abundance bursts forward. Free people, building true free markets that serve the specific needs of individual communities and insulating the overall economy from systemic collapse; this has always been the wave of the future. Not “integration”, “harmonization”, or some fantastical nonsensical “global village” administrated by a faceless unaccountable transnational entity like the IMF, infested with sociopathic maid raping euro-trolls. Unfortunately, average Americans today have grown far too accustomed to having their commerce, and thus their livelihoods, micromanaged for them. The bottom line is, if the daily fiscal life of the average American were to deviate from today’s norm even slightly, the results would be devastating. There is no flexibility in our current system. All is rigid and fragile. There is no backup plan.
Tim Geithner Refuses To Brand China Currency Manipulator (Again), Says Yuan Rate Impairs China Inflation Curbing AbilitySubmitted by Tyler Durden on 05/27/2011 - 17:50
In a glowering example of humanist magnanimity, the tax expert, who also on occasion pens missives describing in detail the destruction that would ensue should dealers be hindered from perpetuating the US Treasury ponzy, known as Tim Geithner, just advised China that its low exchange rate impairs China's ability to curb inflation. This, coming from the man under whose watch the dollar has gotten pounded eight ways to Sunday. The announcement came as part of the semi-annual report issued to congress, which was due originally back in April, yet which as everyone knew was delayed for no other reason that more theatrics. And just to confirm how utterly toothless US game theory bluffs have become, Geithner, contrary to much bristling rhetoric to the contrary, decided not to name China a currency manipulator, a move that is sure to require the CME to promptly issued five margin hikes of Chuck Schumer's blood pressure. But lest someone accuse Tiny Tim of being not only a tax fraud, and a liar, but also a coward, he did add that the Yuan is "substantially undervalued." And so the USDCNY revaluation debate has been pushed back for at least one more year. And to those who experience a feeling of deja vu upon reading this, worry not: Geithner had exactly the same conclusion 3 months ago. Bottom line: China 2; US 0.
Long Euro Speculator Exodus Continues As Dollar Short Covering Pushes USD To First Net Positive Level Since JanuarySubmitted by Tyler Durden on 05/27/2011 - 16:42
The most recent CFTC data is out and the results are in: momentum chasing FX speculators continue to retrench to exit positions, as the Euro long orgy, which as recently as May 3 hit a multi year record at 99.5k net long non-commercial contracts. Fast forward 4 weeks, and the recent plunge in the EURUSD has brought the exposure to just 19.1K contracts, the lowest since January 18, and a level prevalent in October and November of 2010. The 4 week drop is the biggest one month drop, as the momentum to the downside accelerates. Although it may still have a ways to go: the recent "support" is around -50k contracts. At this rate it will be hit in about 3 weeks. In the other camp we have the USD which saw short covering bring it to net non-spec exposure climb from -1,270 to 2,485, the first net positive exposure since January 2011. That said, with the EURUSD on the verge of breaching of 1.43, it seems that the great unwind is now over. A complete historical chart of non-commercial specs, and several other products, can be seen below.
The Chinese Domino Has Fallen... Or Has It? And Why No Power, May Really Mean No (Inflationary) ProblemSubmitted by Tyler Durden on 05/27/2011 - 15:32
Earlier today SocGen came out with a report that is a must read for everyone who has an even passing fancy in global monetary policy, as the currently rampant inflation in China, and the approaches ushered to deal with it, threatens to derail the global "recovery" (although not sure in what: printing of credit money - yes; economy - no) which according to Morgan Stanley is "too young to fail." To be sure, SocGen discusses the first of three dominoes that will or already have, fallen, as part of the increasingly popular domino theory of Chinese inflation. SocGen explains: "Quite simply, the domino theory of 2011 is that when China comes under the influence of inflation, the surrounding countries, those with the most immediate trade ties, would also fall to inflation. It will only be a matter of time till those economies with the greatest trade ties; indeed the entire world has succumbed to the great inflation cascade emanating from China." And the first domino, which SocGen claims to already have fallen is the following: "The first domino is China creating autonomous structural inflation: China’s domestic inflation accelerated at an unprecedented pace at the end of 2010 and policy makers remain well behind the curve. As China engineers its economy to a more domestically focused one, its demand curve is shifting outwards and the global supply curve has been inelastic in response. That domino has already fallen and is the focus of this paper." And while we respect SocGen's opinion on China, most recently referenced to debunk a BCG report on imminent US-Chinese worker wage parity, in this case we wonder if SocGen has simply gotten on the boat of conventional wisdom a little too fast. What we mean is that "structural" inflation may not be all that "structural"especially if one considers a flip to a traditional Stalin saying: "no man - no problem".... in this case "no electricity - no inflation." Bernstein's Michael Parker explains...
For nearly 30 years we have had two Global Strategies working in a symbiotic fashion that has created a virtuous economic growth spiral. Unfortunately, the economic underpinnings were flawed and as a consequence, the virtuous cycle has ended. It is now in the process of reversing and becoming a vicious downward economic spiral. One of the strategies is the Asian Mercantile Strategy. The other is the US Dollar Reserve Currency Strategy. These two strategies have worked in harmony because they fed off each other, each reinforcing the other. However, today the realities of debt saturation have brought the virtuous spiral to an end. One of the two global strategies enabled the Asian Tigers to emerge and grow to the extent that they are now the manufacturing and potentially future economic engine of the world. The other allowed the US to live far beyond its means with massive fiscal deficits, chronic trade imbalances and more recently, current account imbalances. The US during this period has gone from being the richest country on the face of the globe to the biggest debtor nation in the world... So what could possible stop this ideal symbiotic relationship from continuing to feed on itself? A number of factors, all of which are now coming together to end this Virtuous Cycle.
Step Aside "Too Big To Fail" - Morgan Stanley Comes Up With The New Catchphrase; Calls Recovery "Too Young To Die"Submitted by Tyler Durden on 05/27/2011 - 13:16
Asked about the fate of the economic "recovery", which incidentally is nothing more than a $2 trillion dollar dilution-funded blip on the depressionary downtrend commenced in December 2007, Greg Peters, the head of fixed income research, at Morgan Stanley, the firm whose other fixed income strategist Jim Caron will now have been proven wrong three years in a row following his annual broadly bullish call for a jump in rates (not based on bearish considerations such as those postulated by Bill Gross... bullish), tells Tom Keene that the recovery is "Too Young To Die." Yep. That's the justification. Alas there was no mention that the 98 year old ponzi scheme perpetrated by the Fed since 1913 is now "Too Obvious To All." And when that fails, many of the same people who get paid huge sums of recycled taxpayer money to come up with catchy four word slogans while spouting flawed economic projections will suddenly find themselves "Too Pitchforked To Fly Away (To Non Extradition Countries)"
The only thing that could prevent another oil shock from happening before the end of 2012 would be another major economic contraction. The emerging oil data continues to tell a tale of ever-tightening supplies that will soon be exceeded by rising global demand. This time, we will not be able to blame speculators for the steep prices we experience; instead, we will have nothing to blame but geology... With Brent crude oil having lofted over $100/bbl at the beginning of February and remained above that big, round number for four months now, we are already in the middle of a price shock. It may not be a perfect repeat of the circumstances of the 2008 oil shock, but it's close enough that the risk of an economic contraction, at least for the weaker economies, is not unthinkable here. Japan, now in recession and 100% dependent on oil imports, comes to mind. Looking at the new data and reading even minimally between the lines of recent International Energy Agency (IEA) statements, I am now ready to move my ‘Peak Oil is a statistically unavoidable fact’ event to sometime in 2012, which tightens my prediction from the prior range of 2012-2013. Upon this recognition, the next shock will drive oil to new heights that are currently unimaginable for most. First, $200/bbl will be breached, then $300, and then more.
Looking at these pictures from Barcelona one would think this is Tunisia, Cairo, or at best, Athens. Instead, it is from the once incomparably wealthy capital of Catalunia (although they did have Olympics there: an event guaranteed to result in at least one municipal bankruptcy at some point in the future), and before the Barcelona-Man United game. One can only imagine what happens if Barcelona wins (or is that loses).
I remember the first time I saw someone us the terms “risk on” and “risk off” as a way to describe the flow of capital into and out of certain baskets of assets that are supposedly “risky” or “safe.” The terms got under my skin back then and they continue to do so until this day. Wall Street and the media just love coming up with trite and untruthful statements as a way to condition investor behavior and ultimately separate you from your money. First of all, the world and the successful deployment of capital is much more complicated over any serious investment horizon than the simplification of everything into “risk on” and “risk off.” This way of thinking is even more dangerous when conventional wisdom allocates to the “risky” category many items that are in reality the true safe havens and to the “safe” category those that are guaranteed to destroy your financial well being... As long as the central planners have some degree of control of the markets, which they still do at the moment, if you are playing the game and managing money in this world of investment horizons of weeks if not days you have no choice but to trade the market you are given. Nevertheless, as I have said countless times before, in the final equation there will be no other asset that will lose investors more money that U.S. government bonds and nothing that will protect wealth more than gold. Moreover, when the central planners do lose control of the markets (and they most certainly will) the fact that they have spent so much time manipulating them as well as pushing investors into the worst types of capital allocation decisions they could make, guarantees the total wreckage of the life’s savings of most of this nation.
My big fat Greek.. oh whatever.
- GREECE'S SAMARAS SAYS EU BAILOUT MUST BE RENEGOTIATED
- GREECE'S SAMARAS SAYS GOVERNMENT PLAN IS WRONG
- GREECE'S SAMARAS SAYS WON'T ACCEPT BEING BLACKMAILED
- GREECE'S SAMARAS SAYS NEED TAX RATE REDUCTION FOR GROWTH
Next up: Linda Green signs the Greek agreement to hand over all its assets to the world banker cartel.
Traveling through Vietnam provided a few valuable lessons for life. You arrive, armed only with a copy of the Lonely Planet. Any map turns out to be pretty useless, as street names are frequently changed or the street layout completely altered (this is mid-1990?s). You are being inundated with offers from “cyclo-” (bicycle rickshaw) drivers. Rule number one: negotiate the fare before hopping on the seat. The Vietnamese being excellent sales people expect further price negotiations while you are riding (“Okay, price was per person” “Sir, luggage is extra”). One particular cyclo driver left me with a memorable experience. Once given his destination he claimed the hotel was closed (“I know much better hotel”). Over the entire ride he insisted my hotel was said to be either under construction, on fire or simply full. And I insisted, too, so we actually ended up at the hotel. The pure existence of the hotel should have refuted most of his statements, but did not lead to any signs of embarrassment or repentance on his part. To my surprise he followed me into my room, still trying to lure me into changing hotels (“This room not good”). Later, I found him haggling with the hotel owner over a “finder’s fee” (which was customary for cyclo drivers bringing in hotel guests). Lessons learned: (A) When you are standing inside a hotel it does exist, no matter what someone else might say. Accordingly, when a country is burdened with a debt level approaching 160% of GDP it does need a restructuring.