Archive - Dec 2010
As we wrap up 2010, the last thing left to do is to recall the stories that generated the most buzz on Zero Hedge. With stories touching on everything from the flash crash, to JPM's silver market manipulation, to the scramble for physical metals, to capital controls, to the manipulated (and successful) push to get Americans out of Money Market accounts, here are the top to stories of the past year (and stunningly all click-bait, slideshow free).
Bill Gross Telling Bloomberg To "Avoid Dollar Denominated Government Debt" Probably Means Bond Rout Is OverSubmitted by Tyler Durden on 12/31/2010 16:57 -0500
When Nassim Taleb and Marc Faber say that US government debt is a suicide investment, one can be allowed some skepticism. After all, they are likely just talking their book. On the other hand, when the manager of the world's biggest bond fund, whose flagship fund Treasury holdings amount to almost $80 billion goes on Bloomberg and says to "avoid dollar-denominated government debt" better known as US Treasuries, and instead recommends viewers invest in "stable" currencies like the Peso, the BRL or the CAD, then you know the bottom in bonds is in. So in addition to dumping fixed rate bonds (which means Pimco will again be able to buy on the cheap ahead of QE3, which as Larry Meyer has by now likely advised Pimco is a sure thing), Gross also told Bloomberg that his other two strategies are to buy floating rate debt (over fixed), and lastly recommend credit spreads over interest rate duration risk. For those who find something troubling with a $1 trillion fixed income manager talking down his investments, and are still wondering whether or not QE3 is coming, we suggest putting one and one together. And while at it, they should also consider that Pimco now holds over $100 billion in MBS: a notional amount last held just as QE1 was announced.
Have we hit or are very near to hitting something along the lines of an institutional tipping point in terms of the supply/demand balance for equities? This set of circumstances helps argue for a range bound market, volatility as a key construct, and the need for active asset allocation ahead. As a very quick anecdote, right now the pension system in Japan has begun liquidating JGB's (Japanese Government Bonds) to meet pension obligations. This is a first and certainly a trend that will continue. Watching Japanese experience will be important as their baby boom contingent is about a decade ahead of the US . What were once demographic tailwinds for US equities are set to become headwinds. Again, this is not end of the world stuff here. As in sailing, tailwinds turning to headwinds just requires a change in navigational technique inconsistent with the prior approach. Range bound, volatility and active asset allocation will hopefully get us safely to shore as the winds of change gather force with demographics. Can we avoid landfall on the equity index targets suggested by Mr. Dent? We believe they are extreme, but he has the direction of the trade winds correct.
And an appropriate story to end 2010 with: ScotiaMocatta, one the world's biggest bullion banks, is now sold out of all silver bars.
Wall Street POMO party over, oops out of time--So tonight I'm gonna party like it's 1929
Some time in mid/late 2009, after becoming convinced that the stock market is a broken topological nightmare, with feedback loops that are so unpredictable to be virtually "skyNet" self-aware, and is in essence broken, we urged readers to pull all their capital from the stock market. This happened even as we grew increasingly concerned by the Fed's ongoing ruinous actions which anyone but the staunchest propaganda foot soldier realized were going to mean ongoing pain for all dilutable assets, including stocks and fiat currencies. As a result it became abundantly clear that hard assets such as gold, silver, non-nailed down park benches, bananas, hard liquor, stripper poles, and of course strippers, would outperform paper assets. Sure enough, with regard to the first, in May 2010, our skepticism about stocks was confirmed, and anyone who had limit sell orders likely ended up losing up to 40% of their capital with no recourse. Since nothing has changed in stocks, we repeat our warning that the market is at all times a few stray millisecond algos away from total meltdown. And as for gold: the 29.7% 2010 return is double that of the S&P. Which means those who did not play stocks and bought gold did ok. And even those who shorted stocks and bought gold, are still up about 15%. As above, little has changed to weaken our long-term conviction that gold (and silver, for those who can handle the added vol) is the natural antithesis to central banker lunacy. And that we will have a lot more of in 2011. Guaranteed.
After precious metals market manipulation finally came out of the tinfoil hat closet and was officially recognized in 2010, subsequently becoming mainstream, following various whistleblowing disclosures which led to a long overdue investigation by the DOJ, and CFTC commissioners such as Bart Chilton admitting that there is in fact open market manipulation in the silver futures market by large short position holders, nobody is more relieved than Ted Butler. As the attached letter written by Butler shows, the PM expert wrote with excruciating detail everything that would subsequently be proven true. A key excerpt from the letter: "the true sorrow in this whole affair is that, in addition to the unnecessary financial punishment, the producers and owners of Silver (including the U.S. government) have experienced over the last six years, there are tens of thousands of contracts held short by innocent and unsuspecting speculators who are in for a ruinous shock. Do not be surprised, when this manipulation is attacked, to see the price of Silver open $20 per ounce higher at that time. Since that would represent a $100,000 loss on each contract held short, the current $2,000 COMEX margin will provide scant protection against the inevitable massive bankruptcies for those shorts not holding real Silver." The kicker: the letter was written on April 25, 1989.
No wonder the VIX is down to 17.50 – we are a totally complacent society aren’t we? I guess the problem is most people don’t want you to protect your portfolio – they want you to CHURN your portfolio to generate fees.
Since readers are likely eager to share their own predictions for 2011, please use the following open thread for that, as well as for anything else that may cross the collective subconscious. Additionally, any suggestions on improving (or deteriorating) the site, as well as all brainstorming, and last but not least threats, are most certainly welcome. Best of luck to all in 2011, especially those who fail in their resolutions to cease feeding the central planning monkeys.
It is only fitting that just minutes after we disclosed our skepticism about those who forecast future events in a centrally planned regime, either directly or rhetorically, we ran into Goldman's 10 questions for 2011: the firm to whom none other than Brian Sack is supposed to report. While everything else is mostly Koolaid, the only important thing according to Jan Hatzius, who minutes ago appeared on Tom Keene, is that he may still advise his underlying at the FRBNY Bill Dudley to press go on QE3. Full list below.
One of the traditional characteristics of the financial media world in the last few days of any given year is the veritable cornucopia of next year "predictions" from those who believe their opinions are relevant/important/credible. Of course, with this whole process being nothing but an exercise in vanity, and resulting in pervasive ridicule by the rest of the media world 365 days later, unless of course one has immaculate luck, in which case playing the lottery has far better fringe benefits, Zero Hedge has no interest in actually predicting parallel outcomes, when event iterations are serial and just getting the one main thing right usually ends up paying off in droves (as such our one and only very vague prediction for the end of 2011 is that the Fed will be one year closer to completely losing control of its centrally planned schizophrenic reality, and the market will be ever closer to realizing this). That said, the following list of forecasts by Charles Hugh Smith is certainly worth reading. And with gems such as: Markets in precious metals, oil, commodities, stocks and bonds will rise and fall in an unpredictable fashion; The SNAP food stamp program will be expanded to include cable TV
access to a new U.S. government-sponsored channel, "Bread and Circuses, and QE3 will include issuing U.S. Treasury bonds directly to households you know this may well be the only set of predictions that gets the outcome right in our Bizarro world, TheOnion-style centrally planned reality.
On a day that was supposed to be as quiet as they get, the now traditional spike in FX vol that we have been observing for the past two months (even as the VIX has plunged to year lows) is back like clockwork. As the chart below shows, the EURUSD is now well over 100 pips higher on the day, and is back to early December levels. The reason, according to some, is that the various global banks, mostly French and US, who have been buying the billions in EURs sold by assorted central banking cartels in the past few months, starting with the BIS and going down, are engaged in some good old fashioned window dressing. There was a time when window dressing applied to stocks. With that now completely priced in, it is time to move on to FX, and shortly thereafter, gold. And speaking of the latter, with the yellow metal at $1,417, and just dollars away from the all time high, it would not be too surprising to see the best performing asset class tracked by Reuters to close the year at an all time high.
I'm mad and won't take it any longer.....
While hardly news to regular readers, most of whom have ridden the 80%+ wave in silver in 2010, the following video from Future Money Trends explains some of the key basics about why silver, which is unique in the precious metals basket in that it is also an industrial metal (and has thus sparked much debate over whether or not it, like gold, is "money"), and provides some perspectives on why silver just may one day be more valuable than gold. Some facts: while there are 10 ounces of silver, for every ounce of gold mined, the most of it is not "free flowing" and is locked up in industrial uses; for every $1 in SLV investors still pile $7 in GLD; above ground silver has declined from 10 billion ounces in 1950 to 5-700 million ounces in 2010 (compared to an increase in above ground gold from 1 billion to 7 billion ounces); the gold to silver ratio is at 50x while the average long-term is 15x, industrial demand for silver is up 18% in 2010; and much more. Of course, there is no reason why one has to pick one or the other. Historically both have been tiered stores of value, with the Roman empire going so far as to succumb its silver currency when the going got tough. The simple fact is since global deleveraging will likely continue and since the US government will need to print trillions, most of it monetized by the Fed, the ongoing currency dilution will continue to result in increasing P prices: pretty simple. The only downside case to gold and silver holdings would involve massive asset liquidations a la September 2008, which also would mean that the Fed has lost control, that the US dollar is no longer the reserve currency, and that after the smoke settles, non-fiat currencies will rise again. And that includes both gold and silver.