Archive - Jan 2010

Paul McCulley discusses the failed Japanese inflation experiment, and the ongoing 3rd decade of deflation, which has destroyed over 70% of the Nikkei's value. The reason proposed by the Pimco Managing Director for this 30-year ongoing weakness: an inability to fight the "liquidity trap" with sufficiently forceful measures. Yet an implication of Pimco's perspective is that despite posturing for an end to QE in March right here in our very own United States, this will likely not happen, or even if it does, QE will promptly return soon thereafter.

Following the empirical evidence that banks share price moves are outstripping their fundamental performance, I have decided to run the same analysis with REITs that have beat the S&P 500.

Going from a “V” Market to an inverted "V", or lambda market. Keep an itchy trigger finger on your mouse. The third in a series of seven on The Mad Hedge Fund Trader’s Annual Asset Allocation Review. (SPX), (EEM),(EWZ), (RSX), (PIN), (FXI), (EWY), (EWT), (IDX)

RANsquawk 11th January Morning Briefing - Stocks, Bonds, FX etc.

While some China Bears are busy publicizing prediciton of an utter Dubai or Enron-like collapse in China, Beijing is actually in the process of rebalancing its economy and an overheated real estate market. And gold is poised to benefit the most from this shift.

In a groundbreaking presentation to be delivered on January 11 in Shanghai, "The First Phase of US Recovery and Beyond" St. Louis Fed president and monetary policy decision-maker James Bullard has come the closest to openly refuting Ben Bernanke's claim that no asset bubbles have been created via the Fed's monetary intervention policy during the post-Lehman period. Yet, Bullard notes, there is nothing that the Fed's "blunt instrument" approach can do to pop such bubbles proactively, as "financial institutions would need to be capable of withstanding large shocks to asset prices, as well as other shocks." Of course, the implication is that the day of reckoning for "financial institutions" is merely delayed to the point where further extend and pretend policy action is impossible and the Lehman collapse reaches a systemic contagion phase. In other words, the Fed admits the current course of action it itself has set the country on, is one of self-destruction, courtesy of the fiat banking system's ultimate death spiral. Alas, the disproof of Keynes' dogma will be a Pyrrhic victory as there will be nothing left of the American financial system in its wake.

Big devaluation in Venezuela over the weekend. The locals knew about it in advance. The Black Market was trading at 3X's the official rate.

Does it matter? I think it might. It is just more of that 'sovereign risk" story that keeps popping up.

And the good old dollar pounding, gold spiking, futures gunning Sunday night action that we all know and love, is back.

While we at Zero Hedge observe and lament the passage of America from a once great superpower into a second-rate banana republic, on occasion we do witness that rare example, somewhere in the world, of complete and utter political and economic lunacy that inspires us to think, "wow, not even Bernanke could have thought of this... yet. "After devaluing the currency on Friday, Venezuelan president Hugo Chavez "threatened to deploy troops and expropriate businesses that increase their prices." This is just one such example.

In this oldie but a goodie, Ron Paul hammers home the point of why the Federal Reserve needs to finally be accountable and transparent, despite the desires of Barney Frank, Wall Street, Ben Bernanke and all the current failed system's apparatchicks who will stop at nothing to perpetuate the broken status quo. For regular readers none of this should be news. For everyone else, this 1 hour program is a must watch. Clip courtesy of Fora TV and the Cato Institute.

If you love watches, the measuring of time, horology, the art and finesse of mechanical engineering, keep reading. You fancy in the perceptions of prestige and exclusivity with cunning attention and the celebration of style and detail- click and read on. Everyone else, go back to having a great weekend.

After posting a record crude-oil import month in December, as well as the second highest iron-ore import month in history, China's program economy is roaring back to life, even if the imports are actually sitting in full warehouses, used to build empty cities that consume negative electricity, make washing machines that never launder anything except the government's flawed economic statistics, and create cars that somehow use up ever-less gasoline. Of course, when the government has trillions in increasingly worthless excess dollar foreign reserves that have to be used up for something, it is no wonder that the Chinese government is buying anything and everything it can stockpile, and that can't be devalued by Tim Geithner, hand over fist. As for exports: courtesy of the dollar peg, which makes China's exports as cheap as the US' (assuming the latter had much of anything to export besides financial innovation), China had no shortage of counterparties to purchase its $1.2 trillion in 2009 exports. Yet despite all this, China's trade surplus plunged a record $100 billion, or 34%, to $196 billion from 2008's $296 billion.

Page 17 of the latest Adrienne Shapira/Goldman Sachs retail cheerleading report finds the smoking gun of the end of the recession: A "group of Spanish tourists made the trek to fill their luggage with merchandise from ANF and Hollister." Well, if the Spanish tourists are stuffing child porn endorsed trinkets down their carry-ons, then all is well. Where does one buy these retailers who are currently (and far into the foreseeable future) experiencing negative margins thanks to -80%/-90% and, who knows, in many cases five finger, discounts (you didn't think the rampant hustle and bustle this Xmas season was all AmEx and CapitalOne funded, did you).

excerpted from The Stamford Review, 2009: Volume Two, "Mortgages, Finance Markets, and the Imperative of Growth" by Hugh Kelly

Rising interest rates, stubbornly high unemployment, no credit, and large chunks of the economy dead in the water are not what economic booms are made of. The second in a series of seven on The Mad Hedge Fund Trader’s Annual Asset Allocation Review.