Archive - 2011
When it comes to the types of people in this world, there are those who say that the only way to fix the current economic catastrophe is to keep doing more of the same that got us in this condition in the first place (these are the people who say mean regression is irrelevant, and 10 men and women in an economic room can overturn the laws of math, nature, physics, and everything else and determine what is best for 7 billion people), and then there is everyone else. The former are called Keynesians. The latter are not. Only those in the former camp don't see the lunacy of their fundamental premise, a good example of which is the following. Luckily, the world is nearing the tipping point when the camp of the former, which for the simple reason that it allowed the few to steal from the many under the guise that it is for the benefit of all, is about to be overrun, hopefully peacefully and amicable but not necessarily, and the camp of the latter finally has its day in the sun. Naturally, when that happens the status quo loses, as the entire educational and employment paradigm is one which idolizes the former and ridicules the latter even though the former has now proven beyond a shadow of a doubt it is a miserable failure (ref: $20+ trillion excess debt overhang which will, without doubt, lead to a global debt repudiation or restructuring, with some components of "odious debt"). So for all those still confused what some of the core premises of the ascendent "latter" are, below we present two one-hour lectures by Israel Kirzner. We urge readers to set aside two hours, which otherwise would be devoted to watching rubbish on TV or waiting in line for In N Out burger, and watch the two lectures below. Because, contrary to what the voodoo shamans of failure will tell you, there is a way out. It is a very painful way, but it does exist. The alternative is an assured and complete systemic collapse once the can kicking finally fails.
This is the time of year when you are supposed to look back and make sense of what happened during the year and make predictions about the new year. A futile task if there ever was one. How can anyone make sense of a world where California prohibits the production or sale of beer to which caffeine has been added (They want drunks to fall asleep at the wheel?). ...
Balancing the budget in 2032 is going to be a rather easy, mechanical task for future American politicians. A constitutional amendment requiring balanced budgets will be enacted by then, and Congress will only need to tackle projected deficits by adjusting variable pension and Medicare rates – for those retired – which will have replaced the current models for Social Security and Medicare. And if worst comes to worst, there will be room for additional cuts from the budget of an already octomated military which by then will lack any hegemonic designs as other major world powers claim their legitimate stakes and defend their grounds. That’s my prognostication as we close 2011, a year of much turmoil around the world, and one with a hopeful spark for change in the United States of America, as Wall Street’s macabre face slowly becomes unveiled.
Continuing our tradition of listing what according to Zero Hedge readers were the key news events of the year for the third year in a row (2009 and 2010 can be found here and here), we present, as is now customary, the most popular posts of the year as determined by the number of page views, or said otherwise - by the readers themselves. So without further ado, here are this year's top 20.
Wearing a shirt that only a mother could love, Charles Biderman of TrimTabs offers his insightful perspective on the year ahead. Against the backdrop of a fog-bound Sausalito, Biderman sees only one path over the medium-term for Gold (up) as developed market central bankers print their respective fiat currencies and emerging market central bankers horde the one true sound money alternative. Just as we have been pointing out, he notes that the ECB has been QE-ing in all but name and the region faces at best a recession and at worst a depressionary breakup. Cost averaging into a Long Gold, Short EUR position is among his favorite ideas for 2012. Furthermore, he likes non-USD commodity producers in local currencies - implicitly long commodities and short the USD but it is his epiphany that a 'Miracle on Main Street' is hoped for by any and every market observer and media hack that rings truest. The hoped-for miracle that explosive growth (just as has always been the case post WWII) is just around the corner and will rescue us from the doldrums-like state we are meandering through is simply our heuristic biases run wild (together with an entire industry of asset managers and strategists who always see 10-15% appreciation ahead in broad equity markets over the next year). Until there is a total restructuring of developed market economies to the point where entrepreneurs are encouraged to act and where government spending is 'closer' to government income and not to 'wish fulfillment', there can be no jump-start to growth. Political will remains bereft of desire to do anything but kick the can down the road - and unfortunately, that can is getting bigger and heavier by the minute.
NO COFFEE OR CHAMPAGNE ZONE...
The Wall Street mantra of stocks for the long run is beginning to get a little stale. If Abbey Joseph Cohen had been right for the last twelve years, the S&P 500 would be 4,000. For this level of accuracy, she is paid millions. Her 2011 prediction of 1,500 only missed by16%. The S&P 500 began the year at 1,258 and hasn’t budged. The lowest prediction from the Wall Street shysters at the outset of the year was 1,333, with the majority between 1,400 and 1,500. The same Wall Street clowns are now being quoted in the mainstream media predicting a 10% to 15% increase in stock prices in 2012, despite the fact we are headed back into recession, China’s property bubble has burst, and Europe teeters on the brink of dissolution. They lie on behalf of their Too Big To Tell the Truth employers by declaring stocks undervalued, when honest analysts such as Jeremy Grantham, John Hussman and Robert Shiller truthfully report that stocks are overvalued and will provide pitiful returns over the next year and the next decade.
With the S&P 500 cash index closing 2011 down for the year (admittedly down 0.003181% is just 0.003181%, but it is also down),having traveled a remarkable 3240 total points from close-to-close over the course of the year, we look across asset classes and notable markets as we reflect on an increasingly intervention-driven and gap-heavy uber-correlated global investing framework. UK Gilts, 10Y Treasuries, Gold, and Oil outperformed (rebased to USD terms) while Greek bonds, Copper, Emerging Market stocks, and Asia Ex-Japan stocks underperformed. The Dollar closed almost 1% higher on the year, the EUR down 2.6% versus the USD as the CRB Commodity Index closed -6.67% for the year. Japanese stocks and bonds had a tough year. US investment grade bonds outperformed high yield bonds. There is much to discuss and we open the thread for any and all discussions...
As we pop the corks of our proverbial champagne this weekend with an eye to a better year ahead, perhaps it is worth thinking about these 11 incredible trends that have evolved in a rather disturbing manner over the last 11 years. As John Lohman points out, the 21st century has not been pretty for ongoing centrally planned attempts to defer the 30 year overdue mean reversion.
One independent investor from Geneva has foregone the US court system and filed his own criminal complaint against the bank and the collateral manager they hand picked...
By now everyone has heard the parable explaining how the entire European bailout, courtesy of near-infinite fractional reserve banking, can be taken care of using one €100 bill. Or so the yet again flawed economist thinking went. Unfortunately, this was just a parable, and a massively flawed one at that. As the below interaction between a ZH reader and his broker elucidates, here is what this idealized story would look like in the real world, that as we explained before, is drowning in about $21.2 trillion in excess debt.
Concise summary of this holiday-shortened, liquidity-restrained week's bullish and bearish headlines and events.
The genius of globalization is not in how it “works”, but in how it DOESN’T work. Globalization chains mismatched cultures together through circumstance and throws us into the deep end of the pool. If one sinks, we all sink, enslaving us with interdependency. The question one must ask, then, is if all sovereign economies are currently tied together in the same way? The answer is no, not anymore. Certain countries have moved to insulate themselves from the domino effect of debt implosion, one of the primary examples being China. Since at least 2005, China has been taking the exact steps required to counter the brunt of a global debt collapse; not enough to make it untouchable, but enough that its infrastructure will survive. One could even surmise that China’s actions indicate a foreknowledge of the events that would eventually escalate in 2008. How they knew is hard to say, but if the available evidence causes you to lean towards collapse as a Hegelian creation (and it should if you are paying any attention), then China’s activity begins to make perfect sense. If a globalist insider told you that in a few short years the two most powerful financial empires in the world were going to topple like bowling pins under the weight of their own liabilities, what would you do? Probably separate yourself as much as possible from the diseased dynamic and construct your own replacement system. This is what China has done…
Earlier in the week, we discussed at length the funding gaps that various European sovereign nations face as the gap between supply and coupon/redemptions can't be assumed to be rolled away (and Europe faces EUR43.5bn of net cash-flow surplus from sovereigns into the 'market'). In order to better comprehend the timeline, Morgan Stanley has published both the complete issuance calendar for European bonds and bills over the next five weeks as well as a breakdown of the flows that are dominated by next week and the first week of February. It seems the market this week is starting to reprice for this risk in Italy and France not being able to roll so easily (and perhaps front-run that 'cash-flow' into US Treasuries as a haven) as the latter faces a considerable supply and flow on Thursday January 5th.
The realization that the European debacle is much more an issue of political harmonization and Empire-building than one of pure economic band-aid provision should be clear to any- and every-one who has followed the words and deeds of the various European factions for the past year or two. Yesterday, we discussed the dithering and competing camps but what is really critical is to understand how we got here and what the underlying social and political wills are among all of the players. There is no better summation of the formation, driving forces, and tensions among European leaders and central bankers than Phillip Bagus' 'Tragedy Of The Euro'. From the simple divergence of the dual visions of Europe with northern libertarians and southern socialists to the Bundesbank's fearsome reputation for showing up weak governments, Bagus offers a clear perspective on why the EMU is a 'self-destroying' and 'conflict-aggregating' system but counters that with some views on what the outcome will be and how French governmental pressure remains the cornerstone of the establishment of a European Empire for better or more likely for worse. As we enter a new year with the first quarter dominated by action-forcing events, perhaps there has never been a more important time to understand the political and economic vices and virtues of the European nations.