Archive - 2011

We have already seen Chinese ghost cities, rickety buildings, and a construction spree that makes our own unionized labor force seem positive antiquated. Time to add empty malls to the list. The latest confirmed sighting of Chanos' "treadmill to hell" China real estate bubble thesis comes from Bloomberg's Paul Allen who reports from Dongguan, China on the New South China Mall, which has remained mostly vacant since it opened in 2005. Allen tours the South China Mall, originally conceived as the world's largest mall, and finds retail space that has been largely vacant since 2005.  Allen reports, "The reality at South China Mall is somewhat different: shuttered shops, unfinished, never occupied by a single tenant. The few retailers that are here have favorable leases, but little profit."  Allen also states that despite obvious problems, the mall’s owners plan to expand to more than one million square meters of retail and residential space will be available.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 12/01/11

David Rosenberg, who appears to have almost jumped the xtranormal bandwagon, and now realizes that the most effective way of communicating with the several 20 year old ADHD-addled speculators who still trade the market is in cartoon or chart form, continues on his one picture is worth a thousand words theme from yesterday. Today, he generously spares readers the trouble of reading 18,000 give or take words, and instead present 18 charts about the economy that paint a somewhat less rosy picture of what is going on out there, the bulk of which continues to be a government stimulus-funded, steroid liquidity driven sugar high, which has no choice but to keep getting ever more in stimulus and liquidity, or else everything collapses. And that in the meantime food riots are spreading from Africa to India (more on that shortly), should not worry anyone at all. After all the Chairman said he is 100% confident he can stem inflation before it results in such riots as we already reported on two occasions in 2011 alone (here and here).

What a Year It Was! If you followed my pieces in Zero Hedge during 2010 you made a fortune. Nailing it with every asset class allocation. Only one small hickey from a short yen position.

All those who continue ridiculing gold, saying it has no utility, tend to forget one thing: it just happens to be the ultimate status symbol (especially for the nouveau riche). And who these days wants to demonstrate status (and has a lot of nouveau richness)? Why, the 2+ billion consumers who are benefiting from the biggest growth story in the world, i.e., China and India. According to the World Gold Council, gold demand in India in the last year reached a record. Per Bloomberg: "Purchases were about 800 metric tons, compared with 557 tons in 2009,
Ajay Mitra, managing director for India and the Middle East at the
producer-funded group, said today in a phone interview from Dubai." But how is that possible? After all gold prices surged in 2010 compared to 2009: is gold demand supposed to be inelastic? Surely you jest? Well, no: "Our assessment is demand will continue to be strong,” [Mitra] said. “Price is no longer a factor.”" Re-reading the bolded sentence a few times just may explain why PM distribution centers with actual physical inventories have suddenly become rarer than hen's teeth.

You gotta trust the WSJ, right?

Just headlines for now. And so we have gotten to the point where even the 'smart money' is publicly denouncing the global Bernanke put, and the world's central bank "white knights" in the form of China (whose real debt number is wrapped in boxes, mysteries and enigmas), and Japan (which has more debt as a % of GDP than any other developed country). Luckily both can afford to buy a little debt of some other Ponzi nation, and thus preserve their own trade surplus status quo for a few more months. In the meantime the world's biggest bond fund is implicitly saying that frontrunning the last recourse EUR backstops is too risky for him.

The fact that the unveiling of Facebook was done with so much noise and fanfare by GS, a firm that never does anything rash you understand, suggests that there was a need to divert attention from the issue of valuation.

The NIA, traditionally known for cutting to the chase and not really mincing its words today focuses on the latest trillion + dollar bubble: that of US higher education, which is getting increasingly more funded directly by the US Government. "The National Inflation Association believes that the United States has a college education bubble that is set to burst beginning in mid-2011. This bursting bubble will have effects that are even more far-reaching than the bursting of the Real Estate bubble in 2006. College education could possibly be the largest scam in U.S. history." And the kicker: unlike housing debt, college debt has that extra oomph to it that it typically is not discharged in bankruptcy: as such it is the ultimate subjugation mechanism. This one sure is set to get interesting...

Just in case there was any confusion that congress (and its Wall Street superiors) almost work for the majority, but not quite, here is some additional evidence: "The U.S. public
overwhelmingly opposes raising the country's debt limit even though
failure to do so could hurt America's international standing and push up
borrowing costs, according to a Reuters/Ipsos poll released on
Wednesday. Some 71 percent of those surveyed oppose
increasing the borrowing authority, the focus of a brewing political
battle over federal spending. Only 18 percent support an increase." Yet somehow the market has already factored in that no matter what happens, Congress has no choice but to continue heaping on the debt, and following this week's auctions, the total should approach $14.1 trillion in debt, cutting the buffer by another $100 billion. Which is why expect to hear many more threats of untold destruction should Congress actually side with the supermajority for once.

That's odd: usually these invocations are reserved for when futures are down 50 points or so. It appears the NYSE, unlike virtually all other venues, actually does need a human presence to operate.

From JPM: "We downgrade GS from OW to N today. Our downgrade is driven by considering it has reached our Target Price of $175, offering the lowest upside within our Global IB universe. Even the theme of capital re-leveraging is discounted now in our view with the share price upside potential limited at a re-leveraged PE of 9.0x assuming $15.2bn buyback (17% of market cap) in 2012E, as discussed in Table 7 below. The Basel 3 Tier I ratio would be reduced to 9.9% from 12.1% in 2012; in-line with our JPM required capital methodology."

One of the best quarterly observations on asset classes, the Global Tactical Asset Allocation focusing on equities, has been released. This report is a must read for those few who still trade stocks. From the report: "We struggle to find any elements in our analysis pointing toward a continuing unabated 2-6 weeks advance. We are in one of this rare configuration where betting against such an occurrence is an almost (we repeat... almost) certainty. We expect a correction below 1180 on the S&P 500 in the next 20 trading days and would position accordingly. Our cyclical models are still positive so we have to assume that we will see new highs later this year. Note that the failure on the number of new highs to confirms the current highs, the high yield bond markets divergence and some other elements make this assumption less strong that it was last summer. One should be mentally ready to sell the long position which will be acquired when certain "oversold" thresholds are reached with a loss if a rebound fails to materialize and the cyclical models move to a sell signal. We would underweight emerging markets (and are strongly advising to exit the long position in our preferred market since the end of 2008, Indonesia), Europe and small caps. We would overweight Japan (but hedge the currency risk) and the US."

• Home price drops exceed Great Depression (Reuters)
• The Fed Oracle Speaks: Fed Officials Signal Intent to Back Bond Buys (Jon Hilsenrath)
• Sanders Says Bernanke Ducks Request for Details on Fed Loans (Bloomberg)
• Clarium Slumps 90% From Peak After Thiel Hedge Fund Has Third Losing Year (Bloomberg)
• EU Weighs Boosting Bailout Fund (WSJ)
• Lisbon Succeeds with Debt Auction (FT)
• Credit Suisse Plans Market for Long-Term Investors (BusinessWeek)
• UK Insurers Attacks Europe’s Bank ‘Bail-In’ Plans (FT)
• World's ATMs Pump Billions Into Wrong Places (Bloomberg)
• Rethinking the Public-Pension Punching Bag (BusinessWeek)

The general market tone is more positive this AM as winter weather impacts the Northeast. Yesterday's NFIB Small Business Optimism and other economic data did not paint a commensurately rosy picture alongside the recent ISM prints. Today's big releases will be the Fed's Beige Book, which should provide a more granular level of data points on expansion, and the US Monthly Budget Statement.