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Mike Krieger On The "High End" Bubble
The "High End" Bubble
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
- The Opening Paragraph from Charles Dickens’, A Tale of Two Cities
Bubbles, Bubbles Everywhere…
Without the ability to identify bubbles I’d pretty much be useless in this business. I live, breathe and eat macro news and trends. It is what I am inherently good at and I leverage that talent to the best of my ability. On the other hand put me in front of a financial model and I want to blow my brains out within 20 minutes. I am not exaggerating. I worked in equity research for five years. I learned a lot actually and I am very lucky to have had the experience but it was like taking a fish out of the water, tossing it in the air and telling it to fly. It just wasn’t natural. I have always said that people screw up when they don’t figure out what they are naturally good at and then stick to that, but rather attempt to be a jack of all trades. I make a living off of people that don’t get that. I love it when people engage in my world when they have no business doing so, but the best types, the types that make people like me salivate are those that are ignorant of the macro world but also suffer from the deadly (to them) combination of large bank accounts and equally large egos.
So I haven’t written about many “bubbles” since 2008. Back then I was at Bernstein and I was hardly capable of writing a word without saying commodities were a bubble ready to crater. I also hammered home the point of the “fert.coms,” which included POT and MOS. The main reason I haven’t written about similar bubbles is because I have been 100% focused on what is likely the biggest bubble in the history of mankind. The fiat U.S. dollar and all income streams related to it. Of course, the inverse to this monumental bubble are gold and silver and the commodities necessary to everyday life (food and energy) and as such I have been wildly bullish on those particular items. This is the most amazingly easy trade I have ever stumbled upon because it takes some serious macro thinking and a grasp of financial history to understand the precious metals markets. These are two things Wall Street is not very good at. Even better, Wall Street is full of ego maniacs with lots of money. So all a lot of these clowns do is look at the price charts of gold and silver and the childish thought “bubble” pops into their clouded heads. Of course it’s very tempting to just look at the charts and think this if you don’t understand what is really driving their ascent. The popping of the largest bubble in human history. The fiat, counterfeit, and immoral U.S. dollar standard.
The "High End" Bubble
Anyway, gold, silver and the dollar are not the focal point of this email (amazingly). The focal point of this email is what I believe to be the only other major bubble currently in place besides the dollar and that is this absurd view that the “high end” is some sort of great secular investment theme that will carry on forever due to rising incomes in the emerging markets and the bifurcation between haves and have-nots in the West. Like any other bubble, it begins with a real macro trend; a real and powerful story. Then at some point the thing gets stretched beyond its ability to continue and then finally you get to a point where investors confidently extrapolate the trend forever into the future just at the time the trend itself becomes unsustainable. With regard to “high end” I believe we are there now and I think this entire theme will implode on itself in the not too distant future and there are two main reasons why I think this.
First, we all know about the bifurcation in the haves and have-nots in the West. The funny thing is that when you hear Wall Street talking heads speak to this they act as if they just discovered electricity. Sorry guys, this has been going on for decades. The only thing that has happened is that the super, super rich (0.1% of the country) and their puppets in D.C. neglected to use their positions of power during the 2008 crisis to help their country and their fellow citizen get back on their feet and reform the system, but rather they decided to totally raid, abuse and pillage their fellow Americans in an act of unprecedented greed and recklessness. What the “analysts” fail to see is that these “elites” have played their hand way too far. The social crisis facing the country as a result of the most egregious plundering in modern American history will spell the end of the “high end” theme. Buying into this trend now is like getting long Marie Antoinette’s unsevered head in 1792.
Moreover, in the BRICS (China in particular) this bifurcation has also exploded in recent years and with inflation spiraling higher we have a cauldron for social unrest and revolution. The haves have already taken everything from the have-nots. When that happens you don’t buy high end retail stocks, you get long guillotines (to be clear I do not condone violence WHATSOEVER, I am merely calling the situation as I see it). Just read this article from Bloomberg this morning to get an idea of how close we are to a total social implosion. http://www.bloomberg.com/news/2011-07-21/consumers-in-u-s-relying-on-credit-as-inflation-erodes-incomes.html. Key quote from the article: “Consumers, particularly in the lower-income end, are being forced to use their credit cards for everyday spending like gas and food, said Tavares, who’s based in Atlanta. That’s because there’s been no other positive catalyst, like an increase in wages, to offset higher prices. It’s a cash-flow problem.” and… “The swings in purchases of fuel and food have been “dramatic,” Tavares said. The volume of gasoline purchases placed on credit cards jumped 39 percent last month from a year earlier, compared with a 21 percent increase in June 2010, he said. Food shopping increased 5 percent after falling 7 percent last year.” Serfs up!
The second reason I think this trend is set to be put to bed is that a lot of these companies are not really “high end” at all. I mean look at some of the winners benefitting from this theme. Take JWN (+23% ytd), RL (+27% ytd), COH (+20% ytd), TIF (+35% YTD), BRBY LN (+42% ytd), RMS FP (+50%) and AXP (+22% ytd). I cannot think of a worse basket of stocks to buy right now. The thing about these names is yes of course the super rich do shop there but that is not where the marginal dollar is coming from. The marginal dollar is coming from the emerging market consumer that THINKS they are rich and making false extrapolations about their real wealth and future earnings potential just as so many Americans did earlier this decade when they felt wealthy due to the housing bubble. Essentially the same trade in happening in China and elsewhere in the developing nations as we speak. Furthermore, believe you me when the SHTF the super rich aren’t going to run into Coach and Ralph Lauren and support sales. They will buy gold and real estate in a foreign country in anticipation of the guillotine (metaphorically speaking hopefully). Have a great weekend!
Peace and wisdom,
Mike
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Q: who is going to pay your credit card bill?
A: Obama's gonna pay my credit card bill.
With my money.
Yes, with your money. Although when that time comes, it will probably be called "The People's Money".
Smoke 'em if you got 'em!
Analyst's disclosure:
Long shotguns, canned food, and cigarettes.
Get yourself some cases of pints of liquor too. As many as you can. Very valuable.
I'm learning to grow barley as well so i can make my own after I've sold everything but my personal stash. (for gold!)
I condone violence. Just want to make that clear.
+1
+2
OFF WITH THEIR HEADS!!!
http://en.wikipedia.org/wiki/Scaphism
Me too. One of the reasons I can't be Libertarian.
Uh, while those stocks might get hurt the very top will do just fine. They have shepherded their wealth though many storms in the past, this is not their first rodeo. Besides when you own the politicians, military, and police I think one can rest easy at night. Some might get caught up in the unrest, but I highly doubt it. Look around you, is the west really possessed of a fighting spirit, or craven love of authority? Also remember the differences between then and now, large professional armies that posses equipment far above the masses. The professional armies are employed by politicians who are owned by the top boys. Now I don't know about everyone here but psychology says that these people will follow orders, ala "I was just following orders". This is just another turn of the wheel of history, nothing new here except the technology in play.
I have to agree with Shameful here. The American education system has done its job and the citizens are unthinking and compliant by-and-large. Most are also well fed (quite a few are obese). No one is going to be shutting off the food stamps anytime soon. As long as people have food they will not revolt against the politicians or statist corps/banks.
Its worse than that. When the food is cut off (either by transportation, cost, or no food stamps) the cities will burn. Be less a revolution and more a degenerate riot screaming out to the authority for more bread. The masses ready to make any promise to Uncle Sugar for security and bread. So if the oligarchy is smart (and I happen to think they are) they will be able to use such a crisis to further centralize control and authority over the masses. Naturally they will have to scapegoat someone, perhaps foreign enemies, perhaps a hated domestic group, "Those evil speculators and gold bugs caused this! Lets seize their property to pay for their crimes!".
In this story it gets far darker before the dawn.
<this>
Just remember though that it's always been dark and the sky has always been falling. Life can still be enjoyable nonetheless.
I disagree with Shameful. By his logic there never would have been a revolution in all of human history. The French aristocracy were every bit as in control of their situation and their country's wealth/military/government as is the case in the U.S. right now but somehow the French revolution happened anyway.
First of all you have a fantastic userid and avatar...really nice work there.
However, if you are looking for a revolution, I ask you which side has the pain rays, hummingbird spy cameras, thermite, and all the other shit we don't know about?
Or if you are thinking the US is what you learned about in grade school, let's go back to a link I saw many moons ago on this site. What is up with that flag?
http://en.wikipedia.org/wiki/East_India_Company
The George Carlin "Owners of America" bit has been oft-referenced on this site and rightfully so. It's never going to get any better, just enjoy what you got...
Sitting outside as I typed this, a hummingbird just rolled up on me. I got freaked out.
Too much paranoia is not good for the soul!
Vic, name me one succesful revolution, peaceful or otherwise, where the revolutionaries as a whole possessed equal or better arms than those they overthrew.
Besides, 'the other side' aren't getting very far without these guys, who is going to operate all those toys you mentioned, or guard them while they sleep?
So many Chicken Little's! Yes we know the sky is falling, so I suggest the ZH crowd is more prepared than most.
Personally I do one thing every day to prepare. It can be as simple as buying a case of water or $10 dollars of canned goods. Or make a phone call to inquire about a camper.
Act like you are going on the biggest camp out of your life with an all inclusive safari through a land of starving Welfare dependants.
Take care,
I am The Chief!
Chief,
This is a beautiful description! I presume we will have opportunities to take trophies while we are on safari?
Dog
Chief,
This is a beautiful description! I presume we will have opportunities to take trophies while we are on safari?
Dog
I meant to do this!
Just got one comment. FOSL, LULU and TIF calls been very very good for me (remember Garrett Morris on Saturday night live?). I know have more fake fiat digital units in my Money Market account than before but strangely have no desire for a high end handbag or watch. I've already banked the profits so am playing with house money right now. Greed and excess are as predictible and fear. For that latter trade I'm long Ag and GLD-also very very good. But I agree with the author, this trend will end badly when the equity markets collapse-taking away the "rich" feeling-it will start with China so make sure you're short coal, steel, copper for the winter collapse. Until then, the trend is your friend as anyone foolish enough the short NFLX or CMG can aver.
I disagree with Mike. Unfortunately. Part of my theory on Biflation describes precisely what is going on: as Mike put it, a bifurcation between the haves and have nots. That also goes along with another issue we'll be facing in the West: less social mobility and fewer opportunities for it. The entire structure of Fed/ECB post-crash macro economics has encouraged and accelerated this process. On the one hand, you'll have what I call "The Downsizing of America" (coming soon to Eurozone) with ever diminishing employment, real wages and personal net worth. But for those with significant capital, the process is the reverse: a golden age of nearly risk-free capital accumulation backed by the full faith and credit of central banks.
So the high end will go higher. Much higher. I'm looking for the return of the Mega-Palace and Chateau: I'm talking Versailles, Chambord, Buckingham Palace, Balmoral, Hofburg, Wasserburg Anholt, Reggia di Caserta I'm looking for America's most profitable companies to be taken private. And for record prices in the high-end markets. And huge splashy high-security weddings and polo matches.
On the bright side there will be job creation for footmen, valets, chauffeurs, butlers, grooms and pages.
These chalets will be torched down if necessary.
Simply by setting afire the surrounding property.
In the summers.
If you can get past the cossacks
Tyler,
A while back, you linked me to a great Scribd.com document on Minsky, when i asked you when you would consider selling your silver. If you read this, please re-link me. I cannot find the same article. Meanwhile, I'll keep googling. Thanks
This is such bullshit I am sick. We have no balls in this country. TPTB have no fear whatsoever . . . if they did, we'd see a domestic military presence. Our founding fathers risked and many lost everything for their principles--for the right to take what they wanted rather than what they were handed. It's only the rich and powerful today that take the difference making "shots," and then it truly is on principle. When the colletctive rich in this country are faced with a common enemy, we will see uprising, but this ain't France people. We are all too afraid of consequences to do more than talk about it. Nobody would drop the guillotine blade. 40 million + people on foodstamps and not one of them has been angry enough or felt hopeless enough to do something stupid? Has no one lost all hope yet and found freedom? Not until we are forced to polish that golden yacht by the crack of a whip (and probably not even then) will there be any uprising in this country. But yeah, TIF earnings might be off for a few quarters.
I agree, but you and I will be waiting a very long time before the foodstamp crowds and the bathrobe brigades and the post-college unemployed wake up. They're scared and they're told it's their fault, so they believe it. And they still expect things to go back to the way they were any week now
Today's NYC newspapers were buzzing about a $10,000 a night Wall Street hooker. That's a lot of foodstamps
Yeah, it's a hell of a lot of foodstamps, but nobody on food stamps can afford a $5 New York Times either . . . so do they even know?!!! A guy in the mailroom at my former place of emply once told me that he heard Dick Cheney had made "thousands of dollars" off the war in Iraq through his stock holdings. The disconnect in this country is laughable. I have a friend who is yacht broker, and he told me that the yacht and boat business is busier than ever this year--that he has sold more big yachts in 2011 than ever before in his career. The rich don't seem too worried . . . .
I have a friend who is yacht broker, and he told me that the yacht and boat business is busier than ever
...what I'm saying. Mega yacht builders in Germany have never been so busy and never had such lavish orders. Gone are the days of the 100, 150, 175 foot yacht Now 200 is considered a minimum standard. All orders demand totally original interior decor and architectural design. One order demanded real manta ray skins for the walls of the master bedroom. When they were not to his liking, they were torn down and thrown away, replaced with alligator skins.
Mega yachts are ferried by special carrier boats to different global hot spots, depending on the season, so that the owners don't have to go for a long ride in them. The giant carrier boat delivers the yacht to Monte Carlo or Cannes for the Mediterranean cruising season , then will pick up and deliver the boat to St Bart's afor the holiday Caribbean cruising season, and down to South America in January, and then to South Florida by March.
Right, doesn't sound like an economy on the verge of collapse. Romanov's yacht even has a missile defense system and an escape submarine. Good luck making him pay.
Not for that stratum. But a slow collapse for everyone else, as we're seeing now with a grinding downward vector for employment, housing, real incomes, retirement and health benefits and personal net worth (while the cost of living and working rises). Those 2 opposite trends are here to stay and are going to accelerate
Slow is the key word. If it happened quickly, there is a chance that people would rebel. But slow and steady decimation will win the prize, because most people won't even notice the slow deterioration in their lives.
Once the middle class is decimated, all that will be left are the uber wealthy and the wage slaves that will be falling over themselves to produce custom goods for the rich. That's pretty much where we're heading now. I don't see how hyperinflation can really even dent the the top tier of wealthy people, which means they will be the only source of salvation for the system. Unfortunately, their greed makes salvation unlikely, so salvation will be in the form of a new system. I just hope I'm alive to see the transformation and take part in it. Life is difficult, my friend.
In a global currency collapse, EVERYONE suffers. There is no escape no matter what class you are in.
The hundred million dollar yacht is far a more portable estate than the traditional landed gentry/parasite model with which to escape and evade both the raging rabble mobs and and the coveting statists' army of taxmen.
The U"SS" Police Force has been described, named, and is being built:
United States Marshall
The US Gestapo Corps is in place and being expanded
TSA
And the US KGB Agency continues to expand in scope, restrictions, and cost.
Department of Homeland Security
All that is required is a catalyst to make it necessary to preserve "the peace and safety" for the "common good".
You forgot that guy that flew his prop-plane into a government building.
nvm. should hit reload next time
As for the raid, Mike sounds surprised. He shouldn't be. History repeats itself, and the Grovers will be the first to tell you, they are pirates.
The high end may be in a bubble, but it has only begun. So like all bubbles, buy it, and get out right before it pops. The bubble will last as long as the fiat ponzi, which will be to DXY 66 and then some, but you may want to take some profits at 66.
Collapse, is inevitable. Martin Armstrong not so amusingly compares present day elites to the Nazis's predicament in 1945-46: "they're must be ready to flee in their submarines loaded with cash", he writes.
I say the loot is like Nazi gold, that's the loot they stolen from the American Jews. Americans are like the Jewish sheep in 1940s. Many Americans also cherish their roles as capos--there is no shortage of rednecks wanting to to work for the for-profit-concentration camps they call prisons. "No new taxes, taxes kill jobs," maybe Americans are not like European Jews of 1940s after all, Jews didn't have amoeba brains, did they! Unlike Americans their behaviour was a result of centuries of conditioning.
Hold on here, isn't there a card that gives 5% back on gas?
That pays for the stamp to pay the bill, right?
Bifurcation?......What; you can't spell 'Split'
Bifawkation
The key issue here is "cash flow."
Anyone here that has run a business knows you rob Peter to pay Paul all day long as long the world keeps turning. But, the further you get into this game, the greater the stakes. When something breaks - and the system pauses, even for a moment, it is game over. When cash flow locks up, it is like hitting a brick wall.
Once again the BS with gold???!!!! When the shit goes south, wealth accumulation or concentration/possession will be the last thing on everyones mind. We are talking about a global systemic collapse wherein JiT, transport, food, water, electricity, you name it, is gone, or barely trickling. Shelves in stores will be empty, etc. and a 99.9% guarantee that martial law will have been implemented due to social unrest. Where are these supposed "elite" going to flee to?????? Some third world shit hole that during this time swan dives into the 9th level of hell??????? Do these writers actually sit down and contemplate what a true shit hit the fan scenario consists of?????
If I was a self-serving elite bastard right now, and I had trillions at my disposal, I would have an army of low class slaves contructing a state of the art, self sustaining, uber-secure compound on a tropical island.
I have no doubt that this is occuring, and the helicopters are gassed and ready to go. I'm sure someone named "Kuan" even has a 24-hour shift to keep the engines hot for take-off.
You've been here just short of a year and still don't get what gold is all about?
Don't for a second think that those who hold gold don't also have other base metals on hand, as well as supplies to help in a JIT inventory collapse.
The gold is just a place-holder.
I don't know about you guys, but the higher this sh*t-boat rises the harder I laugh and more cynical I become. They must be planning one hell of a QE3.
I am but a lowly "have not." What can I do with my pitiful life? Nice day for something . . . (so sez The Checkered Demon).
Double post.
When the SHTF, I hope the rioters realize that the could've only been plundered by the rich because the government enabled it, and I hope they target the government accordingly.
Yer dreamin bubba. They live and die by the TV and the unholy shitstream information they get from that will determine who they target. You don't wake up TV casualties.
Get the fuck out of the way for TV zombies (property of the UNITED STATES OF AMERICA (TM) - All Rights Reserved).