Paul Farrell's New Normal: Bankrupt Nation. Deflation. Zeros. Junk. No jobs. Depression

Tyler Durden's picture

Paul Farrell is in fine form today, doing a fusion of Gary Schilling's less than rosy newsletter, voiced over by Julie Roberts of "Eat Pray Love" (which gets appropriately mangled, courtesy of the LA Times to "Buy, Sell, Hope." Farrell asks logically: "Hope? What's that? Good news about markets? You buy,
you sell, you hope? Is "hope" America's last market strategy?" - read the full post for some good comedy on the issue).

Regardless, here is Paul Farrell's logic behind the "mashability" of the 17 recommendations (6 buys, 11 sells), and the final outcome, for the second half of 2010.

Let's blend the two. See if we can brighten some of Shilling's gloomier forecasts and recommendations for 2010-2011 with some of Gilbert's upbeat advice ... imagining "Pretty Woman" Julia, the Eat-Pray-Love lead, doing a voice-over for Gilbert. So here we go: First, Shilling's 6 "buys," then the 11 "sells," 17 strategies for 2010. He admits some mixed results, but he's "sticking with them for the second half" and on into the coming dark days of 2011. I'm sticking with Julia:

1. Buy Treasury Bonds: Stay with this big winner. Stockholders hate them, but this is a safe haven in the coming deflation storm on into 2011. Long maturities. Zero-coupons. Lower commissions. That's "Insight." Now imagine Eat-Pray-Love's Julia's voiceover: "There's no trouble in this world so serious that it can't be cured with a hot bath, a glass of whiskey and the Book of Common Prayer." Okay, guys would prefer an NFL game with his buddies and a Bud. Winners all around.

2. Buy Income-Producing Securities: Still viable. Stock market's gone nowhere for 12 years, says Shilling. Pick selective income-producers: utilities, drugs, telecoms, hi-grade munis, preferreds, etc. Buy direct or ETFs. Then Julia reminds us: "God never slams a door in your face without opening a box of Girl Scout cookies."

3. Buy Consumer Staples and Foods: Less volatility than S&P 500. Hey, you gotta eat, brush teeth, wash your clothes. Good bet in good and bad times. Julia agrees: "In a world of disorder and disaster and fraud, sometimes ... the meal is the only currency that is real."

4. Buy Small Luxuries: Stay aboard. Yes, discounts, house brands, frugality's in. But still, we all want the best of the little things, "cheap chic," say Gary and Fred. Not Julia's Girl-Scout cookies, treat yourself with favorite chocolates, wine, cigars.

5. Buy The Dollar: Should continue to rise. Bet on futures, puts, ETFs on the dollar index. Julia is patriotic and spiritual: "Faith is belief in what you cannot see or prove or touch. Faith is walking face-first and full-speed into the dark."

6. Buy Eurodollar Futures: Unbelievable winner, and more to go. And if you're traveling, Julia tempts with this mouth-waterer: "Please go to this pizzeria. Order the margherita pizza with double mozzarella. If you do not eat this pizza when you are in Naples, please lie to me and tell me that you did." Yes, it's all in your head.

Okay folks, that's it, only six Insight "buys." Here's what our Eat-Pray-Love guru might add when you buy-sell-hope: "You have every right to cherry-pick when it comes to moving your spirit and finding peace in God. You take whatever works from wherever you can find it, and you keep moving toward the light." Yes, even with these 11 "sells."

7. Sell U.S. Stocks in General: Declines likely to continue. In May, Insight warned the recovery was "Four Cylinders, One Firing." Only inventory was firing. Missing? Jobs. Consumers. Housing. Slow growth. All in "secular bear that started in 2000 and has years to run." Yes, years. Can you still be happy? Yes, says Julia's guru: "People universally tend to think that happiness is a stroke of luck, something that will maybe descend upon you like fine weather if you're fortunate enough. But that's not how happiness works. Happiness is the consequence of personal effort. You fight for it, strive for it, insist upon it." Harder in a recession, but you just do it.

8. Sell Homebuilder & Selected Related Stocks: More weakness ahead. And it will get worse. Millions mortgage-holders under water, can't sell, can't refi. Families in stress. Solution: Eat-Pray-Love and listen: "Real, sane, mature love--the kind that pays the mortgage year after year and picks up the kids after school--is not based on infatuation but on affection and respect."

9. Sell Selected Big-Ticket Consumer Discretionary Equities: Still vulnerable: Autos, appliances, hospitality. Rebates gone. Postponing purchases. Save, get frugal, flow with reality. Julia: "Every day a person is presented with not two or even three but dozens of choices ... our modern world has become a neurosis-generating machine of the highest order." Stop, make time to eat, to pray, to love.

10. Sell Banks and Other Financial Institutions: Remain vulnerable. Including Fannie, Freddie, regionals, small banks. More regulations. By 2014 bank portfolios have $800 billion mortgages coming due, two-thirds underwater. Huge impact on capital. Sell. What would Julia say: Eat in moderation, love, pray a lot.

11. Sell Consumer Lenders' Stocks: More declines in credit cards, etc. Americans save more, cut their borrow'n'spend binge. Reduce stress says Julia: "The only thing the mind hears all day is clanging bells and noise and argument, and all it wants is quietude. The only place the mind will ever find peace is inside the silence of the heart. That's where you need to go." You too.

12. Sell Low & Old Tech Capital Equipment Producers: Falling trend. Mega excess capacity. Capital spending dropping says Insight. Julia worries that you're holding onto the past: "You must find another reason to work, other than the desire for success or recognition." Your passion "must come from another place."

13. If You Plan to Sell Your House, Second Home or Investment Houses Any Time Soon, Do So Yesterday: Too much inventory, and fear. Warning: Down another 20%. Julia says you will survive because "somewhere within us all, there does exist a supreme self who is eternally at peace." That's your true home.

14. Sell Junk Bonds: Rally's overdone, warns Gary. Slow growth recovery, deflation fears, "lethal for many junk bonds." The "New Normal" cuts returns in half. We chase junk. Bigger risks. Julia: "That's your problem. You're wishing too much, baby. You gotta stop wearing your wishbone where your backbone oughta be." Accept the New Normal. Stop chasing deals like a teenager in heat.

15. Sell Commercial Real Estate: Got ahead of itself. Hotel occupancies down. Office vacancies up. Refinancing trouble looms. Maybe short REITs and ETFs. Julia knows our "world is so corrupted, misspoken, unstable, exaggerated and unfair, one should trust only what one can experience with one's own senses." Are you trusting Wall Street? Or your own life experiences?

16. Sell Most Commodities: Soft economy, soft commodities. Insight warns of "unattractive investments in coming years of weak demand, excessive capacity and soft prices." China's a big importer, aggressively tying up global supplies. Risky bets. So imagine you're lost and listen to your Eat-Pray-Love guru: "When you're lost in those woods, it sometimes takes you a while to realize that you are lost. For the longest time, you can convince yourself that you've just wandered a few feet off the path ... Then night falls again ... you still have no idea where you are ... you have bewildered yourself so far off the path that you don't even know from which direction the sun rises anymore." Are commodities taking you off your path?

17. Sell Developing Country Stocks, Bonds: They depend on exports, are vulnerable to global weakness. China overheating. Risks in India, Brazil, Vietnam, etc. Wall Street pushes overseas investing, they love the commissions. Warning, go slow cautions Julia: "Time, when pursued like a bandit, will behave like one; always remaining one country or one room ahead of you, changing its name and hair color to elude you, slipping out the back door of the motel just as you're banging through the lobby with your newest search warrant, leaving only a burning cigarette in the ashtray to taunt you." The only real winner investing overseas is your Wall Street broker collecting all commissions you pay.

And lest Paul be accused of being far too fatalistic, here is his conclusion:

What a combo: Warnings from Gary Shilling's "Buy-Sell-Hope" Insights
newsletter. Plus Girl Scout Cookie advice from our Eat-Pray-Love guru,
with "Pretty Woman" Julia Roberts' voice-over. Let's top it off with one
more of her jewels: "The Bhagavad Gita, that ancient Indian Yogic text,
says that it is better to live your own destiny imperfectly than to
live an imitation of somebody else's life with perfection. So now I have
started living my own life. Imperfect and clumsy as it may look, it is
resembling me now, thoroughly." Get it? The market, the economy, the
whole world may crash ... but will you crash with it? Or will you still
be the "best you?" Will you fulfill your destiny?

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Nihilarian's picture

ok, so Long Sustenance and Short Opulence (I has it). 

bpj's picture

and keep savings the monies

Grifter's picture

I have yet to not laugh every time he says "I johmp een eet."

bulbar's picture

blah, blah, blah...same ol same ol..i'll keep buying stocks while you whine...

SheepDog-One's picture

WOW! Youre a-buyin stawks? Which ones?

Cognitive Dissonance's picture

That just means more stocks left over for our friend bulbar. Get them while they're hot and in short supply.

RockyRacoon's picture

Yet another talking head on CNBC referring to the "jobless recovery".

I sure get tired of that -- and I have a job!  If the jobless actually have a TV left I'll bet they are pissed.

Cognitive Dissonance's picture

That's what the unemployment checks are for. Fuck the rent or mortgage. But they must be able to pay the cable bill in order to get their daily indoctrination and conditioning.

And I'm being completely serious. Seriously. :>)

homersimpson's picture

You do that .. CNBC needs viewers.

DosZap's picture

homer,

They have viewers, all the Left Wingers watch...........all 3 million.

1% of Americans.

kathy.chamberlin@gmail.com's picture

add MSNBC + cause i was one of them, up until 6 months ago. honest, dylan, chris, ed, rachael, keith. blinded, buying into NBC's propaganda, until i met U.

my sister made me stop calling obama, hopey over christmas in front of her (disclaimer, never has time to read, anything).

Ripped Chunk's picture

bulbar, then do so. Why waste your time here? You have buying to do.

Probably because you are really not buying.  Because you have nothing to buy with so that makes you a troll.

See ya!

spartan117's picture

I'll believe in deflation when gasoline is $0.50 per gallon.  Disinflation in levered assets is not the same as deflation. 

reave the sheeple's picture

Don't confuse supply and demand antics with a decrease in the money and credit supply.

GoinFawr's picture

@ spartan++

@ reave: clearly that is not a mistake spartan has made.

Regards

LMAO's picture

@ spartan

 

Yeah, I will follow suit when gasoline pierces the $ 2 mark on the way down...... per litre that is.

 

LMAO

 

 

DosZap's picture

spartan,

We will not have Deflation, I agree ( except in Durables).

All else is INFLATION, before Hyper Drive.

Wal Murt, has raised their overall prices 6% in 6 weeks, and some items as much as 60%............and it's ALL the things we must have to live,that are blowing out the roof.

Snidley Whipsnae's picture

Stuff at Wal Mart that went up...soap, various detergents, Windex... all this stuff can be replaced by using the detergent the Romans used... urine.

Next time you load up the washing machine just piss on all those clothes and turn it on. Whiter whites and no color fade. Fantastic. :)

Remember, you heard it on ZH first!

kathy.chamberlin@gmail.com's picture

agree on the urine potential, it is a mordant (co_ol word). but really borax is the product to replace all things W A L   M A R T . been walking around all day yesterday looking for this simple product, in this here Wholisteric than thou town. nope. got to go to Wall Mart, well Target really. that is the only drug store in rocks.

Spitzer's picture

hahaha, deflation, what a brain dead fool.

When the US economy contracts enough, who the hell is going to service the US debt ?

Nobody is going to service the debt, we don't even need money printing to have hyperinflation. All we need is the bond bubble(that backs the dollar) to explode.

I know Peter Schiff has been "wrong" about the dollar for the last couple years but he was "wrong" about Fanny/Freddie for a couple years too. So keep laughing at Schiff and inflation, you will probably star in the next "Peter Schiff was right" video.

SheepDog-One's picture

Everyone clowning Schiff again as 'wrong'? Since the last time everyone was calling him nuts and the markets did implode, he's been 'wrong' since only because he didnt factor in financial terrorists actually printing and monetizing the stock and bond markets with $25 (or so) trillion dollars. These morons will be starring in the next 'Peter Schiff was right' video as they go on to claim they were short.

Spitzer's picture

No, the next stars of "Peter Schiff was right" will be deflationists(dollar bulls) like Prechter,Denninger, Keen and Mish.

Bananamerican's picture

now, now children, there's plenty of clusterfuck to go around...1st Deflation THEN hyper to finish the survivors off....

ElvisDog's picture

You have a weird view of what hyperinflation is that I can't even begin to wrap my thoughts around. Please explain how we would get hyperinflation without money/credit expansion based solely on bonds exploding (interest rates rising)????

Deflation's picture

Hyperinflation can happen without massive money printing. Half of our debt is held by foreigners, if they start dumping the debt that backs our currency, prices will rise overnight.

 

As soon as they see there is no recovery, and that the interest rates can't be serviced they will all start dumping it. It could happen by the end of the year.

ElvisDog's picture

But you've got it entirely backwards. Rising prices without rising wages would be *deflationary* because economic activity and money velocity would slow down. People would have less money to service their existing debt, which would mean more bankruptcies, more debt destruction. Also, unemployment would rise, which is also deflationary.

tmosley's picture

In that case, Zimbabwe was in a deflation this whole time and we never knew about it!

PROTIP: hyperinflation never, ever, EVER comes about as a function of rising wages.  NEVER.  As in, not one time in all of human history.  Wages ALWAYS trail the rate of inflation during hyperinflation.

ElvisDog's picture

Man, such ignorance. Zimbabwe had hyperinflation because wages went up. People were making $1B Zimbabwe dollars per hour. If wages didn't go up in Zimbabwe, how did people acquire the $100B Zimbabwe dollar notes??? If you say the government gave them away, then you are splitting hairs because government handouts can be thought of as wages (being paid for doing nothing). There is more ignorance about inflation/deflation/hyperinflation than anything else. Your statement is completely absurd. The only way hyperinflation can occur is by an exponential increase in the supply of money and credit that gets into the hands of the public.

akak's picture

The only way hyperinflation can occur is by an exponential increase in the supply of money and credit that gets into the hands of the public.

Incorrect.

Just one example proves otherwise: the Argentinian semi-hyper-inflation of 2002.  Granted, prices increased only by 300% within six months, but that devaluation occurred WITHOUT a concomitant significant increase in the creation of money.  It was a loss of confidence in their (fiat) currency, and a flight from that currency, that led to its devaluation, NOT a 300% increase in the money supply.

ElvisDog's picture

But now we're arguing over the definition of hyperinflation. I would argue that Argentina did not experience hyperinflation (Zimbabwe or Wiemar Germany style) because the Argentine government pulled back from the brink and did not completely monetize the debt. Yes, prices went up but Argentines didn't have to pay $2B pesos for an egg. What happened in the Argentina was that the middle class got crushed, lost the value of all of their savings, and then the country went into a period of deflation and that 600% inflation rate came down.

akak's picture

Well, I am sure it is small comfort to all the Argentinian savers and investors who "got crushed" and lost most of their accumulated wealth, and standards of living, that they technically did not experience hyperinflation!  There is not a giant difference between losing 80% or 90% of one's savings, and losing 99.999% of them.

By the way, I see what happened in Argentina in 2001-2002 as the most likely scenario for what will happen in the USA within the next two years.

tmosley's picture

It's called cause and effect.  The rise in wages in that case was an effect, because the Zimbabwe central bank printed vast amounts of currency to buy foreign currency in order to pay down its debt.  Foreign companies then used that money to come in and buy up all the goods in Zimbabwe as well as to bid up labor.  Wages rose last.

Papasmurf's picture

You're only thinking about the money supply side.  This money is a demand for goods and services.  If less of these are created because people aren't working, prices rise because goods and services are in short supply.

LeBalance's picture

H-inflation of a currency requires only one thing, loss of confidence.  If (1) China looses confidence and sells its Ts (h-inf!), (2) if the debt can not be serviced and dollars are unmasked (h-inf!), (3) continued massive printing leads to increased straws across camel's back breaking into (1) and (2).

And there are so many increases in monetary velocity, which can create h-inf with NO more money printed.  Just NO one wants to keep their Wealth in dollars, so V goes to the moon, and Purchase Power ($) goes to Zero.  Practically overnight.

Did that help?

ElvisDog's picture

Okay, what you're saying is true but only if the government increases the supply of money and credit by printing money to buy the treasuries that the Chinese and others will supposedly dump - i.e. monetizing the debt. You contradicted yourself, because your point (3) implies what I said in my first sentence but then your second paragraph says no more money is being printed. You can't do (3), monetize the debt, without printing money.

MachoMan's picture

If confidence is lost, it does not matter how much of a currency is in circulation...  it would take an infinite amount of it to be exchanged for production or the manifestation of production.  What keeps our confidence? 

Look at it this way, if bonds denominated in a currency are universally shunned, what does that say about the confidence in the underlying currency?  What reasons would cause someone to dump said bonds?

To put it differently, if I have a warehouse of...  food and you bring me a dump truck full of dollars and want to exchange them for my food, after our international creditors have thrown in the towel on the dollar, then I will promptly send you the fuck home without any food because confidence in the dollar as a fruitful medium of exchange will have been lost.  (I may do this anyway).

RockyRacoon's picture

Read what others are saying to you, Mr. Dog.  They are right.  Don't confuse the amount of dollars it takes to buy, or how many are in circulation, with hyperinflation.   Inflation, per se, perhaps.  But not HYPERinflation.  There are some preconceived notions that you'll need to discard to get on board the info train here.

akak's picture

I sometimes wonder if the word "hyperinflation" was invented by central bankers to purposely obfuscate and cloud what that process actually entails.  So-called "hyperinflation" is not just accelerated inflation, or an escalation of what we normally call "inflation", but is the death of a currency!  It really should be called "hyperdevaluation".

PS: Before the middle 20th century, what we now call "inflation", meaning the rising of prices due to the fall in the value of a currency, was universally and more properly called "devaluation".  How inconvenient such terminology would be for the existing central banking power elite!  Kind of like the Orwellian renaming of the "Department of War" after WWII to the "Department of Defense", despite the fact that it was precisely the pursuit of (aggressive, interventionistic) war that had become its reason d'etre.

RockyRacoon's picture

It's almost as difficult as teaching Johnny you-know-who that gold is actually money.

...and just as fruitless.  No discussions can proceed without an agreed to definition of terms.   Do you recall a past discussion about gold and the commenter insisting that "stock to flow" did or did not mean what it actually means as laid forth by FOFOA?  It was a hair-pulling experience.  He wanted to redefine "stock to flow" according to his own terms, not those already established and agreed upon.   Aaaaargh.

http://fofoa.blogspot.com/2010/06/how-can-we-possibly-calculate-future.html

Spitzer's picture

Agree 100%, hyperdevaluation.

hound dog vigilante's picture

hyperinflation is not inflation+++.

hyperinflation is not inflation "squared"

hyperinflation is not inflation x5 or x10 or x20.

hyperinflation is not a monetary event/phenomenon.

 

hyperinflation = loss of confidence in a currency.

hyperinflation = evaporation of demand for a currency.

 

If OPEC drops the petrodollar and demands payment in Euros or gold, then the $USD will experience hyperinflation almost overnight... demand for $USD will evaporate.

If China starts dumping US debt (for any number of reasons), then the $USD will experience hyperinflation almost overnight... confidence in the $USD will plummet.

 

Again, the key thing to know here is that hyperinflation is not monetary in nature - it is psychological, and very real.

 

Spitzer's picture

Just like the Euro in early June, as a currency gets sold off, it loses value and oil and gold get more expensive.

DosZap's picture

Spitz,

You got it..........the Junkers will get it..soon.

InconvenientCounterParty's picture

Which culture on Earth would claim entitlement to irrational optimism?

 

Maybe the new crop of bankster shills (GOP) can return God's favorite nation to greatness?

To the printing presses Batman!

SheepDog-One's picture

USA is the greatest irrational optimists around!! As the rest of the world starves in vast numbers as the norm, these american genuises believe 'naw, it can never happen here! Something always comes to the rescue to allow us to live in pointless hedonistic opulence while the rest of the world gets by on peanuts, and so it shall be, forever and ever'.

ElvisDog's picture

One thing the US of A has going for it, SheepDog, is it is self-sufficient in food production. BTW, what is the source for your hatred of all things American. I can't help but think it clouds your judgement.