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Rosenberg On Reality Vs Propaganda, A Realistic Outlook, And Capital Allocation
Some terrific insight from Rosie on the future:
THE OUTLOOK IS ONE OF...
- Deflation: own income-generating securities, which include dividend yield and dividend growth.
- Corporate balance sheet strength and liquidity: own corporate bonds with liquidity, marginal refinancing needs and stable cash flows.
- Intense volatility: invest in classic hedge funds — true long-short strategies that preserve capital and minimize fluctuations in the portfolio.
- Ongoing sovereign credit concerns and recurring rounds of currency depreciation: ensure the portfolio has a core holding in precious metals (gold and silver). These are effective hedges against lingering concerns over the stability of the global monetary system.
I realize that I am viewed as a perma-bear, but it’s my forecast that is bearish, not my personality. I’m bullish on my kids. I'm bullish on my friends — the few I have. I'm bullish on the New York Yankees — please don’t hold it against me. And I'm bullish on my firm. Look — if I really believed that cash was where investors should be, I’d be working at a bank, not a wealth management firm.
... On the present:
Double-dip risks in the U.S. have risen substantially in the past two months. While the “back end” of the economy is still performing well, as we saw in the May industrial production report, this lags the cycle. The “front end” leads the cycle and by that we mean the key guts of final sales — the consumer and housing.
We have already endured two soft retail sales reports in a row and now the weekly chain-store data for June are pointing to subpar activity. The housing sector is going back into the tank — there is no question about it. Bank credit is back in freefall. The recovery in consumer sentiment leaves it at levels that in the past were consistent with outright recessions. By our estimates, the diffusion index on the Conference Board’s leading economic indicator (LEI) in May came in at a disconcerting 40% for the second month in a row. Jobless claims are one of the 10 components of the LEI and last year’s improvement not only stalled out completely, but at around 460k is consistent with stagnant to negative jobs growth. And exports, which had been a lynchpin in the past year, will feel the double-whammy from the strength in the U.S. dollar and the spreading problems overseas.
Spanish banks cannot get funding and another Chinese bank regulator has warned in the past 24 hours of the growing risks from the country’s credit excesses. A disorderly unwinding of China's credit and property bubble may well be the principal global macro risk for the remainder of the year.
Another key source of uncertainty over the economic, financial and indeed the political outlook is this uncontrollable oil spill. Geopolitical risks are extremely high -- and it’s more about Turkey and its eastward move that is now most unsettling. What was interesting yesterday was to hear BoC Governor Carney strike a more balanced tone — all of a sudden, more rate hikes in Canada aren’t such a sure thing (see more below).
That the equity market has been able to digest this news seems impressive on the surface. But remember, it’s the same stock market that was hitting new highs well into the fall of 2008, even after the onset of home price deflation, the shutdown of New Century Financial, and the collapse of two Bear Stearns hedge funds. Just because George Chuvalo lasted 10 rounds against Ali and his punishing left hook did not mean he won the fight (or avoided a stint at the hospital).
And on capital allocation:
As we said yesterday, 2009 was the anomaly in that junk low-quality surge off the lows. This is the year of SIRP — safety and income at a reasonable price. Long bonds have generated an annualized 20% return and corporate credit has generated high single digit returns (U.S. figures). Equities are flat with a tremendous amount of volatility to boot. Moreover, while portfolio managers, flash traders, prop desks and hedge fund types have been buying and selling (ostensibly to each other — do we have to dust off the Pig Farmer story again?), the general investing public (you know — the ones with the savings that ultimately determine where funds will be allocated) is still focussed squarely on the fixed-income market. This deserves a dissertation from the school of behavioural economics.
The median age of the 78 million boomers is 54 going on 55 and even after two bubbles bursting less than a decade apart, this cohort still have 55% of the asset base in equities and real estate and a mere 6% in bonds. And, it is the latter piece of the pie that is expanding the most and will be expanding the most in the future as demographic, deflation and deflationary realities — investing in 3D — make it imperative for the wide swath of aging boomers to focus less on capital appreciation strategies and focus more on capital preservation stories. Income is king and the proletariat have already figured it out despite Wall Street research houses still advocating the equity market even though the S&P 500 has generated no return but plenty of heartburn for 12 years now; the hallmark of a secular or primary bear market: rent the rallies, don’t own them.
Indeed, this seems to be the strategy among those whose savings inevitably set the market price for assets and securities. As a microcosm for what has gone on now for a good 15 months, the Investment Company Institute (ICI) data for last week showed net mutual fund inflows of $2.1 billion — great news for our industry! But guess what? All the inflows and then some — $4.7 billion — were in fixed-income of some sort. Equity funds posted net outflow of over $2.9 billion — in just one week. Another $220 million were put into hybrids — what we call “bonds in drag.”
Bonds may be boring, but they do pay interest, are more capital secure, and they mature! In a deleveraging cycle, boring can be rather sexy!
As a sign for how the elite still cannot wrap it around their head that we are still in the throes of a secular bull market in “income”, have a look at Treasury Bonds Defy Expectations in the FT (our expectations certainly have not been defied, that much we assure you).
All from the usual source, Gluskin Sheff
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They are setting up for a flash crash.
I do not think we will see a flash crash again until the Fed & the Banks want to move legislation. Flash crashes are how THEY vote.
Leo bounce now....
I imagine Leo will be quiet for a short while:
http://www.theregister.co.uk/2010/06/17/spain_sustainability_scam/
You are an optimist
As if he didn't knew...
I even said as much a while back.
All someone at a trading desk has to do is count backwards from 10 and tell people to dump shares with leverage.
Democracy is for rubes.
Here it comes...
Their flash crashes are becoming less and less dramatic. A sign perhaps?
"One squib at a time, one squib at a time." -BS
Pretty interesting coincident chart of the past decade charting inverse of 4 week moving average of weekly jobless claims versus S&P 500. It also shows how bad 450K claims a week is in historical perspective, yet we deem it "kind of normal!" nowadays.
http://www.fundmymutualfund.com/2010/06/weekly-jobless-claims-as-stock-m...
Rosie or Tyler, for the uniformed what is the pig farmer story. I love a good parable. Where is Aesop when you need him?
Isn't that what Hillary Clinton once did; way back before becoming First Lady?
Yeah, but she read the WSJ!
I thought maybe he was referring to this old story ( http://books.google.com/books?id=wBUE1RDfdx0C&pg=PA53&lpg=PA53&dq=j.b.+lee+jr+pigs&source=bl&ots=sudOdJGrU3&sig=AdIqejI4IXX0j9q68RYT6fbudhU&hl=en&ei=sF0aTO7qB8H_lgf0kfToCg&sa=X&oi=book_result&ct=result&resnum=1&ved=0CAYQ6AEwAA#v=onepage&q=j.b.%20lee%20jr%20pigs&f=false ) but I think you've got it right subqtaneous.
So far the Rosie-Grant debate has gone to Rosenberg, but what's your time
frame? I'd rather just sit in cash than sit on the limb and wait for Bernanke to
saw it off.
Own your illusions.
And delusions.
Pray for the tooth fairy.
NYS DoL just released a report showing NYC employment is 1.3k higher than this time last year. NYC has a population of 8.2M. Draw your own conclusions :-)
They hired 1.3k people to work on the report?
Here's a few views from the amateurs...............
http://www.24hgold.com/english/news-gold-silver-goldwatch-why-many-respected-analysts-see-gold-going-up-to-10-000.aspx?article=2956954800G10020&redirect=false&contributor=Lorimer+Wilson
China’s Housing Bubble- The Ponzi Shark Loan Finance:
http://israelfinancialexpert.blogspot.com/2010/06/special-report-secret-engine-behind.html
My hometown is zhejiang, now I live in shanghai, my sister pledged her home to bank, she lived in hangzhou, she bought her home around 500,0000rmb five years ago, now her home worth 2million rmb, so she can get huge loan from bank, she gave this loan to a shark loan company with 30% return every year, she has been doing and living on this for 4 years, she is a middle school teacher, she earned 4000rmb per month, but with this lending arrangement, she has been able to buy a car, the interest income is 6 times of her salary, One of my cousin's father lost all his principle of 4 million since one scheme blow up in 2008. That is my personal experience. 2 months ago I went back to my hometown in new year, this is 3 tier city, but many so investment companies shop in the street, and in 2009, I saw the so called investment companies( shark loan) opened in the town level, I visited four small towns, I saw there is shark loan shop in every town. China media is controlled, so you can’t find many negative exposure, but if you dig a little bit deep, by doing some search for shark loan in Chinese, you will find out how serious the problem is. In my home town a 150 million ponzi scheme blow up in 2008, the leader turned himself in after he paid all the local official leader in full, and he felt safe enough knowing he will be protected, but my cousin's father was not so lucky for his 4 million, since he do not get his money back. Some people compare this bubble to Japan, to be fair, what happened in China real estate, the madness, the greedy, the loan shark with 100 % interest rate, it is much, much worse. “
Rosie's a f****** Yankees man! I finally found something disagreeable with him.
That is the one wart. Go Celtics. - Ned
Yea!! I want the Celts to win so bad tonight yet I am torn; I want to see LA burning too.
Colleges all out, no riot tonight either way. - Ned
Kobe
Agreed. I hate the Yankees so much its almost enough to make me not read him anymore.
He's been on fire this week. Free access to archive and e-mail update: https://ems.gluskinsheff.net/index.ncl.html
- Ned
"A blast from the past":
http://video.google.com/videoplay?docid=5064665078176641728&hl=en#
It's a long video (54 min), but well worth it. Sir James Goldsmith discussing GATT (and...derivatives!) with Charlie Rose back in 1994.
It's better than 99% (if not all) of all todays "analysts"...
I wonder what that bitch Laura DAndrea Tyson has to say now
Those EURUSD bullish warnings have strengthened further today.
Vice versa for the USD index of course.
It seems the current EURUSD downleg has ended.
http://stockmarket618.wordpress.com