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Please take the time to carefully read my latest entry and post your comments here:
http://pensionpulse.blogspot.com/2010/04/when-facts-change.html
Thank you,
Leo Kolivakis
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I agree with you that equities need to go higher, and then yields have to be kept under raps, and that's what I'm afraid of. Eventually infinite money will have a negative effect on the underlying currency. We know there is no turning back and Zimbabwe Ben cannot raise rates so they will be down for a long time to come. This has been done to paper over every crisis since I've been alive and I wonder how long before the back of the camel snaps. After all we cannot do anything about our ballooning debt problem, not at least for a decade. In a decade you might have a lot of Americans coming to join you in Canada as well.
I doubt it as Canada's day of reckoning will come sooner than we think.
It's a matter of comparison. so it might get rough in Canada, I expect the USA deficit and debt to turn into a fiscal black hole that will suck in the entire economy. The GAO numbers sealed it for me. With insanely Pollyanna numbers it still looks really, really bad in 10 years. I'm not sure we can count on 6.5% growth, consistently, year to year and for spending to stabilize. If nothing else that growth would require more energy (oil) and the prices would cut into that growth.
Short of the US finding a few Ghawars in the good ol' USA, I don't see a way to grow out of it.
So many negative comments that they yanked me off the front page of ZH faster than you can say melt-up..LOL! At least some of you appreciate my efforts. One person sent me this message:
"Interesting post today Leo. I've noticed that you continue to remain long equities from reading your recent posts on ZH, despite getting shit for many of them. I find the anger towards your posts somewhat humorous though since you're one of the very few on ZH that have been correct about the equity markets.
But, in your opinion, when is it time to cash out? As soon as ZIRP is abandoned? As much as I enjoy seeing my portfolio increase at the rate it has been (especially since early March), the party has gotta die down eventually..."
To which I responded:
There may be one more major hiccup if the Fed starts increasing rates sooner than anticipated, but they will buy that dip too. It will take several Fed rate hikes before things simmer down in high beta stocks. Till then, I expect another bubble to form, maybe in alternative energy, maybe somewhere else. Like I said, second half of 2010 is looking very interesting.
To whoever sent you that comment: What if Leo said "Because of the rotation of the gravitational pull of Neptune, markets will continue to go up." Does that mean "Leo was correct?" What about people that were saying Yahoo was overvalued at $500? Were they wrong even thow Yahoo went up to $1000 before becoming a penny stock? The fact is, luck (both good and bad), lack of enough information behind what drives markets, irrational behavior, and possibly manipulation all factor into the market place.
The only advice I can give to any participant on any side of the trade is to place bets in a way that accomodates for "what if I'm wrong". I have lost money over the past 9 months, but planning for being wrong has allowed me to retain a large portion of my capital and to continue to participate in this freakshow of a market.
I was ridiculed by some of my trader buddies for doubling and tripling down on my positions in Chinese solars when they got clobbered. I had conviction, and yes, if I am wrong, I lose. But if I am right, I will make some very nice gains on those positions. There are never any guarantees in markets.
it looke like we had a potential double bottom on tlt. and pimco is buying treasuries atthe long end increasing exposure. indicators said turn around with rsi less than 30, then up and a lower low. so i don't know what to believe. I've been trading tbt, and tlt looking back and fourth with regular indicators and found it to be a failry easy way to make money. although we just filled a gap on tlt, so I am short a bit again, then will buy in once more as indicated
Interest rates are going lower?
I guess negative interest rates ( what, them paying us to use THEIR money? Us paying them to use THEIR money?) is the next step.
No wonder I can't get anyone interested in talking about this stuff since I can't even get my mental appendages wrapped around the potentialties of this strategery.
"IMO, it really is the directional question of inflation/deflation that one needs to get right"
We will have a depression followed by inflation, or inflation followed by a depression. Is there any point in trying to hedge against either outcome? Without functioning markets, retail investors will be robbed of their assets by arbitrary laws and rule changes that benefit the wealthy and their friends in government. I know that sounds terribly negative and defeatist, but what other conclusion is there? If the tables at the casino are rigged, why bother playing?
That is exactly why I do NOT believe that even holding precious metals will offer any escape from the current unfolding financial Armegeddon --- because those in power will be loathe to offer ANY avenue of escape from their collapsing fiat-currency fiasco. If gold and silver are not illegalized, I think that soon the potential profits to be gained by selling them will be effectively stolen through higher and higher "capital gains" taxes levied against them. Confiscation is SO old-school --- after all, that would take work! It would be much easier for the fedgov to neutralize the benefits of holding them through taxation.
Anyone holding gold and silver better be prepared to hold them for years or decades, until the current political power structure is hopefully overturned.
Gold and silver are not for sale. They are savings that are used for capital borrowings. That would be my use for them anyway. They can't be taxed if you don't sell. The should only be placed at risk when you borrow against them.
Good stuff, Leo. IMO, it really is the directional question of inflation/deflation that one needs to get right, and I have never seen such widespread lack of certainty before. I believe that's why we see such trading malaise, complaints of "difficult environments", etc. The rest is just details.
It's a bitch...
I cannot for the life of me understand why this guy has a blog that anyone visits
Over 300, 000 unique visitors last year and among my regular followers are the largest public pension funds, investment banks, top hedge funds, top PE funds, government organizations, politicians, regulators, and many regular investors who appreciate my effort. You simply will not find another information hub with so many links on any other financial blog. And just so you know, my stat counter does not double count. What you see is what you get.
How can someone use so many words to say nothing? Leo seems to have a talent for it.
I'm in the "it will keep working until it doesn't" camp. Have memories of 2001 and 2008 already faded? Are we to believe that the people running the show, institutional investors, hedgies, they are all just so much smarter now?
Cash and some PMs are perfectly reasonable assets until we again live in a world with functioning markets -- i.e. markets where failure has consequences and risk is priced accurately.
Leo,
Just to take one point from your blog article with which I take issue, you state (or at least agree with the claim) that the US government cannot readily inflate its way out of its current debt & budgetary predicament because roughly 50% of its future budgetary obligations are indexed to inflation. I see two flaws in this hypothesis:
(1) There is still that other 50% of future financial obligations that CAN be reduced through inflation, such as Treasury debt,
(2) Of the remaining 50% of budgetary liabilities, such as Social Security and Medicare payments, those payments are NOT indexed to the true rate of price inflation at all, but only to the government's laughably low-ball CPI figures, which currently are underreporting the real rate of the rise in the cost of living by more than a factor of two, i.e., CPI reflects less than 50% of the real rate of inflation.
Both of these factors, taken together, would still allow the federal government to inflate its way out of up to 75% of its real debt obligations.
Going beyond all that, I still challenge anyone to show me just ONE single historical example of any heavily-indebted, profligate, debt and fiat currency-burdened government which has not chosen the route of currency debasement and/or debt default in the vain attempt to "solve" its fiscal problems resulting from having chosen an unsustainable financial path. All I am asking for is ONE such example.
Now, if you want historical examples of such governments which HAVE taken the default/depreciation route, well, I give you ..... ALL of them! So unless you would have us believe that truly "things are different this time", I fail to grasp why we should fear the risk of a hypothetical and never-before-seen fiat-currency deflation, instead of the infinitely greater risk of inflation, based on the overwhelmingly large number of historical precedents for the latter.
What is the challenge up for?
So far, several observations:
-up to now, no society had the world as a globaly environment to support itself (this allowed shifts in resources supply. Quick example: as a heritage from the roman empire, high middle ages countries had a foot in North Africa, middle east (Lebanon, Palestine, Syria, part of Egypt etc...) as a supply source. With the rise of Islam, these supply lines were more and more severed, forcing to a redirection northwards which opened ways to the famous Viking raids. In all case, no society before now had an eye on all the world at the same time.
-Human societies have been consuming the Earth to better their life.
So far, we are on the upwards leg. Always more resources injected to feed the machine. Yet signs are strong showing that the tipping point is near.
So what is the weight of History? The conditions are none like before.
Now if we compare to a more appropriate situation.
I'll ask for one example, only one example of a person who uses debt to buy when a product was extremely abundant and cheap and get rid easily of debt when the product grew scarce and expensive, this by selling a percentage of the bought volume thanks to debt.
Does this not resemble with a well ground-tested method? All that is required a steady demand on the product once it grows scarcer.
Seems to me that oil (and every by-product you get from it so nearly all) fits the bill for a steady demand.
How many houses a guy who got into debt to buy houses when building them was cheap and common need to sell to soak up his debt, this when building houses has grown expensive and uncommon? A fraction of them? All of them? More than he actually owns?
Has this guy grown more prosperous through debt? Or would he have done better with saving when prices were low to wait to buy when prices are high?
History has no weight. Of course, with capitalists screaming all around that the free market will provide, it is rather hard to cover up the noise.
Please for heavens sake -- please -- lets remember the basic facts here, because they arent complicated
1. They are doing THE EXACT SAME GARBAGE they have done in response to each "crisis" over the last decade plus. Did anyone in this moronic Fed + Treasury cabal ever stop to wonder if they didnt slash the crap out of interest rates in response to a FIVE BILLION dollar loss at LTCM in 1998, how much different and better the world would be economically? Ofcourse not, because the name of the game is to pretend there isnt a problem.
2. The same free money garbage policies have gutted the US economically.
3. The starting point for the garbage policies (which have again, already gutted this country economically, that ship has sailed) this time is substantially worse than ever before. The STARTING point for this "recovery" is 10% unemployment, taxes that have to go through the roof, gas prices already near $3 (in 2004 gas was $1.40), prices of industrial commodities through the roof (listen to EVERY industrial company conference call, they are all bracing for a giant 2H cost problem and with almost 100% uniformity realize they cant raise prices themselves so they eat the loss), a savings rate that is 2% above the lowest level it ever reached (the savings rate in 1981 was 12% incidentally, basically a post war high).
What is the happy ending here? Does anyone with a IQ over 30 really envision a scenario where these policies dont result in $150 oil? Does anyone really think that what is happening in Greece isnt gonna happen almost in this exact same way in the US?? What happens when you mix sovereign insolvency and $150 oil?
As for the notion that "pensions will get bailed out" because stocks are going up - that is so absurd as to be laughable. Is every one of those pensioners gonna retire and collect full benefits before the weight of all this stupidity comes crashing down on asset markets globally, sending them well past the 2009 lows (same way the 2009 lows were lower than the 2002 lows -- each time it gets worse, a 4th grade understands this). Because unless all pensioners and owners of 401ks are all gonna cash em in before this whole circus come crashing down, they are more badly fucked now than they were in 2009, it just isnt immediately apparent.
Leo.... everywhere - people are saying things that just don't seem to add up. Your call on equities has been right on and financials in TBTF banks have skyrocketed but not because they're worth anything but because they get free money coupled with a government guarantee and nobody wants to be caught holding paper money when it hits the fan. I don't want to make money from thievery, fraud, lies and deception. This can't end well and the longer we kick growing debt down the road the worse the mess becomes. It almost looks like global default is the intended outcome - I'm not a gold and guns guy but they are looking saner all the time.
I am unsure about your approach. If this is not going to end well, your attitude is likely to put yourself on the front line.