Is the U.S. economy about to experience a major downturn? Unfortunately, there are a whole bunch of signs that economic activity in the United States is really slowing down right now. In many ways, what we are going through right now feels very similar to 2008 before the crash happened. Back then the warning signs of economic trouble were very obvious, but our politicians and the mainstream media insisted that everything was just fine, and the stock market was very much detached from reality. When the stock market did finally catch up with reality, it happened very, very rapidly. Sadly, most people do not appear to have learned any lessons from the crisis of 2008. Americans continue to rack up staggering amounts of debt, and Wall Street is more reckless than ever. As a society, we seem to have concluded that 2008 was just a temporary malfunction rather than an indication that our entire system was fundamentally flawed. In the end, we will pay a great price for our overconfidence and our recklessness.
One can spend all day watching financial media channels stuffed full of self-promoting index-hugging asset-managers and be left with the belief that all is well and that the market does indeed represent our reality... Or, as UBS' Art Cashin notes today (confirming what we first published a month ago - here, here, and here), there is more (well less) to today's global economy and markets than meets the eye or rests in the headlines. His excellent diatribe today reiterates our previous comments of investing icons such as Baupost's Seth Klarman and Oaktree's Howard Marks that "(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors."
While UBS' Art Cashin sees the 'uptrend' in stocks as largely in tact, though warns of the start of what appears to be a stalling formation, there is another 'bigger' potential crash on his mind. Having survived the Mayan apocalypse, and a Papal resignation, our home planet is due for a record setting space encounter on Friday (Feb. 15) of this week... which means it is now too late to even send Bruce Willis (or better yet, Bob Pisani) into space for an Armageddon sequel. We are told to keep calm and carry on - Bernanke-like "there is nothing to worry about", but no known asteroid has traveled this close to earth in recorded history. Let's hope the slide rule guys have it nailed - or the grand central planner.
As most of Asia is on vacation for the lunar new year, UBS' Art Cashin is growing more and more concerned with the excessively bullish tone. While not screaming for an outright short, the venerable volatility-handler fears many factors he sees in the market currently from sentiment to vauation, and a lack of 'rotation', and while the January Effect and the Super-Bowl are in the bulls favor, he gently reminds that the 'Year of the Snake' has typically not been a good one for markets or man...
As UBS' Art Cashin points out, the weekend talk shows were filled with talk of immigration reform, and yet, as he exclaims, no discussion of Social Security. The avuncular arbitrageur, however, sees immigration reform from a different and insightful perspective noting that while immigration reform may finally get the undocumented worker a fairer break, Social Security will lose significantly...
Stocks have slipped, precious metals have round-tripped, and the FOMC did nothing to save us but nevertheless the world's analysts and economists came to the rescue of yesterday's negative GDP growth print yammering over a never-ending series of reasons why ignoring the bad parts, it was great. UBS' Art Cashin, as always, cuts through all the spin as he notes, while most of headlines concentrated on the 4th Quarter GDP, it did give us a look at the annual GDP for 2012 at about 1.5% (not the 4% growth that was the Fed's projection, he snarks); and it is that 1.5% growth rate that has a 65-year history of concerning implications...
We have discussed Dallas Fed's Richard Fisher's money-where-his-mouth-is perspective on the world before and the (sadly) non-voting member is among UBS' Art Cashin's most respected and candid of the FOMC. A glance through the transcripts that Art highlights below should both make readers sick at the constant pollyanna-ish nature of Fisher's comrades and perhaps more confident that his insights will be listened to more astutely 'the next time' as he noted at the time "No amount of rewriting of history will exonerate us". Once again, after reading these transcripts, do we really believe that central bankers are omnipotent? or incompetent?
The last few months have seen US equity markets swinging from confidence to grave concerns (briefly) and back to exuberance even as the looming 'debt ceiling' and sequester remains dead ahead. The pattern is eerily similar in price (and volatility) terms to the movements ahead of the Summer 2011 'debt ceiling' debacle. What is just as concerning is, as Bloomberg's Chart of the Day shows, is the mass psychology aspect, as mentions of the words 'debt ceiling' are once again gathering pace, just as they did in 2011. Markets may not repeat, but they do echo; and as UBS' Art Cashin noted, this month marks the 40-year anniversary of a significant top in the market as stocks broke to all-time highs and "all appeared right with the world." Perhaps, it is our inexorably optimistic belief that the politicians will fix it all (or kick the can) at the last minute - so there is nothing to fear but fear itself; or perhaps this time, there is a line in the sand that both sides need to defend.
We already posted Howard Marks' most recent letter in its entirety previously, but it bears reposting a section from Art Cashin's daily letter which focuses on one segment of Marks' thoughts, which is especially relevant in light of today's most recent comment from one Warren Buffett - a person who very directly benefited from the government/Fed's bailout of the banking sector in 2008 - who said that "Bank Risk No Longer Threatens U.S. Economy." The same banks, incidentally, who are TBerTFer than ever. An objective assessment or merely yet another example of the "handcuff volunteerism" (not to mention crony hubris) Marks touches on? Readers can decide on their own.
It would appear that even the venerable Art Cashin had to rub his eyes in incredulity at the recircling of the idea of the Treasury minting a "Trillion Dollar Platinum Coin" to solve the debt-ceiling 'problem'. His brief discussion on the idea is summed up perfectly in his final six words "anybody got an ebook on alchemy?"
Today's anecdote from Art Cashin has nothing to do with the fiscal cliff, the stock market, the economy, geopolitics or even the fermentation committee. Instead it is a deep tangent from all things financial: an amusing anecdote focusing on the life and more notably, death anniversary of one Rasputin, narrated in the way only Art can do. So while we await the inevitable 3:35 pm rumor that a Fiscal Cliff resolution is imminent, just like all those other 99 rumors in the past few weeks, which sent the market soaring before they popped, what better way to kill the time until the next algo driven buying frenzy than with stories of possessed, mad monks in tsarist, WWI Russia.
We have discussed the alternate views of the terrible events that occurred in Connecticut from mental health to video games (Adam Lanza obsessively played "Call of Duty"), as opposed to simply attacking assault weapons. All, we are sure, have a share in the blame for this monstrosity but UBS' Art Cashin opines on the influence of video games suggesting this needs to be examined more closely. It seems, judging from FTC and FCC 'discussion drafts' that this is indeed on its way as “Recent court decisions demonstrate that some people still do not get it. They believe that violent video games are no more dangerous to young minds than classic literature or Saturday morning cartoons. Parents, pediatricians and psychologists know better". The picture, however common-sensically desensitized the argument is, remains unclear as Bloomberg reports from an industry study: "We can’t find any evidence to support this idea that exposure to video-game violence contributes in any way to support the idea that these types of games or movies or TV shows are a contributing factor, it doesn’t need to be studied again."
Short and sweet from the Chairman of the fermentation committee: "the central banks of the world are poised to simultaneously embark on aggressive new rounds of quantitative easing. There will be lots of focus on Thursday's BOJ comments. This is a world even Keynes could not conceive." Of course, Keynes never worked out of 1954 Stalingrad, or 2012 Washington, D.C.
Yesterday's trading was a balance between Italy fears and fiscal cliff hopes-fears-and-hopes-again. While UBS' Art Cashin notes that on the bright side, this will all be over on December 21st when the Mayans predicted the end of the world, he also details what is perhaps even more fearsome - not-the-end-of-the-world as, in his words, demographics, destiny, and the fiscal cliff loom very large not just for the next few weeks but heading out over the next decade as baby boomers retire. As Cashin so wisely points out: "Somewhat lost in the posturing is the fact that the Fiscal Cliff was put in place to force Washington to address the exploding government debt problem. That problem is greatly exacerbated by the rapidly changing demographics in this country. If you fast forward 20 years until all the boomers are retired government debt (taking into account unfunded liabilities) soars to $202 trillion. Perhaps worth remembering that "The real problem is that regardless of the resolution it will not solve anything. We have passed the point of no return. We cannot mathematically solve this debt problem. We can only slow its progression."
Forget the Fiscal Cliff: it is merely a much needed economic distraction for the next 3-4 months (distracting from what? Why Europe of course). Yes, it will be resolved, and yes taxes will go up, and yes, debates over it will most likely be carried over into 2013 and nothing will be compromised until the ultimate debt ceiling deadline (because it is really a Fiscal Cliff-Debt Ceiling package deal) is hit some time in March 2013, but eventually one or both parties will cave, right after the market plunges to put it all into the proper perspective as it did around the time of TARP and the August 2011 debt ceiling debate, and a resolution will materialize. The bigger issue has nothing to do with the Fiscal Cliff, which is indeed a sideshow. The bigger issue, as Art Cashin explains, has everything to do with a secular decline in the US economy, where a 1% growth rate will soon be the "New Killing It", where millions more (in part-time workers) will soon be let go, and where businesses no longer generate the cash flows needed to stay open. Art Cashin explains.