"The global growth picture is, as per our long-term contention, weak and deteriorating, pretty much everywhere – in the US, in the eurozone and in the emerging markets/BRICs.... We in the Global Macro Strategy team still think the market consensus is far too optimistic on policy expectations both in terms of the likelihood of seeing more (timely) fiscal and/or monetary policy assistance (globally), and in terms of any meaningful and/or lasting success of any such policy moves. In particular, we think that the period August through to November (inclusive) represents a major global policy and political vacuum. Based on the reasons set out earlier and also covered in my two prior notes, over the August to November period I am looking for the S&P500 to trade off down from around 1400 to 1100/1000 – in other words, I expect over the next four months to see global equity markets fall by 20% to 25% from current levels and to trade at or below the lows of 2011! US equity markets, along with parts of the EM spectrum, will I think underperform eurozone equity markets, where already very little hope resides. For iTraxx crossover, this equates to a spread wide for 2012 of – in my view – 800/1000bp.... And of course I still see a very clear path to 800 on the S&P500 at some point in 2013/2014, driven by market revulsion against pump-priming money printing central bankers, but this discussion is also for nearer the time."
So the end stage of neoliberalism threatens a Dark Age of poverty/immiseration – most characteristically, one of debt peonage. ~ Michael Hudson
In the US and Europe we have slowly come to the realization that traditional accommodative economic policies leave, and have left, the real economy limp. Wildly divided governments don't help, but beyond the fact that western decision making bodies are polarized, it is abundantly clear that the panacea for the global economy is not even on the table right now. The western world has been thrown into a bout of sovereign game theory, and by the constructs of game theory itself, one country will "win," while everyone else will lose to varying degrees. But that we are such a highly integrated global economy--the reason the whole world is heading towards recession right now--means that a solution must incorporate every economy around the world. The current game Europe is playing is bound to fail because if one country gets their way, others lose by definition.
In the second part of our five-part series on The Olympics (Part 1 here) we ponder the impossible to predict - the medal count. As Goldman notes: Economists like to think that the toolkit of their profession helps them explain many things or, as some would claim, everything that is interesting about human behavior. In the context of the forthcoming Olympic Games in London, therefore, the key question is whether economic variables can help explain and predict success at the Olympics itself. At one level, this seems like a daft question even to consider. It is hard to imagine that economic variables could even begin to capture the kind of individual skill, mental determination and hunger that drive athletes to perform feats of unimaginable virtuosity that is the stuff of Olympic legends. But at the level of a country, it may be possible to identify the ingredients that unlock success at the Games. As British Paralympian Tim Hollingsworth explains: "...when you create a world class environment you are far more likely to create world class athletes." What is a 'world class environment' and how do we measure it across countries? Luckily, we have an answer in the GS Growth Environment Scores (GES), a broad measure of growth conditions across countries - and, indeed, this is what we find: gold does go where the growth environment is superior. The forecast leaves USA, China, and Great Britain battling it out for 'Most Golds' and USA leading China overall - but remember "the most important thing in the Olympic Games is not winning but taking part."
On occasion of the publication of his new gold report (read here), Ronald Stoeferle talked with financial journalist Lars Schall about fundamental gold topics such as: "financial repression"; market interventions; the oil-gold ratio; the renaissance of gold in finance; "Exeter’s Pyramid"; and what the true "value" of gold could actually look like. Via Matterhorn Asset Management.
Ultimately, the surge in demand for gold reflects one thing alone: distrust of the increasingly messy, interconnected, over-leveraged and fraudulent financial system. Whether it is China — fearful of dollar debasement — loading up on bullion, or retail investors in the United States or Europe — fearful of another MF Global (or PFG, or Lehman Brothers) — stacking Krugerrands in their basement, demand for gold reflects distrust in finance, distrust in the financial establishment, distrust in banks, distrust in regulators, distrust in government and distrust in the financial media. And it is that distrust — not (by any stretch of the imagination) central bank interventionism — that is the force moving demand for gold. There will be no bear market for physical gold until trust in the financial system and regulators is fixed, until markets trade fundamentals instead of the possibility of the NEW QE, until governments represent the interests of their people instead of the interests of tiny financial elites.
In an extended interview with Bloomberg TV, Nouriel Roubini lives up to his doom-saying reputation and goes where few have as he opines on Lieborgate that: "bankers are greedy and have been for 1000 years" and "nothing is going to change" unless there are criminal sanctions; to which he follows up - briefly silencing the interviewer, "If some people end up in jail, maybe that will teach a lesson to somebody - or somebody will hang in the streets". The professor goes on to note that the EU "summit was a failure" since markets were expecting much more and warns that without full debt mutualization, debt monetization by the ECB, or a quadrupling of the EFSF/ESM 'bazooka'; Italian and Spanish spreads will continue to blow out day after day - leading to a crisis "not in six months but in two weeks". The only entity capable of stopping this is the ECB which needs to do outright unsterilized monetization in unlimited amounts which is 'politically incorrect' to talk about and claimed to be constitutionally illegal. 2013 will be a very difficult year to find shelter as policy-makers ability to kick-the-can runs out of steam as he sees the possibility of a 'Global Perfect Storm' of a euro-zone collapse, a US double-dip, a China & EM hard-landing, and a war in the Middle East. Dr. Doom is back.
If you are reading this, you are probably a member of what the sociologists would term middle class (albeit at the upper end). This is precisely the segment of society which is poised to come off worst from what is coming. Here is a very disturbing idea. As this crisis develops, if you are an equity portfolio manager and you want to outperform the market, you are going to have to position your portfolio so that it benefits most from your own wealth destruction and that of your family, friends and colleagues. Almost everybody is going to lose and there aren’t many places to hide. This is deeply unpleasant but you can blame the central planners. I’ve written about my own investing, e.g. gold and silver, equities in terms of Maslow’s Hierarchy of Needs, etc. In this Thunder Road Report (below) and going forward, I will discuss this middle class theme and highlight positions I have in individual stocks, etc. The only good thing that can come out of this is a rise in awareness. It’s just awful.
Between 'Twist+', his belief that Germany will 'blink' leaving any eurozone breakup/exit unlikely this year, and confidence that the US (Fed) and China (fiscal and monetary) will attempt once again to pump things up, Bob Janjuah (of Nomura) expect to see a risk-on phase that lifts the S&P - possibly climbing the wall of worry back up to the 1400s by late July or early August. His stop-loss (which would be very bearish in his view) is a weekly close under 1267 for the S&P. And then? He would look to position for an extremely bearish risk-off phase over late August through to November or December. The drivers of this extremely bearish expected phase are not new: overly bullish positioning and sentiment; weak global growth, not just in the eurozone but also in the US and the BRICs; the next leg of crisis in the ongoing eurozone debacle in my view; and of course the looming US fiscal crisis, which in Bob's view is not even ‘slightly’ priced into markets, but where he feels the probability of a crisis is close to 75%. His forecast for this extremely bearish risk-off phase over late Q3 and Q4 is that the S&P 500 trades below the low of last year, perhaps as low as 1000. Into 2013-14, I am still concerned that my long-standing 800 S&P500 target will be hit, but it will not be a straight line - QE3 will provide a short but sharp risk-on relief to markets. But as the bearded bear forecasts, once its ‘benefits’ subside (in weeks) it will be the failure of this QE3 to ‘fix’ things that, I fear, will open the door to 800 S&P.
Nothing exemplifies the ghetto status of the U.S. economy more than the success of Wal-Mart in the face of the ongoing destruction of what was once a vibrant and strong middle class. In case you missed it, Marion Nestle, Professor in the Department of Nutrition, Food Studies, and Public Health at NYU, came out with some interesting tidbits regarding the food stamp program. One of them is extraordinarily disturbing. She shows that Wal-Mart’s gets as much as 25% to 40% of revenue at some stores from food stamp dollars. This says it all folks. Food stamps are or course the perfect business for Wal-Mart and JP Morgan, which as I pointed out previously makes a lot of money running the program and keeping the populace in perpetual serfdom. Meanwhile, guess what another of the best performing stocks this year is? Corrections Corp of America, ticker CXW, up 41% YTD! Guess what they do? Yep, you guessed it. They lock up the serfs that get out of line.
The dollar exclusion list is becoming bigger and bigger with every passing day as China gets ready.
"Unlike other financial instruments, gold doesn't produce interest. But given its symbolic presence and usefulness as a safe haven in times of crisis, the BOK needs to buy more. We may do so this year," he said.
- With big conditions, China Offers $43 Billion for IMF Crisis War Chest (Reuters)... US offers $0.00
- Mexico is not Spain: Mexican Yields Drop to Record as Spain’s Borrowing Costs Soar (Bloomberg)
- And live from Las Ventanas al Paraiso: G-20 Leaders Focus on Banks as Spain's Woes Challenge Merkel (Bloomberg)
- German Constitutional Court Gives Victory to Opposition in ESM Suit (WSJ)
- EU Europe’s Leaders Urged to Resolve Crisis (FT)
- Backing Grows for One EU Bank Supervisor (FT)
- Greek Leaders Close to Coalition, Aim to Ease Bailout (Reuters)
- China Economy Improves in June, Commerce Minister Chen Says (Bloomberg)
- China Looks for Loan Boost (WSJ)
Relief in the markets, after the worst case scenario from the Greek elections was averted, proved to be decidedly short-lived. Although the pro-bailout New Democracy party came in first with 129 seats (with an additional 50 seat bonus) the markets still await confirmation of an actual working coalition given a caretaker government has been in place now for approximately two months. A degree of uncertainty in regards to the demands the new coalition will place on negotiating the country's bailout terms has resulted in many investors being unwilling to get their toes wet just yet. Away from the election fever, rising Spanish yields continue to spook the market with the 10yr yield breaching the 7% level, prompting aggressive re-widening of the 10yr government bond yield spreads. The move comes at a crucial time for Spain as they look to come to market tomorrow in 12 and 18 month bills followed by three shorter dated bonds to be tapped this Thursday. Meanwhile, the FX markets have reflected the shift in sentiment with EUR/USD well off its overnight highs and the USD index firmly supported by the prevailing flight to quality bid. However, the biggest currency move of the day came in the early hours after the rupee (INR) weakened substantially following the RBI's decision to leave rates on hold, this coupled with Fitch changing the country's outlook to negative from stable has kept the currency under pressure throughout the day.