Cash For Clunkers

Jim Rickards Tells His Clients To Get Out Of Stocks And Discusses The Fed's Final "Golden" Bullet

Another fascinating interview by Jim Rickards, in the first part of which the LTCM GC explains why he has told his clients to get out of stocks (yes, it does have to do with market manipulation and the Fed - the two most popular topics on Zero Hedge over the past year): "Markets have ceased to function as they are intended - traditionally a place to exchange values, but more importantly to perform price discovery (people rely on markets to tell them what to do or to at least give them some guidance). What's happened is that all the markets have become so badly distorted that their price discovery function and therefore the information content around it no longer has any value. The market has become self-referential, an algo playing itself out, almost the way you would run a self-recursive equation on a computer and you get very unpredictable results from very simple equations. It has degenerated into a joke." Perhaps more relevant for those seeking some advice on where to put their money if not into stocks, is his observation that now that the Fed is in dire need to getting people to start spending, the only option left is to instill the fear of a dollar devaluation, but not against other fiat (as that would in turn lead other central banks to follow suit), but depreciation against hard currencies such as gold. "If you are the Fed and you buy up gold to $2,000 an ounce what have you done? You've depreciated the dollar by not quite 50%. Well that's pretty powerful stuff if you are trying to get people to spend money and dump dollars. So they are not out of bullets, they have what I call the golden bullet..." As Kohn today said, it is all about expectations... Well, why not make people expect that the dollar they have today will be worth half as much tomorrow versus gold?

Daily Highlights: 9.2.2010

  • Asian stocks rise to two-week high on US manufacturing data; Canon gains.
  • Australia Q2 GDP grows 1.2% - fastest pace in three years.
  • Bernanke, Bair to present views of crisis to inquiry panel.
  • Brazil holds rate at 10.75%, meeting expectations.
  • Economy seen avoiding recession relapse as US data can't get much worse: Survey.
  • Indian sugar production may jump 38% next year on higher planting, rains.
  • Manufacturing in US grows at faster pace as factories extend recovery.
  • Trichet may say ECB to keep emergency lending measures in place into 2011.

GM Reports 21.9% Adjusted Decline In August Car Sales, Estimate At -19%, Just In Time For IPO

GM sold a total of 185,176 cars in August, a decline of 24.9% from the 246,479 from August of last year (although, there were 26 selling days last year, compared to 25 this year, ergo the adjusted 21.9% decline). Also, dealer inventory jumps in sign nobody wants to buy a government car yet. We sure wonder where CNBC gets their "better than expected" numbers: if, unless, it is the totally fudged and massaged number that GM would like the public to believe is indicative of anything more than just fleet purchases of 4 "core" brands.

Eric Sprott: "We Are Now Paying For The Funeral Of Keynesian Theory"

Keynesian stimulus can’t be blamed for all our problems, but it would have been nice if our politicians hadn’t relied on it so blindly. Debt is debt is debt, after all. It doesn’t matter if it’s owed by governments or individuals. It weighs on the institutions that issue too much of it, and the ensuing consequences of paying off the interest costs severely hinders governments’ ability to function properly. It suffices to say that we need a new economic plan – a plan that doesn’t invite governments to print their way out of economic turmoil. Keynesian theory enjoyed a tremendous run, but is now for all intents and purposes dead… and now it’s time to pay for it. Literally. - Eric Sprott

In Advance Of The GDP Report, Goldman's Hatzius Sees 3% GDP Drag From State, Local And Federal In Coming Year

Tomorrow's GDP report will be a major market catalyst as it will either confirm that an inflationary double dip has now arrived and the Fed will have no option but to print, or it will come "just better than expectations", once again sending the market into a lithium-deprived paroxysm of intraday jerkiness. Yet in the medium run, tomorrow's number is very much irrelevant, especially if Jan Hatzius' latest analysis on the impact of various trends at the local, state and federal level turns out to be correct. Goldman's analysis is based on the following assumptions: (1) Congress will not extend emergency unemployment benefits beyond the current expiration date in November 2010, (2) state governments will need to make do without any additional federal fiscal aid beyond what was included in ARRA, and (3) Congress extends the lower- and middle-income tax cuts of 2001-2003 as well as the Making Work Pay tax cut of 2009 but not the higher-income cuts of 2001-2003. The latter is of particular significance because as Bloomberg reports, Obama is about to take populism into high gear, as Geithner will next week bring the proposed tax cuts for the rich directly to the masses (and the corrupt simians in the Senate). Obviously the financial implications of that one move alone will be disastrous and even if tomorrow's GDP number prove better than expected, the market may ultimately trade off on the devastating impact from the expiration of the most important subset of tax cuts. Which is why, going back to Hatzius, the Goldman economist states: "The overall impact of fiscal policy (combining all levels of government) is likely to go from an average of +1.3 percentage points between early 2009 and early 2010 to -1.7 percentage points in 2011, a swing of about -3 percentage points. We estimate that the boost to the level of GDP starts to decline in mid-2010, first gently and then more forcefully, setting up a significant negative impact on GDP growth in late 2010 and 2011." The only thing Hatzius forgot to add is brace yourselves for impact. Yet somehow Goldman's own David Kostin projects that 2011 S&P EPS will grow by double digits... even as the firm's own economic team anticipates an economic crunch. This is precisely the conflicted double speak that we have grown to love and expect from the Wall Street sellside.

Econophile's picture

It's hard to ignore the data that is coming out. There is a definite slowing trend in the economy. It supports my forecasts of a slowdown coming in the second half of this year. Expect the data to be its normal uneven trend, but it is clear that the economy is slowing. Here I show you what I'm seeing.

Econophile's picture

This is the fourth and final part of my major four part series dealing with what I feel is the primary question investors must now answer: is our future to be inflation or deflation? The answer has vast implications to our investment planning and decisions for the near term, and possibly for our long term. It is a very complex question with a lot of moving parts involving economics and politics. For those of you who have stuck with me for this series, thanks!

Econophile's picture

This is Part 3 of a major four part series dealing with what I feel is the primary question investors must now answer: is our future to be inflation or deflation? The answer has vast implications to our investment planning and decisions for the near term, and possibly for our long term. It is a very complex question with a lot of moving parts involving economics and politics.

Econophile's picture

This article is a look at the US's recovery, Europe's recovery, Asia's (China) recovery, and how they all tie together. While US manufacturing has been improving, mainly because of exports, it is also flattening out. Ditto almost everywhere else. This is a sign of what's coming.

Four Letters To Rosie

Some notable correspondences submitted by David Rosenberg's fans to the Gluskin-Sheff strategist. All are worth a read, although inbetween we get this glimpse of what Rosie really thinks: "We will come out of this cycle with tremendous inflation, but the primary trend for the next 3-5 years, the length of time it will minimally take before this global deleveraging cycle fades, is deflation." We knew Rosie was a long-term hyperinflationist.

Eric Sprott: A Busted Formula

There’s nothing wrong with throwing a little money at a problem to make it go away. There’s equally nothing wrong with throwing a little borrowed money at a problem to make it disappear, as long as you have the means to pay that borrowed money back. But what happens if you throw a lot of borrowed money at a problem, and the problem doesn’t go away? If you’ve ever experienced a situation like that you can probably understand how Europe feels right now. It just unleashed a magnificent $1 trillion euro bailout and the market responded with a selloff by the end of the week! So what happened? That money was supposed to make the problem go away, after all. And it was a lot of money. Why did the market respond to it with such disdain? We believe the market’s reaction is confirming what we have long suspected: that these bailouts provide next to no long-term value. They don’t produce real jobs. They don’t improve productivity. They just prolong the precarious leverage game played by the financial sector, and do so at tremendous cost to taxpayers. "Bailout and Stimulate" has been the rallying call for governments and central banks since the beginning of this financial crisis – and it has certainly had its impact over the last two years, but not the type of impact we need to propel real, sustainable growth. - Eric Sprott

April New Homes Sales Jump To 504K From 439K On Scramble To Catch Last Days Of Homebuyer Tax Subsidy

Earlier this week, existing home sales surged, and now new home sales follow through as homebuyers take advantage of the last month to offer a homebuyer tax credit. The April number was 15% higher than the revised March 439K, and soundly beat expectations of 425K units. Alas, as with every other forward push contraption the government has come up with, this only means that May and future home sales, will once again revert to the trendline as the tax credit has now expired (for now). Compare the recent spike in the chart below to that observed in the month Cash for Clunkers ran out: the 1:1 correlation is unmistakable.

David Rosenberg Part 1: "Why The Depression Is Ongoing"

"There are classic signs indeed that the recession in the U.S. ended last summer — output, sales, etc. But the depression is ongoing and the reason we say that is because real personal income, excluding handouts from the government, has barely budged. In fact, real organic personal income is nearly $500 billion lower now than it was at the peak 16 months ago and this has never occurred before coming out of any technical recession. It is a depression, as the chart below attests — that is the trendline for real household incomes, until the government comes in to top them off with handouts, subsidies and extended jobless benefits. The share of U.S. personal income being derived from Uncle Sam’s generosity has risen above 18% for the first time ever." - David Rosenberg