Yesterday, the IMF and World Bank issued warnings about rising interest rates, housing crashes and the global economy. The World Bank’s chief economist is inadvertantly offering important advice to investors and savers when he said that "now is the time to prepare for the next crisis ..."
In order to back the dollars now in circulation and on deposit -- about $2.7 trillion -- with the approximately 261 million ounces of gold believed to be held by the U.S. government, gold prices would have to rise as high as $10,000 an ounce. Who said gold is not money?
There is much hope that after a dismal Q1 GDP report of -1% annualized growth in the domestic economy, that Q2 will see a sharp rebound of between 3-4% according to the bulk of economists. The Federal Reserve is predicting that the U.S. economy will grow as strongly as 2.8% in real terms for the entirety of 2014. The achievement of the Fed's rather lofty goal would require a real 4% annualized growth in each of the next three quarters. The problem with this assumption is that the last time that the U.S. economy grew at 4% or more, over three consecutive quarters, was in 1983.
"I am not God, I am not here to judge who is right and who is wrong, but if you look at geopolitics in Asia from a Chinese perspective, its completely unacceptable in the long run to have American military presence in Asia," blasts Marc Faber.
"As a large power like France and Britain and America, you might be able to push around small countries, but you can't push around a country that has twice the population of Europe and the United States, and has become a relatively modern state with military that is very powerful."
Henry Ford once said, “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” We hope this brief discussion raises that 'understanding'.
Because we are living in the Golden Age of Central Bankers, and that wreaks havoc on the fundamental nature of market expectations data....
- the VIX is not a reliable measure of market complacency.
- the wisdom of crowds is nonexistent.
- fundamental risk/reward calculations for directional exposure to any security are problematic on anything other than a VERY long time horizon.
- I’d rather be reactive and right in my portfolio than proactive and wrong.
The Golden Age of the Central Banker is a time for survivors, not heroes. And that’s the real moral of this story.
“You know what the difference is between an Economist/Analyst, and a Business owner? When a Business owner makes a prediction on his or her business and is wrong – the business could wind up in bankruptcy. When the Economist/Analyst makes a wrong prediction about business – they just make another prediction.”
Borrowing heavily from Albert Edwards "Ice Age" analogy of our new normal, PIMCO's Bill Gross, after explaining why he does not have a cell phone, discusses the "frigidly low" levels of "The New Neutral" in this week's letter. Confirming Ben Bernanke's "not in my lifetime" promise for low rates and a lack of normalization, Gross explains that the "the new neutral" real policy rate will be close to 0% as opposed to 2-3% (just as in Japan) leaving an increasingly small incremental rise in rates as potentially responsible for popping the bubble. Gross concludes, "if 'The New Neutral' rates stay low, it supports current prices of financial assets. They would appear to be less bubbly," clearly defending the valuation of bonds knowing that he can't expose stocks as 'bubbly' without exposing his firm to more outflows.
Nope, no bubble here... The FT reports that issuance of payment-in-kind (PIK) notes have doubled this to reach $4.2bn. "We call it the yield-hunger games," jokes one bond manager as even the most modest pick-up in yield is in great demand - no matter what the risk. As another manager warns, "I have no doubt that the resurgence of PIKs and other risky debt deals is a sign that we are setting the stage for the next down cycle."
In just about any realm of activity this nation does not know how to act. We don’t know what to do about our mounting crises of economy. We don’t know what to do about our relations with other nations in a strained global economy. This is a society in deep danger that doesn’t want to know it.
The officially released agenda of the prestigious Bilderberg club meeting (attendees listed here) is not true, claims Russia Today show host Daniel Estulin, a longtime watcher of the ‘secret world govt’ group. He says he obtained the real agenda for this year’s gathering in Copenhagen. An insider leaked the list of talking points for the ongoing Bilderberg conference to the investigative journalist last week, he said. The list has nine items, seven of which he shared... from Nuclear diplomacy and the disturbing rise of Nationalism; it was a focus on Barack Obama's foreign policy that drew our attention most closely...
As the U.S. Greater Depression progresses, depicted most vividly in the collapse in the “civilian participation rate” (the number of people working in the economy) and the “velocity of money” (the heartbeat of the economy) - indicating an economy which is not merely in decline, but rather is being sucked downward in a terminal (and accelerating) death-spiral. There is another even more concerning statistic: U.S. “gasoline consumption” – as measured by the U.S. EIA itself – has plummeted by nearly 75%, from its all-time peak in July of 1998. A near-75% collapse in U.S. gasoline consumption has occurred in little more than 15 years... "recovery"
"...the West, on the other hand, is full of debt and consumption. America’s greatest exports are now infinite quantities of paper currency, drone attacks, and arrogant regulations like FATCA. It doesn’t take a rocket scientist to see where this is going. The West is running out of steam, and the Social Contract subtext is breaking down. Parents are no longer able to provide a better life for their children."
If clichés reflect overly common (if therefore unappreciated) wisdom, then we finally have a good explanation for why risk assets continue to rally. No, there are actually not “More buyers than sellers” – money flows are negative over the last month for both U.S. equity mutual funds and ETFs. And forget about investors “Downgrading on valuation” as stocks climb higher and higher; truth be told, that’s not even really a thing (unless you work on the sell side). Nope, this is a “Flight to quality”, “don’t fight the Fed”, “never short a dull market” environment with “easy comps” from a long rough winter. Want to call a top somewhere around here? Remember that “Markets discount events 6 months in the future.” A “Santa Claus rally” in June? That would fit the one cliché we know is actually the market’s True North: it will do exactly what hurts the most “Smart” investors. And that would be to rally further as the doomsayers double down and the timid cling to their bonds and cash.
The temptations of extrapolation are hard to resist. The trend exerts a powerful influence on markets, policymakers, households, and businesses. But discerning observers understand the limits of linear thinking, because they know that lines bend, or sometimes even break. That is the case today in assessing two key factors shaping the global economy: the risks associated with America’s policy gambit and the state of the Chinese economy. It is often said that a crisis should never be wasted: Politicians, policymakers, and regulators should embrace the moment of deep distress and take on the heavy burden of structural repair. China seems to be doing that; America is not. Codependency points to an unavoidable conclusion: The US is about to become trapped in the perils of linear thinking.