A Surprise From JPM: "Pundits Are Urging Investors To Chase Performance; We Believe This Would Be A Mistake"Submitted by Tyler Durden on 05/03/2016 11:14 -0400
"Equities had a meaningful rebound from the February lows, and we now find many who didn’t want to add at the time, are looking to enter the market at these levels. Indeed, pundits are urging investors to “chase performance”. We believe that this would be a mistake; complacency has crept into the market again, technicals appear overbought and the upturn in activity appears to be stalling."
Despite unleashing his bazooka, Mario Draghi - like his colleagues at The BoJ - appears to have hit the limit of his impotence as the European Commission cut its outlook for growth and inflation across the Union for 2016 and 2017. Citing the economic slowdown in China and other emerging markets, geopolitical tensions and uncertainty ahead of the U.K. referendum on EU membership, WSJ reports EU’s economists also cautioned that the strength of factors that have been supporting growth in the region, such as low oil prices and a weaker euro, could start to fade. This sparked modest Euro weakness (after a non-stop surge in the last week) dragging down European stocks and darkening the outlook for the banking system further.
“The zero interest [rate] policy is an attack on the assets of millions of Germans..."
There are many who believe that the use of energy is critical to the growth of the economy. However, the thing that is not as apparent is that growth in energy consumption is dependent on the growth of debt. Both energy and debt have characteristics that are close to “magic,” with respect to the growth of the economy. Economic growth can only take place when growing debt (or a very close substitute, such as company stock) is available to enable the use of energy products. The situation we are facing today is one in which growing debt has been holding up oil prices and other commodity prices for a long time. We are now reaching limits on this process, as evidenced by growing wealth disparity, low commodity prices, and the frantic actions of governments leaders around the world regarding slow economic growth and the need for more stimulus.
The US became an unsustainable service sector based economy from the 1970s onward when service sector employment diverged from manufacturing without a corresponding boost in productivity. Even Alan Greenspan has warned that America is "in trouble basically because productivity is dead in the water..." There are numerous reasons for this plunge in worker-productivity, from perverted inventives not to work to unintended consequences of monetary policy enabling zombies, but perhaps the most critical driver is exposed in the following dismal chart...
"It Has Been A While Since We’ve Had A Profitable Quarter To Report" - Einhorn's First Quarter LetterSubmitted by Tyler Durden on 05/02/2016 18:18 -0400
"It has been a while since we’ve had a profitable quarter to report. Though we would like to make it a habit, trying to manage for quarterly results is really not our philosophy. We think one of our advantages is the ability to be more patient than others, especially as investment horizons appear to be getting shorter.... the Fed’s “data dependency” doesn’t appear to relate to employment, which continues to improve, or core inflation, which is now running above its 2% target. We believe the increasingly adventurous monetary policy is bullish for gold."
Today, the Saudi foreign minister Adel al-Jubeir, while speaking to reporters in Geneva after talks with U.S. Secretary of State John Kerry which mainly focused on Syria, admitted this threat saying passage of the law would "erode global investor confidence in America" by which he was, of course, referring only to Saudi Arabia. However, to avoid another slap in the face of US foreign policy on the record, he denied that Saudi Arabia had "threatened" to withdraw investment from its close ally and instead called it a mere "warning."
"For a start, savers can still earn satisfactory rates of return from diversifying their assets, even when interest rates on deposit and savings accounts are very low. For example, US households allocate about a third of their financial assets to equities..."
Is Charlie Munger Becoming Austrian: "It Was Massively Stupid For Our Government To Print So Much Money "Submitted by Tyler Durden on 05/02/2016 13:19 -0400
Any moment now we expect Paul Krugman to come out with an op-ed suggesting that not just Time magazine, but Charlie Munger is the latest to join ZH payroll following what were some surprising comments by Warren Buffett's right hand man earlier today on CNBC when he said that "the U.S. is looking more like Japan given the prolonged low-interest-rate environment." The one phrase which Krugman will surely have something to say about was the following: "I strongly suspect it was massively stupid for our government to rely so heavily on printing money and so lightly on fiscal stimulus and infrastructure," Munger told CNBC's "Squawk Box."
The 2016 election has laid bare the deep insecurity of America’s ageing working-class, their resentment toward foreigners, competition, change. While America’s youth clamor for fairness, a future free from crushing student debt, the oppression of a government owned by and run for big business, the US Treasury is responding, warning our trading partners against artificially weakening their currencies, stealing our growth, depressing our wages, destroying our jobs.
"There is little doubt in our minds that $/JPY will keep falling in the near term, until Governor Kuroda is forced to respond with overwhelming force. We therefore hold to our structural view that $/JPY ultimately will go a lot higher. But in the short term, it will fall.... Until Governor Kuroda is willing to grab the bulls by the horns and confront market fears over the BoJ’s balance sheet, the path of least resistance for $/JPY is down"
NIRP is not inflationary. On the contrary it is highly DE-flationary.
It appears as though the ECB has had enough of the thorn in its side that is Germany in this latest round of back and forth, and has taken to what it does best: jawboning. In an article published today in the Frankfurter Allgemeine Sonntagszeitung newspaper, executive board member Benoit Coeure writes a rambling article defending ECB's policies, tells Germany that the ECB is the reason for its economic success, and downplays the issues that any savers may be having under NIRP.
Europe's banking system is 46 Trillon Euros in size and leveraged at 26 to 1. Lehman was leveraged at 30 to 1 when it imploded.
In the next 20 years, total US debt would reach 50 trillion dollar. That’s right, 50,000 billion dollar!