David Rosenberg Responds To All Who Blame The Bears For Missing The Stock Rally With One Simple Word: GoldSubmitted by Tyler Durden on 09/28/2010 09:44 -0500
Recently, there has been much euphoria to define all those who believe that gold will outperform as goldbugs. We in turn are fairly confident that pretty soon all those who have faith that the central banks will somehow get it right this time, instead of causing all out war again, will be labeled as "paper bugs." What however, surprises us is that all the so called "gold bugs" continue to be invested in the best performing asset class over the past day, 5 days, 1 month, 6 months, 5 years, and 10 years: on a relative basis gold has outperformed stocks in all these time categories, yet it continues to be more hated than even Ben Bernanke, whose stealthy destruction of middle class purchasing power is in fact cheered by the "paper bugs" - we will not bore you with the chart that shows how the dollar has lost almost 100% of its purchasing power since the creation of the Fed. Anyway, here is David Rosenberg, who several months ago joined the gold bandwagon, and presents one of the better defenses to all those who blame gold bugs for not catching the "bungee jump" in the most manipulated stock market in history. "We continue to field criticism that we “missed the call” on the equity market. Well, no doubt we did not see the 1930-style bungee jump last year, but: (i) it’s over, and (ii) there were many other asset classes we liked that did very well: what has done better than gold, which is up more than 30% in the last 12 months." We obviously agree both now, and about 50% back, at the time of the creation of this blog, when we said that the only natural response to Fed insanity is the otherwise useless shiny metal.
Bill Gross: More QE Will Lead To A "Declining Dollar And A Lower Standard Of Living; Druckenmiller Departure Is End Of Old Normal"Submitted by Tyler Durden on 09/28/2010 07:42 -0500
Some very troubling observations from Bill Gross. In summary: "What the U.S. economy needs to do in order to return to the “old” normal is to recreate nominal GDP growth of 5%, the majority of which likely comes from inflation. Inflation is the classic “coin shaving” technique of government since the Roman Empire. In modern parlance, you print money faster than required, pray that the private sector will spend it to generate investment and consumption, and then worry about the consequences in a later decade. Ditto for deficits and fiscal policy. It’s that prayer, however, which the financial markets are now doubting, resembling circumstances which in part are reminiscent of the lost decades in Japan since the early 1990s. If the private sector – through undue caution and braking demographic influences –refuses to take the bait, the reflationary trap will never snap shut. Investors will likely not know whether the mouse has grabbed for the cheese for several years forward...The most likely consequence of stimulative government policies that strain to get us there will be a declining dollar and a lower standard of living. Stan Druckenmiller is leaving, and with good reason. A future of low investment returns, and a heap of trouble for those expecting more, is what lies ahead."
This morning our favorite Banksters goosed the EU markets by upping targets on international mining operators Kazakhmys, Lonmin and BHP and that got the European markets off to a flying start out of the gate, despite the fact that UBS had just DOWNgraded the same sector on Friday.
China: Proudly Demolishing Buildings Before Completed In Pursuit Of The Glorious Housing Bubble Perpetual EngineSubmitted by Tyler Durden on 09/26/2010 18:30 -0500
Ever wonder how China can endlessly generate goal-seeked GDP of precisely 8.00001% year after year? Or how it can constantly find use for the massive and ever-larger surplus of warehoused commodities? Simple - never stop building. Which, apparently means blowing up empty building before they are even finished and rebuilding them. Rinse. Repeat. After all gotta keep all those construction workers from rioting, and all those USD reserves redirected into Brazilian and OZ commodities, now that China is not really buying US debt anymore. China Hush has some stunning pictures confirming that in its search of the great home bubble perpetual engine, the politbureau comrades may have stumbled onto the bricks and mortar equivalent of Shangri La.
My last post "Correlation of mortgage rates with real housing prices: how increasing inflation could affect housing prices", raised some questions. I didn't have the chance to respond to them. But before I do, let me go back to the original purpose of the article. I asked the question, "What could happen to real estate in the event of higher inflation?" If inflation shot up from 1% to 7%, what would happen to the real value of your home. My thesis was: you're screwed. You will lose what little equity you have and real housing prices could drop by as high as 50%. - Taylor Cottam
Why the price of (paper) gold may well plummet, as physical gold prepares to approach its true value in the $50K+ range (if at all quantifiable using current currency), as explained using e-mails, Nash Equilibria, condoms, and other parables, by FOFOA
You know times are bad in the housing industry when home builders hang up the hard hat and take to running leveraged hedge funds. Hell, they don't even have to be any good at it, because they are using 0%, non-recourse loans with very little of their own capital (bubble style leverage), thanks to YOU, Mr. and Mrs. Taxpayer bitching about unemployment and higher taxes. I hope this doesn't piss anybody off,,, again!
Today, there is not a single government in the world that has provided an adequate or sustainable solution to our global monetary crisis. The most prominent criticism from Keynesian apologists regarding our monetary crisis is that supporters of Austrian economics always complain but offer no solutions. This simply is not true. Rather, our global leaders refuse to hear or consider the solutions we present. Today, citizens desire real change, not change disguised as maintenance of the status quo that politicians and bankers offer to us.
Take It From Someone Who Called the Housing Crash (and its victims) in 2005, We Are About Midway Through the Downturn, If That FarSubmitted by Reggie Middleton on 09/23/2010 13:09 -0500
For anybody that values results over brand names, the housing market has a much rougher road ahead than many presume and banks are literally the walking dead! Having accurately called the fall of the WaMu, Countrywide, Bear Stearns, MBIA, Ambac, Lehman, residential and commercial real estate I am confident that the list of big name failures WILL EXPAND! Every single variable that can be plugged into a housing value equation is explicitly negative, save the manipulated mortgage interest rates (meaning another bubble to burst).
Courtesy of Damien Cleusix, here is the much anticipated Q4 update in his must read series on Global Tactical Asset Allocation, this one focusing on currencies (the other updates in this series are coming soon).
The hands on, from the trenches view from Oracle of Omaha Warren Buffet’s personal agent. The number of existing homes on the market is climbing from the current 4 million units to 5 million, versus a ten year annual trailing average sales of 2.5 million units. Record foreclosures are forcing reasonable sellers to compete against distressed sellers, driving prices down. The hurricane force headwinds of the retirement of 80 million baby boomers, the parsimonious attitude of banks, and the harsh reality of continued falling standards of living in the US aren’t helping. Do bank stock investors know this?
"Incentives are part of total compensation and critical to the fund's long-term success as well as recruitment and retention of skilled investment professionals," Pacheco said in an e-mail.
"Wax on, Wax off", "risk on, risk off", whatever you want to call it, the most prevalent phenomenon in capital markets over the bear market rally of the past year has been the gradual yet relentless rise in cross asset correlations. As we reported earlier, hedge funds are now openly returning capital due to their inability to properly hedge positions and execute on traditional long/short strategies, which in turn is wreaking havoc on the entire 130/30 or 130/70 model (which also means gross leverage for most rational hedge funds is reduced as those who do gross up, are effectively betting the farm on market moves with an increasingly shorter and more volatile even horizon). Long before this became a daily topic on CNBC, we were warning about the dire implications of alpha extinction, and the impact it would have on hedge funds. And with the opportunity to diversify away risk increasingly taken away from investors, we expect that this trend will result in ever more capital fleeing the stock market. Yet the question remains: what has caused correlations to surge to current levels? If these reasons can be identified, it should be easy to eliminate them one at a time until some semblance of a rational market returns (at least on paper). Luckily, Nicholas Colas of BNY has once again beaten us to the punch, and has compiled a list of the top 10 reasons for increased asset price correlations. So without further ado...
On one end, you have the destruction left over from the extinction of US auto manufacturing. On the other end, you have PIMCO. And inbetween the two, there are 294 home markets, which make up the exponential curve of US real estate prices. It is not surprising that the non-normal distribution in home prices follows quite closely the Talebian extremistan distributions expected (even though the last word is an oxymoron in this context) out of modern day markets. We wonder which end of the curve the President has got his eyes focused most on these days for "excess efficiency" retention purposes.
Jeff Gundlach "Society Looked Into The Debt Abyss And Decided Enough Is Enough With The Debt-Based Consumer Economy"Submitted by Tyler Durden on 09/22/2010 16:19 -0500
Jeff Gundlach who has been spot on with timing his calls for Treasury inflection points, did a quick Q&A with Morningstar summarizing his outlook on the economy. In a nutshell while the DoubleLine manager is still skeptical that inflation may strike, he is convinced deflation is pervasive. To wit: "markets and the economy to date have offered scant evidence to support
the inflation case. Stocks are down over the past 10 years. Real estate
is down hard over the last five years. Commodities are down sharply over
the last two years. Instead of spiking to double digits, bond yields
are hugging the ground. M3, which is now calculated only by private
economists, is down nicely over the past year. And of course money
velocity is moribund: Society has looked into the debt abyss and decided
enough is enough with the debt-based consumer economy. So, deflationary
forces still prevail. What could shift the balance of forces in favor
of inflation? A well-meaning movement to cut the deficit has at long
last arrived, maybe. But cutting the deficit that is supporting the
consumer economy will directly depress gross domestic product. If that
causes not just a look but a step or two into the deflationary abyss,
then maybe the inflation case will move to center stage." Sure, let's not forget the collapse in the shadow economy. But let's also not forget that the economy is in a vacuum, and were the Fed not in the picture, we would totally agree. But because the most irrational human being in the world is in charge of said world via his control of the US reserve currency (and irrational because he promotes exclusively policies that benefit the vast minority over the majority), we will have to disagree. And so would the price of gold.