Now that, my friends, is how you buy yourself some good Government!
The “American Realist” Says: Past as Prologue – Re-blown Bubble to Pop Before the Previous Bubble Finishes Popping!!!!Submitted by Reggie Middleton on 05/18/2011 11:39 -0400
Last night, I spent an interesting time with the esteemed and world reknown macro economist, entrepreneur, NYU professor and strategist, Dr. Nouriel Roubini. Nouriel is a very, very bright guy. He has to be, he agrees with many of my viewpoints :-) On a more serious note, this article is the first installment of the valuation of real world, real assets and properties that are actually up for sale. I plan to walk my readers through the potential absurdity that is investing in a bubble that has not finished popping.
U.K. unemployment claims rose in April at the fastest pace since January 2010, showing the very fragile nature of the recent tentative economic recovery. Government spending cuts, austerity measures and accelerating inflation are clearly beginning to impact embattled consumers. In the U.S., stagflation is also an increasing, if unacknowledged, threat as the classic symptoms of inflation - slow growth, high unemployment and inflation are present. Weak U.S. factory output and home building data yesterday suggests that the world's largest economy is slowing down again. Official inflation figures in the U.S. remain benign but hedonic adjustments and many adjustments to the methodology of calculating inflation in the last 20 years mean that that the Consumer Price Index is no longer an accurate measure of real inflation in the economy. This macroeconomic risk coupled with continuing geopolitical risk is supportive of gold continuing to receive safe haven demand. The launch of the new Hong Kong Commodity Exchange will result in Asia having an even bigger say in prices of commodities and precious metals. The exchange is backed by China’s biggest bank and a Russian tycoon and will challenge established markets and exchanges in Europe and the U.S.
There are those who thought that following the material pushback by every chatterbox on CNBC that the muni situation is actually nice to quite nice, contrary to what Meredith Whitney had prophesied, that the scourge of Citi would slink back into whatever hole it is she crawled out of. And then there is Meredith Whitney, whose occasional appearances on TV have resulted in 25 weeks of consecutive, and material outflow from municipal funds. Undaunted by her critics, she has now doubled down, and shifting away from munis, is now focusing one level higher: on the state financial crisis. Her conclusion, sure to set off a firestorm of angry responses tomorrow when the Op-Ed hits the print version of the WSJ: "Defaults in a variety of forms by states and municipalities are already happening and more are inevitable. Taxpayers have borne the initial brunt of these defaults by paying higher taxes in exchange for lower social services. And state and local government employees are having to renegotiate labor contracts that they once believed were sacrosanct." And sure enough, she refuses to abandon her muni thesis: "Municipal bond holders will experience their own form of contract renegotiation in the form of debt restructurings at the local level. These are just the facts. The sooner we accept them, the sooner we can get state finances back on track, and a real U.S. economic recovery underway." Yes, well, one can argue that the sooner Ms. Whitney accepts that the modus operandi in the developed world is to preserve the status quo no matter the cost, and kick the can down the road indefinitely, the sooner we can all get back to a state of vegetative existence in which nobody questions anything and the world is one swell place until everything blows up.
HY credit deteriorated for the fifth day in a row (and 10 of last 12) as breadth was weak in equity and credit. Shifts in equity vol and context-based preferences for IG credit over stocks and HY credit suggest concerns are very warranted as macro data seems to confirm what credit has been hinting at for weeks.
Richard Koo Explains Why An Unwind Of QE2, With Nothing To Replace It, Could Lead To The Biggest Depression YetSubmitted by Tyler Durden on 05/17/2011 18:09 -0400
Over the past several days, quite a few readers have been asking us why we are so confident that QE3 (in some format: it does not and likely will not be in the form of the Large Scale Asset Purchases that defined QE1 and 2 - the Fed could easily disclose that it will henceforth sell Treasury puts, a topic discussed previously, or engage any of the other proposals from Vince Reinhart disclosed in June of 2003) will eventually be implemented by the Fed. Luckily, instead of engaging in a lengthy explanation of the logical, Nomura's Richard Koo comes to our rescue with his latest research piece. While we disagree with Koo on various interpretations of his about monetary theory (namely that the Fed is not in effect "printing" money and thus creating inflation - this is semantics and leads to a paradoxical binary outcome, whereby if there Fed was successful in boosting the economy, the economy would indeed be flooded with the nearly $2 trillion in excess reserves held with reserve banks. And good luck trying to contain this surge by changing the IOER - if the Fed indeed pushed the IOER to the required 5%+ level it would immediately destroy money markets, leading to the same liquidity freeze that marked the post-Lehman days, confirming the "Catch 22" nature of Quantitative Easing that we have observed since its beginning) we do agree with his analysis of what would happen to the economy if either stocks or commodities are in a bubble (and judging by the violent opinions out there, most investors believe that either one or the other has indeed reached bubble territory), should QE2 end cold turkey: "Viewed objectively, the central banks are trying to push up asset prices using quantitative easing and the portfolio rebalancing effect. The resultant rise in asset prices based on this effect represented a potential bubble—or at least a liquidity-driven event—from the start. The question is whether the real economy can keep pace with asset prices formed in those liquidity-driven markets. If it cannot, higher asset prices will be considered a bubble and will collapse at some point. The resulting situation could be much more severe than if quantitative easing had never been implemented to begin with." Bingo.
For everyone anxious to read a comprehensive update (of sketchy credibility, but better than nothing) on the Fukushima situation, a progress report out of Tepco, and the current status of the firm's "roadmap to recovery" (seems to be a catchphrase these days), Tepco has just released a progress status of the "Roadmap towards Restoration from the Accident at Fukushima Daiichi Nuclear Power Station." From the release: "With regard to the accident at Fukushima Daiichi Nuclear Power Station due to the Tohoku-Chihou-Taiheiyo-Oki Earthquake occurred on Friday, March 11th, 2011, we are currently making our utmost effort to bring the situation under control, and on April 17th, we put together a road map towards restoration from the accident. Today, as a month has passed since we presented the roadmap towards restoration, we would like to present the status of the progress." And the by now "too little too late" apologies: "We would like to deeply apologize again for the grave inconvenience and anxiety that the broad public has been suffering due to the accident at the Fukushima Daiichi Nuclear Power Station. We will continue to make every endeavor to bring the situation under control." How about providing the public with a true and honest update of what is really happening?
Stock markets on crack are about to join Lindsey Lohan and Charlie Sheen in rehab. We are witnessing the end of the third great bubble in debt, the greatest accumulation of IOU’s in history. The Federal Reserve is now manipulating all markets, and the exercise is certain to end in tears. The only way out from this will be to suffer an economic and financial crisis worse than we have seen to date. Dow 3,500, here we come. Looking for oil at $15 a barrel. Gold craters to $250 and silver to $4. A 2% yield on ten year Treasuries anyone?
Soros Sells Gold ETF While Paulson Buys - PIMCO Favour Gold As A “Protection Against What Can Go Wrong”Submitted by Tyler Durden on 05/17/2011 07:09 -0400
The confirmation of George Soros ETF gold sale has again garnered much media comment. Soros’ $28 billion fund decreased its holdings of the SPDR Gold Trust, the exchange traded fund. Soros had bought gold to protect against possible deflation, though his fund now believes there is a reduced chance of such a condition, the Wall Street Journal recently said, “citing people close to the matter”. Should Soros and his fund think that inflation is now a greater risk than deflation then it is curious that they would sell all their ETF holdings. It is also curious as Soros is on record regarding having serious concerns regarding the outlook for the euro and the dollar and the dollar as reserve currency of the world. There is of course the precedent of other hedge fund managers , such as David Einhorn, who have also sold their gold ETF holdings but bought physical bullion in allocated accounts due to a concern about counter party and systemic risk. This would allow Soros to discreetly accumulate bullion away from the public and media spotlight that result from SEC filings. Paulson & Co., the $36 billion hedge fund founded by John Paulson kept its largest holding - $4.41 billion in the SPDR Gold Trust. Paulson’s belief in gold is seen in the fact that those who buy his fund can have their stakes denominated in gold rather than in dollars, meaning the value of their investment rises and falls with the price of bullion – lessening exposure to the dollar. Paulson, unlike Soros, is on record as having purchased gold to protect against inflation. PIMCO, the largest bond fund in the world, are also increasingly allocating funds to gold in their global equities portfolio. “The largest position in [our] fund is gold, which we think is a very good form of protection against what can go wrong,” said Anne Gudefin, PIMCO’s global equities portfolio manager, told Fortune magazine May 12.
It was another manic Monday with lots to cover, setting the record straight on Bill Gross, China, and the commodity selloff...
The economic peril that we find ourselves confronted with, has been ninety-eight years in the making. The confluence of debt, demographics, delusion, and denial has left the country at the precipice of annihilation. There are two kinds of people in the world, those who control the money and those that are controlled by those who control the money. The last century has been marked by a methodical looting of the good (working middle class) by the bad (Federal Reserve & bankers) and supported by the ugly (Washington D.C. politicians). When historians pinpoint the year in which the Great American Empire began its downward spiral they will conclude that year to be 1913. In this dark year for the Republic, slimy politicians, at the behest of the biggest bankers in the country, created a private central bank that has since controlled the currency of the United States. This same Congress staked their claim as the most damaging group of politicians in US history by passing the personal income tax in the same year. These two acts unleashed the two headed monster of inflation and taxation on the American people.
Equities have significantly underperformed credit the last two days but have plenty of room to go before they re-sync with any kind of value. Rotation under the surface points a risk-averse crowd seeking safety and not poised to BTFD.
I’ll come to the point. Despite talk of a recovery, the economy is badly underperforming. Growth last quarter came in at just 1.8 percent. We’re not even creating enough jobs to employ new workers entering the job market, let alone the six million workers who lost their jobs during the recession. The rising cost of living is becoming a serious problem for many Americans. The Fed’s aggressive expansion of the money supply is clearly contributing to major increases in the cost of food and energy. An even bigger threat comes from the rapidly growing cost of health care, a problem made worse by the health care law enacted last year. Most troubling of all, the unsustainable trajectory of government spending is accelerating the nation toward a ruinous debt crisis. This crisis has been decades in the making. Republican administrations, including the last one, have failed to control spending. Democratic administrations, including the present one, have not been honest about the cost of the tax burden required to fund their expansive vision of government. And Congresses controlled by both parties have failed to confront our growing entitlement crisis. There is plenty of blame to go around. Years of ignoring the drivers of our debt have left our nation’s finances in dismal shape. In the coming years, our debt is projected to grow to more than three times the size of our entire economy. This trajectory is catastrophic.
- Tepco Says Fuel in 2 Reactors May Have Melted (Bloomberg) "The findings at the No. 1 reactor indicate the likelihood
that the water level readings in the other reactors aren’t
- The Destruction of Economic Facts (BusinessWeek)
- US residents flee sacrificed Mississippi flood towns (BBC)
- 'Dominique Strauss-Kahn Is Finished' (Spiegel)
- IMF in Wake of Scandal Turns to Lipsky (Bloomberg)
- The Known Unknown of Greek Debt (WSJ)
- Greece Aid May Be Clouded by Strauss-Kahn Arrest (Bloomberg)
- Lowe’s Profit Trails Estimates as Home Projects Curbed (Bloomberg), and, you guessed it, bad wearther blamed
- Warning signs on market liquidity risks (Reuters)... pretty much as warned on Zero Hedge in April 2009
This article discusses the current path our economy is taking. While most economists believe the Q1 GDP stumble was a temporary blip in an ongoing recovery, I believe it is the beginning of a downward trend of economic stagnation and inflation. The root of this is the Fed's attempts to inflate the economy into recovery.