On The Ever Stronger Demographic Headwinds Before The US Economy

Ten days ago we posted extended thoughts on the upcoming US demographic crunch, paraphrasing observations by Goldman Sachs, which speculated that with ever more individuals leaving the "prime-savers" demographic bracket, those aged 35-69, the (already meager) temptation to save in the US will decrease substantially going forward. Goldman was primarily focused on the implications this phase shift implies for future US Current Account deficits. Today David Rosenberg begins to tackle the US demographic issues from his own perspective, with his preliminary conclusions, as expected, not validating any optimistic perspectives before the US economy: "starting next year, this key age cohort for both the economy and the markets will begin to decline — according to official forecasts, each and every year to 2021. The last time we saw sustained declines in this part of the population was from 1975-83, which was an awful time for both the economy (except for that very last year when the negative growth rate in this age segment was drawing to a close) as the S&P 500, in real terms, was as flat as pancake and real per capita income barely expanded."

At £4.8 Trillion In Total Debt Including Unfunded Liabilities, UK Debt Is Six Times More Than The Official Number

Everyone knows that the total US debt is over $120 trillion when accounting for such underfunded liabilities as Medicare and Social Security. Well, it appears that the bankrupt US welfare state is not alone. According to the UK's Institute of Economic Affairs (IEA), the country's national debt is £4.8 trillion once state and public sector pension liabilities are included, or £78,000 for every person in the UK. This number translates to about 330% of UK's GDP. Which of course is nothing compared to the total US adjusted debt-to-GDP number which when accounting for all off balance sheet items is roughly 10x the US GDP of $13.6 trillion, a number which is Rosenberg and Bridgewater are correct, may decline quite soon.

Matterhorn's von Greyerz Explains Why The Apocalypse Is Nigh

A few days ago we presented the most recent investor letter by Egon von Greyerz of Matterhorn, whose pessimism makes David Rosenberg seem like a CNBC staple cheerleader. Today, CNBC invited the hyperinflationist to its European studio where von Greyerz engaged in some entertaining sparring with the anchor over two totally different worldviews. Those who have read the letter previously, and have followed the inflationist side of the argument, will not be surprised by any of the disclosures: decades of debt fueled prosperity, $20 trillion backstop of financial institutions, deteriorating fundamentals, reckless money printing, and gold as the only real store of value: in other words - all the things that those who see no treasury bubble will close their eyes to and quickly walk away from.

Guest Post: The 0% BLT Economy

Two years ago when I told everyone I knew that the United States was bankrupt and would ultimately default of its debt one way or the other (by inflation or restructuring) I was called crazy and dismissed by 95%+ of the people I met. These days many of the same people still think I am crazy when I say that a political, financial and intelligence elite which has now teamed up with large corporations is attempting to create a global currency and world government (with them at the helm of course), but the notion that the U.S. is bankrupt is now more or less mainstream. Even the corporatist/socialists in power are now unable to merely dismiss questions about the deficit. The public has woken up from its slumber of consciousness and is now starting to see things as they are. This is an extremely positive development and is why as I have said before I think the elite are in their last days as the freight train of consciousness runs them and their twisted illusions of grandeur into the sea. The weakest link in this sick and corrupt financial system that was forced upon many of us before we were even born with its mechanics purposely hidden in the shadows so that we remained ignorant of its preposterousness, is the commodity market. However, within the commodity market the weakest link is gold. - Mike Krieger

Gold Surges As Curve Butterfly Funds Stocks Higher

Earlier rumors of a liquidation-based selling have proven to be false, as gold has surged by over $12 from the day's lows to its highest level in months. Elsewhere, the new carry correlation trade confirms it is truly the 2s10s30s butterfly that is the new source of funding for stocks, and for spiking HFT momentum. And the big institutions who have now gamed the latest funding pair, continue to sell into the HFT bid, as stocks rise purely as a side effect of a normalization in the butterfly wings, and never on any actual fundamentals, which as David Rosenberg once again demonstrated earlier, continue to get worse and worse. But remember: GM has to IPO today, and Geithner can't possibly do it on a downtick, let alone a red close. Also, we have another POMO tomorrow as the Fed once again prepares to give a blank check to the PDs to ramp the S&P another 3% higher. All in all, another day in Central Planning.

Since June, Banks Have Bought $83 Billion In Government And Agency Bonds

It is good to know banks are doing something with that $1 trillion + in excess reserves. And yes, "reinvestment" is technically considered doing something. David Rosenberg explains that since American citizens are now broadly considered unworthy of crediting (and since those same consumers would rather have a steady income and/or a job before taking out a loan), banks are now merely riding on the increasingly flattening treasury wave.

Frontrunning: August 16

  • China Overtakes Japan as World's Second-Biggest Economy (Bloomberg)
  • US banks get securities buy-back window - $118bn of high-cost ‘Trups’ can be redeemed over 90 days (FT)
  • Yield Curve as Harbinger (WSJ)
  • It Takes a Tea Party to Start a Tax Revolution (Bloomberg)
  • Evans-Pritchard: Ireland can withstand the euro's ordeal by fire, but can Southern Europe? (Telegraph)
  • Workers Let Go by China’s Banks Putting Up Fight (NYT)
  • Goldman Undercuts Rivals in GM IPO as It Loses Top Role (Bloomberg)
  • Is This Normal? The uncertainty of our economic uncertainty (NYMag)
  • Mark Zandi oped: The Tax Cut We Can Afford (NYT)

Weekly Chartology; Goldman Introduces Its Own Version Of Rosenberg's SIRP For A Low GDP Growth Environment

In a surprising act of lucidity, David Kostin recently reduced his 2010 S&P target from 1,250 to 1,200. Now, the Goldman strategist has penned his own version of David Rosenberg's SIRP (Safety and Income at A Reasonable Price), by introducing two strategies for a low GDP environment: Low Operating Leverage And Dividend Growth (LOL-DG - yes, we prefer Rosenberg's acronym).Hopefully, this means that the GARP abortion is finally dead and buried.

Rosenberg Interview: "If You Don't Believe In A Double Dip, It's Because The First Recession Never Ended"

Sick and tired of CNBC "interviews" in which the speaker is given 15 seconds inbetween commercials to explain why the economy is in the toilet, before another talking head from the dodecabox appears and starts spouting painfully ridiculous things? So are we. Which is why we refuse to link to David Rosenberg's earlier presence on CNBC, and instead we present Rosie's following 26 minute interview with the WSJ which is a must watch for all who want to listen to exiled Merrill Lyncher express a coherent realistic thought before some CNBC associate producer screams "cut to commercial for incontinence pills." And, true to form, Rosie starts off in style: "If you don't believe there's going to be a double dip, it's because the first recession never ended. If there is going to be a double dip, the odds are certainly higher than 50-50." For those who follow Rosie's daily letters via Gluskin Sheff (which would be all of our readers), the insights won't be particularly new, but it is always great to hear a rational and sensible human discuss things as he sees them, not as his trading book demands he sees them.

Is A Market Crash Coming? The WSJ Ponders...

In a unorthodox piece by the WSJ, which goes direct to discussing some of the less than pleasant possible outcomes of central planning, Brett Arends asks "could Wall Street be about to crash again? This week's bone-rattlers may be making you wonder" and says: "way too many people are way too complacent this summer. Here are 10 reasons to watch out." And without further ado...

David Rosenberg Vindicated

...And proud of it. He also provides his latest investment basket recommendation: "So, while I continue to advocate underweight positions in equities, a bar bell between basic materials and defensive dividend stocks is a prudent strategy, with the overall emphasis in the asset mix tilted towards bonds, especially the BB sliver or that part of the higher quality non-investment grade space that currently has the greatest unexploited potential for spread compression and capital gains."

Fed's Total 2-10 Year UST Monetization Over Next 12 Months: $340 Billion

BofA's Jeffrey Rosenberg provides the breakdown of the total amount of securities that roll off (MBS, Agency and USTs) over the next 12 months: the total is $340 billion, including the $230 billion (and possibly more) in MBS. Alas, this means that on a straight line monthly basis (and the finally outcome will likely be far more jagged), there will be on average just under $30 billion a month in incremental 2-10 Year Treasury Purchases. As Joseph Abate said earlier, this is not nearly enough to be considered a new stimulus, and at best seeks to retain the status quo. What is notable is that BofA believes today's action should have been priced into the market. Judging by the kneejerk reaction in stocks and bonds, the reality is anything but.

Here Is The Simple Reason Why QE Is Unnecessary

As the following chart from David Rosenberg demonstrates, consumers are retrenching, and "just saying no" to both residential and consumer loans. Earlier, we also showed that Small Businesses also contracted, demonstrating that credit demand is collapsing at every vertical of US society. As such, QE, or ever cheaper money, has and always will be a "push" phenomenon, for which there is simply no demand, in a society that has trillions more of deleveraging to undergo. And banks realize that with retail investors not participating in the stock market, and thus having nobody to offload risky exposure to, using reserves to bid up risky assets will merely result in more pain down the road once profit taking time comes and everything goes bidless. As such, as debate over the utility of QE is moot. The only question is what the Fed's persistent desire to debase the dollar will do the perception of monetary aggregates (i.e., the stability of the dollar) and whether the demand for alternatives (such as gold) will offset the need to liquidate said alternatives as a last-ditch source of capital to cover margin calls in a deflationary vortex. Everything else is smoke and mirrors.