Big round numbers always encourage reflection. Turning 40 or 50, for example, or making (or losing) a million dollars. Or a billion. And so it is with “Dow 14,000.” ConvergEx's Nick Colas has three critical observations as we traverse this particular “Big round number.” First, it is clear that equity prices (and volatility, for that matter) are much more a direct tool of central bank policy than in prior economic cycles. Second, the rally off the bottom in March 2009 has left the investing world with very few money managers who can legitimately claim the title of “Smart money.” Lastly, you have to consider the way forward. The roadmap from Dow 6600 (March 2009) to Dow 14,000 was – in retrospect – clearly marked by signs labeled “Follow the central bank yellow brick road.” Good enough signage to get us here, clearly. But, as Nick notes, fundamentals – corporate earnings, interest rates, and economic growth – those are the metrics which will have to guide us as central banks inevitably reduce their liquidity programs. As he considers the way forward for U.S. stocks, he reflects on Spring 1994 - U.S. stock investors thought they had it all figured out as they exited 1993, just as they do now...
Many of the banks, now predicting gold’s bull market will end in 2013, never predicted gold’s bull market in the first place. Most were bearish on gold in the early to mid years of the bull market and most only became bullish quite recently.
Many of these banks' primary focus is short term profit, often trading profits, and therefore they do not understand the long term, passive diversification benefits of gold in a portfolio or as financial insurance.
If yesterday's indications of the near-record overweight net long positioning in Russell 2000 Futures & incredible net short VIX futures positioning, along with the extreme flows contrarian indication was not enough to concern investors that the 'money' is in, then the following four charts should cross the tipping point. Citi's Panic/Euphoria guage for US stocks has only been more euphoric on two occasions - Q4 2000 & 2008; Goldman's S&P 500 positioning has only been this extremely long-biased on two occasions - Q4 2008 & Q2 2011; and Barclays' credit-equity divergence has only been this over-bought stocks on two occasions - Q4 2008 & Q2 2012. It doesn't take a PhD to comprehend the extent of excess priced into stocks currently - no matter what Maria B tries to tell us.
No one typifies the bullish euphoria of the last year better than Appaloosa's David Tepper (except perhaps Laszlo Birinyi). It appears, however, that everyone's favorite perma-bull is up to his old tricks again. The manager who infamously opened his mouth about how he couldn't be more "balls to the wall" bullish of US financials - and then proceeded to reduce his positions notably in the quarter following that media appearance - has seemingly done it again. His appearances earlier this month on CNBC and Bloomberg were both full of hubris and arrogance as he encouraged the world to grab financial stocks with both hands and feet. However, as Fox Business' Charlie Gasparino reported yesterday, Tepper's Appaloosa is now seeking bids (to unwind a long position) for $400mm of European bank debt - doesn't seem so balls-to-the-wall bullish to us? With two weeks left to the great unveiling of the Q4 13Fs, we wait anxiously to see just how big Tepper's 'balls at the wall' really were/are.
Swiss banks, UBS and Credit Suisse, have moved to offer allocated gold and silver accounts to their clients – including high net worth, hedge funds, other banks and institutions. The move allows these entities to take direct ownership of their bullion in allocated accounts. According to the Financial Times, the banks say that they are making the move in order to reduce exposure and risks on balance sheets and in an effort to be more transparent. “Under more common "unallocated" gold accounts, depositors' bullion appears on the banks' balance sheets, forcing them to increase their capital reserves. Like their global peers, UBS and Credit Suisse are under pressure from regulators to reduce capital-intensive activities ahead of the introduction of new Basel III global banking rules.” It is more likely that the banks made the move to allocated storage due to an increased preference from their investors who are weary of continuing systemic risk.
The World Gold Council and leading academics and international think tanks believe that using a portion of a nation's gold reserves to back sovereign debt would lower sovereign debt yields and give some of the Eurozone's most distressed countries time to work on economic reform and recovery. According to research done by the World Gold Council using the European gold reserves as collateral for new sovereign debt issues would mean that without selling an ounce of gold, Eurozone countries could raise €413 billion. This is over 20% of Italy's and Portugal's two year borrowing requirements. The move to back sovereign bonds with gold would lower sovereign debt yields, without increasing inflation, which would help to calm markets. This should give European countries some vital breathing space to work on economic reform and recovery. Some citizens would be concerned that there may be a risk that the sovereign nations who pledge their gold as collateral could ultimately end up losing their gold reserves to the ECB, or whoever the collateral of the gold reserves are pledged to, in the event of a default. Unlike currency debasement and the printing and electronic creation of money to buy sovereign debt, under schemes such as Draghi's “outright monetary transactions” (OMT), the use of gold as collateral would not create fiscal transfers between Eurozone members, long term inflation or currency devaluation risk.
The run to 1500 for the S&P 500 is over, and these three tech companies are either complete no growth dogs, or over-priced retailers!
Most Wall Street pundits just follow the crowd....
Gold fell $20.20 or 1.2% in New York yesterday and closed at $1,664.50/oz. Silver slipped to as low as $29.972 and finished with a loss of 2.55%.
• Introduction – Gold’s Gains In All Fiat Currencies in 2012
• Much of Gold’s Gains in 2012 On 11% Price Gain in January 2012
• Japanese Yen Shows How Gold Protects From FX Devaluations
• Food Inflation Risk As Wheat and Soybeans Surge in Price
• Currency Wars and Competitive Currency Devaluations
• Gold Remains Historically and Academically Proven Safe Haven
• Conclusion – Gold in 2013
Those who read our article on this topic at this time last week should already know the answer to this rhetorical question. Everyone else may be a little surprised to learn that at a time when every Primary Dealer's sales desk has been pushing what little is left of gullible investors into stocks because the "Great rotation out of bonds and into stocks is our Top trade of 2013" (source: [every sellside strategist]), just as these seem poised to tumble in a recreation of the August 2011 debt ceiling fiasco (as we have been warning for months), their holdings of these same boring old Treasurys once again rose in the latest week ending December 19, increasing by another $10 billion, and hit a fresh all time gross high of $146 billion. Judging by what is increasingly a rotation out of stocks and into bonds, the smart money - correction the only money remaining - appears positioned correctly once again.
Remember: always do what they do, not what they say.
I am not sure what to make of this tidbit of information, but it does point out how silly and fickle investors have become.
Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).
Iraq quadrupled its gold holdings to 31.07 tonnes over the course of three months between August and October, data from the International Monetary Fund showed on yesterday. The IMF's monthly statistics report showed the country's holdings increased by some 23.9 tonnes in August to 29.7 tonnes. That was followed by a 2.3-tonne rise in September to 32.09 tonnes and then a cut of 1.02 tonnes in October to 31.07 tonnes. There was no data for November. It is Iraq's first major move in years to bolster its gold reserves. More recently, Brazil raised its gold holdings by 14.68 tonnes, or 28 percent, in November, bringing its bullion reserves to 67.19 tonnes. The addition comes on the heels of an even bigger increase in October when the South American country added 17.17 tonnes to its reserves. In September, it increased holdings by 2 tonnes. Meanwhile Turkey cut its gold holdings last month by 5.84 tonnes to 314 tonnes from October. The country allows commercial banks to use gold as collateral for loans, and changes to its balance sheet are often connected to such activity.
Who or what is going to "save" the markets from a long overdue correction? And what will be that catalyst?