Add extreme selling by corporate insiders to last week's list of worries.
The news Deutsche Bank apparently sat on potential super-senior losses of $12 bln through the banking crisis is bound to anger the many bankers who saw their careers crumble or subsumed into bureaucracy. Other banks up the ying-yang with unhedgable risk went bust or were forced into the ignominy of public bailouts. From a proper accounting or risk-management perspective DB should have been bust - but to the unknowing world it wasn't. And that sums up the complexity of the bank world - if management can hide or not recognise risks (and even sack whistleblowers who disagree with them), what's the answer? It's the No-See-Ums that kill institutions. On the basis if you can't see it, then it can't see you... should DB have survived? If Lehman had kept schtumm about its leverage and unquantifiable risk, would it still be with us? Not getting caught is an objective all management have quietly inscribed into their heads. And as far as the UK's fiscal projections... on the basis QE has historically proved to be little less effective than pushing uphill on a length of wet wool, then we might just be staring down the Japanese abyss - no growth as CAPEX will stay subdued on the weak outlook. Lastly, we've been told (forceably) our concerns the Greek buyback could be difficult are completely overstated. We are idiots for even thinking it... apparently.
The problem with this market is that it can't seem to sell off enough to produce a sustainable rally. There are not enough bears or bulls.
Judging by how the SkyNet formerly known as "the market" has been trading in the past three weeks (and years), one may get the impression the "smart money", hiding behind Bloomberg terminals for 9 hours each day, has gone full lunatic retard. Yet not even said Bloomberg terminals users are completely insane, as confirmed by a just released poll of Bloomberg Professional users, who were asked on their opinion for the two next probably Bernanke replacements: one Larry Summers, best known, together with Robert Rubin, Alan Greenspan and everyone in Congress and Senate over the past 30 years, for destroying the US economy, as well as one Janet Yellen, currently vice chair of the Fed, and almost certain replacement for the Chairsatan once his term expires in early 2014. The verdict: nay to both, but a resounding hell no to the man who destroyed the US banking system, then crushed the Harvard endowment, and finally brought the US consumer and economy to a state of complete ruin.
Just as the ever soaring Argentina default swaps indicated that a technical default for the Latin American country - one which would eventually morph into a second full blown default in a decade - was all but inevitable (and previews extensively here), the twisting and turning multi-year story of Argentina vs its "vulture" holdout creditors got its latest dramatic installment last night. Shortly after market close, the Second Circuit court of appeals once again override last week's critical order by Judge Griesa that Argentina promptly pay everyone or face monetary exclusions, lumping together any and all agents who facilitated the ongoing isolation of the holdout hedge funds from the broader group which in Griesa's view had pari passu status throughout.
Thomson Reuters GFMS has published research that says they project silver prices to rise 38% in 2013 from current levels, as a sluggish global economy increases safe haven demand. The bullish silver GFMS forecast was published on the Silver Institute website yesterday and is unusual as the GFMS have been quiet bearish on silver in recent years despite rising prices. Philip Klapwijk of GFMS said that “a rebound in investment demand stemming from continuing loose monetary policies is expected to drive silver prices towards and possibly over $50 during 2013.” Spot silver has risen over 17% this year overtaking gold’s 10% gain, and paving the way for its third consecutive rise in four years. "Strong investment demand, higher gold prices on the back of monetary easing, rising inflation expectations and the persistence of ultra-low interest rates," are among the factors that will lure buyers to the safety of silver,” said Philip Klapwijk of GFMS. "We are thinking prices will trend higher next year. I'm not convinced that we are going to $50. I think we will definitely see $40 to $45 prices."
Gold looks to have stabilized and is building a basing pattern.
Since the 2008 financial crisis the foundations of the global economy have been in repair, translating into a prolonged period of economic frailty. Against this backdrop, social and political tensions have increased between citizens and government, international institutions and governments, and individual nation states. The European debt crisis remains the largest challenge facing the global economy. A negative resolution emanating from the world’s largest economic bloc would cause harmful ripple effects worldwide in global trade flows. More importantly, it could also mark a paradigm shift in international relations, dealing a critical blow to what has been a relentless trend towards liberalism since the end of World War II, while providing fecund ground for a resurgence in realist ideology. Interestingly though, constructivism may be at the forefront in explaining the current dilemma between the European core and its periphery. It would also be wise to ponder the idea of whether a supranational government could exist. Proceeding down a path with a likely dead end would consume precious resources and lead to widespread suffering among every day citizens.
While those in the power and money echelons of the "developed" world scramble day after day to hold the pieces of the collapsing tower of cards in place (and manipulating public perception that all is well), knowing full well what the final outcome eventually will be, those who still have the capacity to look, and invest, in the future, are looking neither toward the US, nor Asia, and certainly not Europe, for one simple reason: there is no more incremental debt capacity at any level: sovereign, household, financial or corporate. Because without the ability to create debt out of thin air, be it on a secured or unsecured basis, the ability to "create" growth, at least in the current Keynesian paradigm, goes away with it. Yet there is one place where there is untapped credit creation potential, if not on an unsecured (i.e., future cash flow discounting), then certainly on a secured (hard asset collateral) basis. The place is Africa, and according to some estimates the continent, Africa can create between $5 and $10 trillion in secured debt, using its extensive untapped resources as first-lien collateral.
Gold climbed $11.80 or 0.69% in New York yesterday and closed at $1,712.70. Silver surged to a high of $32.232 and finished with a gain of 1.36%.
The theme of buying real estate to rent out is nothing new, in fact courtesy of the government subsidized securitization gimmick known as REO-To-Rent, America's biggest asset managers have been able to load up on real estate virtually cost free, and hold on to it in hopes of renting it out to a US consumer. Alas, there is a qualifier: the "tapped out" US consumer. Case in point is Och Ziff, which as we wrote, after dabbling in the space for a year, has called it quits, and pulled out of the REO-to-Rent game. And they are the smart money, which means the returns for everyone else are only "downhill from here." That said, for now the meme is one of renting. In fact, as Reuters Insider points out, "Renting is the new American Dream." The problem is 'owning' was the old one. That ended in tears. This one will be no different. The only question is when. We think that when Brazilian model brothers come to Florida to buy up condos so they can rent them out, that's about as toppy as tops get (It is unclear if the two models also demand to be paid in EURs back in the homeland, like another infamous topticking supermodel and financial expert).
So far the Fed's 4 year old QEasing strategy has failed for the simple reason that the smart money instead of being "herded", has far more simply decided to just front-run the Fed thus generating risk-free returns, while the "dumb money", tired of the HFT and Fed-manipulated, and utterly broken casino market, has simply allocated residual capital either into deposits (M2 just hit a new all time record of $10.2 trillion) or into "return of capital" products such as taxable and non-taxable bonds. Alas none of the above means that the Fed will ever stop from the "strategy" it undertook nearly 4 years ago to the day with QE1. Instead, it will continue doing more of the same until the bitter end. But how much more is there? To answer this question, below we present the entire universe of marketable US debt, in one simple chart showing the average yield by product type on the Y-axis, and the total debt notional on the X.
Whether it is hope, greed, fear, repression, systemic correlation, volatility suppression, or sheer unadulterated idiocy; the smart money has been desperately underperforming the 'index' in US equity markets since Ben Bernanke unwrapped a can of QE2 on us all. Are the smart-money 'realists' playing the long-term game and the dumb-money index-trackers herding into whatever worked yesterday? Who knows? One thing is for sure, Bernanke is no friend of the hedge fund community - anymore.
Imagine if in 2007, Ben Bernanke, Mervyn King, Jean Claude Trichet et al, had actually possessed the analytical foresight to see what was coming, organised a meeting with the world's media and explained how, using their collective wisdom, they would solve the problem.
"There's going to be a massive global crisis, but there's no need to worry. We're just going to print money."
"Is that it?"
How would most people have reacted then? We think they would have laughed out loud. Why are so many of us reacting differently now? The nature of markets is that they periodically forget the lessons of history. Confidence in the status quo seems as entrenched now as it was in 2007 but Gold appears to be exhibiting 'Giffen-like' behavior where, instead of falling, demand is rising as prices rise.
The best gains are behind us especially in the wake of the Fed's vacuum and the lack of any meaningful and sustainable upside catalysts.