In his weekly headline letter John Taylor analyzes where he and Jim Chanos have overlapping views, and where both of them erred (hint: everyone underestimated the willingness of Bernanke to sacrifice monetary prudence in order to reflate anything and everything, although with oil now the latest and greatest excess liquidity target, the experiment may soon be ending). Yet the time of the global reliquification may be coming to an end: "If the Republicans play rough and California craters, fiscal tightening will be the rule, US rates will be higher than Bernanke wants, the dollar will be strong, and foreign markets will be hurt. The odds favor an outcome like this, and the Fed is not free to ride to the rescue again. With Ron Paul riding hard over Bernanke, the Feds wild ways will be corralled. With fewer excess dollars, the growth game, and the markets that follow it, are over." So is shorting stocks the best bet? Yes. But an even better one is going short the Aussies: "The Aussie was over USD 1.0000 today and we think it is a great sell here."
Are those who have forgotten the past condemned to repeat it or has the market, like Scrooge, truly turned over a new leaf and will forevermore keep the bullish Christmas Spirit alive in its heart - heading ever higher, never again to come down? Ah, there's a Christmas fable we'd all like to believe in!
A raft of data before the Christmas weekend, including claims, personal income and spending (and the core PCE index), durable goods orders, confidence, and new home sales…There is no POMO today.
The economic problem is not caused by sovereign debt but by bad bank loans, deceptive financial practice and neoliberal bank deregulation...
The First Casualty Of An "Improving" Economy: The Fast Food Dollar Menu, As McDonalds Considers Hiking PricesSubmitted by Tyler Durden on 12/22/2010 17:11 -0400
As the fallacy that an economy is improving if the stock market is higher percolates, accompanied by the all too real surge in input costs (yes, oil really is on the verge of breaking $91 first, and then $100), the margin contraction we have been discussing for over 2 months is becoming increasingly acute: for a good recent example nowhere is it more evident than in the latest Philly Fed reading. Yet what is true for manufactured products, is far more applicable for food products, whose input costs are determined by the daily vagaries of millions of speculators. Which means that as the catch 22 of an "improvement" for some courtesy of 3 year highs in the Nasdaq is perceived by the speculators as an actual improvement for all (which would be the case if stocks were owned uniformly by every layer of society, which is certainly not the case), prices will eventually hit the tipping point where retailers will be forced to start passing on cost increases to consumers. Enter McDonalds whos executives according to AGWeb, were quoted as saying that "menu prices could rise if the economy improves." And since after listening to the endless barrage of brainwashing from the mainstream media, one can't not be left with the impression that the economy is doing anything but improving, conveniently ignoring the fact that the Fed is stimulating it coincidentally via QE2, the next step for the broad part of the US population for whom there is no improvement in anything, which would be the majority of America, is about to get its next whopper (pun intended) of a Bernanke side effect, namely inflation in the most affordable of food product categories: fast food. But since this is not caught by the core CPI, all shall be well, and the Fed will be able to proclaim, without losing any sleep, that inflation is truly contained, when the only thing that is contained is lending to those who most need it.
We traditionally enjoy the periodic letters by Guggenheim's CIO Scott Minderd. His latest piece, "The Opening Act to the Broader Crisis" is no exception. In it, the strategist dissects the European crisis, compares it to the subprime debacle and sees it as the precursor to the eventual downfall of the euro, a surge in the dollar, the "federalization" of Europe and the adoption of QE by the ECB. The key must read item in the current report is Minerd thought experiment of what a wholesale bank run, first in Ireland, and then everywhere else in Europe, would look like. This is especially important as one could, as Scott claims, start at any moment. What does this mean for investments? "If we are on the brink of crisis in Europe, which I believe we are, then there are several expectations we can draw about the investment landscape. First and foremost, the dollar will strengthen rapidly against the euro; U.S. Treasuries will rally; equity prices in Europe will fall; and credit spreads will widen, at least temporarily. In general, risk assets will experience choppier waters, especially as the crisis intensifies." Yet somehow this is a disconnect with the Guggenheimer's recent Barron's round table bullish statements on stocks and high yield bonds: "Let me be clear, I am not changing my mind on any of these investment theses, but a crisis in Europe will likely interrupt, but not derail, certain bullish trends at some point in 2011." It is ironic that Minerd brings up subprime as an analogy to Europe: after all his response is precisely the same that everyone else who appreciated the gravity of the subprime contagtion used at the time, starting with The Chairman. To wit "it is contained." All else equal, and it never is, we fail to see how a surge in the world's funding currency, the USD, will not generate an all our rout in every single risk asset, The Chairman's gushing liquidity notwithdtanding, due to trillions in short dollar funding positions.
We are not as big as we think.
Q3 GDP Final Revision Of 2.6%, Lower Than 2.8% Consensus, Inventories Climb Again As Personal Consumption Revision PlungesSubmitted by Tyler Durden on 12/22/2010 09:46 -0400
Disappointing Goldman which had expected a far higher number, the third Q3 GDP revision came at 2.6%, 0.1% higher than the second, but lower than the 2.8% consensus. In other words, the PCE surge which drove stocks higher on the second GDP revision has now been eliminated post re-revision, yet its impact of spiking stocks back then naturally lingers: surely our ministry of truth has learned from the best. And, as we expected the inventory artificial growth push continues to accelerate, after there was a substantial drop in the far more important Personal Consumption component which misses not only consensus of 2.9%, but the second revision of 2.8%, coming at 2.4%. From the BEA: "The "third" estimate of the third-quarter increase in real GDP is 0.1 percentage point, or $1.1 billion, higher than the "second" estimate issued last month, primarily reflecting an upward revision to private inventory investment that was largely offset by a downward revision to personal consumption expenditures." And even uglier: corporate profits were up a meager 0.2%, compared to expectations of 1.3%, compared to a previous revision estimate of 1.0%. We are confident Jan Hatzius will spin this favorably shortly, and will bring you his "analysis" asap.
- IMF announces it has concluded its gold sales (IMF)
- Euro helped by report China will buy Portugal's debt (Reuters)
- Huge South Korea Drill Likely to Infuriate North (Reuters)
- And wristslaps for all: Deutsche Bank to Pay $554 Million in Tax Shelter Case (Bloomberg)
- Another proposal to use a firehose to kill those pesky CDS speculators: Derivative Blitz Needed to Tame Anarchic Bonds (Bloomberg)
- China Inflation Risk Leads to Asia's Worst Bond Returns (Bloomberg)
- Does a Low VIX Signal Danger? (Barrons)
The quick answer to the headline of this article is yes.
These days, it’s hard to draw any conclusion other than that the train is gaining speed on wobbly tracks perched over a rickety bridge. Most notably, unemployment has again risen – to 9.8% from 9.6% – very much not the direction things should be headed given the amount of money the government has pumped into the economy. The latest data shows that this nation of 310 million souls managed to add just 39,000 jobs in November. That, unfortunately, falls short of even keeping up with a population growth of about 1% – doing just that requires generating a net of about 250,000 jobs a month. As for eating away at the millions of unemployed and the many millions more who are underemployed… oh, well. Of course, the mainstream financial media wastes no time in pointing to this latest dismalia as proof positive that the Fed’s recent decision to energetically restoke the money machine with upwards of $100 billion a month was the right decision. This despite the clear evidence that adding debt to debt is having no real effect, except begetting more debt. This is a lesson that, so far, appears to be making no headway in the cognitions of Washington’s policy makers, even with the latest election results delivering a sharp rap across the knuckles to the power elite.
While Goldman Sachs' Jim O'Neill continues to push his theory for decoupling based on an extended developing world, which includes such countries as Nigeria and Iran, to drive global growth as per his recently launched BRIC replacement, the N-11, Bank of America's economics Ethan Harris and Neil Dutta, have taken a far more novel approach to finding "hidden" sources of pent up growth potential: women. Of course, neither dares to admit that the only real source of 'growth' is nothing less than previously unprecedented amounts of monetary stimulus in the form of endless free central bank liquidity. But in every bank's quest to find the missing link in the "virtuous circle" dynamo, we expect increasingly more ridiculous assumptions about what will manage to be a standalone driver for a 4%+ GDP growth for the US. In the meantime, the fact that the underlying "organic" economy, not to mention the stock market, would flounder absent trillions in cheap money supporting all asset prices continues to be resolutely ignored by everyone. Which merely confirms that the Fed will likely never hike rates again, as that would eliminate two years of what will soon amount to nearly $4 trillion in monetary stimulus in the US alone, which in turn represents roughly 25% of the stock market capitalization in the US alone. But going back to why Bank of America is now going long women, here is Harris' summary: "The wounds of the economic crisis will take years to heal. However, we expect female earnings to recover faster than male earnings. In many households, women already do most of the shopping. So, while we remain cautious on the trajectory for consumption, our sense is that women will increasingly drive consumer spending." At least BofA will have someone to blame it all on, when their latest ridiculous "economic" theory collapses in a pile of dust.
Jim O'Neill, who after migrating to his latest and greatest position within Goldman as Chairman of GSAM, was expected to keep a low profile, has realized he has yet to meet his match at Goldman in the permacheer department. Which is why he now has a weekly column sent out as pep talk to all Goldman clients. His latest, "2010 was exciting with risks. 2011 will be even more so!" is basically a call to arms, in which he gives everyone to all clear to buy double inverse VIX ETFs on margin. And yes, in pursuing the last margina consumer, O'Neill has once again abandoned the BRICs and continues to pound on his latest N-11 concept, which contains such pent up purchasing powerhouses as Nigeria, the Philippines and, yes, Iran. Although with the prevalent thought for 2011 now being an inverse decoupling, in which the US is supposed to lead the world to new heights (so contrary to just 4 months ago... and all it took was a payroll tax cut), we fail to see how any of this is relevant. Then again, we often have the same question about Jim's writing in general. Full commentary presented below.
Following Doug Kass' Prediction Of A 25% Drop In Gold, Here Is How His Other Recent Forecasts Have FaredSubmitted by Tyler Durden on 12/21/2010 10:14 -0400
Last night Doug Kass appeared on CNBC's Fast Money and caught the attention of the few who were watching the show with his gloomy prediction that gold would drop by 25% in the next year. As we noted last night, Kass' "thesis" was nothing more than a recap of the bearish half of the "All that glitters" letter released by Oaktree's Chairman Howard Marks, and not even a mention of the bullish section of the letter. That's fine. In fact, we welcomed this development as it at least partially offset the bullish sentiment on gold espoused by Kass' partner at The Street Jim Cramer, whose glowing recommendation of gold has had us very concerned about the price action in the precious metal into year end: after all there is no surer kiss of death that Cramer liking something. That said, as for Mr. Kass' predictive abilities, we would like to present his prior set of forecasts, specifically his prediction for 2010 issued a year ago almost to the day. With a predictive "hit rate" of about 25%, it is rather safe to assume that gold's path to $2,000 and higher is probably quite safe...
- Snow Extends European Air Travel Delays as Holiday Nears (Bloomberg)
- Bank of Japan Pledges to Steadily Buy Assets, Provide Liquidity (Bloomberg)
- China's Wang Says `Concrete Action' Taken on EU Debt (Bloomberg)
- Spain Says its Regions Are Financially Sound (WSJ)
- Senators in Bipartisan Push to Cut Deficit (FT)
- The great bank heist of 2010: Commentary: Wall Street wins, Main Street pays — again (MarketWatch)
- Bond Market Rejects Fed's Unconditional Love (Bloomberg)
- ECB Reins in Government Bond Buying (FT), as reported first on Zero Hedge