This page has been archived and commenting is disabled.

Sobering Stuff

Tyler Durden's picture


Via Tim Price of Sovereign Man blog,

If you want to send a roomful of 100 wealth managers into an icy chill, have Russell Napier address them. This is exactly what happened at Citywire’s Smart Beta retreat at the Four Seasons Hotel in Hampshire recently.

Napier’s presentation, “Deflation in an Age of Fiat Currency,” is thought-provoking, and the precise polar opposite of investing as usual. A wry and picaresque speaker, he starts with some conclusions. Among them:

  • To reach record lows [akin to those on offer in 1921, 1932, 1949 and 1982], US equities will have to fall by more than 60%.
  • Central banks are straining to produce inflation, and developments in emerging markets (i.e. China) suggest a deflation shock is now likely.
  • The capital exodus from China is disrupting the creation of inflation.
  • In the search for yield, cash is trash ‚ so now is the time to own cash. (This is an example of his dry contrarianism.)
  • US Treasuries could repeat their 83% price decline of 1946-1981.

US stock markets aren’t cheap, not by a long chalk. Napier, like us, favors the 10-year cyclically adjusted price / earnings ratio, or CAPE, as the best metric to assess the affordability of the market. Unlike the traditional P/E ratio, CAPE smooths the near-term volatility by taking a 10-year average.

20121204 Chart 12 Sobering Stuff

At around 21, the US market’s CAPE is near the top end of its historic range. There is better news, at least for non-Americans. Other markets, of course, have different
valuations. Current CAPEs include:

  • UK: 12.5x
  • Italy: 7.8x
  • Spain: 8.5x
  • Greece: 1.8x
  • Ireland: 6.0x
  • Portugal: 9.2x
  • Germany: 16.0x
  • China: 18.0x
  • Japan: 21.3x

The S&P 500 stock index currently trades at a level of around 1400. Napier believes it will reach its bear market nadir at around 450, driven by a loss of faith in US Treasury bonds, and in the dollar, by foreigners.

The growth of the Treasury bond market coincided with Baby-Boomers, Medicare and Social Security. Its death will be triggered by falling demand for Treasuries from emerging economies.

And it seems this rollover in the US Treasury market is already under way. Foreign central bank purchases of US treasuries have been in decline since 2009:

20121204 Chart 21 Sobering Stuff

As Napier points out, this coincides with a disturbing decline in the growth rate of China’s foreign reserves.

20121204 Chart 31 Sobering Stuff

In our view, investors’ fortunes will depend on how they survive the bear markets to come. I use the term ‘bear markets’ in the plural because it strikes us as almost a certainty that a grotesque bear market in western government debt is approaching. (If we knew the precise timing we’d already be on the beach.)

And if western government debt craters (pick your poison: US, UK, euro zone, Japan…they all look appalling), stock markets will not be far behind. It is inconceivable to us that equity markets could simply ignore a savage sell-off in the <cough, cough> risk-free markets of the world.

Remember, though, bear markets are not necessarily to be feared. Provided one can survive them, they bring opportunities to create significant wealth. But this is not automatically a rapid process.

As Marc Faber writes in his introduction to Napier’s excellent book, Anatomy of the Bear: Lessons from Wall Street’s Four Great Bottoms:

“Conventional wisdom has it that great market bottoms, which offer lifetime buying opportunities, occur quite soon after devastating market crashes. But . . . great bear markets have long life-spans. . . At its 1921 low, the Dow Jones Industrial Average was no higher than it had been in 1899, 22 years earlier…”

Sobering stuff indeed.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 12/04/2012 - 18:37 | 3033723 Alcoholic Nativ...
Alcoholic Native American's picture

I know a solution

Tue, 12/04/2012 - 18:41 | 3033738 I think I need ...
I think I need to buy a gun's picture

executive order 6102 is on its way

Tue, 12/04/2012 - 19:11 | 3033797 DoChenRollingBearing
DoChenRollingBearing's picture

I used to HATE sobering stuff.  Now not so much.

Tue, 12/04/2012 - 19:41 | 3033861 Pinto Currency
Pinto Currency's picture


So if stocks are no good, bonds are no good, and cash is no good (due to central bank currency debasement), that leaves commodities and monetary metals.

Or do you buy shares in prison operators and firearms manufacturers.

Tue, 12/04/2012 - 19:53 | 3033895 Cdad
Cdad's picture

I would hazard a guess that what you have said is EXACTLY why precious metals, specifically, are getting clobbered.  They are the only long that makes any sense in the INTERMEDIATE term.  And so the HFT is going to work on create its perceived CORRECT entry point by pressuring whoever is out there PERMA BULLISH gold....forcing liquidation.  And buy extreme weakness there.


Tue, 12/04/2012 - 20:00 | 3033912 Pinto Currency
Pinto Currency's picture


Or perhaps the digital price market for gold and silver never moves up according to true supply/demand fundamentals and there is a parallel physical market price for gold/silver purchase in size until the big dislocation hits.

After that it's all physical.

Tue, 12/04/2012 - 21:15 | 3034160 Stuck on Zero
Stuck on Zero's picture

Gold is like a beautiful woman.  Very expensive, but you really want to get physical.


Tue, 12/04/2012 - 18:41 | 3033739 BraveSirRobin
BraveSirRobin's picture

Pray, do tell.

Tue, 12/04/2012 - 20:06 | 3033930 CPL
CPL's picture


Be JPM and create an investment scheme closed to the public on the MDAX, offer zero secondary offerings and bet on the destruction of both the Euro and the USD.


Google e49158_fwp.pdf and read it.


Observation Date:
January 17, 2013†
Maturity Date:
January 23, 2013†



The MDAX® Index (the “Index”), converted into U.S. dollars

Payment at Maturity:

Payment at maturity will reflect the performance of the Index, converted into U.S. dollars, subject to the Index Adjustment Factor. Accordingly, at maturity, you will receive an amount per $1,000 principal amount note calculated as follows:

$1,000 × (1 + Index Return) × Index Adjustment Factor

Because the Index Adjustment Factor is 99.75%, you will lose some or all of your investment at maturity if the Index Return is less than approximately 0.25%. For more information on how the Index Adjustment Factor can affect your payment at maturity, please see “What Is the Total Return on the Notes at Maturity, Assuming a Range of Performances for the Index?” in this term sheet.

If the value of the U.S. dollar appreciates against the European Union euro, you may lose some or all of your investment in the notes, even if the Index closing level has increased during the term of the notes. The performance of the Index, converted into U.S. dollars, from the Initial Index Level to the Ending Index Level,

Tue, 12/04/2012 - 20:58 | 3034090 Confused
Confused's picture

Hahahahahaha. Wow.

Tue, 12/04/2012 - 21:30 | 3034223 CPL
CPL's picture

Weirdest financial thing I've seen in a month.

Tue, 12/04/2012 - 22:57 | 3034512 Global Hunter
Global Hunter's picture

you should have seen the look on the teller's faces when I cashed in mine in for cash a few weeks after expiration. 

Wed, 12/05/2012 - 09:19 | 3035105 CPL
CPL's picture

Take payment in anything shiny and metal.  Then invest some of that into long term food storage to hedge pricing and inflation a little.

Tue, 12/04/2012 - 19:08 | 3033791 otto skorzeny
otto skorzeny's picture

I hopes it's a "final" solution

Tue, 12/04/2012 - 18:40 | 3033732 VulpisVulpis
VulpisVulpis's picture

I, for one, welcome our new deflationary overlords.

Tue, 12/04/2012 - 18:43 | 3033747 otto skorzeny
otto skorzeny's picture

I wish the shit that I actually use would get in a deflationary cycle. Thanks The Bernank.

Tue, 12/04/2012 - 19:16 | 3033806 kaiserhoff
kaiserhoff's picture

Was talking to a friend about this today at the local cow college.  Bonds get monkey-hammered either way.., massive defaults or value destroyed by inflation/rising rates.  In the very short run, that's great for equities.  Their debt goes away.  The one quarter is my life crowd will love it, but once the downdraft starts, I don't see what stops it.  The Bernanke can't buy everything, although gawd knows he will try.

Wed, 12/05/2012 - 00:56 | 3034784 AGuy
AGuy's picture

Not sure why the Author believes Bonds will tank:

1. If the world fears deflation, investors will sell equities and buy bonds. Even if the Bond have Negative interest rates because they will believe Equities will sell off with bigger losses than negative yeilds on Bonds. As Marx put it, "Its not the return on my money that concerns me, but the return of my money!"  Also See the Bond inversion when Recessions are beginning

2. Central banks will suppress any meaning full rise in bond yields. Even if that means the Fed purchase $1 Trillion USD in financial assets per month.

What is likely to happen is that investors and consumers will start losing faith in currency, when the CB's buy up 10s of Trillions in Financial assets and the cash is used to buy commodities, land, and AK's. Another probable outcome is a big war to "stimulate" the economy as will as culling off the excess workforces. Of course in the nuclear era, TPTB are likely to cause a massive overshoot in the culling quotas.




Tue, 12/04/2012 - 18:40 | 3033736 michiganmaven
michiganmaven's picture

The race to crash is on... Fake Forex, Fake Equities, Fake Gov Rates..... taking all bets !

Tue, 12/04/2012 - 18:40 | 3033737 dynomutt
dynomutt's picture

Silver, bitchez?

Tue, 12/04/2012 - 18:42 | 3033742 otto skorzeny
otto skorzeny's picture

Is Jack Napier Russell's brother?

Tue, 12/04/2012 - 22:52 | 3034493 A Nanny Moose
A Nanny Moose's picture

He made that pencil dissappear...

Perhaps he was adopted by the Corzine "clan?"

Tue, 12/04/2012 - 18:43 | 3033746 barliman
barliman's picture


Great Market Bottoms ARE great lifetime buying opportunites ... but only when markets are allowed to clear through normal creative destruction.

While 2009 should have been such an opportunity, the Federal Reserve stepped in to prevent the Great Market Bottom follow though ...

... now it will take a far greater SET of events to form the next Great MarketS Bottom. Time it right and be very lucky & ruthless, and you could be the next Rothschild.

Tue, 12/04/2012 - 19:54 | 3033899 spankthebernank
spankthebernank's picture

The next 'bottom' will look a lot different than anything in the past.  Brokerage, bank and all other forms of money will vanish because of immense amounts of systemic leverage.  There will be a cattle herding of all the weak and penniless to do, or sign, or vote for something that will look like a soft worldwide concentration camp.  I believe something unbelievable is on the way.  That is why this administration is getting america warmed up to the teet and Goldman Sachs has people at every European outpost.  Scary, scary times.

Tue, 12/04/2012 - 18:44 | 3033749 Pairadimes
Pairadimes's picture

I disagree. This is definitely not a time to stop drinking.

Tue, 12/04/2012 - 18:46 | 3033753 gmrpeabody
gmrpeabody's picture

Speaking of which...

Tue, 12/04/2012 - 19:14 | 3033801 Winston Churchill
Winston Churchill's picture

Don't know about drinking,it feels like I've been on a bad acid trip

since 2009.Good is bad.Crooked is better.Nothing makes sense.

Tue, 12/04/2012 - 20:10 | 3033952 kaiserhoff
kaiserhoff's picture

I have taken more from alcohol than alcohol has taken out of me.

                                                  Winston Churchill

Tue, 12/04/2012 - 20:18 | 3033973 Temporalist
Temporalist's picture

It takes only one drink to get me drunk. The trouble is, I can't remember if it's the thirteenth or the fourteenth.

-George Burns

Tue, 12/04/2012 - 19:15 | 3033802 DoChenRollingBearing
DoChenRollingBearing's picture

@ Pairadimes

Actually NOW and any hard times are a great time to stop drinking (and sniffing glue for that matter), as you save so much money...

Does that mean (o gawd): Sobriety, bitchez?

Tue, 12/04/2012 - 18:46 | 3033752 FreeNewEnergy
FreeNewEnergy's picture

Arable Land.

Tue, 12/04/2012 - 19:07 | 3033789 BraveSirRobin
BraveSirRobin's picture

You can grow grapes, wheat, hops and barley on arable land.

Tue, 12/04/2012 - 19:51 | 3033893 Ronaldo
Ronaldo's picture

Wine and Beer my friend!

Tue, 12/04/2012 - 22:53 | 3034498 A Nanny Moose
A Nanny Moose's picture


Tue, 12/04/2012 - 18:48 | 3033757 Super Broccoli
Super Broccoli's picture

All this speach to explain what everyone already knows ...

Tue, 12/04/2012 - 18:48 | 3033759 q99x2
q99x2's picture

The Bernank don't need no stinkin Chinaman to be buying US Treasuries. He's going to buy them all fo himself.

I like Greece at 1.8x and TVIX at 75 cent.

Tue, 12/04/2012 - 18:50 | 3033764 Cdad
Cdad's picture

You know what is so damn refreshing about market bears?  They actually make their cases...and provide good context for them.  Compare them to today's modern market bulls...who simply float thoughts that they have had, general thoughts about a sector, and then tie a long trade to those thoughts.  From there, they simply expect algorithms to grab onto their f'n jibberish and prove them out.

Or even worse, simply parrot the same 10 bullish phrases ever single day [ie stocks are historically cheap, buying opportunity, etc]

There is no comparison between modern day bears and bulls.  And perhaps, even more so than just the absolutely moronic BlowHorn [CNBC] programming that goes on and on, it is this distinction that feeds into the implosion of credibility in the bull camp.  I cannot tell you, even just today, how many patently stupid things I heard today from the perma bulls.

The gem today, and in relation to this particular post, was a raging BlowHorn idiot who said, "Stocks are the new bonds."

Apparently, market bulls think ALL AMERICANS consume mass quantities of fluoride paste, eaten on crackers as a dietary mainstay.  Good grief!  

Tue, 12/04/2012 - 18:57 | 3033775 Bay of Pigs
Bay of Pigs's picture

Speaking of bawnds, UK bond market is now at a 300 year high and the UST market at a 240 year high.

And people talk about a gold "bubble"? Yeah, okay....roger that.


Tue, 12/04/2012 - 19:04 | 3033782 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

And they talk about another bubble in stocks.  So the DJ is at 13k?  So what?  It is denominated in dollars and those dollars have no intrinsic value. 

So the crux of the system is bullshit and people want to start talking about how everything is overpriced.  It doesn't make any sense.

Tue, 12/04/2012 - 19:24 | 3033811 Muppet Pimp
Muppet Pimp's picture

And all of the stock certificates at the dtcc have been destroyed....Good Luck with that...reset is virtually assured now, no reason not to get the new system designed...weimar it up so people learn to rely on one another again, and then rebuild communities with the values we know are required to stay free.  We have two years methinks. The drumbeats will get so loud by the year and a half mark (prepper shows, talk of economic calamity, etc.) every average joe will own silver by then.  Then we set sail again like the founders intended.  

Tue, 12/04/2012 - 19:53 | 3033897 Pinto Currency
Pinto Currency's picture


It doesn't make sense Mr. LH. And I wished it could be reset without a proper mess.

Muppet's scenario is a dislocation and that may well be what is coming.

Tue, 12/04/2012 - 20:29 | 3034011 IllusionOfChoice
IllusionOfChoice's picture

These bulls sound like politicians.

Tue, 12/04/2012 - 19:00 | 3033777 tenpanhandle
tenpanhandle's picture

Sobering stuff?  Why the hell do I want to be sober.  In this monkey mad world where everything is antithetic to common law and common sense and therefore an altered reality, I must keep myself in an altered state so I don't go mad.  Oops, too late for that. 

Tue, 12/04/2012 - 19:09 | 3033792 Ookspay
Ookspay's picture

Lol... Reality is way over rated anyhow. Our society and it's inhabitants much prefer fantasy, distraction and distortion. You gotta give the people what they want, legalize everything!

Tue, 12/04/2012 - 19:01 | 3033778 realtick
realtick's picture

"It seems that I have just compared many of the users/members of this site to adolescent girls. This was not my intention but, now that I've done it, I think I'll stick with it. Though it's never a good career move to insult your audience, in this case, a cold slap across the face and some tough love may be cathartic."

Shithead Ferguson

Tue, 12/04/2012 - 19:07 | 3033790 Bay of Pigs
Bay of Pigs's picture

What exactly is your problem anyway?

You have your own blog, so why do you care what Turd does, says or thinks?

Maybe just let it go?

Tue, 12/04/2012 - 19:20 | 3033812 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

Yes, Bay.  Bloggers have no need to insult each other.  TF has a gold site that attracts lots of people.  Don`t like his site?  There`s a big world out there, go somewhere else!

Tue, 12/04/2012 - 20:19 | 3033985 CPL
CPL's picture

What are you five?


Grow up.

Tue, 12/04/2012 - 19:05 | 3033785 stant
stant's picture

obama said america is poised to take off. where to?

Tue, 12/04/2012 - 19:11 | 3033796 SheepDog-One
SheepDog-One's picture

FEMA forced labor camp.

Tue, 12/04/2012 - 19:41 | 3033866 Winston Churchill
Winston Churchill's picture

Landing is usually the problem.

Tue, 12/04/2012 - 19:05 | 3033786 BraveSirRobin
BraveSirRobin's picture

Why does "sobering stuff" always makes me to want to get drunk?

Tue, 12/04/2012 - 19:10 | 3033795 SheepDog-One
SheepDog-One's picture

Stocks never been cheaper! Other than they've never been more pricey....nevermind all that though we got panic buying to do!

Tue, 12/04/2012 - 19:11 | 3033798 geno-econ
geno-econ's picture

Poor Ben will be stuck with a pot full of bonds and sub prime mortgage securities without a buyer here or abroad. Many Trophy Wives and Porsches for sale or needing a new smaller home too. Instead of a little pain over an extended period of time , our Politicians and International  Bankers have opted for intense pain all at once.  This time will be different

Tue, 12/04/2012 - 19:14 | 3033803 game theory
game theory's picture

Dude, Nostrodomus called and wants his crystal ball back.  S&P at 450.  Sobering? I wish I wasn't sober when I read stuff like that.  The probability of that event is about the same as the probability of a return to a gold standard. Yes, a stock crash can happen...but it wouldn't last long enough to matter because the Fed is committed to devaluing the dollar until unicorns carry leprechaun princesses bareback through the streets of Wall Street and DC.  

Tue, 12/04/2012 - 20:33 | 3034019 IllusionOfChoice
IllusionOfChoice's picture

If they sold tickets, we'd have no more national debt.

Tue, 12/04/2012 - 22:28 | 3034399 AllWorkedUp
AllWorkedUp's picture

 I think the stock markets in Wiemar and Zimbabwe kept going up for quite sometime. The problem is what will the dollar crash against? Gold, yes no doubt. As long as the dollar stays the reserve currency and continues to trade against other fiat garbage this game goes on indefinitely.

 Now if the BRICS decide to come out with a gold/silver backed currency it's game over.

Wed, 12/05/2012 - 01:03 | 3034795 Nage42
Nage42's picture

Ha, consortium agreement is impossible across those kinds of cultural boundries... luckily, it's not needed!


Already in place:

China <-> Russia for RMB/RUB (oil, natgas, various ores, Russian labour for new China-centric importing)

China <-> Brazil for RMB/BRL (oil, wood, foodstuffs, mostly agro land and meatstocks)

China <-> Various African nations RMB/whatever (oil, ores, labour, industrial dumping grounds)


China can already press the "IWin{tm}" button.

Step one:  Float the RMB

Step two: Issue offer to swap USTs for gold at +10% over spot (must be stored on-shore, can be settled in $USD), drain the market with "buy" button firmly depressed

Step three: back RMB to existing stock of gold whatever their stock is, it's north of 2M Kg now, and might be north of 5M Kg after step two for one year

Step four: whatever is left over from step two issue a public statement that you have lined pig-stalls with this paper and relenquish all claim to "worthless dross"

Step five: have operators standing by the phone as every country in the world tries to get in bed with you for direct RMB exchange agreements like you were the lifeboat issuer on the Titanic


Result:  #winning


2012/12/5 Nage42 expecting this process on time horizon of 12-24 months

Tue, 12/04/2012 - 19:15 | 3033804 wcvarones
wcvarones's picture

1899-1921 bear market was in an era of sound currency.

Hardly relevant to a pure fiat world.

Tue, 12/04/2012 - 19:15 | 3033805 DowTheorist
DowTheorist's picture

The market is trapped in a secular bear market that started in 2000....So lower prices in the years ahead are a distinct possibility.

And in a shorter time frame, we are mired in a primary bear market, so the odds favor in the months ahead lower prices.


When both the secular time frame (+10 years) and the shorter time frame (months- till one year) are in agreement, the odds favor declining prices. So Napier, who is not the village's idiot, may be proven right.


Tue, 12/04/2012 - 19:22 | 3033816 cougar_w
cougar_w's picture

It's become popular to predict a fall in UST demand.

I'll expect such a drop off in demand exactly after Hell freezes over.

The global economy is sliding into a ditch. Hot money that's been skimming the cream in the BRICs and other hot regions is going to leave those markets like theives in the night, leaving no trace nor track, as those nations nationalize the Jeebubs out of everything worth anything, and that money will then find a welcome home in the US.

Not that the US won't do the same eventually. Free markets are apparently only really free in the abstract. But the US will probably be the last to nationalize, due to corporate control over nearly all decision made in all levels of govenment here, so UST and corporate bonds will likely for a time remain the vessels of choice for the ill-gotten gains of the world's industrial captains.

Tue, 12/04/2012 - 19:29 | 3033841 kaiserhoff
kaiserhoff's picture

Damn straight cat.  Treasuries are the one place where the collapse won't begin.

Tue, 12/04/2012 - 19:32 | 3033850 Ookspay
Ookspay's picture

He's your dog, he's your best friend, let him keep his balls...

Tue, 12/04/2012 - 22:48 | 3034473 Things that go bump
Things that go bump's picture

But he kept humping my daschund.

Tue, 12/04/2012 - 19:39 | 3033859 EscapingProgress
EscapingProgress's picture

Don't forget that the Bernank will just buy every last US treasury bond on earth and bury them all in his back yard if he has to.

Treasuries will only collapse if the Fed stops buying.

Tue, 12/04/2012 - 23:28 | 3034459 bulldung
bulldung's picture

If the fed buys all the UST, does the deficit divided by M2 become the inflation rate?

Tue, 12/04/2012 - 19:33 | 3033821 EscapingProgress
EscapingProgress's picture

My amateur take on what lies ahead: The stock market will continue levitating at roughly its current nominal value. The real (inflation adjusted) value of the stock market, however, will steadily decline until all productive sectors of the economy have become completely destitute and unable to muster the strength to produce even one more Happy Meal at which point we will sink into the abyss. The nominal value of stocks in general will not decrease significantly during this time absent some major externality (war with Iran?) because central bankers around the world will print just enough to keep the nominal values inflated while this printing simultaneously guts the profitability of the underlying companies and continues to fuel the economy's biflationary death spiral.

Tue, 12/04/2012 - 19:38 | 3033823 Bear
Bear's picture

Treasuries may go south, they are at 151-16, how can they go up much more, but the FED will 'encourage' Primary dealers to embrace the equities market. I think we may have an erosion of treasuries and a side-ways movement in equities.

 Of course the other side of the coin is:

 "Although the market still needs fiscal clarity, the S&P 500 will likely hit 1,600 in early 2013, Stifel Nicolaus Chief Macro and Portfolio Strategist Barry Bannister said Tuesday on CNBC."

Just goes to show ... no one knows anything

Tue, 12/04/2012 - 19:26 | 3033830 robnume
robnume's picture

Fiat? Fiat? Hey anybody wanna buy a Fiat? CURRENCY!

Tue, 12/04/2012 - 19:39 | 3033860 rosethorn
rosethorn's picture

That chart of foreign treasury holdings begs the question, what will happen if the FRB ever reduces its purchases of this debt?  In short, a big price drop.

Tue, 12/04/2012 - 19:42 | 3033873 Iam Yue2
Iam Yue2's picture

It is just such a pity that Mr Napier got his call on bonds so badly wrong!
But then, Bill Gross on death of equities, goldman on bunds, o'neill on chf/eur, taleb on bunds..... All big names, all spectacularly wrong, but all let of the hook, when it comes to making a good headline.

Bonds just make a fool of you.

Tue, 12/04/2012 - 22:33 | 3034418 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Markets? Surely you jest. All the world's a stage, and the men and women merely players. Only a very select few in the Rothschild' innermost circle are privy to the details of how and when the endgame goes down.

Tue, 12/04/2012 - 19:45 | 3033879 WhiteNight123129
WhiteNight123129's picture

Treasuries are the ugly beast to go and kill, it is a big beast, by one by one with a spike we can kill the monster!


Tue, 12/04/2012 - 19:49 | 3033889 R Man J
R Man J's picture

It does seem that thePM bulls are far less profane and insulting. All in all more down to earth.

Tue, 12/04/2012 - 19:57 | 3033906 Hedgetard55
Hedgetard55's picture

 "Napier believes it will reach its bear market nadir at around 450, driven by a loss of faith in US Treasury bonds, and in the dollar, by foreigners."


In real terms perhaps, but not in nominal.

Tue, 12/04/2012 - 20:00 | 3033910 buzzsaw99
buzzsaw99's picture

He was doing so well until he wrote this:

US Treasuries could repeat their 83% price decline of 1946-1981.

Monkeys COULD fly out of his butt too.

Tue, 12/04/2012 - 20:03 | 3033920 Quinvarius
Quinvarius's picture

A ten year average of the PE ratio?  What kind of cracked out indicator is that for making a decision?

I prefer the QEAPER.  The QE Adjusted PE Ratio.  By my half assed opinion, it should run in the mid 50's.  Right now it is at an estimated 4.  That is current PE divided by the number of time the money supply has been increased by in the last ten years.

Tue, 12/04/2012 - 20:09 | 3033946 legorf
legorf's picture

Why do you guys all expect treasury bond yields to rise?

There is something called the Fed, which will buy whatever the public doesn't want at said price. Worst case, no more bond market since the Fed owns it all.


I'm sorry, with the Fed having the power to buy whatever it wants in unlimited quantity, there is no point in calling for a bond debacle in terms of nominal yield unless you guys are calling for the Fed to stop monetizing US debt ... Are you fucking crazy? They just won't do that for the next year at least, if not for the rest of the decade. Period.


For equities, that's another story. As long as the Fed doesn't buy stocks outright, the market remains rigged but eventually, I'm confident that it will find its own way towards equilibrium, which, I fear, is lower than 1000 on the S&P 500.


Now, one can call for the S&P 500 at 800, 700, 600, lower? I think past 1000, it won't matter much since being a little more or less bankrupt still leaves you bankrupt. 

Tue, 12/04/2012 - 20:41 | 3034034 IllusionOfChoice
IllusionOfChoice's picture

Preach brother!

At this point the Fed simply cannot let yields on Treasuries rise, or the whole game ends, right? So even if they have to "buy" every last one, this won't happen - as you say. I think that has to be the starting point of the discussion of whatever else happens.

Tue, 12/04/2012 - 21:17 | 3034172 legorf
legorf's picture

I'm not saying there will be no end game if I understand what you said the way it should be.

I'm just saying that expecting yields to rise sharply over the next year, maybe two, means fighting the Fed knowing it has unlimited power and you don't.




Tue, 12/04/2012 - 22:39 | 3034435 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Correct me if I'm wrong, but I think the Fed has already openly admitted that they rig the equity market as well.

Tue, 12/04/2012 - 22:51 | 3034478 akak
akak's picture

If the Kardashians (whoever the fuck they are) or Honey Boo-boo (whoever the fuck that is) didn't say it, or you didn't read it in a quasi-autistic-sounding text message on your latest e-gadget, then it never really happened, and/or doesn't matter.

Tue, 12/04/2012 - 20:46 | 3034042 AldoHux_IV
AldoHux_IV's picture

With the fed now in the business of buying treasuries it is actually the global elite that will determine the price of money-- they will either fail and/or drive rates up, but that won't matter as much as the real problem is the synthetic prop or "price stability" from all the leverage in the system and determining who owns what vs who owes what to whom.

Edit: talking about inflation vs deflation in grand econ speak with a manipulated market is much like talking about heaven and hell amongst atheists-- N/A.


Tue, 12/04/2012 - 20:52 | 3034070 ebworthen
ebworthen's picture

S&P at 666 again!

C'mon reality!

Tue, 12/04/2012 - 21:03 | 3034108 jvetter713
jvetter713's picture

I have been thinking about something that I have not heard anyone else mention and it is really scary.

So...the Fed it purchasing what...roughly 1/2 Trillion in Mortgages a year right?

If we use $200K as the average home price and we have 165M homes in the US that comes out to 32 Trillion.

So at the current rate, it would take the Fed 64 years to own it all.  Let's assume they come out in 6 months and say that their efforts to "stimulate the economy" have not been enough and decide to double this to a cool $1 Trillion a year.  Maybe they keep doubling and within a few years they own every mortgage in the US.

At the same time, they are sucking up near 100% supply of Treasuries.

So...whatever happens and however it happens, lets say the dollar collapses.  Not only will the Fed own every piece of real estate but *we* will owe them trillions and trillions of cash from their treasuries.  This is really sinister.  They counterfeit my money, use some of it to buy my house and lend the rest of it to me which gets spent by my crack head Uncle Sam and I'm left on the hook.

Tue, 12/04/2012 - 21:13 | 3034151 Quinvarius
Quinvarius's picture

This whole printing thing is just getting warmed up. 

Tue, 12/04/2012 - 21:28 | 3034211 ebworthen
ebworthen's picture

Right, which is why they may as well just send 1/2 million $$$'s to every citizen with a mortgage.

That, of course though, would be "immoral"; whereas bailing out bankers is "saving the economy".


Tue, 12/04/2012 - 21:56 | 3034302 wchild
wchild's picture

I have "been thinking" as well - a transfer to a "privately held institution"... Nice, Fiat dollars for real assets!

Tue, 12/04/2012 - 23:54 | 3034685 Arthur
Arthur's picture

 "If we knew the precise timing we’d already be on the beach."

Truer words were never spoken.

Still there are plenty of ways to make money in this economy.  

There are plenty of opportunities to make some money as long as you are not caught short and overleveraged. 

Would not want to have to live off my interest on investments though.  Definantly will get ugly for a lot of folks.



Wed, 12/05/2012 - 01:29 | 3034819 Nage42
Nage42's picture

Well, the shiny coins on the road in front of the soverign steam-rollers look awefully tempting I'm sure...

But fair point.  If you've got yourself (and whoever you consider to be "can't live without") squared away with preparations for at least a 36-month clusterfsck storm (read: disrupted food and disrupted law), then everything else is gravy.


36-month squared, check (so basically whatever you've invested here willl be of incalculable value if things go pear shaped, and still of value if they don't)


Take what's left, divide by two

Half goes into some speculative stuff like you suggest (what if a White Swan occurs and someone pulls a rabbit out of a hat, it's not likely to happen, but why miss out if it does?!?), maybe some managed funds with solid track records in both up/down markets

Take the remaining half and split that in two.  Half of this goes into an offshore account debit card and maybe splay it across some currencies (USD, AUD, CAD, CHF), this is some go-rabbit money if things go slightly pear-shaped and you need to relocate.  the other half goes into something like GoldMoney or similar (maybe you've got someone out there living in another country that you would trust your life with?  They've got some property and a shovel to bury some gold/arms/ammo?)


Have your various scenarios covered... total full-on SHtF, variable clusterfsck weather the storm, variable clusterfsck get-out-of-dodge, relocation means organized, relocation means disorganized, restart funds at new destination, and of course... the very low-likelyhood event that things somehow recover you have a positive-tail-event play too.


Balance in all things. 

Wed, 12/05/2012 - 03:43 | 3034895 Lord Of Finance
Lord Of Finance's picture

The DJIA had a 25 year bull run. Now, there is going to be hell to pay. But in this hell, we have gotten some really good pays. More to come. We always get some good insight from the second most interesting man in the world, Marc Faber.

And now some advice from the most interesting man in the world:


  Stay thirsty my friends.





 Stay nimble my friends.

Do NOT follow this link or you will be banned from the site!