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Seth Klarman On "Born Bulls", Bitcoin, & "The Truman Show" Market

Tyler Durden's picture




 

With 40% of the portfolio in cash and having returned $4 billion to clients at year-end, Seth Klarman's Baupost Group has "drawn the line in the sand" as they reflect on the diminished opportunities in the so-called "Truman Show" market we see today. In the face of mixed economic data and at a critical inflection point in Federal Reserve policy, Klarman notes, the stock market, heading into 2014, resembles a Rorschach test - "what investors see in the inkblots says considerably more about them than it does about the market." From "born bulls" to "worry genes" and from Bitcoin to flash-mob-speculation, "there is a growing gap between the financial markets and the real economy...and the overall picture is one of growing risk and inadequate potential return almost everywhere one looks... as every 'Truman' under Bernanke’s dome knows the environment is phony."

Excerpted from Baupost Group's Seth Klarman letter,

"Born Bulls"

In the face of mixed economic data and at a critical inflection point in Federal Reserve policy, the stock market, heading into 2014, resembles a Rorschach test. What investors see in the inkblots says considerably more about them than it does about the market.

If you were born bullish, if you’ve never met a market you didn’t like, if you have a consistently short memory, then stock probably look attractive, even compelling. Price-earnings ratios, while elevated, are not in the stratosphere. Deficits are shrinking at the federal and state levels. The consumer balance sheet is on the mend. U.S. housing is recovering, and in some markets, prices have surpassed the prior peak. The nation is on the road to energy independence. With bonds yielding so little, equities appear to be the only game in town. The Fed will continue to hold interest rates extremely low, leaving investors no choice but to buy stocks it doesn’t matter that the S&P has almost tripled from its spring 2009 lows, or that the Fed has begun to taper purchases and interest rates have spiked. Indeed, the stock rally on December’s taper announcement is, for this contingent, confirmation of the strength of this bull market. The picture is unmistakably favorable. QE has worked. If the economy or markets should backslide, the Fed undoubtedly stands ready to once again ride to the rescue. The Bernanke/Yellen put is intact. For now, there are no bubbles, either in sight or over the horizon.

But if you have the worry gene, if you’re more focused on downside than upside, if you’re more interested in return of capital than return on capital, if you have any sense of market history, then there’s more than enough to be concerned about. A policy of near-zero short-term interest rates continues to distort reality with unknown but worrisome long-term consequences. Even as the Fed begins to taper, the announced plan is so mild and contingent – one pundit called it “taper-lite” – that we can draw no legitimate conclusions about the Fed’s ability to end QE without severe consequences. Fiscal stimulus, in the form of sizable deficits, has propped up the consumer, thereby inflating corporate revenues and earnings. But what is the right multiple to pay on juiced corporate earnings? Pretty clearly, lower than otherwise. Yet Robert Schiller’s cyclically adjusted P/E valuation is over 25, a level exceeded only three times before – prior to the 1929, 2000 and 2007 market crashes. Indeed, on almost any metric, the U.S. equity market is historically quite expensive.

A skeptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix and Tesla. The overall picture is one of growing risk and inadequate potential return almost everywhere one looks.

There is a growing gap between the financial markets and the real economy.

"Flash-Mob Speculation"

When it comes to stock market speculation, it’s never hard to build a “coalition of willing.” A flash mob of day traders, momentum investors, and the usual hot money crowd drove one of the best years in decades for U.S., Japanese, and European equities. Even with the ranks of the unemployed and underemployed still bloated and the economy barely improved from a year ago, the S&P 500, Dow Jones Industrial Average, and Russell 2000 regularly posted new record highs (45 for the S&P, 52 for the Dow, and 66 for the Russell) while gaining a remarkable 32.4%, 29.7%, and 38.8% including dividend reinvestment, respectively, in 2013. It was the best year for the S&P 500 since 1997... In the closing weeks of 2013, it was as if the strong gravitational pull of valuation had been temporarily suspended and stock prices had been launched by a booster rocket, allowing them to reach escape velocity. As with bull markets past, favored stocks started to become unmoored and unbounded.

"Speculative Froth" and Dot-Com 2.0

Whether you see today’s investment glass as half full or half empty depends on your age and personality type, as well as your “lifetime” of experiences in the markets and how you interpret them. Our assessment is that the Fed’s continuing stimulus and suppression of volatility has triggered a resurgence of speculative froth. Margin debt measured as a percentage of GDP recently neared an all-time high. IPO activity in 2013 was greater than it has been in years, with 230 offerings taking place, 59% more than last year and approaching 2007’s record of 288 transactions.

Twitter, for example, surged from $26 to almost $45 on day one, and closed the year around $64. It was priced, after all, at only twenty times its projected 2015 revenue. One analyst suggests the profitless company might achieve $50 million of “adjusted” cash earnings this year, giving it a P/E of over 500. Some hedge and mutual funds are again investing in late-stage, pre-IPO financing rounds for hot Internet companies at valuations that only seem reasonable if the companies go public, soon, and at astronomical prices.

Amazon.com, with a market cap of $180 billion, trades at about 15 times estimated 2013 earnings, Netflix at about 181 times. Tesla Motors’ P/E is about 279; LinkedIn’s is 145. Even though Netflix now carries some original programming, we’re pretty sure we’ve seen this movie before. Some 23-year-olds have sold their startup internet companies for hundreds of millions of dollars, while the profitless privately-held Snapchat has turned down a $3 billion buyout offer.

In Silicon Valley, it seems that business plans – a narrative of how one intends to make money – are once again far more valuable than many actual businesses engaged in real world commerce and whose revenues exceed expenses.

Ominous Signs

In an ominous sign, a recent survey of U.S. investment newsletters by Investors Intelligence found the lowest proportion of bears since the ill-fated year of 1987. A paucity of bears is one of the most reliable reverse indicators of market psychology. In the financial world, things are hunky dory; in the real world, not so much. Is the feel-good upward march of people’s 401(k)s, mutual fund balances, CNBC hype, and hedge fund bonuses eroding the objectivity of their assessments of the real world? We can say with some conviction that it almost always does.

Frankly, wouldn’t it be easier if the Fed would just announce the proper level for the S&P, and spare us all the policy announcements and market gyrations?

Europe Isn't Fixed

Europe isn’t fixed either, but you wouldn’t be able to tell that from investor sentiment. One sell-side analyst recently declared that ‘the recovery is here,’ a sharp reversal from his view in July 2012 that Greece had a 90% chance of leaving the Euro by the end of 2013. Greek government bond prices have nearly quintupled in price from the mid-2012 lows. Yet, despite six years of painful structural adjustments, Greece’s government debt-to-GDP ratio currently stands at 157%, up from 105% in 2008. Germany’s own government debt-to-GDP ratio stands at 81%, up from 65% in 2008. That doesn’t look fixed to us. The EU credit rating was recently reduced by S&P. European unemployment remains stubbornly above 12%. Not fixed.

Various other risks lurk on the periphery: bank deposits remain frozen in Cyprus, Catalonia seems to be forging ahead with an independence referendum in 2014, and social unrest continues to escalate in Ukraine and Turkey. And all this in a region that remains saddled with deep structural imbalances. As Angela Merkel recently noted, Europe has 7% of the world’s population, 25% of its output, and 50% of its social spending. Again, not fixed.

Bitcoin And Gold

Only in a bull market could an online “currency” dubbed bitcoin surge 100-fold in one year, as it did in 2013. The phenomenon spurred The Wall Street Journal to call it a “cryptocurrency” craze, with dozens of entrants. Bitcoin now has an estimated market “value” in excess of $6 billion, leaving alphacoin, fastcoin, gridcoin, peercoin, and Zeuscoin in its wake. Now most sell-side firms are rushing to provide research on this latest fad, while “bitcoin funds” are being formed. Recent recruitment e-mails to staff such a platform reassure that even though experience is preferred, it is not required.

While bitcoin is yet another bandwagon we are happy to let pass us by, the thinking behind cryptocurrencies may contain a kernel of rationality.

If paper currencies – dollars and yen – can be printed in essentially unlimited volumes, and just as with all currencies are only worth what recipients on any given day will exchange in goods or services, then what makes them any better than the “crypto” kind of money? The dollars and yen are, of course, legal tender issued by governments, but in an era in which governments are neither popular nor trusted, that is not necessarily a big plus.

Gold, at least, has been regarded as “money,” for thousands of years, and it is relatively stable and widely accepted store of value and medium of exchange. It’s a well-known monetary “brand.” It doesn’t exist only (or at all) in cyberspace, and it cannot be printed on the whim of authorities. Ironically and perplexingly, while gold, the hard money alternative to the printing press kind of money, dropped 28% in 2013, the untested and highly speculative bitcoin went completely through the roof.

"The Truman Show" Market

Welcome to “The Truman Show” market. In the 1998 film by that name, actor Jim Carrey is ignorant of the fact that his life is a hugely popular reality show. His every action, unbeknownst to him, is manipulated while being broadcast to millions of TV viewers worldwide. He seemingly lives in an idyllic seaside community where the manicured lawns are always green and the citizens are always happy. These people are, of course, actors. The world Truman inhabits turns out to be phony: a gigantic sound stage created for a manufactured “reality.” As Truman starts to unravel the truth, his anger erupts and chaos ensues.

Ben Bernanke and Mario Draghi, as in the movie, are the “creators” who have manufactured a similarly idyllic, if artificial, environment for today’s investors. They were the executive producers of “The Truman Show” of 2013. A global audience sat in rapt attention before this wildly popular production. Given the U.S. stock market’s continuing upsurge, Bernanke is almost certain to snag yet another People’s Choice Award for this psychological “thriller.” Even in “The Truman Show,” life was not as good as this for investors.

But there is one fly in the ointment: in Bernanke’s production, all the Trumans – the economists, fund managers, traders, market pundits – know at some level that the environment in which they operate is not what it seems on the surface. The Fed and the Treasury openly discuss the aim of their policies: to manipulate financial markets higher and to generate reported economic “growth” and a “wealth effect.” Inside the giant Plexiglas dome of modern capital markets, just about everyone is happy, the few doubters are mocked and jeered, bad news is increasingly ignored, and markets go asymptotic. The longer QE continues, the more bloated the Fed balance sheet and the greater the risk from any unwinding. The artificiality of today’s markets is pure Truman Show. According to the Wall Street Journal (12/20/13), the Federal Reserve purchased about 90% of all the eligible mortgage bonds issued in November.

Like a few glasses of wine with dinner, the usual short-term performance pressures on most investors to keep up with the market serve to dull their senses, which makes it a bit easier to forget that they are being manipulated. But what is fake cannot be made real. As Jim Grant recently noted on CNBC, the problem is that “the Fed can change how things look, it cannot change what things are.” According to John Phelan, a fellow at the Cobden Centre in the U.K., “the Federal Reserve has become an enabler of the financial havoc it was designed (a century ago) to prevent.”

Every Truman under Bernanke’s dome knows the environment is phony. But the zeitgeist so so damn pleasant, the days so resplendent, the mood so euphoric, the returns so irresistible, that no one wants it to end, and no one wants to exit the dome until they’re sure everyone else won’t stay on forever.

A marketplace of knowing Trumans seems even more unstable than the movie sound stage character slowly awakening to reality. Can the clued-in Trumans be counted on to maintain their complicity or will they go off-script? Will Fed actions reliably be met with the desired response? Will the program remain popular? Could “The Truman Show” be running out of material? After all, even Seinfeld ended.

Someday, the Fed’s show will be off the air and new programming will take its place. And people will debate just how good it really was. When the show ends, those self-deluded Trumans will be mad as hell and probably broke as well. Hopefully there will be no sequels.

Someday...

Someday, financial markets will again decline. Someday, rising stock and bond markets will no longer be government policy – maybe not today or tomorrow, but someday. Someday, QE will end and money won’t be free. Someday, corporate failure will be permitted. Someday, the economy will turn down again, and someday, somewhere, somehow, investors will lose money and once again come to favor capital preservation over speculation. Someday, interest rates will be higher, bond prices lower, and the prospective return from owning fixed-income instruments will again be roughly commensurate with the risk.

Someday, professional investors will come to work and fear will have come to the markets and that fear will spread like wildfire. The news flow will be bad, and the markets will be tumbling.

...

Six years ago, many investors were way out over their skis. Giant financial institutions were brought to their knees...

The survivors pledged to themselves that they would forever be more careful, less greedy, less short-term oriented.

But here we are again, mired in a euphoric environment in which some securities have risen in price beyond all reason, where leverage is returning to rainy markets and asset classes, and where caution seems radical and risk-taking the prudent course. Not surprisingly, lessons learned in 2008 were only learned temporarily. These are the inevitable cycles of greed and fear, of peaks and troughs.

Can we say when it will end? No. Can we say that it will end? Yes. And when it ends and the trend reverses, here is what we can say for sure. Few will be ready. Few will be prepared.

 

 

 
 

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Sat, 03/08/2014 - 15:28 | 4525419 DOGGONE
DOGGONE's picture

The Public Be Suckered
http://patrick.net/forum/?p=1230886

Sat, 03/08/2014 - 16:49 | 4525529 HyBrasilian
HyBrasilian's picture

 'The Public Be Suckered' [by whoM]? ~ 'Seth Klarman'?

~~~

Oh... Fuck me... But I'll wager a guess [after all ~ I only have worthless cheesebux at stake]...

CHEESESTEAK CHEESESTEAK ~ Itz da CHEESESTEAK shuffle ~ HUH!

 

"All day every day

cheesePOPEScheesePOPES

All night every night

cheesePOPES cheesePOPES

Itz da cheesePOPE shuffle ~ HUH!"

 

~~~

By tomorrow ~ It'll only be WORSE... Cause nobody around here gi8ves a fuck... Hell ~ you get KICKED OFF of ZH if you dance too close to the fire...

 

Sat, 03/08/2014 - 18:09 | 4525774 National Blessing
National Blessing's picture

Everybody knew that Bitcoin was destined to fail.  The USD isn't going to go down without a fight.  Bastards.

Sun, 03/09/2014 - 00:09 | 4526870 Manthong
Manthong's picture

I didn’t realize that 2012’s Hopium was the gateway drug to Crazy Pills.

Sun, 03/09/2014 - 00:57 | 4526950 Rock On Roger
Rock On Roger's picture

free francis_sawyer

Sat, 03/08/2014 - 19:13 | 4525996 frenzic
frenzic's picture

Good to see you.

Sun, 03/09/2014 - 14:03 | 4527950 DOGGONE
DOGGONE's picture

By whom?
By these credible conpersons:

Condemn venal journalism for severely fooling the people
http://occupywallst.org/forum/condemn-venal-journalism-for-severely-fool...
Higher Education Panders to Intellectual Savagery
http://occupywallst.org/forum/higher-education-panders-to-intellectual-s...

Sat, 03/08/2014 - 16:49 | 4525532 fonestar
fonestar's picture

Bitcoin is definitely going to "pass by" guys like this who think this is some passing fad.  Definitely not someone fonestar would want managing his "money".

Sat, 03/08/2014 - 17:19 | 4525616 Prisoners_dilemna
Prisoners_dilemna's picture

If we had teleportation we could send gold around the world in a flash, like its younger cousin can do.

Gold 3.0?   Nah  that will be  a telepathic blockchain.

For now I'm happy with 1.0 and 2.0.

Sat, 03/08/2014 - 17:52 | 4525722 wintermute
wintermute's picture

"Ironically and perplexingly, while gold, the hard money alternative to the printing press kind of money, dropped 28% in 2013, the untested and highly speculative bitcoin went completely through the roof."

The reason is: gold is not useful for remote transactions which are most transactions by value in a modern economy. This is why fiat currency has lasted so long, its utility value in a modern economy.

Bitcoin IS the currency of the 21st Century!

Sat, 03/08/2014 - 19:07 | 4525967 Remington IV
Remington IV's picture

maybe ... or not

Sat, 03/08/2014 - 23:41 | 4526817 HulkHogan
HulkHogan's picture

"Bitcoin IS the currency of the 21st Century!"

No it's not. I, nor 99.9% of the world will take computer bits as payment for anything. 

Sun, 03/09/2014 - 00:32 | 4526914 wintermute
wintermute's picture

Doh! So no one uses internet banking, or paypal, dooooooohhhhh!!!!

Sun, 03/09/2014 - 08:01 | 4527198 GetZeeGold
GetZeeGold's picture

 

 

Bitcoins are backed by nothing therefore the nothing is faith based.

 

I have no faith in that. Gold inspired a nation to find safe passage over the Rocky Mountains. If fact it was almost was too successful.....not seeing that happening with bitcoins.

Sun, 03/09/2014 - 09:25 | 4527274 Buckaroo Banzai
Buckaroo Banzai's picture

Actually, BitCoin is backed by mathematics and cryptography.

While these things aren't physical, they are certainly quite REAL.

The world is awash in virtual dollars, successfully used in commerce despite being backed only by the "full faith(lessness) and (lack of) credit" of the US Government.

What is the alternative to BitCoin for electronic commerce? I have yet to hear a good answer.

Sun, 03/09/2014 - 10:14 | 4527353 Duke of Earl
Duke of Earl's picture

Faith, for better or worse, is powerful and can make many things happen.  There are no more places to physically explore on the planet and certainly nothing comparable to the Rocky's.  Men must find new ways to explore.  

Sun, 03/09/2014 - 08:13 | 4527221 The wheels on t...
The wheels on the bus are going to fall off's picture

You need to live in the eastern part of the world, 1 billion homeless (nevermind a computer to exchange bitcoins!)

Yet they exchange and barter for goods with real money....

We might live in the 21st century, but the divide between the wealth and poor means some countries are still in the 20th century.

The world isnt ready for bitcoin, period.

Sun, 03/09/2014 - 12:37 | 4527686 Offthebeach
Offthebeach's picture

There is a demand for it. It will be supplied. Everywhere a third, maybe, of people want out of gov toilet paper and currency/tax/spy controls.

And what is needed to make a vert currency? Mines, drilling equip, ships, .....? I don't know. But it isn't much physically.

The rich want out of mass tax thieft. Popular, but supposed suppliers of mass desired things want out. Entire populaions want out of their currency ( Russia, India, China, Argentina. ...)

Someone will find a way.

Sun, 03/09/2014 - 13:34 | 4527844 fonestar
fonestar's picture

That's nonsense.  Bitcoin scales very well to the poor and unbanked.  Bit-notes and paper wallets.

Tue, 03/11/2014 - 19:47 | 4536301 MeelionDollerBogus
MeelionDollerBogus's picture

with no phones, no electricity and no computers?

You sure about that? Bitcoin doesn't go build a grid in its wake. it sucks power off the grid, makes you suck its cock for a hope of money, then leaves you with irreversible transactions and a drop from $1200 to $6 http://flic.kr/p/kyKgtF at best

Tue, 03/11/2014 - 19:44 | 4536291 MeelionDollerBogus
MeelionDollerBogus's picture

Remote transactions are the #1 avenue for fraud. Maybe something wrong is delivered, maybe nothing is delivered.

I may as well be sending money to Nigeria to free the Prince's inheritance.

The only smart way to do transactions is cash-in-hand and goods-visible then & there. Nothing else.

Sat, 03/08/2014 - 17:31 | 4525666 Groundhog Day
Groundhog Day's picture

What everybody wants to know is "how will it end"

Sat, 03/08/2014 - 19:11 | 4525944 HyBrasilian
HyBrasilian's picture

It will 'END' with you... a [temporary 'SLAVE'] to a cheesePOPE... [because in that moment ~ NOBODY will understand that paper cheesepopebux were just a SCAM & aren't worth anything ~ wealth wise ~ INSTEAD, they simply had their 'tribe' make you believe that they held POWER under that false system]...

~~~

Then ~ the FOLLOWING will happen...

 

- You & your friends will suddenly WAKE THE FUCK UP one day...

- You'll realize that you've been duped [& meanwhile, put aside all the PROPAGANDA that you've been SPOONFED over the last century]...

- Your SLAVEMASTERS will realize that they're outnumbered [98-2]... & subsequently RUN FOR THE HILL CAVES like 15 year old teenage girls...

 

... a new era will begin... but PROBABLY with the remnants of the last 'CHEESEPOPE' generation assembling to 'MAKE A MAGNIFICENT WORLD' [for themselves], out of the next generations... which means... your great great great great GRANDKIDS will be as fucked as you are [until somebody ~ who ~ by bringing OBVIOUS this fact ~ gets kicked off of ZERO HEDGE in AD 2,500 ~ for... HAVING THE COLOSSAL NERVE TO... expose & publish these same 'truisms' under the CONTROLLED ANTAGONISTIC UMBRELLA of the same 'GHOSTS' that you & your GREAT ANCESTORS thought were your 'BFF's' all along]...

 

But then... You'll watch 'OSCAR~BERG' 2512... & the RED CARPET... & all the 'WORSHIPPING'... & you'll say to yourself...

 

Meh... WTF?... It's all good...

 

 

Sat, 03/08/2014 - 19:15 | 4526002 Miffed Microbio...
Miffed Microbiologist's picture

Same as it ever was in the house of pain HBra. Don't count the 15 year old teenage girls out though. That was my age when I shot my first gun as well as when I was beaten to the ground by sensei when I refused to back up during sparring. Some of us may not run.

Miffed;-)

Sat, 03/08/2014 - 19:29 | 4526037 HyBrasilian
HyBrasilian's picture

I like you MIFFED...

~~~

Edit ~ My ['KNOWLEDGE'] in all of this is this...

I'm 100% certain that... generation after generation... EPOCH after EPOCH... There will always BE those who ~ come hell or high H2O ~ will NEVER run...

It's all CYCLICAL... If I were DISAPPOINTED to be in the part of the cycle that didn't favor my skin or purported creed ~ I'd be DISINGENUOUS...

Instead ~ I 'relish' this cycle...

The 'Seth Klarman's' of the world?... WTF ever... It was great juxtaposed humor & contrst to read what an INCONSEQUENTIAL suck wad had to say about the 'status of things'... on an INCONSEQUENTIAL March weekend... in an INCONSEQUENTIAL century...

But hey ~ as long as his fucking INCONSEQUENTIAL... SELF ABSORBED... FUCKING CHEESEPOPE @ss seens to think it's important...

 

Well then ~ Knock your fucking circumcised dick out & have at it... :-) [I don't want to spoil your self absorbed fun]...

 

Sat, 03/08/2014 - 20:01 | 4526181 Miffed Microbio...
Miffed Microbiologist's picture

Acceptance of the nature of our world is a step towards freedom and contentment. Acceptance of probable failure when taking a stand is as well. Reality is more often the battle of Thermopylae. There is often no happy ending though many hope to delude themselves. TPTB use patriotism, ideology and historical revisionism to blunt reality, manipulate and coerce. Let them strut and fret on their stage to be heard no more. At least I refuse to listen.

Miffed;-)

Sat, 03/08/2014 - 20:11 | 4526220 HyBrasilian
HyBrasilian's picture

+300

Sun, 03/09/2014 - 07:23 | 4527200 GetZeeGold
GetZeeGold's picture

 

 

"how will it end"

 

Everyone knows this will end badly - Jim Cramer

Sat, 03/08/2014 - 19:53 | 4526135 WMM II
WMM II's picture

"Your SLAVEMASTERS will realize that they're outnumbered [98-2]"

 

 i think the score now is 99 - 1....

 

:)

wmm

Sat, 03/08/2014 - 20:12 | 4526225 HyBrasilian
HyBrasilian's picture

nope... they forgot about me... I'm a fucking HYDRA... [my heads grow back faster than you can cut them off]...

Sat, 03/08/2014 - 20:37 | 4526331 Miffed Microbio...
Miffed Microbiologist's picture

As one who has fought a hydra, I can actually attest to the futility of lopping off individual heads. Until suddenly I realized the answer and I cut it off at the base with my Bidenhänder. Not that I would want anyone to do that to you. Just FYI for general hydra altercations.

Miffed;-)

Sat, 03/08/2014 - 21:48 | 4526575 HyBrasilian
HyBrasilian's picture

oops!... They always forget about THAT ONE don't they?... Ouch! That's gotta hurt! :-)

Sat, 03/08/2014 - 21:24 | 4526506 DOGGONE
DOGGONE's picture

The future is not knowable, there are just probabilities. If you go around with your head up your ass, you are lots more likely to get hit by a truck.
http://www.showrealhist.com/RHandRD.html

Sat, 03/08/2014 - 23:45 | 4526829 NoDebt
NoDebt's picture

Yeah, probablilities.  Let me tell you about a probability and what it looks like.  In a bubble, craze or whatever you want to call it, everyone is finely dressed, greeted at the door by an English butler, introductions are made, everyone is welcome at the club who can get an invitation.  "Hello, how are you?  So nice to see you.  Welcome.  You've finally made it."

And it ends in fear, screaming and a mad rush to the exits, with all those distinguished party guests trampling eachother to get out.

 

Sun, 03/09/2014 - 09:20 | 4527271 messystateofaffairs
messystateofaffairs's picture

The moral if the story; stay out of the clubs, be your own counterparty risk.

Sun, 03/09/2014 - 15:03 | 4528089 Meremortal
Meremortal's picture

 

Well, those who bought into Bitcoin, yes.

Market has fine for me.

 

Mon, 03/10/2014 - 17:44 | 4532189 Catflappo
Catflappo's picture

Amazon trading at 15 times 2015 earnings?  I don't think so. 

Sat, 03/08/2014 - 15:28 | 4525420 screw face
screw face's picture

Bullish... Moar Data.....Bitchez

Sat, 03/08/2014 - 15:48 | 4525440 Dre4dwolf
Dre4dwolf's picture

Lets all be honest.

I trust Doge Coin more than I do Federal Reserve notes.

Why?

Because the Fed has proven itself to be 

1) Criminal

2) Fraudulant

3) Founded by criminal masterminds

4) The government needs it like a symbiotic parasitic relationship with the "host nation".

5) Because of central banks, we have endless wars that bankrupt not only us, but the entire planet.

 

 

What has doge coin done?

1) given to charity

2) supported athletes

3) allowed the younger generations to be educated on finance (somewhat of a crash lesson in finance and money creation)

4) rallied peoples hopes and aspirations for a brighter future

 

What has Federal Reserve note "coins" done? (as it stands the federal reserve note system is just a public ledger like bitcoin, except all the criminal organizations (government, banks etc) keep their secition of the ledger private).

Think to yourself, why wont the Fed get audited? because these clowns have printed HUNDREDS OF TRILLIONS OF DOLLARS "off ledger".

1) Funneled Drug Money in the trillions from south america openly with institutions like HSBC

2) Funded Terrorist organizations in the middle east with again organizations like HSBC

3) Caused 20 million empty homes to exist

4) Inflated bubbles allowing the least deserving segment of our population to get rich, while the hard working classes that are the life blood of the nation have been essentially raped of all assets.

5) desabilized entire nations 

6) allowed a semi-communist dictatorship to form in america

I could go on.

When will insitutions like the Federal reserve stop? how many stalins? hitlers? obamas? will it take for the global population to learn that a central bank is the "root of all evil".

 

Step 1 Central bank

Step 2 Wealth inequality (no shit sherlock when 1% of the people have the power to print money while the 99% have to "work" to pay back fraudulant debts wtf u think gona happen?)

Step 3 Poverty

Step 4 Social Unrest

Step 5 War Profiteering

Step 6 Socialism

Step 7 Rich Smart people leave the nation

Step 8 Nation Completely collapses into despotism like North Korea

 

End Result, by 2030 if the USA isn't using cryptocurrency or a gold backed cryptocurrency of sorts as the primary currency we will endup looking like north korea.

You need cryptography even if you use gold as a currency, so that you can safely transmit gold transactions globally without fear of government pillaging the gold.

You decentralize the gold by throwing it all in one vault somewhere.... or just save yourself the trouble and monetized un-mined gold and . . . just leave it in the ground.

Why bother digging it up, then burrying it under a building anyway? just. . .  build the building ontop of where you would of mined it. . .  problem solved.

 

 

Sat, 03/08/2014 - 17:23 | 4525636 Prisoners_dilemna
Prisoners_dilemna's picture

Dogecoin could be mass adopted if it didn't require a whole new form of language that seems to derive from early neanderthals with cerebral palsy.

Much tardedness, such backward, so lack of innovation,

Sat, 03/08/2014 - 19:19 | 4526022 Flux
Flux's picture

*Psst*

Come closer, I have something to tell you ...

 

 

 

 

 

 

 

That's Dogecoin's secret to success. It's the Twitter of cryptocurrency.

Sat, 03/08/2014 - 22:12 | 4526625 codyave
codyave's picture

dogecoin: so dumb, a caveman can use it.

Sun, 03/09/2014 - 08:04 | 4527216 GetZeeGold
GetZeeGold's picture

 

 

Seriously.....this again?

http://www.youtube.com/watch?v=H02iwWCrXew

Sun, 03/09/2014 - 02:08 | 4527036 fonestar
fonestar's picture

Flux you have returned!

Sun, 03/09/2014 - 09:42 | 4527291 Flux
Flux's picture

I have never left, sacred bitcoin prophet!

Such community at Zero Hedge encourages open arms and shiny dogecoin to all crypto-faithful. And open arms and shiny dogecoin to all crypto-fearful.

It is known.

To the moon!

Sat, 03/08/2014 - 15:42 | 4525443 The Abstraction...
The Abstraction of Justice's picture

 

 

Libor and gold fix are one: http://youtu.be/PyQr4BQ9fFc

Sat, 03/08/2014 - 15:49 | 4525454 Hapa
Hapa's picture

"Every Truman under Bernanke’s dome knows the environment is phony. But the zeitgeist so so damn pleasant, the days so resplendent, the mood so euphoric, the returns so irresistible, that no one wants it to end, and no one wants to exit the dome until they’re sure everyone else won’t stay on forever."

Yes, the level of cognitive dissonance and self-willed ignorance has reached epic proportions.  My ears are ringing and I am sick of this bullshit.  Though I don't want to live in a newly degraded world, I am also getting tired of this waiting game. Please, somebody pull the trigger and let's get on with it.

Sat, 03/08/2014 - 15:57 | 4525467 ebworthen
ebworthen's picture

Take away all the twisted arm gambling funds trapped in 401K's/I.R.A.'s/Pension Funds and FED QE and the S&P would be below March 2009 level of 666.

Sat, 03/08/2014 - 16:12 | 4525477 Sufiy
Sufiy's picture


 One mystery is solved: Satoshi Nakamoto is found and another one: when this bubble will be finally over will be found soon. Warren Buffet has discussed it recently and dismissed Bitcoin as a currency, as a store of value it is not working very well for the latest buyers from the last Fall. It will be more and more difficult "to find another fool" to buy it at a higher price after all recent news about Mt. Gox bankruptcy, millions of lost Bitcoins and crucial technical fault in Bitcoin architecture allowing it to happen. Constant attacks from the  Central Banks around the world will only add to the pressure on FIAT alternative. There is no "Gold 2.0" - there is only one real Gold and not so much of it left now.

  After these revelations about Satoshi Nakamoto pedigree and his long history of working on highly classified projects  you can think for yourself from what point in time NSA has been really involved in this project and what will be the implications on Bitcoin crowd of "freedom fighters" with further investigation reports coming out. The destiny of Bitcoin speculators we can learn from the history.

 

http://sufiy.blogspot.co.uk/2014/03/bubble-chronicles-satoshi-nakamoto-f...

Sat, 03/08/2014 - 16:44 | 4525522 papa_lazarou
papa_lazarou's picture

A crucial technical fault in Bitcoin architecture?

I thought the problem was with Mt.Gox, not Bitcoin itself? If, as you postulate, there is a crucial technical fault in Bitcoin architecture, why haven't all the Bitcoins been stolen yet?

Isn't saying Bitcion is valueless just because an exchange had Bitcion stolen from it tantamount to saying gold is valueless because bank robbers can steal gold from a bank's valut?

Apparently someone sees value in Bitcoin, otherwise, why steal it?

Sun, 03/09/2014 - 02:39 | 4527055 Mike Hunt III
Mike Hunt III's picture

"Satoshi Nakamoto is found". Newsweak sez "we found him".Associated Press, Reuters and the captured fake Satoshi himself sez "no you didn't".

Sun, 03/09/2014 - 09:12 | 4527265 messystateofaffairs
messystateofaffairs's picture

The truth of btc utility lies in the technical robustness of its operating open source protocols and people like me willingness to accept it as money. The worship or demonization of real or fictitious personalities by the presstitute is sheepfood designed to confuse people away from a dangerously disruptive new form of money.

Sat, 03/08/2014 - 16:19 | 4525485 Bunga Bunga
Bunga Bunga's picture

Bitcoin has intrinsic value like Gold. The fiat price reflects the cost to produce it. The margins of the miners are thin. Bitcoin can't be inflated like government money, because bitcoin is not a fiat but a consenus currency. As long as a majority agrees to the bitcoin algorithm, it  will preserve its intrinsic value.

Sat, 03/08/2014 - 23:42 | 4526822 HulkHogan
HulkHogan's picture

Bitcoin has intrinsic value like Gold Beanie Babies. 

Sun, 03/09/2014 - 08:06 | 4527217 GetZeeGold
GetZeeGold's picture

 

 

I've heard of the legend.....but I didn't think they actually existed.

Sun, 03/09/2014 - 02:44 | 4527059 Mike Hunt III
Mike Hunt III's picture

Neither bitcoin nor gold have intrinsic value. But they are both valuable.

Sun, 03/09/2014 - 19:35 | 4528809 Bunga Bunga
Bunga Bunga's picture

The intrinsic value is the cost to produce it.

Mon, 03/10/2014 - 21:17 | 4533013 Kirk2NCC1701
Kirk2NCC1701's picture

Fiat Currency = Mainstream currency, Built on Faith, Backed by... Force (Gov)

Crypto-Currency = Fringe currency, Built on Faith & Hope, Backed by... Services & Fiat

Sat, 03/08/2014 - 16:25 | 4525496 Carl Popper
Carl Popper's picture

He made an excellent case to go into stocks.

If we really are entering into a new era, low inflation, big data and machine age civilization then we should be all in to the usa stock market.

Only a rise in interest rates can stop stocks now.

Sat, 03/08/2014 - 20:37 | 4526330 LooseLee
LooseLee's picture

Ha, Ha. You are the FOOL he talks about. Go ahead BULLTARD, make my day...

Sat, 03/08/2014 - 16:56 | 4525512 NOZZLE
NOZZLE's picture

Shitpotle with a 53 PE ratio is entirely reasonably priced at $500+ a $hare.  

 

Its ok because for every $ in public debt we gain 1.5 $ in pubic a$$ets  according to the coolaid drinkers.

 

http://www.meh.ro/wp-content/uploads/2010/10/meh.ro5604.jpg

Sat, 03/08/2014 - 17:12 | 4525601 Flux
Flux's picture

Seth's been saying this for years. Little known fact, he lagged the S&P for a decade between 1991 and 2001.

*shrug*

In 2010 he wrote:

""Given the recent run-up, I'd be worried that we'll have another 10 years of zero returns."

He was 30% in cash then. So much for value investing.

Sat, 03/08/2014 - 18:33 | 4525854 Midnight Rider
Midnight Rider's picture

I think he is saying that someday he will be right which is most likely true. When will that be, even he says he doesn't know. But, what he is saying is that we are much closer to that point than we were not too long ago, macro numbers are starting to roll over and we are bumping up against the top of all historical valutation charts. You figure out whether we're closer to the top or bottom. He's betting on the top...

Sat, 03/08/2014 - 18:38 | 4525865 Midnight Rider
Midnight Rider's picture

Who knew in 2010 that the Fed was going to unleash a multi-trillion dollar money printing campaign to drive the market higher. We should have rolled over then and someday still will. It will just be at a higher point given the manic addition of QE infinity.

Sat, 03/08/2014 - 19:10 | 4525973 Flux
Flux's picture

Well, some pretty bright minds have been banking on a collapse for sometime now and I think their thoughts have filtered into the collective. Who can't look at the Schiller P/E and feel rosy? I would argue mass sentiment is far more bear-ish than the market would suggest. I think even the hardcore bulls are getting a little uncomfortable.

Personally, when I look at the market... I get chills. But I've been getting chills ever since QE started and I'm just starting to wonder if we all have it wrong.

Sat, 03/08/2014 - 20:47 | 4526368 Midnight Rider
Midnight Rider's picture

The bright minds will one day be correct. The key difference with the bear/bull statistics has to do with "what do I really think" and "what am I having to do as a money manager given we have a money printing maniac at the Fed". I think the high bull statistics are tied to the latter. I think there is a general understanding among most that we are in an artificially high market. The Fed even admitted to a bubble in 2007 and we are significantly above that level now. It's a game of perspective. Are stock overvalued now? Well, if your assumption is that the Fed will continue to print another $3 trillion, or $6 trillion or whatever it takes to keep stocks going up, the the answer would have to be no. The question is, how far can the Fed push it before there is a systemic failure and cost/benefit become zero or negative. Given we are near or exceeding valuation metrics from all previous market peaks, how much further can it be pushed? Will the market be satisfied to never take profits on a larger scale? The exit door continues to narrow and I suspect more and more eyes are on it as we move along.

Sun, 03/09/2014 - 00:30 | 4526910 Midnight Rider
Midnight Rider's picture

It's all dependent on how long you think the Fed will continue to print. There are few who deny QE had driven up the market. The question is obviously what happens on the other side. You are right to get chills. What is being done is completely outside the norm, untried and unknown what the net results will be. I feel comfortable about this aspect however, if the economy does not take off in a major way in the fairly near future, we are going to be left with a pile of debt and newly blown subprime bubbles that will take the economy back down before we've fully recovered from the current recession. It will be even harder to recover from the next recession given the additonal headwind and baggage carried into it. So, I guess time will tell. But the timer is winding down and with quite a number of macro indicators in downward trends it's likely gonna be a nail-biter.

Sun, 03/09/2014 - 16:41 | 4528310 Flux
Flux's picture

Thanks Midnight, for the balanced perspective. 

At times I read the comments here and it seems there's a large faction pining away for the end of days. Personally, I'd rather not spend my remaining years guarding a cabbage patch with a shotgun.  My father was such a man, and he died alone on his little patch of land ... waiting for the collapse that never came.

He would have loved this site.

Still, I've had the "privilege" (and I use that term loosely) to rub shoulders with the 1% on occaision, and the perspective is night and day removed. Given the choice, I'd rather live with a little optimism and hope. It just seems healthier, even if the end is nigh.

All the best.

Sun, 03/09/2014 - 16:00 | 4528220 ReactionToClose...
ReactionToClosedMinds's picture

I interpret Klaramn differently than you.  This is a dangerous risk profile he sees.  No more, no less.  If you want to embrace present markets, go for it.   May you make a ton of profit for your courage & risk-management.   Heaven support you.  But it is obvious to anyone, but for the Federal Reserve..... well.

If you want to believe in 'fundamentals', the 'real' economy.....go for it.

By the way, everything you say applies equally to John Hussman and others.  Sooner or later they are 'right'............ but that is not what I think Klarman is saying.  Maybe you think that is his eternal mantra ............but there are risky conditions and there are very risky conditions.   I think 2008 was a tip-off of what is coming..........nothing substantive was done to address what caused 2008.  So we are in a potentially even more dangerous situation.   It may take decades for all of this to unwind ........but there will be natural reversions to the mean.  And as much as I believe in technology as an answer....you have to have proper socio-economic-political environment for it all to thrive.  The last 200 hundred years  has created more economic well-being than in all human history.  And the United States of America, despite its present, is clearly a factor in this particular evolutionary thread, due to many cultural & philosophical pedigress owing to Europe.   But human entities have the unfortunate tendency to come to believe their own bullshit and divorce themselves from 'reality' ....  even the populace, the august Federal Reserve bank...and even the 'smarty pants' at the NYFed<<

So thank you Seth, Jim Grant, Marc Faber, Felix Zulauf, Paul Singer, ZeroHedge, and many other for highlighting these 'eternal' tendencies of humanity .....

Hitler & Stalin were great for so many as everyone looked at a certain 'vision'.

Sat, 03/08/2014 - 17:17 | 4525620 Ban KKiller
Ban KKiller's picture

Be prepared. Well I was a cub scout and that is one thing I did take away...be paranoid and be ready for a changing scene. Or you are TOTALLY FUCKED. Well the scouts did not put it qutie like that but they did drum it into our heads. So no wonder we had to have back packs. So many things to prepare for.

Be subversive. Plant a garden. Make your own food. Fast food? May be fast but it is not food. It is corporate advertising flavored with dead Chinese pigs. 

Sat, 03/08/2014 - 18:19 | 4525811 discopimp
discopimp's picture
Bitcoin Abstract.  A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution

I know you are afraid Seth, control will no longer be yours.  Your emotional bias, while somewhat abated due to your truthful comments regarding current market conditions, vastly underestimate the desire by the majority to remove third party counter risk and centralized monetary control as introduced by the Bitcoin Protocol...  the train has already left the station and you don't even realize you have been left behind! 

Sat, 03/08/2014 - 18:31 | 4525850 Sick
Sick's picture

As most here agree, the end of this financial scheme will end.  I have to wonder who will ever trust stocks, bonds, banks, etc. again and if there is no trust in these things what will replace it.  I think it will have to be another currency (bitcoin or paper) but one backed by precious metals.  

Sat, 03/08/2014 - 21:46 | 4526573 kurt
kurt's picture

Tin horn and little toy drum

Sat, 03/08/2014 - 23:17 | 4526756 RaceToTheBottom
RaceToTheBottom's picture

If 50% drop is too much for stockholders they should not be in the market.  But with 90% or whatever Bulls, it would seem many people think otherwise.

It is too late for me to enter the market, I will remain out and try to plug the door they will try and escape through....

Sun, 03/09/2014 - 00:03 | 4526864 Atomizer
Atomizer's picture

According to the US media, all Americans should hate these brown sand nigger terrorist people. I find this man rather brilliant in explaining past monetary history.

Sheikh Imran Hosein - 20130223 The International Monetary System & Future of money

Sun, 03/09/2014 - 05:14 | 4527142 hedgehog99
hedgehog99's picture

How accurate is this description of how Medicare Part D (and SSI) are funded?  

How Medicare Part D is funded.  How money is created. 

The big players in Medicare Part D are the drug companies (Johnson & Johnson, Pfizer, Roche, GlaxoSmithKline, Novartis, etc.), and the pharmacies (Walgreen’s, CVS and Rite Aid, etc.)  OK, the pharmacies have distributed medicines to Medicare Part D beneficiaries and need to be reimbursed plus profits.  So, the Treasury Dept. prints special “Medicare Part D Trust Fund Treasury Bills” which are purchased by banks at auction. No, not your little branch bank at Maple and Vine. We’re talking about special departments at Goldman Sachs, Citibank, Chase and BofA in New York City, Washington, DC and ______.  The monies harvested via the auction goes straight to Medicare Part D headquarters, and are then funneled to the pharmacies (Walgreen’s, CVS, Rite Aid and other pharmacies), all digitally, of course.  The auction is probably digital and quick. Now to reimburse the banks for buying the actually worthless “Medicare Part D Trust Fund Treasury Bills”, the Federal Reserve purchases the Bills from the banks with “money” created digitally as follows:  using a computer, a clerk at the Federal Reserve accesses the Goldman Sachs account at the Fed, clicks on “Deposit,” types 10B (short for $10 billion), and presses enter.  The Goldman Sachs account is credited with $10 billion.  That’s it.  Then she does the same in the Citibank, Chase and BofA accounts.  When folks say the Fed prints the money, no, actually it’s only 4 keystrokes on a computer keyboard to create $10 billion out of thin air.  The special Medicare Part D Treasury bills are placed into storage at the Fed or maybe at Medicare.  This is the best scenario I can find.  Tell me the actual details, if they differ substantially.  To claim these treasury bills are not a debt is beyond absurd.  Oh, there are various stories about a trust fund, etc.  Just wool over our eyes. 

Sun, 03/09/2014 - 10:46 | 4527440 elwind45
elwind45's picture

You are good for it and always WILL be! Before when you were working for yourself that is how you thought of yourself. This self propelled the economy forward by making today what the fed spent yesterday. Thin air? When stuff started hitting the fan and the real method was discribed the first thought was THIN AIR in public but same as it ever was in private. The fed takes what you earn tells you it wasn't earned and gives it to the treasury so it CAN be earned. Like yesterday today and tomorrow. A form of feudalism

Sun, 03/09/2014 - 10:36 | 4527418 elwind45
elwind45's picture

A rise in interest rates in America has the added benefit of seeing the world fall while we stumble? Rates backed up a year ago or are we waiting for yesterday to see effects of today on tomorrow? Missing the show expecting bonds to crater when fed is in corner is a meme. This meme is 6 years old and it is self reenforcing like how has the TBT been going for EVERYONE? Bonds while I wait.I can neither afford the electric car or its stock! Soon it will be everything else? People just cant afford to buy stocks and food anymore unless you borrow one to do without other?

Sun, 03/09/2014 - 11:10 | 4527486 elwind45
elwind45's picture

The fed looks at what you make and comments These types of sums are not real(listic) and therefor not HONEST and hits you and your country for it. You didn't make it legal so we take it FAIRZES

Sun, 03/09/2014 - 12:14 | 4527612 withglee
withglee's picture

They'll never get it right until they realize what money is. Money is "a promise to complete a trade".

Reread the article keeping this in mind. Look for the trades being made. Look for the promises. Look for the delivery on the promises. How are delivery failures (DEFAULTS) recognized? How is the "money" now counterfeited by DEFAULT recovered ... i.e. how are INTEREST collections arrived at?

The relation INFLATION = DEFAULT - INTEREST holds for all Mediums of Exchange (MOE). And there is only one proper value for INFLATION. That value is "zero". And you'll never be able to manage any MOE without having complete and accurate measurement of DEFAULTS ... a really trivial requirement to achieve ... but which has never been achieved in all history.

Try to find a time series of DEFAULTs. There is none. So no MOE has ever been properly managed.

Todd Marshall
Plantersville, TX

Sun, 03/09/2014 - 12:28 | 4527662 Arthur
Arthur's picture

The eternal question.

 

Can we say when it will end? No. Can we say that it will end? Yes. And when it ends and the trend reverses, here is what we can say for sure. Few will be ready. Few will be prepared.

 

My question for Klarman  is, under what conditions would he get back in the market. The Fed might dick around for another ten years.

Presumably inflation is comming, there are a lot worse place to hide out then owning quality stocks.  At some point cash is only useful if you buy something with it.

Timing is everything.  The problem is few people the nerve to buy when the market invariably crashes.   I have a long term horizon so I try to buy quality companies that can weather economic crises .  I would be bummed if the market took a 40% hit but I would still be up in most of my stocks.  I f the market crashes within three months Klarman id a genius, not so smart if it takes three+ years.

Sun, 03/09/2014 - 15:41 | 4528178 ReactionToClose...
ReactionToClosedMinds's picture

risk is risk ...no more, no less.  It is a 'profile' but not 'actuality'.

You are the best long distance auto racer in history as you negotiate twists, curves, mountain inclines, cliff edges (with stunning vistas no less).   In other words, like Icarus, you can 'fly'.    But then, an unexpected 'rain storm' develops............you hit the curve or brakes and the moisture laden surface loses contacts with the high perfomance tires & computer assisted suspension, ................then what happens?  And because 'technology' has permitted you to be operating at 'performance levels' that exceed human ability to naturally negotiate ..........you are potentially in more of death-reckoning shit-storm than your worst nightmare can conjure up!.

Risk..........are you comfortable with this 'profile'.    I sure as shit am not,  I don't need to make 10% to keep up with the 'Jones' nor do I have to 'work' funds for a living.....so why should I embrace suicidal conditions?

That is all Klarman is saying ........

Sun, 03/09/2014 - 16:48 | 4528329 Meremortal
Meremortal's picture

Let's see, the CEO just committed suicide and the originator is on the run.

Yeah, buy a lot of that bitcoin.

 

The entire financial system worldwide is corrupt and controlled, but bitcoin will do well.

I see a problem.

 

 

Mon, 03/10/2014 - 21:07 | 4532974 Kirk2NCC1701
Kirk2NCC1701's picture

You can't always get what you want, but if you try -- sometimes, you get what you need.

Tue, 04/01/2014 - 10:47 | 4613695 Gulfster
Gulfster's picture

How can I get a copy of the full letter? I have searched all over and cannot find it. I find only excerpts... Surely somebody uploaded it somewhere.

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