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"Why Anyone Believes Printing Money Will Leave Us Better Off Is Beyond Me"

Tyler Durden's picture




 

From a tactical point of view, Saxobank's CIO Steen Jakobsen lives in a very simple world:

 

''A great deal of intelligence can be invested in ignorance when the need for illusion is deep” — Saul Bellow
 
Just back from four cruel weeks of travelling: Bucharest, London, Sydney, Melbourne, Lisboa, Porto, Madrid, and Zürich. Housing bubbles everywhere to be seen, and all denied by local policymakers and economists. 
 
The big selloff in 2015 will come from housing and housing-related investments as the marginal cost of capital rises through regulation and through “margin calls” on banks as their profit-to-GDP ratios grow too high for the economy to function properly. The dividend society is here and the true manifestation of Japanisation is not a future event but a thing we are living in right now…
 
Core trading view
 
Ten-year bond yields (US) will continue lower into the second quarter of 2015. I see acceleration to the downside, mainly in the US where 10-year yields could hit 2.00% and bottom out at 1.5% by Q2 as GDP comes off (relative to “lift off” consensus).
  • European factors: Lower than anticipated growth in Germany (China rebalancing, lower US current account deficit and EZ overall); the impact of the Russian crisis is only beginning to impact the real economy, and of course there is the deflation (which the European Central Bank promised us would never happen...).
  • US factors: Energy sector moving towards default and closing down capacity, subtracting 0.3-0.5% from GDP, plus a lackluster housing market (despite record low mortgage rates), plus contraction in monetary aggregate...
  • Chinese factors: Despite reserve requirement ratio cuts, the economy is already at 5.0% in real terms and without reform in health care(why people save money), competition (anti-corruption) and deeper capital markets (sort of happening), the marginal change will continue to be negative. 
  • Emerging markets factors: A strong US dollar is the last thing emerging markets need. It’s a de facto tightening of monetary policy at a time when “export markets” continue to weaken. 
The world is barely surviving at an average yield of 1.5-2.0% . Markets forget that we have two drivers of growth: the US and emerging markets. EM are under pressure as we end 2014, forced into the defensive by a lack of reforms but also a much stronger US Dollar. This means the “mean-reversion” trade is for 2015 is for a weaker US dollar to rebalance towards EM growth as the path of least resistance.
 
I have no doubt that EM will become a major buy sometimes in Q2 when world is off the concept of an ever-stronger US dollar based on a growth lift-off that is never coming.
 
EEM (iShares MSCI EMG) vs. S&P 500 — S&P lead by 11%+ (reversal in 2015?)
IShares MSCI Emerging Markets
Source: Yahoo! Finance
 
The never-ending illusion of “lift off” for the US economy
 
Again, the revised data for US GDP shows Real Personal Consumption expenditures increased 2.2% in the third quarter — a much better (the only reliable) indicator of growth as inventories, investment and trade generally add up to zero over a full year. In other words, where RPCE goes, so does the US economy. Too see why this is, please see the composition of GDP in the US here:
 
US GDP composition
Source: Federal Reserve Economic Data
 
US growth has been 2% (plus or minus) since the financial crisis started, this year it will be 2%... and next year? Two percent is nowhere close to the 3-4% expected by the markets building on “surveys” and feel-good factors. Trust me, as someone who spent too much time travelling this year, the world is worse off, not better.
 
I meet frustration, lack of access to credit and near-desperation when the question concerns asset allocation, but… 2015 looks like a year of change. The Federal Open Market Committee will definitely continue to sell the “pipe dream” of normalisation, while the Bank of Japan is done and toast. 
 
Why anyone believes printing money will leave Japan better off is a mystery to me. Compare the FX policies of Switzerland and Japan: One has an ever-rising currency (Switzerland) which forces its “Mittelstand” (small and medium-sized enterprises) to be flexible, productive and acquisitive; the other (Japan) has tried to intervene in its currency in order to avoid changes and reforms.
 
Japan
 
On offer from Tokyo: smoke, mirrors and currency intervention. Photo: iStock
 
No, if there is any reality left in the world the market will realize — by its mistaken support for long USDJPY positions — that productivity gains and competitive edges are driven by the “need” to change... not from isolation but from cause and effect (but that’s also a 2015 story).
 
In closing I have very little positions — the stock market is on a mission to kill the shorts (which will probably succeed), the FX market believes in Santa Japan and the ECB continues to do nothing but talk... but for now it’s enough to sell the product, which is risk-on at all costs.
 
The correction will be deeper and deeper as the market is dislocated through zero interest rates and an investing crowd that is rewarded for throwing all conservative risk rules overboard in a year where we again have double digit gains on… low interest rates.
 
Let’s hope the ECB plays ball for the market to buy some more time; for now we are playing musical chairs, and when the music stops, more than one chair will be missing...
 
Positions
 
  • 75% of risk is long fixed income (mainly US FI).
  • 10% risk in equities, mainly mining plays (Alcoa & Fortescue); looking to add VALE and others in sector on inflation expectations hitting rock bottom in Q1.
  • 5% long silver, bought on sell-off.
  • 5% natural gas, preparing for a long and cold winter.
  • 5% upside optionality in EUR c USD p.
 
How bad are things? Well, let me give you my starting slide from a presentation done in November:
 

How bad is it?

Source: Saxo Bank

 

 

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Sun, 11/30/2014 - 20:41 | 5502946 knukles
knukles's picture

Way beyond Paul Krugman's grasp as well.

Sun, 11/30/2014 - 20:55 | 5502957 ZerOhead
ZerOhead's picture

So Saxo Banksters are still bringing home the BACON in an economy with no cash, hope or jobs.

Just another reason to end the Fed now.

Sun, 11/30/2014 - 21:25 | 5503088 Publicus
Publicus's picture

Because printing money is the way out of debt forever.

Print money to fund economic activities, free us from the shackles of money.

Mon, 12/01/2014 - 01:35 | 5503661 luckylongshot
luckylongshot's picture

Yeah.... The money printing fans expect that even though money printing has historically been tried 775 times before and has failed spectacularly every time...this time it will be different. Einstein said insanity is doing the same thing over and over again and expecting a different result!

Mon, 12/01/2014 - 10:25 | 5504267 gold-is-not-dead
gold-is-not-dead's picture

Because no one in the establishment understands the implications of those actions. Many planners take it as dogma. Fucking idiots.

Mon, 12/01/2014 - 13:20 | 5504931 Heavy
Heavy's picture

Remain calm, this time will be different.

Mon, 12/01/2014 - 09:23 | 5503707 tc06rtw
tc06rtw's picture

Everyone KNOWS if you put more
checks in everyone's checkbook
             (do they still MAKE checkbooks?)

    that people will be able to buy more stuff!!

Sun, 11/30/2014 - 20:47 | 5502970 nuke ISIS now
nuke ISIS now's picture

Freddie, nightmare on Elm Street,  Krugman.. that fucking dolt mother fucker

ODE TO A DISASTER

twenty-fifteen, no in between

Filthy dirty stinking,

yet trying to appear squeaky clean

They will suffer while the Fed weans

Thanks to our almighty Obola

with a head that resembles a bean

Sun, 11/30/2014 - 21:23 | 5503085 quintago
quintago's picture

Housing bubble in Madrid? Are you on crack?

Sun, 11/30/2014 - 20:50 | 5502980 ebworthen
ebworthen's picture

Two probes inserted in the bearded potato could generate enough electricity to tingle the Lactobacillus in a cup of yogurt, but that's about it.

Sun, 11/30/2014 - 20:49 | 5502984 zerozulu
zerozulu's picture

People have their opinion changed the moment they hold a gold coin in their hand.

Sun, 11/30/2014 - 21:17 | 5503067 tired1
tired1's picture

Maybe if dollars were printed on hemp paper with a high high THC content they'd be worth something.

Sun, 11/30/2014 - 20:43 | 5502958 kaiserhoff
kaiserhoff's picture

Big sell off in housing.

Better late than never.

Sun, 11/30/2014 - 20:46 | 5502971 holdbuysell
holdbuysell's picture

Without Bacon, all bets are off. /s

Sun, 11/30/2014 - 20:55 | 5502990 buzzsaw99
buzzsaw99's picture

The people with pork belly contracts are thinking, "Hey, we're losing all our damn money and Christmas is coming. "I won't be able to buy my son the GI Joe with the Kung Fu grip. "And my wife won't make love to me 'cause I ain't got no money." They're panicking, screaming, "Sell, sell." They don't want to lose all their money. They are panicking right now. I can feel it... [/billy ray valentine]

Sun, 11/30/2014 - 20:48 | 5502974 buzzsaw99
buzzsaw99's picture

Having 0% cash is a strategy for losers.

Sun, 11/30/2014 - 20:55 | 5502988 yogibear
yogibear's picture

Japan is the US Federal Reserve's grand printing/QE plan. We now know how it will work out. 

The US follows. Japan's QE to infinity is the exact same as the US fed's plan.

 

 

Sun, 11/30/2014 - 21:02 | 5503022 Nexus789
Nexus789's picture

Krugman is clueless and that is being kind.

Sun, 11/30/2014 - 21:03 | 5503028 nuke ISIS now
nuke ISIS now's picture

Krugman = douchebag...right Freddie? you fucking stool pusher

forbes 7/14/2014

Is Paul Krugman Leaving Princeton In Quiet Disgrace?

http://www.forbes.com/sites/ralphbenko/2014/07/14/is-paul-krugman-leavin...

Sun, 11/30/2014 - 21:10 | 5503041 Yen Cross
Yen Cross's picture

 I think the rebalancing will come before Q-2 '15.  The printing presses will get fired back up again and the money will flow straight back into the emerging markets volcano.

 This time devaluation will completely destroy any purchasing power the global middle class has.

Sun, 11/30/2014 - 21:30 | 5503106 Stained Class
Stained Class's picture

Asshole says 2015, did you see XAU or XLE Friday?

Its 2014.

Sun, 11/30/2014 - 22:04 | 5503184 Winston Churchill
Winston Churchill's picture

Indeed, still a whole month left this year,

Sun, 11/30/2014 - 21:31 | 5503111 FreeNewEnergy
FreeNewEnergy's picture

Deflation. This.

Sun, 11/30/2014 - 21:43 | 5503140 besnook
besnook's picture

3/15 is my mark. as this quarter's earnings reports reveal a disaster going forward the full realization will ring in the bell on a 20% correction within a week. i don't agree on the real estate bubble as it is confined to the megamortgages and the new castles. labor may finally have cause for revolt as the realization sets in they have nothing to lose. afterall, freedom is just another word for nothing left to lose.

Sun, 11/30/2014 - 22:11 | 5503213 Temerity Trader
Temerity Trader's picture

Japan's new New Normal. "The Nikkei is up!”. So f***ing what? If you don’t know the daily equity purchases of the BOJ, you have no idea if it is up due totally to their buying ETFs, or not. Their ‘market’ is meaningless and we are not far behind them. Is it now 50% higher than it should be under the ‘Old Normal’ ?  Once the central bankers decided the markets were too big to fail and active intervention was needed, they are no longer free markets. The value of stocks can no longer be measured such things as by P/E ratios.  The denominator needs to be amended by a intervention factor: P/(E+FED), giving a lower number. Is there any plan to adjust the formulas to account for full-time market intervention?  Other data is adjusted for stock buybacks borrowing cheap Fed $. Getting more weird, as they get more desperate.

Sun, 11/30/2014 - 23:08 | 5503373 Pareto
Pareto's picture

+100 for P/(E + FED).  Fucking brilliant.

Sun, 11/30/2014 - 22:21 | 5503241 Oldwood
Oldwood's picture

It depends on which "us" we are talking about when discussing the benefits coming from printing.

Mon, 12/01/2014 - 06:31 | 5503916 Baphod Zeeblebrox
Baphod Zeeblebrox's picture

i wish i was in the right us

Sun, 11/30/2014 - 22:33 | 5503276 AdvancingTime
AdvancingTime's picture

While they claim otherwise, in many ways Bernanke and the Fed have put America on a path that mirrors the same unsuccessful path taken by Japan. A path that avoids real reform and bails out the very people that caused many of our problems. Bernanke has upped the ante by setting the bailout and money printing machines on high and flooding America and the world with QE.  

By selling other central bankers on this solution the Fed has taken the lead in an experiment that is losing traction across the world Real momentum seems to ebb shortly after each new wave of stimulus and another fix seems to constantly be needed. More on how this policy is doomed to fail in the article below. 

http://brucewilds.blogspot.com/2013/11/we-are-on-path-to-lost-decades.html

Sun, 11/30/2014 - 23:10 | 5503381 zerohedgejjxxzz12
zerohedgejjxxzz12's picture

Soon the central banks with have bills with

"dissolving ink"

The higher denomination will fade away leaving smaller numbers behind

Mon, 12/01/2014 - 00:41 | 5503566 litemine
litemine's picture

Amazing the FED can get away with what they have done with their EXPERIMENTS.

Yet they profit from it.........What now.....WAR ? For moar Profits to the FED? Remove the power from them that weld this corupted system.........Profiteers should be sued......and penalties emposed.

Mon, 12/01/2014 - 06:07 | 5503901 hootowl
hootowl's picture

......And the politicians who imposed that fraud on us, and continue to promulgate it, should all be hanged!

 

Starve The Beast!

Mon, 12/01/2014 - 00:54 | 5503591 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

10 year bonds 'may bottom out at 1.5% in Q2' which is exactly when

Wall Street is going down for the count by my calculations. When the bond market implodes the $1.5 Quadrillion dark pool derivatives universe implodes too. EM is not funded with excess QE anymore and everyone will bail from USD mid March Q2 because the USA will officially be seen as bankrupt at that juncture. I suspect someone will launch nukes right at the last minute before the bank runs and chaos ensues

worldwide.

 

NOTE: End game = Q2 2015, mark my words.

Mon, 12/01/2014 - 01:50 | 5503686 WezTheJuic
WezTheJuic's picture

Good to you are still doing what you are doing Tyler. 

 

Hmmm, cashless world eh?  After all, the construct is in that process.  "no comment".

 

Yet, maybe it is time to breath more life into that process.  (Some very ugly within that process.)

 

Maybe it is time to put that one into a "BLT"

 

Either way,

 

Cheers,

 

Pens,

Mon, 12/01/2014 - 03:23 | 5503783 bid the soldier...
bid the soldiers shoot's picture

 

Nobody believes printing money will leave us better off. 

They believe our can will just get kicked further down the road.

Ouch! Hey, that's my butt, mister.

Mon, 12/01/2014 - 05:43 | 5503879 MarcusAurelius
MarcusAurelius's picture

What Steen misses is that amount of productive capital that has been lost as a result of financial malinvetment from the likes of "him" over the past ten years too when stealing became more of a past time than actually producing something of value. In the early years of Saxo and other brokers like it (say like FXCM and ACM to name a few) how much money theft were they participating in for about 5-10 years? Wonders of wonders that you never hear these guys speak of these statistics. Without going into the stats I can tell you that it was a lot. 

   Although I whole heartedly agree with his 2015 financial predictions (as I have travelled and seen the malivestment too) it is the fake production (that started long before the feds money printing) that has hurt investors and productive capacity the world over. Stealing, lying and pervasive cheating have become a way of life. Finding a greater fool is now the new norm. Or you can choose to ride the back of an ever increasing stock market where there is no value on any level other than capital inflows. Value is deperately needed in this world. A new way or life is needed for humans to work together to create new, productive and meaningful products. Until then this BS will continue. 

Mon, 12/01/2014 - 06:37 | 5503917 Debugas
Debugas's picture

if somebody printed and gave me money i would buy a new car i can not afford right now.

It would help the economy

Mon, 12/01/2014 - 07:54 | 5503963 J J Pettigrew
J J Pettigrew's picture

Japan is the lead dog...and we are following it right off the cliff.

normal interest rates would actually provide a consumptive stimulus, but Japan and Yellen cant and wont

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