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Bill Gross Starts Q4 With A Cold Shower: "Forget Double Digit Returns - Bonds, Stocks And Real Estate Are Overvalued"

Tyler Durden's picture




 

Everyone hoping that the last quarter of the year would start on an optimistic note was disappointed following not just the continuation of last week's manipulations now that hedge funds have their marching orders from their LPs, who are certainly seeking to redeem tens if not hundreds of billions in capital, but also from Bill Gross' monthly letter who in "Six Pac(k)in'" writes that "there are no double-digit investment returns anywhere in sight for owners of financial assets. Bonds, stocks and real estate are in fact overvalued because of near zero percent interest rates and a developed world growth rate closer to 0 than the 3 – 4% historical norms. There is only a New Normal economy at best and a global recession at worst to look forward to in future years." And pontificating on a theme started many months ago by Zero Hedge with observations on the relative contribution to income from labor and capital (a modern day warning to Marxists), Gross warns that "both labor and capital suffer as a deleveraging household sector in the throes of a jobless recovery refuses – if only through fear and consumptive exhaustion – to play their historic role in the capitalistic system. This “labor trap” phenomenon – in which consumers stop spending out of fear of unemployment or perhaps negative real wages, shrinking home prices or an overall loss of faith in the American Dream – is what markets or “capital” should now begin to recognize" His conclusion: "A modern day, Budweiser-drinking Karl Marx might have put it this way: “Laborers of the world, unite – you have only your six-packs to lose.” He might also have added, “Investors/policymakers of the world wake up – you’re killing the proletariat goose that lays your golden eggs." More or less reminds us of the warning above the gates of hell in Dante's Inferno...

Six Pac(k)in', by PIMCO's Bill Gross

  • Long-term profits cannot ultimately grow unless they are partnered with near equal benefits for labor. 
  • There is only a New Normal economy at best and a global recession at worst to look forward to in future years. 
  • If global policymakers could focus on structural as opposed to cyclical financial solutions, New Normal growth as opposed to recession might be possible.
The midsection of a 67-year-old is not a pretty sight. No matter how many sit-ups I do during my daily workouts there are no six-pacs there, or anywhere in the vicinity for that matter. I can’t even get a one-pac going. Perhaps that’s because so many Budweiser six-packs made their way downstream over the past half century or so. In any case, not being able to avoid seeing my spare tire, I take my wife Sue’s advice when it comes to weighing herself – do it only first thing in the morning. In this case, there is the additional appeal of lights being dim and if I can creep past the bathroom mirror while turning my head the other way, then all the better.

 

I will say that I have lots of company – the fifties being the approximate age when the muffin top seems to magically appear. Even a “man-man” like Arnold Schwarzenegger is not immune. I saw him in a bathing suit in Hawaii five years ago and I can report that the arms and well the tummy had a certain flabby-like quality to them that was unlike any terminator I’ve ever seen on the big screen. Actually Jack LaLanne, now passed, was about the only aging male specimen I can recall who managed to beat the bulge. Still, he only did it by pulling barges with his teeth from Alcatraz to the San Francisco mainland. Betcha his choppers were no pretty sight even if they were still there at 80. In addition, all the vegetable juice he promoted is not my style, nor can I imagine being able to drink it down with a smile like he pretended to do on TV. I think I’d prefer the laxative I have to gulp before my colonoscopy tests. Whatever.Sue never mentions the bulge, which is her loving style, but I know she must be looking every once in a while. I try to do the “blousy” thing when I wear tight golf shirts, but there’s only so much material to go around, so to speak. Swimming also presents a problem because in this case the solution is to pull the waistband up above the navel, which is a sight for even sorer eyes. I never let Sue see my backside, however. Having not seen it myself for 20 years, I’m afraid I might tell her to buy a gun and just shoot me before the fat and the cellulite strike again.

The midriff “bulge” would be a rather kind description of today’s debt crisis. No muffin top there – if anything, sovereign balance sheets resemble an overweight diabetic on the verge of a heart attack. Still, if global policymakers could focus on structural as opposed to cyclical financial solutions, New Normal growth as opposed to recession might be possible. Several of the structural roadblocks have been publically identified by myself and Mohamed El-Erian over the past several years: 1) Globalization has hollowed developed economy labor markets, 2) technology has outdated entire industries that produce physical as opposed to “cloud”– oriented goods and services – books, records, postal letters and DVDs among the most recent dinosaurs, and 3) an aging demographic is now favoring savings as opposed to consumption in almost all developed nations.

 

It has been these three structural hurricanes that have led to our economy’s six-pac becoming a one-pac over the past several decades. Globalization and technological innovation have been extremely negative influences on domestic wages and employment. China and “cloud space” have favored cheaper consumption, but have been decidedly job unfriendly in developed economies if observers were to be honest about it. Schumpeter’s “creative destruction” has been destructive of product and related labor markets yet has failed to recreate many jobs in the process. In order to maintain our caloric intake, policies favoring debt accumulation as opposed to savings took hold. Falling interest rates, lower taxes, deregulation and financial innovation all favored financial asset growth that unrealistically brought future earnings and spending power forward to peak levels last seen at the popping of the dotcom and housing bubbles. Developed economies now resemble a 110-pound weakling as opposed to Charles Atlas or a much younger Arnold.

 

Yet to return to my initial criticism of cyclically finance-based as opposed to structural policy solutions, almost all remedies proposed by global authorities to date have approached the problem from the standpoint of favoring capital as opposed to labor. If the banks could just be stabilized, if the “markets” could just be elevated back in the direction of peak 401(k) levels, if interest rates could just be lower so that borrowers would inevitably take the bait, then labor – job creation – would inevitably follow. It has not. The explanation for why not must at least include the rationale that Wall Street and Main Street are symbiotically connected and if one benefits at the expense of the other, then both ultimately can falter.

That there is a current imbalance is obvious from Chart 1, which shows before-tax corporate profits as a percentage of Gross National Income (GNI). It is obvious that “capital” as opposed to “labor” – moving from 8 to 13% of GNI over the past three or even 30 years – has been the cyclical and secular champion. Why one or the other should be policy and politically advantaged is not commonsensically clear. Granted, the return on capital as opposed to the return to labor should logically be higher if only to encourage savings. But once an historical midpoint or range has been established, a relative equilibrium should be observed. Even conservatives must acknowledge that return on capital investment, and the liquid stocks and bonds that mimic it, are ultimately dependent on returns to labor in the form of jobs and real wage gains. If Main Street is unemployed and undercompensated, capital can only travel so far down Prosperity Road. Until recently, economic recovery has been relatively robust if one were a deployer of capital as opposed to the laborer who made that deployment possible. Near zero percent interest rates have allowed profit margins to widen even in the face of anemic end demand. As well, “productivity” has remained high, but only because of layoffs and the production of goods and services with fewer people. While that is a benefit to capital, it obviously comes at a great cost to labor.

Ultimately, however, both labor and capital suffer as a deleveraging household sector in the throes of a jobless recovery refuses – if only through fear and consumptive exhaustion – to play their historic role in the capitalistic system. This “labor trap” phenomenon – in which consumers stop spending out of fear of unemployment or perhaps negative real wages, shrinking home prices or an overall loss of faith in the American Dream – is what markets or “capital” should now begin to recognize. Long-term profits cannot ultimately grow unless they are partnered with near equal benefits for labor. Washington, London, Berlin and yes, even Beijing must accept this commonsensical reality alongside several other structural initiatives that seek to rebalance the global economy. The United States in particular requires an enhanced safety net of benefits for the unemployed unless and until it can produce enough jobs to return to our prior economic model which suggested opportunity for all who were willing to grab for the brass ring – a ring that is now tarnished if not unavailable for the grasping. Policies promoting “Buy American” goods and services – which in turn would employ more Americans – should also be reintroduced. China and Brazil do it. Why not us?

 

 

If structural solutions are not put in place, a six-pac market observer should look at both stocks and bonds as rather flabby knock-offs of their former selves; no resemblance at all to Jack LaLanne but more to a 55-year-old terminator grown fat and rendered out of shape by years of neglect and perhaps greed for short-term profits as opposed to long-term balance. There are no double-digit investment returns anywhere in sight for owners of financial assets. Bonds, stocks and real estate are in fact overvalued because of near zero percent interest rates and a developed world growth rate closer to 0 than the 3 – 4% historical norms. There is only a New Normal economy at best and a global recession at worst to look forward to in future years. A modern day, Budweiser-drinking Karl Marx might have put it this way: “Laborers of the world, unite – you have only your six-packs to lose.” He might also have added, “Investors/policymakers of the world wake up – you’re killing the proletariat goose that lays your golden eggs.”
 

 

 

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Mon, 10/03/2011 - 09:04 | 1732729 GeneMarchbanks
GeneMarchbanks's picture

What's this about a Golden shower?!

Mon, 10/03/2011 - 09:13 | 1732756 Edward Fiatski
Edward Fiatski's picture

C3PO:
Oh, my, goodness gracious me!
 I’m a gay man’s golden fantasy!
Programmed for homo-ecstasy,
Ten million forms of gay positioning.
 For my golden shower, you must pay a fee,
But R2-D2 gives it up for free.

-*R2D2 beeps
R2D2, watch your language!
Always having sex with robotic strangers!

Mon, 10/03/2011 - 11:14 | 1733123 LowProfile
LowProfile's picture

"There are no double-digit investment returns anywhere in sight for owners of financial assets."

...Note key word emphasis.

Mon, 10/03/2011 - 09:05 | 1732733 101 years and c...
101 years and counting's picture

3x short S&P and financials can easily yield 10%+.

 

Mon, 10/03/2011 - 09:19 | 1732771 mayhem_korner
mayhem_korner's picture

Yes.  And in either direction, too.

Mon, 10/03/2011 - 10:48 | 1733074 LongBallsShortBrains
LongBallsShortBrains's picture

Off topic

Mayhem: Great pic!

Mon, 10/03/2011 - 09:07 | 1732741 King_of_simpletons
King_of_simpletons's picture

Cash is still the king, unfortunately.

Mon, 10/03/2011 - 09:10 | 1732747 unky
unky's picture

Until it isn't

Mon, 10/03/2011 - 11:07 | 1733108 LowProfile
LowProfile's picture

Timing is everything, yes?

Mon, 10/03/2011 - 09:16 | 1732755 Spitzer
Spitzer's picture

No yield, insane currency risk. Good luck with double digit returns.

http://freegoldobserver.blogspot.com/

Mon, 10/03/2011 - 09:38 | 1732809 ZeroPoint
ZeroPoint's picture

Unless Bernake waters it down further. Then you will see investors make the hard choice gambles as to where to place their shrinking bets. My guess is people will be have to pick commodities as the horse to ride until the markets finally are able to correct.

 

Mon, 10/03/2011 - 10:24 | 1732986 maxmad
maxmad's picture

Dont get me wrong I think Johnny Cash was outstanding, but I thought Elvis was still king?

Mon, 10/03/2011 - 11:06 | 1733106 vato poco
vato poco's picture

Nope. As Waylon told us all, Bob Wills is *still* The King.

Mon, 10/03/2011 - 14:05 | 1733895 zoomer
zoomer's picture

In 1980 Regan was the Pres and we had Johnny Cash and Bob Hope.

Now Obummer is Pres and we have no Cash or Hope.

Mon, 10/03/2011 - 09:07 | 1732742 Careless Whisper
Careless Whisper's picture

The Careless Whisper Morning Report

 

Tipping Allowed: NY City Police Openly Admit Accepting $4.6 Million Cash "Gift" From JP Morgan Chase

http://www.jpmorganchase.com/corporate/Home/article/ny-13.htm

Kissinger: China Returning To Its Rightful Place As Most Powerful Nation

http://shanghaiist.com/2011/10/01/henry_kissinger_china_is_a_returnin.php

Money Grabbing Red-light Camera Company Put Miami Mayor's Son On Payroll -- Mayor; No Problema

http://www.miamiherald.com/2011/09/28/2435741/miami-dade-red-light-camer...

Teachers Union Places TV Commercials Supporting "Jobs" Bill

http://thehill.com/video/in-the-news/184381-teachers-union-launches-ad-c...

Darth Vader Coin Accepted As Official Legal Tender

http://www.dailymail.co.uk/news/article-2044392/Star-Wars-coins-legal-te...

 

 

Mon, 10/03/2011 - 09:08 | 1732744 PulauHantu29
PulauHantu29's picture

RE overvalued an understatement.

Painful.

Mon, 10/03/2011 - 09:14 | 1732759 TheSilverJournal
TheSilverJournal's picture

Bonds overvalued an understatement.

Mon, 10/03/2011 - 12:29 | 1733460 Panafrican Funk...
Panafrican Funktron Robot's picture

Indeed, I cashed out of my muni's over the course of September, reasoning:

1.  It's looking increasingly unlikely that stocks are going to even break even for the year.

2.  Public pension funds are still largely assuming that stocks are going to maintain their 8% annual yield.

3.  Public pension funds are largely going to miss target earnings, thus making the funding shortfalls worse than they already are.

4.  Pension obligations are generally first in line ahead of pretty much anything in state budgets, to the point where they are often protected by state constitutions.  

Ergo

5.  State budgets are going to experience yet more pain, and these pension bullet holes are going to be gaping enough to likely warrant further downgrade actions.  

And this doesn't even take into consideration likely sales tax disappointments and property tax shortfalls from continued consumer and housing sector weakness.  Pension funds, on their own, are potentially destructive enough to severely screw up state finances, even in states that are relatively well-run from a fiscal perspective.

Mon, 10/03/2011 - 09:11 | 1732748 UK debt marsh
UK debt marsh's picture

The Nude Normal

Mon, 10/03/2011 - 09:43 | 1732754 Mercury
Mercury's picture

And pontificating on a theme started many months ago by Zero Hedge with observations on the relative contribution to income from labor and capital (a modern day warning to Marxists), Gross warns that "both labor and capital suffer as a deleveraging household sector in the throes of a jobless recovery refuses – if only through fear and consumptive exhaustion – to play their historic role in the capitalistic system. This “labor trap” phenomenon – in which consumers stop spending out of fear of unemployment or perhaps negative real wages, shrinking home prices or an overall loss of faith in the American Dream – is what markets or “capital” should now begin to recognize"

Even worse....we have a consumer based economy and whole lot of that consumption is paid for with passive capital (savings, pensions, grandma's muni bond income etc.) Even if ZIRP is stimulative to employment it hurts consumption more and is thus a huge drag on the economy in addition to being a wealth destruction machine. At the consumer level ZIRP doesn't prod people into spending and risk assets, it causes them to hoard and cower in fear and uncertainty.

Let government-clogged markets clear, repeal ZIRP and let the market price risk accordingly and accurately.

SAVERS OF THE WORLD, UNITE!

Mon, 10/03/2011 - 09:15 | 1732760 jm
jm's picture

What's his encore, talking about his flabby ass that was once so tight?

Anyway, this is classic equity revulsion, bitchez.

Buy yield cuz it's all you're gonna get for a while.

Mon, 10/03/2011 - 12:31 | 1733470 Panafrican Funk...
Panafrican Funktron Robot's picture

Yeah, definitely could have done without the imagry of Bill Gross.  Then again, it was an effective descriptor of both the stock and bond markets.

Mon, 10/03/2011 - 09:15 | 1732762 Snakeeyes
Snakeeyes's picture

Ya think, Billy?

We are in a liquidity trap. Banks are contracting credit. Ergo, housing is STILL overvalued.

http://confoundedinterest.wordpress.com

Mon, 10/03/2011 - 09:18 | 1732770 buzzsaw99
buzzsaw99's picture

...and capital suffer

...in the capitalistic system.

gross is full of beans.

Mon, 10/03/2011 - 09:20 | 1732773 ivars
ivars's picture

Here i did some further checking on patterns to make some sense in future events predicted by some of my charts:

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&st=0&sk=t&sd=a&start=580#p34357

By comparing the interesting way DJIA follows Greeces Athens General index with a 1,5 year delay, including current drop ( august/september) . The patterns match almost exactly, and also compare well to my own prediction of DJIA 2011-2013 ( see in the post I referred to).

Briefly: First, have a look at the pictures :

DJIA/Greece comparison April 30, 2011:

 

DJIA / Greece comparison October 3rd, 2011:

Longest DJIA prediction I have made on April 26th, 2011( not from Greeces graphs, from other patterns I use) :

 

Since both currencies are pegged ( Greece to EUR, USA to being a world reserve currency) , at the moment where the predicted DJIA stops falling like Greece but becomes stable or even grows due to inflation, the USA DEFAULTS and deflation is replaced by inflation. By looking at Greeces graph that takes a sharp downturn(on Greeces graph, April 2011)  into levels DJIA will never reach, and calibrating the time axis of DJIA graph forward, the day of inflection point  is Jan 1st, 2015, or roughly, H2 2014. That is the day when USD will be unpegged ( as Greece is still pegged) = meaning the USA will default VERY soon after that or at that time, and USA  deflation will change to inflation.

That gives some time for silver stackers, I guess, since as long as USD stays as a reserve currency and deflates, and the price of silver in USD goes up at the time deflation begins, it will allow them to purchase more other things with this silver. This period will last for 2 years-long enough to prepare for what comes next. This crisis is much more stretched out than 1929 crisis.

The question still remains, why at deflation start, silver will move up 3 times while gold only 10-20%. But now its more clear where to look for answers as the scope has been narrowed.

Mon, 10/03/2011 - 09:21 | 1732774 SheepDog-One
SheepDog-One's picture

Bonds stocks and real estate ETF's overvalued? No WAY??

Mon, 10/03/2011 - 09:28 | 1732780 Josh Randall
Josh Randall's picture

Exactly -- this is all conjecture, harumph, harumph harumph....I didn't get a Harumph out of that guy!

you watch your @ss

Mon, 10/03/2011 - 09:21 | 1732775 mayhem_korner
mayhem_korner's picture

 

 

In the current climate, nominal yield is subordinate to both liquidity and storing purchasing power.

Mon, 10/03/2011 - 09:21 | 1732776 johnnymustardseed
johnnymustardseed's picture

Fat Cat calling himself a Fat Cat....interesting

Mon, 10/03/2011 - 09:33 | 1732779 scatterbrains
scatterbrains's picture

When he said real estate he just meant residential right ?  If he's implying that mall prices may be weak then he's bordering on being a propagandist and should expect a drone fly over shortly.

Mon, 10/03/2011 - 12:39 | 1733502 Panafrican Funk...
Panafrican Funktron Robot's picture

http://www.finviz.com/quote.ashx?t=BX&ty=c&ta=1&p=d

Blackstone is perfectly healthy.  Their recent shopping mall acquisitions are going to work great.  Also, that lawsuit is going to be resolved amicably with no net loss to the company.  

There, covered your pasty white ass for you, Bill.

Mon, 10/03/2011 - 09:28 | 1732786 midtowng
midtowng's picture

So labor needs some of the pie, huh? Amazing how many people who hate unions must acknowledge that labor needs some of the profits for the capitalist system to work, yet somehow expect the capitalists to share a piece of the pie without being forced to.

Mon, 10/03/2011 - 09:35 | 1732802 buzzsaw99
buzzsaw99's picture

they aren't capitalists. they are crony crapitalists and fascists to a man.

Mon, 10/03/2011 - 09:45 | 1732829 Thulsa Doom
Thulsa Doom's picture

Agreed. And how does a crony capitalist who speculates with free money via the FED, pushing papers around and making "money" on margin, supposed to share his profits with those doing the labor? There is no labor in pushing papers around.

Mon, 10/03/2011 - 09:52 | 1732843 buzzsaw99
buzzsaw99's picture

Contemplate this on the tree of woe.

Mon, 10/03/2011 - 10:15 | 1732935 MachoMan
MachoMan's picture

I wish to speak to you now. Where is the Eye of the Serpent? Rexor said that you gave it to a girl; probably for a mere night's pleasure. Such a loss. People have no grasp of what they do.

Mon, 10/03/2011 - 09:35 | 1732803 mayhem_korner
mayhem_korner's picture

 

 

Unions get in the way of labor's participation in corporate returns by diminishing the returns generally and by imposing forms of compensation that aren't linked to collective productivity.

Mon, 10/03/2011 - 09:56 | 1732857 buzzsaw99
buzzsaw99's picture

Execs get in the way of labor's participation in corporate returns by diminishing the returns generally and by imposing forms of compensation that aren't linked to collective productivity.

 

Fixed it.

Mon, 10/03/2011 - 12:34 | 1733479 mayhem_korner
mayhem_korner's picture

 

Yeah, it was all those executive bailouts that put GM under.  /sarc/

Mon, 10/03/2011 - 12:42 | 1733523 Panafrican Funk...
Panafrican Funktron Robot's picture

My first read through this, I thought you said "unicorns" as opposed to "unions".  I'm pretty sure my reading was correct here.

Mon, 10/03/2011 - 09:55 | 1732854 Messianic
Messianic's picture

Unions are fine until they start pushing for legislative/legal/tax privileges the way the corps do. As soon as they do, they've become rackets for rich labor bosses and shills of a different breed. Every union tends to this direction given enough time, as every (large) corporation does...

I see no reason to cheer for "the little guy" (so defined as a union man) when he has millions of other little guys and a bunch of politicians manning his proverbial artillery and guaranteeing him greater compensation merely because of his membership, not his productivity or relationship to his employer.

Mon, 10/03/2011 - 11:02 | 1733101 Bicycle Repairman
Bicycle Repairman's picture

So the problems occur when labor or capital turn to government for "assistance"?

Mon, 10/03/2011 - 12:49 | 1733562 Panafrican Funk...
Panafrican Funktron Robot's picture

I'd be for the elimination of unions if there was complete transparancy regarding compensation for labor, and compensation in general was actually linked to performance.  The norm at most non-union businesses is to squeeze production at a flat payment rate, with that rate being subject to an unfair information advantage (people don't generally know if their rate of reimbursement is appropriate for their work effort and expertise).  Global (as opposed to executive-only) profit sharing is probably the most workable solution.  

Mon, 10/03/2011 - 13:55 | 1733846 mayhem_korner
mayhem_korner's picture

The norm at most non-union businesses is to squeeze production at a flat payment rate, with that rate being subject to an unfair information advantage (people don't generally know if their rate of reimbursement is appropriate for their work effort and expertise).  

And you know this because you've worked at how many such places....?  You know not what you say.

Most businesses are small and compensation is clearly tied to performance.  No one is forced to work at a "giant, bloodsucking corporation."  (But we are forced to pay school taxes for union teachers' salaries, which aren't tied to performance, ironically).

One thing about liberal pablum, it's full of unsupported generalizations.

Mon, 10/03/2011 - 10:09 | 1732863 DeltaDawn
DeltaDawn's picture

Labor has been getting a piece of the pie, but those pies were baked in a fiat oven since 1971. We now have only shit to put in for the filling.  

Don't blame the factory owners, the laborers have also been shopping at Target instead of buying domestic goods. Those cheap prices were great, but now all the jobs have been sucked away. Can't have it both ways. We can't all be college-educated consultants and service-providers in the information age, now can we?  Not to mention, our open borders....

Remember your precious unions are international. They just want your dues and power. They did serve a valient purpose in the past, but they can't make an infertile dry cow produce milk.

Someday we might be working in sweatshops and exporting the stuff to China. 

Mon, 10/03/2011 - 11:03 | 1733104 Bicycle Repairman
Bicycle Repairman's picture

We have a systemic problem and no leadership.

Mon, 10/03/2011 - 10:25 | 1732992 CapitalistRock
CapitalistRock's picture

No one "shares a piece of the pie." You earn it, you idiot. Create something other people want and they will offer you money for it. Same is true for labor. Simply fill a demand. Have employable skills.

Mon, 10/03/2011 - 09:38 | 1732810 SheepDog-One
SheepDog-One's picture

We're in the final stages of the Great Wealth Transfer, last major move is crushing all 401k's and pensions. Thats whats going on now, and its working perfectly as everyone expects their nest egg retirement to be bailed out by the Maniacal Monetizers...this is going to be painful to watch.

Mon, 10/03/2011 - 09:53 | 1732846 Thulsa Doom
Thulsa Doom's picture

I'm new here, SD1, and over the last year or so I've always enjoyed reading your comments. I've always thought the creation of 401(k)s was the most important enabling mechanism for the speculators and day traders out there who make money on margin - an endless stream of buy orders automatically coming into the market? No matter what the market conditions? Lambs to the slaughter. It was only a matter of time before people woke up to the fact that the 401(k) system is a scam, and people started bailing out. Get out while the getting is good - the early withdrawal penalty don't mean shite when taking a "long term perspective."

Mon, 10/03/2011 - 09:58 | 1732865 buzzsaw99
buzzsaw99's picture

welcome. we're glad you de-lurked.

Mon, 10/03/2011 - 09:55 | 1732849 buzzsaw99
buzzsaw99's picture

i wsh that were imminent but imo it's probably not. they will soak the pensions right up until the time the pensions need to get money back out. then will come the big one.

Mon, 10/03/2011 - 09:39 | 1732814 TraderMark
TraderMark's picture

Crony capitalism rocks.  A few more decades and feudalism will be back in style in the U.S.

Mon, 10/03/2011 - 09:46 | 1732832 DeltaDawn
DeltaDawn's picture

Remember Koolaid, everything is moving faster these days....

Mon, 10/03/2011 - 10:31 | 1733008 MachoMan
MachoMan's picture

De facto feudalism is already here...  Practically speaking, I'm not sure which is better, a collectivist/dictator/world war scenario or the de jure feudalism/lack of central government/depressed scenario...  probably the latter...  but who knows.  I agree we're headed for the latter...  the other requires too many spinning plates.

http://encyclopediaofarkansas.net/encyclopedia/entry-detail.aspx?entryID...

Mon, 10/03/2011 - 09:46 | 1732830 NetDamage
NetDamage's picture

"Policies promoting “Buy American” goods and services – which in turn would employ more Americans – should also be reintroduced. China and Brazil do it. Why not us?"

Because the 1% oligarcy invested in Chinese and Brazilian manufactoring many years ago and corrupted Western governments so they would force suicidal WTO agreements on Western civilization. In the end they could not give a damn about Americans or Europeans. Then again they don´t give a shit about China or Brazil either - after they saturate them with debt too.

Mon, 10/03/2011 - 09:59 | 1732873 Dapper Dan
Dapper Dan's picture

What do you think?

http://spaceweather.com/images2011/03oct11/cometandcme.gif

Watch the movie again. The timing of the CME so soon after the comet dove into the sun suggests a link. But what? There is no known mechanism for comets to trigger solar explosions. Before 2011 most solar physicists would have discounted the events of Oct. 1st as pure coincidence--and pure coincidence is still the most likely explanation. Earlier this year, however, the Solar Dynamics Observatory (SDO) watched another sungrazer disintegrate in the sun's atmosphere. On July 5, 2011, the unnamed comet appeared to interact with plasma and magnetic fields in its surroundings as it fell apart. Could a puny comet cause a magnetic instability that might propagate and blossom into a impressive CME? The question is not so crazy as it once seemed to be.

Mon, 10/03/2011 - 10:01 | 1732878 Sophist Economicus
Sophist Economicus's picture

Another note from PIMPCO....And again no mention of crony capitalism or the disgorging of REAL growth from the economy by government.   Hey dumb-ass Gross, can you put up a chart of  profitability growth AFTER factoring in the deliberate debasement of the dollar by your buddies in government?    How about what happened to wages of 'joe six-pack' that now has to have his 6 year old enter the workforce to make ends meet?    Then, put up a chart of the growth in local, state and federal government growth - IN REAL TERMS.

Ohhh, is that where all of the fruit of innovation has gone!  

 

 

Mon, 10/03/2011 - 10:29 | 1732936 reader2010
reader2010's picture

So bet the farm and short the long bond? Sorry but I mean no more?

Mon, 10/03/2011 - 10:41 | 1733013 cranky-old-geezer
cranky-old-geezer's picture

 

 

The last 3 years has proven ...again... that flooding the economy with currency doesn't overcome manufacturing sector collapse and resulting job losses ...the core reason our economy is slowly dying.

Flooding the economy with currency simply bids up prices ...exactly what we've seen the last 3 years ...except housing which is just fucking collapsing.

This didn't start 3 years ago. It started 30 years ago when government policies started shutting down our manufacturing sector, moving jobs offshore, building up China's manufacturing sector while our manufacturing sector shrank.

What happened 3 years ago is a natural financial sector collapse resulting from 30 years of destroying our manufacturing sector and the real economy. It would have happened 10 years ago, and almost did, but the housing bubble postponed it 7 years.

When the housing bubble popped, the collapse came, hard and heavy. Market forces were bringing the financial sector (which had been kept artificially inflated by the housing bubble) down to match the real economy. When the housing bubble popped, down came the financial sector back to the real economy, and it was brutal.

Rather than fix the structural problem, rebuild our manufacturing base, the government elects to artificially re-inflate the financial sector while ignoring the economy. TARP pumps $700 billion into the financial sector. Then the Fed takes over with QE1, QE2, and other programs, pumping trillions into the financial sector. The financial sector re-inflates as you would expect. But the economy isn't recovering. It's steadily getting worse, as it has been getting worse for 30 years.

Now, 3 years down the road, the financial sector is inflated so far above the real economy a horrible crash is inevitable. It's just a matter of time.

The only way to postpone that horrible crash is keep pumping money into the financial sector. But the Fed is saying no more money printing. They don't want to destroy the currency. So yes, that horrible crash is coming. Soon. It'll be worse than '08 because the financial sector is inflated far higher above the real economy than it was in '08. It has further to fall this time.

Mon, 10/03/2011 - 10:54 | 1733085 reader2010
reader2010's picture

This whole thing is the direct product by design. They engineered the near death of the western consumer societies so that their once-in-a-lifetime bet on rising free-float RMB can soon come true. With rising RMB value, they will be able to put joe sixpacks there under control thru their lies and debt schemes. 

Mon, 10/03/2011 - 11:36 | 1733198 getplaning
getplaning's picture

Yeah I used to have a six-pack too. Now it's a keg.

Mon, 10/03/2011 - 12:09 | 1733365 RoadKill
RoadKill's picture

Selling 20%+ out of the $ 6 month puts is generating me double digit returns, and my RISK is owning good companies at prices I can hardly believe I'm able to get them for. Today I sold puts to buy RIG at $35, UPL at $20 and FAS at $4!!!!! I got paid $0.75 for that FAS put = 19% return / 40% IRR.

I've basically gone from 50% long to 100% I'n the last 2 trading days. I'm not gonna go on margin unless things get MUCH cheaper.

Mon, 10/03/2011 - 13:11 | 1733652 Panafrican Funk...
Panafrican Funktron Robot's picture

I'm assuming you sold that FAS put for the April 2012 expiration, otherwise you either didn't do it today, or are full of shit.  Given this, I'm not sure FAS is even going to be above $3/share by that point.  Financials only need to go about 25% lower than they are today to make that happen.  You probably would have been better served buying the put at that price/expiration.

Mon, 10/03/2011 - 14:28 | 1733974 RoadKill
RoadKill's picture

Did I not say 6 month puts?

You think it's going to $3, somebody else thinks it's going to $15. None of you know. But that's also not the point. The point is that someone was willing to pay me a 40% IRR to own it down 60% from where it was. That is not sane pricing of risk. That is pure fear. Be greedy when other are fearful.

Mon, 10/03/2011 - 12:30 | 1733465 Ye Ye
Ye Ye's picture

" "there are no double-digit investment returns anywhere in sight for owners of financial assets."

leveraged EUR/CHF carry.  (does that not count as a financial asset?)

Mon, 10/03/2011 - 13:04 | 1733626 Miles Kendig
Miles Kendig's picture
Mon, 10/03/2011 - 13:27 | 1733630 Miles Kendig
Miles Kendig's picture

Hey Bill! 

Killing the goose?!

No man, it's obvious here off South Main Street that goose has been cooked.  The issues are even more structural than have yet been appreciated.  China is following our lead by turning to the Money Tree economy.  It's only a matter of time before the good folks in the Palisades follow suit and the velocity of excess reserves turn to vintage vinegar down in the cellar.

In this your analogy about beer is spot on.  When the water and wine can no longer be trusted, drink beer

Mon, 10/03/2011 - 13:07 | 1733639 ThirdCoastSurfer
ThirdCoastSurfer's picture

"Bonds, stocks and real estate are in fact overvalued because of near zero percent interest rates"

Economics 101: Price is inverse to rate. 

This is a natural correcting method. However, when it is manipulated, like most everything else that is manipulated, there are unintended consequences.

You may look at the price of something, like a house, and say that it cannot possibly be overpriced based on your past assumption of what that same house used to cost in a 6% environment. But you see, there are market forces, invisible hands & the dirty fingers of the Fed involved.   

As rates are forced lower, like it or not, price declines. 

The price can then be artificially bolstered, but this is like a dike whose base is being eroded by sand boils. You can sandbag the boils and shore up the dike, but only for so long. The longer the pressure remains on the dike, the more assured a breech will occur. 

Of course, once breeched, does it really matter when it happened? Unlike a earthen dike, in economics hyperinflation is just as much a concern in the aftermath as a collapse. Where once a flood was the danger a drought is seen.  The question then becomes which of the two is the lesser evil. 

Still, either way, is there any harm in delay in the hopes that the pressure would subside without damage or a boomerang effect? There is time to evacuate, to get resources in place and to make plans. Hopefully, this is what is going on.  

Mon, 10/03/2011 - 13:57 | 1733856 Downtoolong
Downtoolong's picture

Ever since downsizing and labor cost cutting became a central strategy for increasing corporate profits back in the late 1980’s I’ve been saying that these large international companies are firing and laying off their customers. I think we’re now seeing the fallout of that.

And for those with enough cash to still pay $300 for a pair of shades at the Sunglasses Hut, I hope you realize there isn’t one thing you can produce for $3 in America that some Chinaman is going to pay you $300 for.

Wed, 10/12/2011 - 15:48 | 1766920 karmete
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