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Bob Janjuah Answers The Six Biggest Questions Heading Into 2012

Tyler Durden's picture




 

As Bob Janjuah, of Nomura, notes in his final dissertation of the year, our in-boxes are stuffed with all the good cheer of sell-side research outlooks. However, the bearded bear manages to cut through all the nuance to get to the six questions that need to be addressed in order to see your way successfully in 2012. With the US two-thirds of the way through the post-crisis workout phase while Europe remains only half-way through, and China a mere one-third through the necessary adjustments to less global imbalance, he is not a global uber-bear on every asset class as the net effect is modest global underlying demand and plenty of savings sloshing around looking for a home. The market will have to adjust further to an extended period of weakness in Europe, which will impact EM growth expectations and so the existential ursine strategist is skewing his macro expectations to the downside and with the market pricing a 'softish' global landing, there remains a considerable gap between downside risk potential and current expectations. Furthermore, Janjuah believes the upside is relatively self-limiting on the basis of commodity price pressures and the potential for property or asset bubble bursts - leaving upside limited and downside substantial.

 

Q1: Where are we in the post-crisis work-out?

The US economy is proceeding with its excess capital stock work-off when measured against either the labour force or GDP. It still looks to us like it will take another 12-18 months for the excess capital to be cleared. During this phase it remains a truism that aggregate net investment will remain modest, corporate cash holdings remain high, and that the private sector will still generate higher savings than investment. It is still unclear if the “clearing” level of the capital stock has actually fallen owing to changes in banking and financial regulation. Nevertheless, that backdrop remains supportive of quality non-financial credit, low real yields and weak aggregate equity performance. It’s worth noting that high private sector net saving should be offset by high government sector dissaving during this phase. The US policy mix, while generating a lot of angst, has allowed the US to hold things steady while this background adjustment occurs. Note: demand management policies are not able to generate a return to pre-crisis growth rates until the supply-side work-out is complete; hence the sequential aborted risk market take-offs.

 

The problem now is that parts of the euro area are in a very similar position but are being forced to adopt what we consider inappropriate policies from a macro point of view. Spain is a good example: who would doubt that the capital stock is some way above the long-run suitable level? As such, Spain and others are likely face only modest private sector demand for several years. A policy of fiscal tightening will only serve to increase the national saving/investment balance as the current account moves into surplus and international debt is paid down. We see this as a good thing but still think gradualism would be better than cold turkey. The added complexity is that the “clearing” level in the euro area is no longer well defined: a combination of rapid banking reform, Basle 2.5/3 and major uncertainty about supply-side and macro policy makes for an open-ended period of capex spending falls.

 

 

The final point on background work-out is about EM. China has built a lot of infrastructure since 2008 and we would argue is running some way ahead of the current warranted level. Capital deepening in EM is a good thing, but a period of modest capex looks more likely than a continuation of hyper capex growth. We don’t know as a market whether that will be sufficient to trigger non-linear balance sheet effects and a Chinese credit crunch, but certainly think Mr Market will have to romance the idea in the next 12 months.

 

Our conclusion is that we are two-thirds of the way through the adjustment in the US, half way through in the euro area (but without knowing the clearing level it’s impossible to be too precise) and one-third through in places like China. Net effect is modest global underlying demand and plenty of savings sloshing around looking for a home.

 

Q2: Where are we in the business cycle?

Clearly, while this period of work-out is going on, the global economy and its markets are particularly vulnerable to new shocks given current policy settings and the state of weaker paticipants’ balance sheets. For a while now we have been talking about an EM slowdown and hard defaults in the euro area. Both risks are now centre stage for investors.

 

Two themes emerge from a detailed reading of our economics team’s year-ahead forecasts. First, that the global economy is slowing, led as much by domestic demand in emerging economies as the outlook for the euro area. Fiscal drag, the echo of higher commodity prices and tighter EM policy combined with banking sector deleveraging, has led our economics team to move its forecasts toward weak H1 2012 growth before a reasonably robust recovery in H2 2012. Naturally, this would lead one to be overweight rates and underweight risk now.

 

But the second overarching theme that emerges is one of contingent risk. Almost every country forecast highlights the evolution of the euro-area economy as the key foreseen risk. And importantly, the gap between the muddle-through shallow recession scenario and full-blown hard landing and cost of capital shock is substantial in the simulation runs provided not just for the euro area but for all economies. Our house opinion is that the euro area does not matter a great deal to global fundamentals, until it matters a great deal. This is classic non-linear gap risk.

 

One area that is useful to think about is how deleveraging in the euro area will play out in terms of the aggregate data and the euro area’s surplus. It seems to us that a cross-border deleveraging against the backdrop of high multinational corporate cash balances and modest funding requirements should primarily play out through the banking sector seeing a substantial and persistent jump in its funding costs in the current account deficit economies. And it is through this channel that the economy should be influenced via the household and SME sectors seeing a sequential tightening of credit availability and increased funding costs. Naturally if I have 100 large corporates that make up my equity market and I hit their funding costs I would expect a rapid impact. But if I have 5 million SMEs and 30 million households not all of them are looking to refinance at the same time and so I would expect a staggered impact on their effective cost of capital (it’s a bit like duration considerations for governments). Confidence and market pricing of course will not respond slowly.

 

 

Another consideration that hasn’t been given much air time is the supply-side flexibility of the euro area in comparison with other major economies. We can get a handle on this issue by comparing how long it takes for changes in growth to have their maximum impact on unemployment and in turn unemployment on inflation. The results are shown in Figure 3, with the maximum lag shown in months. The basic message is that taken over the past 20 years a movement in growth has taken six months to have its maximum impact on unemployment in the euro area and in turn it takes around 16 months for changes in unemployment to have their maximum impact on inflation. It therefore takes over two years for a growth shock to have its maximum impact on inflation, working via the labour and product markets. To put this in context, the US gets there in nine months, while the UK has fairly rapid labour market reactions but relatively slow wage/inflation reactions to unemployment.

 

 

What does this mean practically? The policy framework the euro area has adopted excludes high growth or high inflation as a way out of its debt/excess capital stock burden. Instead, we are moving toward a competitive realignment via supply-side adjustment. This is where the “sacrifice ratio” comes in – simply the output loss required to generate a 1% fall in inflation. The sacrifice ratio in the euro area is still higher than in the US and UK, and is particularly high in the periphery (not Ireland, though). Thus, if Spain et al are to compete their way into growth they will face a larger increase in unemployment than others before economic growth returns. Leaving aside the policy and political implications of this, the growth implications are clear – it should be weaker than that of other countries faced with a similar problem. Once the euro area starts adjusting its supply-it exhibits a super-tanker-style turning circle. In this scenario the euro area would shift into a current account surplus – another source of excess savings to the world.

 

 

Our conclusion is that the market will have to price an extended period of weak euro-area growth and downside risks to EM activity expectations. One thing we know from forecast history is that forecasts move predictably when the economy is slowing or accelerating. We would suggest that further forecast downgrades will come through over the next two quarters. We in macro strategy therefore retain negative skews to our expectation for growth versus the consensus next year.

 

Q3. What about policy?

An American colleague put the euro-area situation into stark relief recently, saying the euro area can either inflate its way out of trouble, grow its way out of trouble or default its way out of debt. Expansionary fiscal policy is clearly not an option; full-on unilateral central bank balance sheet expansion appears to be off the table unless significant further fiscal unity is created, which leaves the default or “debt holiday” option.

 

In any event, we can take some things for granted. The euro area remains a currency zone without a single financial market regulator, effective fiscal co-ordination or the institutional depth and breadth to cope with the current situation. We do not see this changing any time soon. So, our first policy conclusion is that there will be no effective resolution for markets for a considerable time. Therefore, rating and default risk etc remain high and rising as the fundamentals deteriorate over the course of the next 12 months.

 

The point about this path is that it is highly predictable, even if the exact details are not. The anticipated costs for policymakers of allowing this path to be taken are large, and confidence about being able to reverse course once on this path is small. Therefore, the conclusion is clear – avoid this path. Rational policymakers can solve backwards as well as the rest of us. And so it is rational for markets to price that this option will be avoided at all costs. But if the euro area is incapable for political and/or legal reasons from offering up the solution, it just increases our conviction about policy easing elsewhere and where idiosyncratic differences allow, including the introduction of QE again in the US.

 

For the euro area to matter to the global economy we have to assume a “policy error” will be made. Or that one of several variables makes itself felt, by which we mean ratings action (a central view for us is that some core euro-area economies will lose their AAA status) or peripheral politics (Greek elections; Finnish opposition). The policy error most seem to be pinning their hopes on is that the ECB fails to leverage its balance sheet in order to support fiscal adjustment and counteract euro-area bank deleveraging – let’s call it Quantitative Fiscal Support (QFS). As we have argued before (see The euro is dead; long live the euro, 11 November 2011) the sequencing of fiscal actions prior to QFS are actually quite clear but are unlikely to be delivered successfully soon.

 

However, as a firm we do not think the ECB will enter into unconditional QFS. Instead, we expect it to enter into standard Fed- and BoE-style QE when the economic fundamentals warrant it – i.e., falling inflation and falling inflation expectations.

 

Of equal importance are the policy decisions that will be made following the US election, the Chinese governance transition (likely to be the largest shift in personnel in many years), the Greek elections in February and the French elections in April and May. On the slate in the US is how fiscal policy will be tackled but possibly of more importance reform of the GSEs. China will be under pressure to address its monetary policy framework, possibly against the backdrop of substantial reform at the IMF and euro-area governance. These decisions will have long-lasting implications for the global supply chain, reserve growth and FX.
More pressing is regulatory pressure on the banking sector at a time of increased government and bank bond issuance as Basle 2.5 comes into force in January at least in the EU. Easier monetary policy against bank credit multiplier declines will be less effective than normal.

 

The conclusion is that we expect faster and deeper than currently priced in easing in EM, for the Fed, BoE and ECB to add more QE if required rather than pre-emptively. If EM gets "ahead of the curve" rather than matching the pace of slowdown with easing, this will be a positive surprise.

 

Q4. Is this all priced in?

Sort of. If we use quarterly global equity returns vs G7 government bond returns vs a proxy of G3 activity (using PMIs and the ISMs etc) then the market has done (as usual) an excellent job of anticipating turning points in activity. On this “dynamic” basis risk vs risk-free returns do not appear to have deviated materially from the business cycle. Indeed, the recent risk rally anticipated the recent pick-up in business confidence and is currently anticipating a further increase. On this basis then the aggregate market is not pricing in anything that the business confidence data hasn’t actually done. Now, we could have a perfectly valid debate about causality and the relationship between reported business conditions versus hard data which have been distorted by the post-earthquake/tsunami supply disruption. But my point is that taken globally and at the aggregate level of stocks/rates the market is not behaving irrationally. Naturally, business confidence as much as market confidence is being influenced by the policy uncertainty and other threats to the medium-term outlook for growth. But the point is that business confidence is going to be the determinant of capex and hiring plans.

 

In fact, if we take the euro area as an example, equity returns have been a reasonable reflection of how forecasts for the next 12 months are shifting. If we take our forecasts and the historical data for the acceleration and deceleration in GDP growth for the euro area and compare it with reported equity market earnings we get a good leading indicator.

 

 

On the basis of our base case quarterly forecasts for GDP, the euro area should see a 12-month delta in its growth rate of almost -5ppts, which would be consistent with the second largest contraction in earnings in the modern era before (based on our forecasts) the economy rebounds fairly smartly in H2 and 2013.

 

 

This may look rather aggressive and it is not our “House” forecast for earnings – I show the chart instead to highlight how a top-down investor might try to quantify earnings risk. Naturally, Mr Market has already jumped several steps ahead to price in something approaching this eventuality, albeit that to be fully consistent with our “House” GDP forecast there is some further downside. The noteworthy aspect is probably less about magnitude and more about timing. A trough in growth in Q1 should lead to a bounce from there on in risk assets and perhaps quite a robust one at that.

 

The conclusion is we think the market is pricing in a softish global landing, with a decent spread between the downside risks of a euro-area policy mistake being offset by expected stability in the US data and the expectation of monetary policy easing in EM and parts of DM. Most investors seem to have a waning expectation of decisive euro-area action.

Q5. What about market conditions?

Within Europe it is worth re-stating that we think liquidity conditions are unlikely to improve a great deal over the course of the year at least in cash assets. This would tend to further exacerbate basis volatility as hedging and positions are placed through derivatives. In one sense the cash market would behave as if capital controls were already in place - investors we reckon must consider their ability to reverse positions in the future as a key element to entering trades in the first place. In this sense, then, the market is likely to continue its bifurcation between effective hold-to-maturity strategies with high mark-to-market volatility.

 

Moreover, policymakers appear to be increasingly frustrated by their inability to get markets to "toe the line". This does increase concerns about further action to limit free capital movement against the backdrop of contract uncertainty. While regulatory and contract arbitrage opportunities should result, they will require intense scrutiny of contracts and national law.

 

Q6. So what is the outlook for investment strategy and style?

Taking all of the above into account, our conclusions are set out in Figure 8. So how do we invest over the course of the year? In many ways the themes have not changed very much at all. We continue to differentiate on the basis of balance sheet strength, cognisant of the policy-led high-beta squeezes that last for a while. We continue to see this as a volatile carry trade environment rather than a spread convergence environment, which implies large ranges that can be tactically positioned for. This is not a macro approach to investing, rather a core model of strong bottom-up credit work and equity analysis to identify those balance sheets with strength and low refinancing needs. The macro part of the story is to retain higher-than-normal liquidity levels to take advantage of the risk squeezes and sell-offs. For the year as a whole, quality should win out, with another key risk sell-off anticipated in Q1, before considerations about fundamental policy change after the political changeover in China and the US, combined with genuine clearing of excess capital lead to a deeper rethink on asset allocation.

 

 

The upside scenario is rather self-limiting via commodity prices and possibly re-emergent property prices and other bubbles in areas where QE liquidity has seeped in. So our boundaries are fairly clear. Upside is limited to the removal of negatives around the conditional risk of a euro-area policy mistake or unexpected event, whereas the downside is substantial if those conditions are met, all played out against a slowing business cycle and moderate underlying final demand.

 

Considering the core view as portrayed by our economic forecasts, it is clear that a recovery is expected into H2 on rather modest policy easing globally. However, it is precisely at this point that some important transitions will occur, as already referred to – the US, China and, indeed, the shaping of the EU’s new governance structure. Thus, even as the economic fundamentals may be stabilising with positive market deltas, we would be pushed into considering possibly the starkest policy differences in the US for a generation: the GSEs, the tax/spend mix; healthcare reform; global trade and FX policy; the fulfilment or not of Frank-Dodd.

 

 

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Sun, 12/18/2011 - 19:31 | 1992338 slaughterer
slaughterer's picture

Very complex analysis.  He covers most all contingencies.  

Sun, 12/18/2011 - 19:44 | 1992368 Oracle of Kypseli
Oracle of Kypseli's picture

How about the great unwind of 1 quadrillion derivatives? Those could not go on forever.

Sun, 12/18/2011 - 22:00 | 1992660 Greg
Greg's picture

It will be interesting to see just how fast they do unwind.

Sun, 12/18/2011 - 23:26 | 1992926 AldousHuxley
AldousHuxley's picture

 

  • War over iran (covert or overt)
  • Euro dismantling or massive rescue
  • Chinese and Brazilian property bubble pop
  • US Fed printing more to get ready for election season (quid pro quo between ben and obama)

 

We will be back here again in 2012 december with same old problems....same kick the can bs....

 

politicians won't do anything until 2013

Euro battle will drag on.

Chinese and Brazilians will just eat up US dollar inflation to keep the bubble from popping...

Sun, 12/18/2011 - 20:34 | 1992422 WhiteNight123129
WhiteNight123129's picture

The analysis is interesting but it fails to understand entropy, or the inability of certain processes to be reversible. Example a hurricane is a process which needs ever increasing amount of hot water to get strength, after a critical point it does NOT reverse, it crashes and loses strength abruptly. The variable of deleveraging is not a variable than is independent which has a positive or negative independent contribution. It is the fuel to the rest, it affects confidence and deleveraging is not the opposite or negative leveraging, it the failure of the system to tolerate more leverage, it indicates a critical point is reached. Think of a ball sitting on top of an n or hump instead of a ball sitting in a U. The ball sitting on top of the hump will end with extreme results, leverage promotes that (this is the fiat money system). On the other hand the Gold Standard forces short deviation from the center this is the ball sitting inside the bowl shape or the U. Janjuah confuses a return to an increase in leverage (the situation since the 1950s), with a mean reverting process of an absolute leverage constrained by the Gold standard. For many economist, mean reverting = return to increase in leverage, this is FREAKY!!!

 

Sun, 12/18/2011 - 21:45 | 1992643 Schmuck Raker
Schmuck Raker's picture

Thanks for adding perspective.

Sun, 12/18/2011 - 19:34 | 1992343 chump666
chump666's picture

He missed the FACT that a full blown trade war is about to start as, wait for it...China attempts to send the Yuan lower. Why?  Because Chinese companies are buying up USDs like no tomorrow.  Why? Because China is sinking.  On Europe, it's a zombie economy that will go all MAD MAX if the ECB/IMF/EU whoever else starts printing like mad.  Oil is hedged against the EUR and net importers of oil such as Germany go into a stagflation recession.  A 2012 European nightmare.

Plays?  More (extreme) volatlity to straight selling.  IF the print jobs do nothing to send stocks higher

Sun, 12/18/2011 - 19:44 | 1992367 jomama
jomama's picture

minor oversight.

Sun, 12/18/2011 - 19:45 | 1992370 chump666
chump666's picture

slightly.

and he gets paid more than me...

Sun, 12/18/2011 - 21:26 | 1992620 Davilis
Davilis's picture

I think that falls under "policy mistake".

Sun, 12/18/2011 - 19:39 | 1992354 ebworthen
ebworthen's picture

The markets have not discounted the reactions of individual households.

Sun, 12/18/2011 - 19:44 | 1992366 RobotTrader
RobotTrader's picture

If the U.S. is already 2/3 the way through the crisis...

 

And the U.S. retail stock indexes are barely off 3-year highs, still up more than 90% off the March 2009 lows.

http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosetti...

What does that tell 'ya?

"But any minute now, I swear, the system is going to implode, gold is going to $5,000, oil is going to $300, gas lines, riots, hyperinflation, runaway interest rates, etc. everywhere!"

Sun, 12/18/2011 - 20:12 | 1992405 Urban Roman
Urban Roman's picture

Interesting how the volume tapers off to nothing as you move toward the right end of that chart.

Sun, 12/18/2011 - 20:16 | 1992411 Caviar Emptor
Caviar Emptor's picture

Yes. We're actually totaly through the crisis because...people still shop and eat out. That's why stocks are near all-time records. With the screaming economy, they should sky higher and higher because everything is really cheap. And by quick math, if we're 90% off the lows now, we should be 900% off the lows within 10 months. Give or take. 

Now what does that mean for the average investor? It means you better wait till the next market collapse to get in. It's kinda late in the day now.

Sun, 12/18/2011 - 20:22 | 1992417 GMadScientist
GMadScientist's picture

When the Bernank has sold his MBS, and banks can tolerate non-zero interest rates, and banks mark their 'folios to market, and banks put their derivatives on exchanges, and traders don't need dramamine to stay on the newsflow bronc ride, then, and only then, can you do a touchdown dance.

Way to calibrate against the norm by cherry-picking a trough, knucklehead.

Why not say it's only down 22% from the highs of 2007?

 

 

Sun, 12/18/2011 - 21:02 | 1992552 jcaz
jcaz's picture

And yet, Robo, you're 5/3 the way thru your paper trading account value.....

Sun, 12/18/2011 - 19:48 | 1992375 NumNutt
NumNutt's picture

I would suggest buying gold, then taking it to your dentist and telling him to cap all your teeth with it. That way you will always know where it is. Then drive directly from your dentist office to the local gun dealer and invest in a good weapon and some ammo....You don't want to wake up with no teeth...

Sun, 12/18/2011 - 21:04 | 1992550 ebworthen
ebworthen's picture

Gold teeth, Aye!

Sun, 12/18/2011 - 21:52 | 1992649 Schmuck Raker
Schmuck Raker's picture

LOL - "You don't want to wake up with no teeth..."

That's what I was thinking at the first sentence of your post.

So, you're not advocating burying it where no-one can find it? :D

Sun, 12/18/2011 - 22:18 | 1992672 s2man
s2man's picture

Gold is inert. How about having it implanted beneath your skin? If anyone asks, you can tell them its a pacemaker.

Sun, 12/18/2011 - 19:49 | 1992379 WineSorbet
WineSorbet's picture

2/3rds through? Pray tell, what has been worked out? Nothing!

Sun, 12/18/2011 - 19:55 | 1992385 JR
JR's picture

Actually anyone can be as far along as he wants if all he needs to do is say it; and while Janjuah's making things up, why not just say full recovery; case solved?

Sun, 12/18/2011 - 20:50 | 1992484 WestVillageIdiot
WestVillageIdiot's picture

That is how I saw it.  What a joke.  House prices in some areas are still way too high.  Bad debts have not been written off.  Local governments need to continue to cut.  State pension bombs are ready to go off in all of the biggest, and most unionized, states.  The federal deficit continues to be completely out of control. 

What in all of that points to being 2/3 of the way through this mess? 

Sun, 12/18/2011 - 22:40 | 1992720 kito
kito's picture

@winesorbet-it must be like two thirds of the way through a nuclear chain reaction...

Sun, 12/18/2011 - 19:51 | 1992382 mtomato2
mtomato2's picture

It seems that I tried to go to Zero Hedge and got redirected to MarketWatch.

Sun, 12/18/2011 - 20:03 | 1992395 Stagflationary
Stagflationary's picture

According to Bob Jajajajajajajaja the SPX should already be a -3000. 

Show us the crash, Bob, or find yourself a real job.

Sun, 12/18/2011 - 20:51 | 1992488 WestVillageIdiot
WestVillageIdiot's picture

You could have said, "go home and get your fuckin' shine box, Bob". 

Sun, 12/18/2011 - 20:10 | 1992396 Newager23
Newager23's picture

 

 

Business cycle? You can throw out history. The business cycle is gone. Why? This is a new era we are entering. America and Europe are on the precipice of a major downward spiral with increased permanent unemployment and a reduced standard of living. Expect higher prices for food and energy, and lower prices for assets.

I'm not sure if this will begin 2013 or 2014, but we are getting very close. I don't like to give bad news, but you need to get prepared, and it is time to begin rethinking the idea that our way of life is going to carry onward in the near term.

The populace is being lulled into believing this is just another economic hicup in the business cycle, and that growth is just around the corner. That is highly unlikely. The Western world of America and Europe which make up 50% of the global GDP are broke and cannot grow due to high energy prices and excessive debt. Many smart people think that human ingenuity can overcome this situation. It's not likely to happen.

How do I know this? You wouldn't believe my sources, but many other smart people are coming to the same conclusion. I've been studying the future since 1989 and I have written several books that explain the coming transformation of humanity. The simple fact is that we have ran out of resources for our growth based global economy. Everyone can't own a car, and everyone can't own a house. There simply is not enough energy to provide that kind of standard of living for everyone.

To give you an idea of the limitations we face, if China were to obtain the same ratio of cars to people that exists in Mexico, we would need something like an additional 15 million barrels of oil produced on a daily basis. That's not going to happen. We have been stuck at around 72 million barrels per day since 2005, and we stopped finding oil in significant quantity around the year 2000.

America and Europe are bankrupt, yet we continue to borrow as if we were solvent. That game of rolling over and extending debt is on its last legs. When it hits a wall, we are going have major changes to our economic system. What these changes will be is difficult to foresee. But the fallout will be negative and economic growth will drop dramatically. I expect the GDP of both Europe and America to fall around 25% in the medium term (3-5 years), and 50% in the long term (5-10 years).

There is only one way to protect yourself financially and that is physical gold and silver. And if you want to speculate on gold and silver stocks, go here: www.goldsilverdata.com.

Newager

 

Sun, 12/18/2011 - 20:21 | 1992416 gringo28
gringo28's picture

you got the first two paragraphs right, generally speaking. the rest, uhhhhh. it's actually more like Carter^2 or ^3. it's going to get a little ugly and we'll see spikes in crime but it's not apocalyptic. why? because the principal liability will expire as it boomed. the real question is can the sheeple wake the fuck up next year and get this ass clown out of office so we can stop focusing so much on gubmint?

any politician who spends so time thinking about himself in relation to past politicians ought to be thrown out for that simple tendency.

Mon, 12/19/2011 - 06:34 | 1992443 WhiteNight123129
WhiteNight123129's picture

It will be worse way worse than the 70s. The only Silver lining is coming from material science revolution. Material science revolution will make computer science look ver pale in terms of achievements. But first a huge shit sandwhich. Consider also that Fiat was a huge invisible drag on the economy. The economy and median wealth would be much larger if we had not used a system which massively misallocates capital. Look at Hong-Kong growth, it beats everybody and it is a non fiat system.

 

Sun, 12/18/2011 - 20:55 | 1992513 WestVillageIdiot
WestVillageIdiot's picture

"Le business cycle, c'est moi."
-  Ben Bernanke

Sun, 12/18/2011 - 21:31 | 1992632 fnord88
fnord88's picture

Broadly agree, the black swan in your analysis is global population. If 3 billion people die, energy problems are solved, and gold and silver go into the toilet. At that point though, it's not going to matter.

Sadly, I don't think that senario is completely off the table. There are too many people for TPTB to contain, and I find it hard to believe they haven't war gamed some kind of "lets kill 1/2 the planet" plan.

Sun, 12/18/2011 - 22:04 | 1992663 bobert
bobert's picture

A clean weapon would be necessary, no?

Sun, 12/18/2011 - 22:10 | 1992666 fnord88
fnord88's picture

There must be some pretty sophisitcated bio weapons floating around by now. Kills everyone who doesn't have stone mason genes?

Sun, 12/18/2011 - 20:10 | 1992400 G-R-U-N-T
G-R-U-N-T's picture

Golds Rise 2012....No question here just Ecstasy!

 

http://www.youtube.com/watch?v=wV0wPBYDQ6Y&feature=list_related&playnext...

Sun, 12/18/2011 - 20:17 | 1992412 Mr. Magniloquent
Mr. Magniloquent's picture

I'm sorry. I got lost at, "With the US two-thirds of the way through the post-crisis workout phase...". Does the path to solvency consist of more debt and malinvestment? How about the addition of more inappropriate regulations and government largess? My guess is that the last third of the process is default. Then again, I'm not a professional economist, nor a Keynesian.

Sun, 12/18/2011 - 20:31 | 1992424 JR
JR's picture

and the one-third post-crisis bad-news phase still to work through… What Will 2012 Bring? by Gerald Celente |"Wake-Up Call" Trend: The Decline of America trend is nowhere near bottom, and the worse is yet to come.

One year later: "Worse" has happened, as the country piles up more and more debt, politicians are gridlocked, paralyzed in some perpetual political traffic jam of inaction.

"Crack-Up 2011" Trend: Teetering economies will collapse, currency wars will ensue, trade barriers will be erected, economic unions will splinter…

One year later: The Sovereign debt crisis threatens both the European Union and Euro, currency wars are underway and the US and China are trading trade barbs.

"Crime Time" Trend: No job + no money + compounding debt = high stress, strained relations, short fuses. Hardship-driven crimes will be committed across the socioeconomic spectrum by legions of the on-the-edge desperate who will do whatever they must to keep a roof over their heads and put food on the table.

One year later: Thieves are stealing copper piping and cables, cooking oil and temple donation boxes; "Criminal recycling" is flourishing; in 2011 a record number of cyber crimes is reported to the FBI: more than 23,000 per month.

"Screw the People" Trend: As times get even tougher and people get even poorer, the "authorities" will intensify their efforts to extract the funds needed to meet fiscal obligations.

One year later: In the two-tier American justice system, the long arm of the law only reaches down to the low hanging fruit. Banks are slapped with slap on the wrist fines for billion dollar crimes, and like Jon Corzine, no crime time. But swift justice is readily dealt out for small time crimes. From closing down lemonade stands operating without a license to swat teams busting raw foods cooperatives, in America, Justice means "just us!"

"Students of the World Unite" Trend: "University degrees in hand yet out of work, in debt and with no prospects on the horizon, young adults and 20-somethings are mad as hell, and they’re not going to take it anymore."

One year later: Occupy Wall Street is just one of the scores of worldwide student protest movements, some of which have proven powerful enough to bring down governments.

"Crackdown on Liberty" Trend: A national crusade to "Get Tough on Crime" will be waged against the citizenry. And just as in the "War on Terror," where "suspected terrorists" are killed before proven guilty or jailed without trial, in the "War on Crime" everyone is a suspect until proven innocent.

One year later: TSA strip searches of little old ladies; Obama backs bill "authorizing indefinite military detention of U.S. citizens." 

"Journalism 2.0" Trend: With its unparalleled reach across borders and language barriers, "Journalism 2.0" has the potential to influence and educate citizens in a way that governments and corporate media moguls would never permit

One year later: Aleksai Navalny, an imprisoned young Russian blogger/Twitterer with some 200,000 followers, is "credited with mobilizing a generation of young Russians through social media, a leap much like the one that spawned Occupy Wall Street and youth uprisings across Europe this year."

"Cyberwars" Trend: The demonstrable effects of Cyberwar and its companion, Cybercrime, are already significant – and will come of age in 2011. Equally disruptive will be the harsh measures taken by global governments to control free access to the web, identify its users, and literally shut down computers that it considers a threat to national security.

One year later: Iran proudly displayed a sleek, white U.S. drone that was used for spying on Iranians; Iranians were able to capture what US military officials privately told Bloomberg was a Lockheed Martin RQ-170 by hacking into its security code; PayPal shuts off service to WikiLeaks.

http://www.lewrockwell.com/.

Sun, 12/18/2011 - 20:33 | 1992426 slewie the pi-rat
slewie the pi-rat's picture

Q6: how tf did the Lions pull that off?
A: the raiders gave them all the help they needed!

Q7: is the NFL as bad as congress?
A: move along, please; nothing to see, here

Q8,8a: the packers lost? to KC?
A: yup! obviously, the MIB erased their receivers' memories of how to catch the football

Sun, 12/18/2011 - 21:02 | 1992554 WestVillageIdiot
WestVillageIdiot's picture

The Colts won and both New York teams got spanked.  That is a good day. 

Sun, 12/18/2011 - 21:18 | 1992608 bobert
bobert's picture

The Bronco's were also not faring well the last I checked.

Their defensive team did not show up.

Good distraction Pirate, I appreciate it.

Regarding, however, the topic at hand. I don't think I want solutions. I'm enjoying the rich trading environment too much.

Sun, 12/18/2011 - 20:41 | 1992437 Srgato
Srgato's picture

Remember, this is just a one-year forecast.  He's not saying that everything will be all happy ever after.  It seems likely to me that the U. S., in particular, will muddle along (it's even getting to be a popular locution) for a year.  The stock market will go up and down and gold will, too.  This is pretty much a consensus view.  He's not saying that this is the final, endgame scenario, at least for the U. S.  And, he does say that it will make a lot of difference if the U. S. gov't begins to cut back on spending and bureaucracy.  He doesn't say that (even if we're 2/3 of the way to something) things can't turn around and get worse.  He's just saying, like his metaphor of the supertanker turning 180 degrees, that over the next year things will continue to play out slowly and contain possibilities for improvement. 

Much better comment box, thanks ZH. 

Sun, 12/18/2011 - 20:57 | 1992530 youLilQuantFuker
youLilQuantFuker's picture

60 minutes tonight confirms that the banks are colluding with municipalities to shore up housing. Instead of the banks giving the homes away for free, they are allowing municipalities to buy the properties(using tax dollars) at auction, and then the muni's are paying a demolition company 10,000-15,000 to demolish the home.

Disgraceful. Give it away for free. Someone will take it and fix it.

I'm sure Bennie and the MBS buying crew have a mathematical formula that says (x) percent have to be demolished in order to firm up the supply side.

Disgraceful Cleveland. Just fucking disgraceful!

Sun, 12/18/2011 - 21:06 | 1992566 Caviar Emptor
Caviar Emptor's picture

The final irony will be: in their zeal to control house prices by reducing inventory they will find themselves caught between rising new building costs (raw materials, energy, taxes etc) plus prohibitive home ownership costs and plunging individual net worth and incomes. So they'll have to set prices below cost to or bulldoze the new houses again. 

Sun, 12/18/2011 - 21:17 | 1992604 youLilQuantFuker
youLilQuantFuker's picture

round and round we go. lol.

Sun, 12/18/2011 - 22:32 | 1992696 s2man
s2man's picture

That Old Black Magic. Though I watched Jerry Lewis sing it tonight, classic Louis Prima pops into my head;

Down and down I go,

Round and round I go,

In a spin...

http://www.youtube.com/watch?v=Qpjxx9BOm-0

Sun, 12/18/2011 - 21:04 | 1992567 WestVillageIdiot
WestVillageIdiot's picture

I didn't see it but can you imagine if municipalities are allowed to give houses away?  Can you imagine the corruption that this would breed?  I am sure we would be shocked to see cousins, brother-in-laws and shell corporations setup by the political gangsters getting the preferential treatment. 

Sun, 12/18/2011 - 21:19 | 1992599 youLilQuantFuker
youLilQuantFuker's picture

I understand what you are saying.

What I'm suggesting is the bank cannot buy back at the auction. If the bank puts a property up for sale on the courthouse steps it should sell to the highest bidder if and only if the bank is not the bidder on it's own lot.

Currently these faux auctions allow the banks to bid the price up and buy back the property. This should be illegal.

I don't even go to courthouse auctions anymore they're a complete waste of time.

It's all a game anyway. Fuck these asswipes.

Sun, 12/18/2011 - 21:03 | 1992555 Winston Smith 2009
Winston Smith 2009's picture

"With the US two-thirds of the way through the post-crisis workout phase"

This is the only "workout" that counts and it has hardly begun with most of the reduction in the US coming from forced defaults:

7 Jul 2011

You ain't seen nothing yet
The process of reducing the rich world’s debt burden has barely begun

http://www.economist.com/node/18928480

Graph "Total Credit Market Debt as Percent of GDP"

http://www.economagic.com/em-cgi/charter.exe/var/togdp-totalcreditdebt+1...

Sun, 12/18/2011 - 21:20 | 1992609 FoieGras
FoieGras's picture

Good old Bobbie... still a fuzzy haired bear. Both visually and strategically. Look we all know we're headed for the toilet. The question is not if we're headed for economic trouble. The question is what signs to look for when to buy. Junjah never gets to that question -- which is what makes you money. He just keeps yelling fire without pointing to the loot once the fire has run its course. And there's going to be plenty of loot for those with buying power left.

Sun, 12/18/2011 - 21:29 | 1992625 bobert
bobert's picture

"when to buy" and when to sell!

This economic environment is made to play.

Sun, 12/18/2011 - 22:34 | 1992704 s2man
s2man's picture

two-thirds of the way through? I thought we were in the eye of the hurricane.

Sun, 12/18/2011 - 23:32 | 1992947 IcarusOnFire
IcarusOnFire's picture

Huhhh.  Wad he say?

Icarus

For a minute I thought the writer was Greenspam

Mon, 12/19/2011 - 02:03 | 1993356 GNWT
GNWT's picture

 

So, on ZH lately,  I have seen a pro-Gingrich article, a guy who is going to vote for anyone who is not an incumbent and now a brokerage tout who is saying the US is half way through their workout.

What about the crap on the Fed Balance Sheet that they paid 100 cnets on the dollar for while max value is now 50?

Sure it is cool to have anyone from the tout factory say things are anything but perfect, but really, quoting Nomura, Citi, Goldman opinions is really absurd.

Like asking the arsonists to comment on the way to fight the fire.

 

US half way through?

 

You mean half way to zero?

 

 

 

 

 

Mon, 12/19/2011 - 10:27 | 1993835 gmak
gmak's picture

Bottom line:

  1. Allocate more capital per trade due to volatility
  2. Sell the rip!
Tue, 12/20/2011 - 00:50 | 1996699 ThrivingAdmistC...
ThrivingAdmistCollapse's picture

I really wish that we are 2/3 the way through this economic crises.  If there is light at the end of the tunnel then perhaps people would invest more into the market.

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