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David Rosenberg Discusses The Market With Bob Farrell, Sees Europe's Liquidity Crisis Becoming Solvency In Q1 2012
For the first time in while, Gluskin Sheff's David Rosenberg recounts his always informative chat session with Bob Farrell and shares Farrell's perspectives on the market ("his range on the S&P 500 is 1,350 to the high side and 1,000 to the low side. He was emphatic that there is more downside risk than upside potential from here. His big change of view is that we have entered a cyclical bear phase within this secular downtrend (he sees the P/E multiple trough at 8x). Rosie also looks at Europe and defines the term that we have been warning against since May of 2010: "implementation risk" namely the virtual impossibility of getting 17 Eurozone countries (and 27 broader European countries as the UK just demonstrated) on the same page when everyone has a different culture, language, history and religion... oh, and not to mention animosity to everyone else. So yes: Europe in its current format is finished, but what will it look like in its next reincarnation? And why does he think the European liquidity crisis will become a full blown solvency crisis in Q1 2012? Read on to find out.
First, Farrell on markets:
I had the opportunity to lunch with the legendary Bob Farrell yesterday, and he is as bearish as I've seen him in the past two years. At this time last year he said the market would peak in the spring and then struggle, and to avoid the banks — a very early call on that last point but a prescient one nonetheless.
Bob strongly believes the cyclical peak was turned in April. He advises selling into any rally. His range on the S&P 500 is 1,350 to the high side and 1,000 to the low side. He was emphatic that there is more downside risk than upside potential from here. He still sees this as a secular 20-year bear market and we are in year 12. His big change of view is that we have entered a cyclical bear phase within this secular downtrend (he sees the P/E multiple trough at 8x).
Bob sees a market now characterized by distribution rather than accumulation; in other words, more selling than buying pressure. He is disturbed by the lack of follow-through in the intermittent rally phases we have seen of late. The extreme volatility is not consistent with a bull market. He favours companies in defensive sectors, good management, low cost structures and strong balance sheets. Portfolios should step up in quality. He likes what he sees in terms of secular chart action in big pharma, large-cap tech, and automotive.
Interestingly, he talked about how the deleveraging cycle has caused the traditional presidential cycle equity performance to turn topsy-turvy. Normally, the market does not double in the first two years of a presidential win as the White House first adopts the "unpopular" measures, then enacts populist pro- growth policies in years 3 and 4. This time, all the stimulus has already happened. Bob thus thinks that next year is a down year for the market, especially given election and tax uncertainty, let alone lingering European problems.
The only positive he sees is that sentiment is quite negative, and thus should help contain the downside. He is watching put-buying activity along with sentiment surveys and mutual fund outflows. But the negative sentiment is not yet extreme enough to turn him more constructive.
And Rosie's "thots" on Europe:
What a reversal yesterday — the reversal in the S&P 500 totalled over 24 points and the swing from the intra-day high to low on the Dow was 243 points. While improved tone to the German ZEW and the U.S. NFIB small business indices helped overshadow a ho-hum U.S. retail sales report (restaurant sales are a notable leading indicator and it fell 0.3% in what was the first decline in seven months; note as well that auto sales look to have sputtered in December for the first time since August), it was likely the fact that the Fed offered no clue of a future QE3 program to a market that, like a child, needs mummy to hold its hand.
The Fed acknowledged in a mark-to-market exercise that the economy was on a firmer footing, but the press statement was so laden with caveats that it is obvious that Bernanke is not a buyer of the sustainable economic growth view. Foreign-related growth risks were cited as was a comment pertaining to a slowing in the pace of business investment. So not only did Bernanke not play the role of Santa (or Judah the Maccabee for that matter) but the market continues to digest last week's EU summit and is now coming to the conclusion that the deal is littered with complications that go far beyond Britain's veto (and likely exit from the EU as a result).
First, the ECB has refused to give in to demands to embark on debt monetization. So far, the 208 billion euros of bond buying by the central bank amounts to just 1/10 of what the Fed has done in its cumulative interventionist activities to date. Moreover, while it is nice for the banks to borrow three-year funds at 1% from the central bank, going out and loading up on sovereign bonds can hardly be a priority right now seeing as they themselves have 1 trillion euros of deleveraging in order to meet their stipulated capital-asset ratios.
Did anyone expect all 17 sovereigns to be put on CreditWatch as the stock market rejoiced last Friday over the fabled 'grand bargain' initiated by Mer-kozy (or that Italian bond yields would top 7% again this quickly)? And now we have Sarkozy all but acknowledging that France is on the road to a downgrade, which will impede the firepower of the EFSF.
The 200 billion euro loan from individual central banks to the IMF to then be used to assist peripheral countries with funding problems falls about 400 billion short of what is needed if both Spain and Italy are ever shut out of the capital markets like Portugal, Greece and Ireland were. As it stands, the Bundesbank has already said that this provision deserves parliamentary approval in Germany and we already have Socialist candidate Francois Hollande (who is now in the lead in the polls) saying that he would seek a renegotiation of the deal struck last Friday.
Indeed, what the markets did not factor in right away but are now, is the high degree of implementation risk. Besides the Bundesbank's comments on German legislature approval for the country's 45 billion euro stake (one-quarter of its FX reserves, by the way), the Irish government is deciding now whether a referendum is going to be needed to accept the pact; the agreement will most certainly require parliamentary approvals in Sweden, Hungary, the Czech Republic, and, according to the WSJ, quite possibly Denmark. Is there not a reason to be skeptical?
There was little special about this deal that fell so short of blazing the trail for a true fiscal union and for growth strategies that could help contain the erosion in credit quality. Instead, countries will have to cut into bone on the fiscal front at the same time recessionary pressures begin to build — and likely to backfire. So ... it is becoming apparent that once again we have a summit that promised a lot and actually delivered very little. Time is running out, folks, especially when you look at the eurozone government funding needs in February and March, in particular.
The unthinkable is on the table too, at least it should be, which is a Greek exit from the monetary union. We see in the NYT that Nomura and UBS have already published detailed reports on this topic — a 50-60% drachma devaluation would likely ensue, alongside capital flight, social unrest and chaos. The markets are then figuring who would be the next to go and what happens when a CDS event is then triggered? And what then happens to the ECB's balance sheet, which owns 60 billion euros of Greek debt. It would suffer the most.
What signs are out there pointing in the direction of a possible Greek exit? How about the fact that 40 billion euros of deposits have fled the country's banking system in just the past year. This is equal to 17% of GDP! More than 30% of that outflow took place in September and October alone. This remains a powder keg situation and what is clear to us is that the Euro area is not at all close to resolving its problem of excessive debts, insufficient growth and competitiveness (Germany aside), glaring country-by-country current account- savings imbalances and an ever-growing lack of confidence. As we saw with Lehman, once entities reliant on wholesale capital markets for their funding lose confidence among the investment community, a liquidity crisis can morph into a solvency crisis and do so very quickly. This all promises to come to a head sometime in the first quarter of the new year, in my opinion.
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Italian 10Y yield 7.17%. Spread to Bunds 520. Sov CDS 576
EUR/USD at LOD
Cause everyone knows: Santa's reindeer can not climb the hills of Italy
http://www.youtube.com/watch?v=Ok5rOO2v2dU
Tyeler, Someone made this video and thanked you and Turd. It is great!
Silver Bells video watch here...
What a great video. With this orchestrated takedown, I am about to buy another 20 round silver eagle tube. On the JPMorgues Credit Card of course. Run em up and don't pay. Thanks for the gift banksters.
Thanks for the Christmas video, wonderful, brough tears to my eyes,
European fiscal integration will require a 'catalyzing event'. Something that forces the people of Europe to acknowledge their similarities and common goals rather than their differences.
Nothing like a financial collapse to drive the sheep into the loving embrace of their European Union overlords. What's the 21st century politically-correct way of saying "Ein Volk! Ein Reich! Ein Fuhrer!"?
The German equivalent of:
We are in this together, to protect the fabric of our society, led by a synergy of Franco-German culture.
Or some shit like that.
Perhaps when the common enemy of all is recognized, identified, and targeted the common goal will become clear to all....the elimination of the bankstas.....
Come now...don't you know Goldman is formulating some brand new hocus pocus to hype-me-tize their investors, governments, paid-to-play robots, and of course...cnbz..zeee yaaa later.
They ALL are partners in crime...they own the military and police too and are pushing congress right now to fund the new retraining center for the 99%.
No amount of digital Fed Pow-Wow money is going to fix Europe...Big deflationary phase is here...We'll see the power of the inflationary machine in 2012...
......seems like the ocean contracting before the tsunami wave.....wow.....look at this weird beach.....gold and silver prices so low....bam.
bwtfdik?
That wild man Lindsey Willams thesis is that there is no way B-Rack is going to not push BSB to open the monetary floodgates to solve all the problems. Hence, it all gets worked out fairly soon with money printing....Iran blows up late in the Summer....and B-rack gets re-elected...
Wheat better than gold now?
For some reason when I look at all my Cor-Bon .45 ammo, all this paper shuffling seems quite irrelevant by comparison. Brass, lead, copper...I love all those other precious metals.
.....for some reason the massive decline in copper prices leads me to believe that I should be buying more Barnes' Varmint Grenades....the green choice for politically correct extermination....
>>>As we saw with Lehman, once entities reliant on wholesale capital markets for their funding lose confidence among the investment community, a liquidity crisis can morph into a solvency crisis and do so very quickly. This all promises to come to a head sometime in the first quarter of the new year, in my opinion.<<<
I just lost some respect for him...He's got that last part backwards.
Taking bets on the afternoon rumor of the day. Will it be the IMF bailing out Europe again or how about a recycled China piece?
Re PMs: last raid before Middle East heats up with invasion of Syria? I really don't buy the talking head argument that people are selling gold; definitely not true for the Asians.
Leveraged speculators selling paper gold.
Or maybe de-rehypothecation?
pods
Or maybe someone thinks Greece/Italy promised them their gold and it is being pre-sold. Of course Greece/Italy will not hand over their gold. But the ponzi masters like to dream.
Likely.
Read Turd
http://www.tfmetalsreport.com/blog/3147/only-charts-matter
His comments on negative gold lease rates, free money for bullion banksters...etc..
AND then this comment--
Based on the title, I thought it was going to read he thought the liquidity crisis led to solvency............and I was wondering, "Just how the fuck does that happen??"
I think the title is missing the word "crisis" or should read insolvency.
Either way, piqued my interest and good read.
Eurosion
What? There is something wrong with the global financial system? CNBC says we are rebounding strongly from a mild recession.
Who du thunk it???
should have put the sarc on/off markers in. Some clown will junk you otherwise!
I have no idea where the bottom to this correction is but this sure looks like capitulation to me. I am in pain, no doubt but have sold nothing and picked up more miners here. We shall see.
NAR just released a press release saying the only houses that were double counted were duplexes, therefore, their previously reported sales will remain unchanged.
Covered last night. Turns out stocks priced in a total lie. Will the truth noe get priced in? I doubt it. And the fact that reality does not get priced in is a big tell on....the big secret of this market
http://www.bloomberg.com/news/2011-12-14/mf-global-wins-permission-to-use-jpmorgan-s-cash-as-judge-suggests-probe.html
"U.S. Bankruptcy Judge Martin Glenn in Manhattan today overruled objections from customers who said the money could be part of the $1.2 billion missing from their segregated accounts. MF Global had reached an agreement with the New York-based bank about how it would use the cash.
“Proof, not speculation. I understand this is a fluid situation but you have to acknowledge at this point that there is no proof the money in the account is customer property,” Glenn said. He said he would issue a written order and elaborate whether the company’s Chapter 11 trustee, Louis Freeh, should investigate the source of the funds."
Judge Glenn is a douche bag jerk off fool. There is NO proof the money is NOT customer property.
possession is 9/10th the law. These ass monkeys know that - and they all know WTSHTF they will be about one wire transfer before the rest of us.....they get the money and you get some jerk off paid off so called judge's words.......MF Global is a very unfortunate event because it proves to all that there is financial anarchy everywhere. Savings accounts are at risk. Ditto for stock brokerages. There is no effective law. It is really fucking sad.
And at some point if our government won't do their very basic duty of giving us law, then citizens will take the law into their own hands. This is not a threat. This is a statement of historical observation.
Occupy the DOJ
maybe I should sell my gold maple leaves before they fall any further
I assume this is Robotrader since there is also a SilverGal running around here now
How low will gold go?
LIBOR is .28%. There is no liquidity crisis. It is already a solvency crisis. It is already being solved with trillions in free loans to losers. If you only read the turds central bankers leave on the trail like they are some kind clues to follow, you will always be wrong. We are in hyperinflation now. They are attempting to manage prices. It is killing the stock market and the economy. Gold is going strike back with a raging boner when the central bankers are done raiding sovereign gold supplies to try and put a lid on it.
The article is not about gold. It's about . . . largely . . . Greece.
I am stunned by the action in Gold and Silver today. Absolutely stunned.
Makes perfect sense to me....if you are the largest debtor of all and must print, you would engage in a bit of 'market conditioning' beforehand. Drive down the pm's and as many commodities as possible through paper sales courtesy of CME's bogus marketplace. If the Plunge Control Team can and does manipulate the stock market, why would they also not be in there manipulating commodities, albeit in the opposite direction so that Ben's 'green shower' on Wall Street does not appear to be inflationary?
Having been fully loaded and fueled, the choppers are warming up for their short trip to Manhattan...
We have drowned Greece and the EZone with liquidity. IT ISN'T WORKING!!!!!!!!!!!!!
Here is my House Oversight Committee testimony for tomorrow on the futility of trying to bail out the Eurozone Titanic.
My House Oversight Testimony on The Eurocrisis, The Fed And Implications for Taxpayershttp://confoundedinterest.wordpress.com
Appears that even the EU summitteers have fatigue and are starting to realize for all the effort and frequent flier miles, whatever new grand scheme, headline, rumor, handshake and baby kiss they do, the half-life is less than a week on propping up shaky markets. They know as well as everyone else that the only thing left is the ECB bazooka which they better fire before Greece leaves, downgrades to France and others start etc...it may already be too late.
Secondly which "defensive stocks" does one buy in a Depression...everything is going to go down and significantly ...hide in cash...even metals will be hit for margin calls and those that bought at 880 will want to take some profit...
SP500 daily chart resumes choppy downtrend. Opposite for USDX.
My long term indicators have continued to warn of USD strength and EURO weakness and these signals have increased since 2009. The overdue dollar rally should be substantial.
http://stockmarket618.wordpress.com
The fairly sharp decline reported in withholding tax receipts indicates we are entering (or have already) a recession in the U.S. This drop is one of the best leading indicators of recessions. Discretionary income is whacked, retail spending falls, spending on a sundry services, ditto, and the budget deficit swells.
The biggest debtor expands its debt and the compulsion to print becomes overwhelming.
Clearly the Feds are manipulating pm and commodity prices via the bogus CME marketplace.
....here's a link to some withholding tax charts that are revealing: http://seekingalpha.com/article/313707-sharp-decline-in-withholding-tax-...