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"Let's Talk Markets" With Mike Krieger

Tyler Durden's picture




 

Submitted by Mike Krieger of KAM LP

Let's Talk Markets

Chaos is not dangerous until it starts to look orderly.

- Max Gunther

I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.

- Thomas Jefferson

Anyone with eyes open knows that the gangsterism of Wall Street -- financial institutions generally -- has caused severe damage to the people of the United States (and the world). And should also know that it has been doing so increasingly for over 30 years, as their power in the economy has radically increased, and with it their political power. That has set in motion a vicious cycle that has concentrated immense wealth, and with it political power, in a tiny sector of the population, a fraction of 1%, while the rest increasingly become what is sometimes called "a precariat" -- seeking to survive in a precarious existence. They also carry out these ugly activities with almost complete impunity -- not only too big to fail, but also "too big to jail."

The courageous and honorable protests underway in Wall Street should serve to bring this calamity to public attention, and to lead to dedicated efforts to overcome it and set the society on a more healthy course.

- Noam Chomsky

The Worst Generation

Anyone that has been a long time reader of mine knows that in the past year or so I have transitioned much of my writing away from financial markets and toward social and political issues.  There are several reasons for this but the primary driver is the fact that money in the bank doesn’t mean anything if we lose our freedom.  The message I have been trying to get across to leaders of business in all industries is stop making these deals with the devil in order to take one more large bonus or beat EPS for another quarter.  Your choices in pursuit of transitory wealth and status will be paid for by the loss of liberty and the tears of your children and grandchildren.  Sadly, very few in positions of power in America seem to be listening and the lack of high profile/powerful people coming out and risking their own treasure for the long-term benefit of the Constitution and sacred values of this once great nation has been shockingly disappointing.  To the so called “leaders” of America of today I send you a warning from the grave of the great Austrian economist and author of “The Road to Serfdom,” Friedrich Hayak.  You will as a class be remembered as the worst generation in American history.  A generation of leaders so filled with greed, hubris and selfishness that you sold out your nation without ever thinking twice about the tragedy that your silence would bring.  A generation that never had the guts to risk any of their power or possessions for the good of their country.  As Hayak so perfectly put it so many years ago about the rise of Nazi Germany…

The movement is, of course, deliberately planned mainly by the capitalist organizers of monopolies, and they are thus one of the main sources of this danger.  Their responsibility is not altered by the fact that their aim is not a totalitarian system but rather a sort of corporative society in which the organized industries would appear as semi-independent and self-governing estates…But while the entrepreneurs may well see their expectations borne out during a transition stage, it will not be long before they will find, as their German colleagues did, that they are no longer masters but will in every respect have to be satisfied with whatever power and emoluments the government will concede them.

- Chapter Twelve “The Totalitarians in our Midst”

So in the end you will be also be made into a serf and for what?  Was that last bonus really worth it?

Let’s Talk Markets

Ok, so as promised onto markets now.  What is happening at the moment reminds me of 2008 in every way.  We have seen tremendous inflationary pressures in the emerging world, which has now finally resulted in serious slowdowns in many nations.  The China credit bubble, mal-investment house of cards that I first warned about in mid 2009 has started to unravel in earnest and this can be seen in industrial commodity prices such as copper.  Europe is…well we all know about Europe.  So in this type of environment the optimists will always invent a story that finds a silver lining.  That’s fine, everyone is entitled to an opinion and clearly I have my own biases but I think the similarity to 2008 is what is important.  Back then the spin was decoupling.  Despite the blowup of the U.S. housing markets and it’s financial institutions, the spin back then was that the BRICs would keep growing and support the global economy.  Of course, this is not the way it turned out and those economies plunged as well, just with a lag.

Well here in late 2011 we find ourselves in a similar situation; however, this time we are led to believe that the U.S. economy is the Atlas that will hold up the world with its strong corporate balance sheets and moderate growth.  A bigger bunch of nonsense hasn’t been heard since 2008.  That said, corporate earnings have held up in the U.S. better than in many other parts of the world and for the time being this makes it look better compared to the basket case situations happening in many emerging markets and in of course Europe.  In a world where capital flies from one region or asset class to another in a split second we have seen U.S. equities vastly outperform most areas of the world this year.  For example, the S&P 500 is down only 3% this year compared to -18% for Japan, -18% for Brazil, -17% for Germany and -22% for China.  Let’s take a quick look at the Shanghai Composite.

Shanghai Composite One Year Chart


  
Not pretty, so now for the S&P 500…Looks ok doesn’t it!

There is a huge disconnect between these two charts and in fact most of the world’s markets look like China’s.  So who’s right?  I think it is pretty simple.  Capital has been hiding in dollar denominated assets, equities included.  In my opinion, this creates a huge opportunity.  That said, I think the best way to play this is not to just straight up short U.S. stocks but to long gold against it.

The Dow/Gold Ratio

I have been writing about this ratio for years saying that it would hit 1:1 by the time this massive macro cycle has run its course.  All that this ratio charts is the performance of equities in real terms (it is the Dow Industrials/Price of Gold) and it has been in a consistent downtrend since the stock market bubble popped in 2000 (it has dropped from 42 to 7.6 currently).  Within any trend there will be counter rallies and these should be seen as a gift to take advantage of.  Due to the fact that I believe markets are now consistently manipulated by the world’s central planners, it isn’t even worth the time or effort to make short term calls as it was hard enough when there was some semblance of a free market.  Nevertheless, I am also of the belief that central planners can only make markets do their bidding in the short term and that in the end markets will win.  This brings me to the current opportunity. 
   
Dow/Gold One Year Chart

This counter trend rally has now hit 32% since the mid-August low when sentiment on stocks hit a low and that for gold hit a high.  This is the biggest rally in the ratio in over two years.  Look at the RSI and see how overbought it is.  It is also testing the 200 day moving average as we speak, a level that stopped the last counter trend rally in early July.  Even if you are bullish on stocks relative to gold, this rally is extraordinarily stretched and I think people and algos will pick up on this soon enough and we will have a vicious move in the other direction.  Of course this can occur in many ways.  Stocks can rally and gold can rally more but this is not what I think suspect will happen.  I think U.S. equities will get a reality check and join in the weakness of the rest of the world’s markets.  My sense is stocks will fall and gold will generally consolidate.  I rarely see opportunities like this and that is why I decided to write about markets today.  Let’s not forget that despite the recent plunge, gold has once again outperformed stocks by more than 13% this year.  I suspect even great outperformance in 2012, when I think the Dow/Gold ratio will hit at least 5:1.  On a side note, I purchased physical gold for the first time in over a year yesterday.  I rarely do that anymore since I did most of my purchasing in 2008/2009 and I only do so when I have very high conviction that the worst is over. 

TF Metals Podcast

To conclude, I had the distinct pleasure of doing a podcast with “Turd Ferguson” of TF Metals.  Since doing this interview I have spent quite a bit of time on his site and I have to say it is a must read for anyone in the precious metals sector.  I am really pleased with how it turned out and I was able to cover some very important topics that I haven’t had a chance to in these pieces.  You can listen to it here  http://www.tfmetalsreport.com/podcast/3113/tfmr-podcast-8-mike-krieger .  I hope you enjoy!

Peace and wisdom,
Mike        

 

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Thu, 12/15/2011 - 15:50 | 1984439 mossme89
mossme89's picture

What about Silver? Would silver be dragged up by gold as well?

Thu, 12/15/2011 - 16:13 | 1984540 HedgeAccordingly
HedgeAccordingly's picture

Collateral crunch - http://hedge.ly/gFWVSm

Thu, 12/15/2011 - 17:15 | 1984850 Missiondweller
Missiondweller's picture

Hell yes

Fri, 12/16/2011 - 00:50 | 1986044 pavman
pavman's picture

Actually, the read I take on this is that gold will stay while the markets go down.  I do think silver will be dragged up to gold and eventually settle @ its historic 16:1 ratio (maybe better if this whole silver shortage turns into reality).  But the question is...will gold go higher, or everything else just tank?

I think we're about to see a new depression and gold may dip back to $900s or lower before it rockets up thanks to inflation catching up with us.  I've been waiting for the sustained dip into the $1500s to increase my gold exposure (physical) but the physical market is still mid 1600s.

We'll see...seems like lots of inflationary deflationary death spiral price action lately in real asset prices (ie food, not paper trade bs).  And that 4 Quadrillion derivative exposure is still out there in the shadows.

Historically, these type of death spirals can last up to 20 years if "policy makers" don't change their ways.  So it could be a long slow slog.

Thu, 12/15/2011 - 15:54 | 1984459 GeneMarchbanks
GeneMarchbanks's picture

This was weak with a backward looking bent to it. You'd think Mike could at least add something about hyper-hypothecation or MFG or Europe.

Thu, 12/15/2011 - 16:22 | 1984553 youLilQuantFuker
youLilQuantFuker's picture

What about copper? I would have done the complete article about copper. That is all you need to know right now.

The world is watching copper. Tune in.

Fri, 12/16/2011 - 02:02 | 1986137 sullymandias
sullymandias's picture

hypothe-yawn-ication i need a vacation.

what about palladium and platinum?

oh yeah and, BTFD phys!!!

Fri, 12/16/2011 - 02:05 | 1986141 sullymandias
sullymandias's picture

WTF a $250 premium on a platinum ounce coin?!

http://www.apmex.com/Category/304/Platinum_Eagles___1_oz2008__Prior.aspx

Thu, 12/15/2011 - 15:56 | 1984465 JPM Hater001
JPM Hater001's picture

What?  This doesnt sound like good news to me!  I thought they said everything is fine.  Just look at todays unemployment numbers.

Thu, 12/15/2011 - 15:57 | 1984472 Spastica Rex
Spastica Rex's picture

First ever Noam Chomsky quote in ZH story?

Thu, 12/15/2011 - 16:02 | 1984491 GeneMarchbanks
GeneMarchbanks's picture

Many of Mike's articles have had a Chomsky quotation. Lends the illusion of intellectual gravitas.

Thu, 12/15/2011 - 16:03 | 1984500 Spastica Rex
Spastica Rex's picture

I missed them.

Thu, 12/15/2011 - 16:19 | 1984537 vast-dom
vast-dom's picture

When Chomsky's ACTIVE and CURRENT IRA's in blue chips and other hegemonious financial positions are closed out and he quits his capitalistic funded university gig and stops getting paid by GE owned publishers for his books, then maybe, just maybe-- fuck it-- he is what he is-- and I prefer the Jefferson quote anyhow in all it's glorious simplicity.

 

So many great posts, charts, opinions, etc. on the coming Great Purge and yet here we still are levitating on hopium shit fumes.

Thu, 12/15/2011 - 16:22 | 1984569 GeneMarchbanks
GeneMarchbanks's picture

I have nothing against Chomsky. His understanding is sound while his proposed solutions can be argued either way, this isn't my beef.

Jefferson was quoted to lend credence to Mike's patriotism ;)

Thu, 12/15/2011 - 16:26 | 1984589 vast-dom
vast-dom's picture

I too have no issue with Chomsky in terms of his writings, for the most part. It's just that he's as full of shit as the next banker, in deed, though clearly not in terms of destructive potential. Too bad he doesn't conform to what he preaches and espouses. Progress, not perfection. And his self-hatred is at times painful to witness. 

Thu, 12/15/2011 - 16:30 | 1984610 Spastica Rex
Spastica Rex's picture

It's just that he's as full of shit as the next banker.

Really? How so?

Too bad he doesn't conform to what he preaches and espouses.

How do you figure that? what do you hear him preaching?

Thu, 12/15/2011 - 16:54 | 1984726 delacroix
delacroix's picture

chomsky is  a sellout, on the anthropogenic global warming issue . I guess the ptb really want it.

Thu, 12/15/2011 - 17:04 | 1984779 Spastica Rex
Spastica Rex's picture

The PTB want an end to growth based economic models?

Thu, 12/15/2011 - 18:16 | 1985179 Manthong
Manthong's picture
This is what comes to mind whenever I hear old Noam mentioned..  

“Chomsky has turned a tidy profit as a Defense Department consultant, owns two million-dollar homes, and has set up an irrevocable trust to protect his sizable fortune for his heirs.

http://www.doasisaymovie.com/images/pdfs/DoAsISay.pdf
Thu, 12/15/2011 - 16:46 | 1984661 Pegasus Muse
Pegasus Muse's picture

No illusions from Mike.  Just good quotes and sound advice.

"It is to be regretted that the rich and powerful too often bend the acts of government to their own selfish purposes." - Andrew Jackson

"You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold." - George Bernard Shaw

“You can ignore reality, but you can’t ignore the consequences of ignoring reality.” – Ayn Rand

Thu, 12/15/2011 - 16:10 | 1984528 moskov
moskov's picture

WHAT A BUNCH OF BULLSHIT.

 

US IS BETTER off the rest of the world? Why not print your fucking dollar to make S&P hits the same amount as your national debt?

Thu, 12/15/2011 - 16:10 | 1984529 Moulinex1980
Moulinex1980's picture

You can't go wrong with a bit of Chomsky in your article

Thu, 12/15/2011 - 16:16 | 1984547 TideFighter
TideFighter's picture

ZIRMP. "M" is for mortgage. All closing costs should be paid by the NAR, just so they get the numbers right.

 

Thu, 12/15/2011 - 16:18 | 1984551 hungarianboy
hungarianboy's picture

Tyler or anybody with good knowledge.

What are your toughts about Hungary and the Hungarian forint and markets regarding that Hungarian goverment nationalizes copmanies, attacked the pension system and now that they want to rule the Hungarian Central bank?

Is this good or actually bad?

 

http://www.reuters.com/article/2011/12/15/hungary-cbank-idUSL6E7NF15M20111215

 

Thanks.

Thu, 12/15/2011 - 16:28 | 1984597 GeneMarchbanks
GeneMarchbanks's picture

You are a vassal state of the IMF. Your pensioners are in major danger. Your women are gorgeous (especially in Budapest) and that is your only solace. Seek comfort in that...

Thu, 12/15/2011 - 19:29 | 1985428 Rusty_Shackleford
Rusty_Shackleford's picture

Ha!

Thu, 12/15/2011 - 16:18 | 1984555 sabra1
sabra1's picture

 "On a side note, I purchased physical gold for the first time in over a year yesterday. I rarely do that anymore since I did most of my purchasing in 2008/2009 and I only do so when I have very high conviction that the worst is over."

so. the worst is over for gold, or for the markets? does not compute (in computer voice) analyzing! analyzing!

Thu, 12/15/2011 - 16:20 | 1984559 Imminent Collapse
Imminent Collapse's picture

Quite a bit of discussion this week about the speeding up of the problems.  I wonder if the Bernanke can hold things off until 2012.  I have a bonus I need to convert to real assets while the fiat I am paid in becomes wallpaper.  Any predictions?

Thu, 12/15/2011 - 16:20 | 1984561 junkyardjack
junkyardjack's picture

Pfft, another paper trader, ignorez. You should buy gold at any price, it doesn't matter. Gold prices can only go up.  This guy should read more of the other articles on here, he'd learn a thing or two about investing in gold.

Thu, 12/15/2011 - 16:21 | 1984564 Teamtc321
Teamtc321's picture

The Greatest Speech Ever Made

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

Thu, 12/15/2011 - 16:22 | 1984571 JustObserving
JustObserving's picture

Noam Chomsky supports the official theories about the JFK assasination and the 9/11 event.  That makes him somewhat unreliable in my opinion.

 

"The smart way to keep people passive and obedient is to strictly limit the spectrum of acceptable opinion, but allow very lively debate within that spectrum."
-- Noam Chomsky

 

Thu, 12/15/2011 - 16:32 | 1984617 youLilQuantFuker
youLilQuantFuker's picture

"The smart way to keep people passive and obedient is to strictly limit the spectrum of acceptable opinion, but allow very lively debate within that spectrum."
-- Noam Chomsky

Sounds like a few website that I know of.... The American way. I guess, I don't know. America is a social engineering experiment from the boys in Britain and Isra...

Thu, 12/15/2011 - 16:37 | 1984642 sabra1
sabra1's picture

CNBCrap:

Gold Sheds 'Can't Lose' Status: Now, No One Wants It
Thu, 12/15/2011 - 17:14 | 1984844 Dr. Engali
Dr. Engali's picture

Good let them keep talking that way. It will shake out the weak longs.

Thu, 12/15/2011 - 21:43 | 1985773 Legolas
Legolas's picture

If they're talking it, then its to create their own buying opportunity for their own profiting.  Swim against the stream of the media talking heads.

Fri, 12/16/2011 - 01:16 | 1986087 chump666
chump666's picture

CNBC are dumb a-holes, like the market at he moment.  metals are selling and equities are bid?  if gold slips more, money won't go into stocks.

beginning of the liquidation trade.

Thu, 12/15/2011 - 16:50 | 1984696 illadeljim
illadeljim's picture

Outflows, inflation, panic, unrest, war. Or....printing,euphoria,risk,reality,war.

Thu, 12/15/2011 - 17:02 | 1984770 pineyard
pineyard's picture

Hi there ... MIke Krieger ... Nice to hear some sane words out of America !

I am not sure i agree totally with You on some of the Economic Stuff ...

but we are all .. as FREE MEN .. entitled to out Opinions...

But I agree entirely with Your Preamble .. !

Thu, 12/15/2011 - 17:14 | 1984841 JR
JR's picture

…money in the bank doesn’t mean anything if we lose our freedom.  The message I have been trying to get across to leaders of business in all industries is stop making these deals with the devil in order to take one more large bonus or beat EPS for another quarter.  Your choices in pursuit of transitory wealth and status will be paid for by the loss of liberty and the tears of your children and grandchildren. --  Mike Krieger

The early patriots and signers of the Declaration of Independence wanted the opportunities they had found in a new land permanently guaranteed to themselves and their descendants. The Declaration of Independence was a declaration of war…they pledged their lives to sign it and knew their plight if they failed.

We need men who will stand. The men who will stand and stand for justice will turn the tide. In his “Uncle Abner” series, Melville Davisson Post made it clear: “I saw that law and order and all the structure that civilization had builded up, rested on the sense of justice that certain men carried in their breasts, and those who possessed it not in the crisis of necessity, did not count.”

That’s what Krieger is calling out, if you have a sense of justice, that bonus is nothing compared with what you will lose.

Here is the biography of Thomas Nelson, Jr., (1838-1789), Virginia, one of the Signers of the Declaration of Independence:

“Another of the Southerners possessing great wealth was Thomas Nelson, Jr. To his honor let it be noticed that he gave his entire fortune to his country when its need became urgent, and died penniless. At one time the issuance of a two-million-dollar loan was necessary to repel the enemy from Virginia soil. This full amount Nelson raised over night by mortgaging his estates. The next day his own home was occupied by the personal staff of Cornwallis. It was at Yorktown and the Revolutionary forces were on the offensive. Nelson, who was Governor at the time, visited the firing line. Noticing that the entire neighborhood was being razed by the artillery, he inquired why it was that the fire was not directed at his own dwelling. ‘We are sparing it out of respect to you, Governor,’ replied one of the young Lees. ‘Give me the cannon,’ retorted Nelson. ‘Do this,’ he added, and he fired a ball through the house. Subsequent shots destroyed the place and forced the enemy to flee. And so it was always with Nelson—America first.”

Thu, 12/15/2011 - 17:38 | 1985000 Shizzmoney
Shizzmoney's picture

The message I have been trying to get across to leaders of business in all industries is stop making these deals with the devil in order to take one more large bonus or beat EPS for another quarter.  Your choices in pursuit of transitory wealth and status will be paid for by the loss of liberty and the tears of your children and grandchildren. 

God bless you, sir.  Yeoman's work.

Fri, 12/16/2011 - 01:59 | 1986135 Milestones
Milestones's picture

Your greenie didn't work. Agree wholeheartedly. Excellent piece of writing Mike!       Milestones

Thu, 12/15/2011 - 18:39 | 1985268 doomandbloom
doomandbloom's picture

Mike Kreiger--> useful idiot

Thu, 12/15/2011 - 22:04 | 1985821 chump666
chump666's picture

gold is going to break the sept 26 low...major liquidation trade coming.  Equities are in la la land

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