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A Strategic Alpha Preview Of 2012: Hope And Expectations

Tyler Durden's picture





 

From Maurice Pomery of Strategic Alpha

2012: HOPE AND EXPECTATIONS

Introduction

Whilst I realise that this year of 2011 has been a difficult one for many, it appears that a lot of strategists are now seeing a lot of what we forecast for the year materialise, albeit belatedly. Thus they write of impending doom for 2012 and this wave of pessimism takes a lot of strength to get through. Regular readers of my daily will however be aware that we see it as our task to start every year with hope and expectations that our elected (and in parts of Europe, non-elected) leaders will deliver us from impending peril (mostly being responsible for putting us in it in the first place) and set us on the road to recovery. What I aim to do is to try as hard as I can to maintain some of that hope and I fully expect our leaders to try to deliver but we must look at the risks to these thoughts as we are investors after all. Running a portfolio through this turbulent forthcoming year will be difficult and flexibility and manoeuvrability are key. We must be aware, as we invest in markets, that depth of liquidity is crucial, so that we can get out as easily as we can get in, right or wrong quickly. A lot of the risks are now known and manifest themselves in the guise of the EU sovereign and banking issues but the risks run a lot deeper than that and the common belief that the world’s woes are cured if the ECB steps up and prints money are misplaced.

However I do not want to be just another doom and gloom guy without very good reason and one of my many fears is that our central bankers are now trying an experiment (QE) that is untested or at least is questionable as to whether it can work in the modern globalised environment and who knows what the side effects will be? In the developed world we have some central banks (US FED and UK’s BoE) that endorse the programme whilst Europe and specifically the Germans do not (as they have seen and lived through the consequences), for good reason. So rather than looking at country by country specifics and economics, I want to deal with the list of risks we know are apparent this year and comment on the ones we know and suggest a few we do not. My hope is that none or very few will occur but driving on this freeway we need advanced warnings of bad weather ahead. My greatest hope is that we shall learn from these lessons and rebuild a stronger and more efficient system as in my view the system is close to breaking.

Capitalism in its truest form requires failure to be replaced by a stronger system; that is how it works and has since time immemorial. Without the allowance of failure we end up with a system that is dysfunctional and I think we may be close to realising this but we need the strength of leadership to allow it to break and rebuild, no matter how painful. Sometimes safeguarding the status quo or a broken engine comes back to bite you even harder in the future. Not since the Second World War have we required such strong political leadership but politics can get in the way and you will see that this is one of the biggest risks to recovery out there right across the developed world.

Growth

I cannot think of any bigger subject to start this piece with than that of growth. In fact it is central to many other risks out there as I will explain as we go through this. Of course we still have quite a disconnect between growth expectations in the developed world from that of the emerging Nations and exporters but in this global village in which we now live, it will affect all eventually.

In the developed world we are trying, rather poorly, to deal with a massive debt crisis and the medicine prescribed is one of severe austerity measures to cut spending. Actually the idea of cutting the deficits is a bit of a misnomer as what we will see for many years is just a slowing of the speed of the rise. The problem is we have sovereign, banking and household debt and austerity measures always come with higher unemployment as cuts to public sector spending are par for the course because that is all the government has. Some politicians believed the private sector could take up the slack but this is ridiculous as the very austerity measures help create the slowdown in growth and loss of confidence; they always do. This is an effect that is impossible for politicians to gloss over and they need to be honest about what is needed to get us back on a sound, sustainable footing. Hardship and recession are just about nailed on to 2012 in my view as we need to change the way we live and most will be fighting and kicking against that all the way. It usually takes extremes to achieve this but we have seen it before, unfortunately during and after wars. Debt is a curse in our society and it has to be eradicated. The problem is the cost is lower growth, deep recessions and long-term high unemployment. It is tough for a political leader to ride on that ticket.

So if we look at the other risks out there, they all come with associated risk to growth. We have austerity measures which I have mentioned, we have deleveraging at sovereign, banking and household level as debt is shed. We have the banking crisis in Europe with its interlinked tentacles to the world’s banks, some of which may fail. We have depressed housing markets in the developed world and rapidly rising real unemployment levels as the banks refuse to lend and demand is weak. We have small and medium sized businesses (essential to any form of sustainable growth) afraid to take risks and expand or employ as the costs and risks are too high. We have almost record lows for consumer confidence in many parts of the developed world and youth unemployment across Europe and indeed the US will see many disaffected hit the streets with civil unrest commonplace. ALL of this is bad for growth and the politicians seem rather distracted with their own survival. But it gets worse as benefits must surely be cut too and in the US they already have about 46mln on food stamps and the real unemployment rate is closer to 14% than 8.6% in my view. Not only have we been piling up the debt in the developed world, we have been offering promises of benefits to a wider portion of the electorate in return for votes. Every new government comes to power on the promise of spending more. This has got to stop. Governments don’t earn any money; they can only borrow it or tax.

In the UK recently the public sector was bigger than the private sector which is total nuts! The public sector creates no wealth, it is just a cost. Did no one realise this? Give me strength but this is a clear indication of how wrong the system is. Are governments ever going to be strong enough to stop this? Creating in an environment where not working is rewarded or “cost effective” is wrong and creates a worrying precedent that is hard to break. The US, like other nations will find it very difficult to reverse long-term unemployment (as they are now experiencing) whilst the benefit system is as it is. That, along with Medicare or the likes of the National Health system in the UK are bottomless pits, as we have not seen a government yet willing to even mention cutting funding to what is now clearly a bottomless pit for tax receipts. Politicians want power and few will last if they make a stand. I am afraid it may take a massive crisis to allow us to force change.

Deleveraging

Again some apologies to my regular subscribers for pushing this subject again but it needs to be covered as it could be the greatest threat to countries, politicians and the global economy out there. As I have mentioned, there is deleveraging at country, banking and household levels, as all are forced to shed debt, whether due to regulation, ratings or simply maxing out on credit. Debt reduction is clearly being tackled but there is no consensus on the most effective way of doing so. The UK for instance has embarked on a mission to try and reduce the rise of the deficit with some tough spending cuts and austerity measures. This has placated the rating agencies for now but is hitting growth. Europe has a massive issue with debt and in some countries they seem to have even abandoned democracy in an effort to drive down debt. In the US though, the fight has not even really started and probably won’t start in earnest until after the election at the end of 2012. This is a nightmare as their debt will continue to rise fast, leaving the medicine almost too strong to take. I believe the US may lose its Aaa rating at other agencies this coming year!

Banks are being forced to shed debt as regulations force a rebuild of capital and balance sheets. This may yet get put back for a while as many suggest that the deadline for June simply cannot be met. There may be some sort of compromise from the regulators but it would be wrong morally to do so. We will therefore see a race to strip and sell assets, banks will hold onto cash at all costs and thus the credit drought will continue. We are in the midst of a joint cycle slowdown in both the credit cycle and the business cycle and we should all be worried about that. Banks in Europe are taking as much as they can from the ECB (LTRO) and then depositing it straight back to them. They have no intention of lending; not even to other banks! This they do with the full knowledge that it actually costs them money to do so! They are not even taking the cheap money and buying Italian bonds as many suspected they would. Talk about afraid. The banks are a massive threat to all and the system is certainly cracked and the interconnectivity consequences are scary. Why would banks borrow at 1% and deposit at 0.25% unless they had to? If alarm bells weren’t ringing about the risks here then they should be. I believe 2012 will either see a massive rescue of a major bank (probably a European but not necessarily) or the failure of one. To my mind the system probably needs it, painful as it will be. At some point very soon the sovereigns, banks and households will be forced to change the habits of debt and overspending. THAT will kill growth for a long time.

It is likely to be the banks that force the solution in a strange way as a bank failure would create the environment for radical change. Change like dramatically privatising corporations and slashing costs in the public sector to balance the books. Getting the ECB step up and change its mandate or print itself out of the crisis. The problem here of course is well documented and it is the Germans attitude to this for good reason as we suggested earlier. The problem here and indeed for the Fed and the BoE is whether this is sound economics. As I said at the start, this QE vehicle is still an experiment and the Germans and a few others (me included) are concerned that rampant inflation may be the bye-product at some point.

QE

This is where I see the problem hiding for the US at some point and possibly the UK as well. The issue is that all that has been done with QE is to fund the banks as it is clear they have taken that money and hoarded it. I see little evidence in the data that it is helping unemployment or indeed housing for that matter. QE may have initially stopped the depression but possibly has only delayed it. It also appears that both King and Bernanke at some point soon will give them billions more. The problem comes when that money is actually released into the system and finds its way into the bloodstream of the economy. It will immediately lose its value and stores of value will be sort as faith in the Dollar or paper money in general, disappears. The central bankers that believe in the Keynesian policy are building a dam that I am afraid will burst as inflation drowns us in a sea of worthless money. That is why the Germans fear it so much. Quite what the alternatives are (such as backing money with gold again) is unclear but money backed by debt in this age seems rather ridiculous and dangerous in the extreme. My fear is that the ECB will be press-ganged into printing and who knows where Bernanke and King will stop, especially if we get the head-fake I think we will in the form of deflation first. This will distract them all but from the embers of deflation comes the threat that is hyper-inflation and this is not being too dramatic. Many see the US recovering slightly as sell-side data is bolstered by inventory rebuild but things are not sustainable.

However on the subject of QE or printing money, what does concern me is that Japan is not in more focus. Things in Japan have seemingly been so bad for so long that no one takes much notice. They should as they are the third largest economy in the world. Unfortunately Japan's marketable public debt is already the largest in the world at $11.2 trillion compared to America's $10 trillion. As the brilliant Zero Hedge guys pointed out; if you look at the upcoming issuance, Japan is about to issue more than it receives in tax receipts meaning that new bond sales will exceed tax revenue for a fourth year! How can this go on? They are literally flooding the system with money which is a massive concern as the locals take up most of it. It is fast becoming worthless at home. Japan is involved in a giant Ponzi scheme that when realised will see yields soar. Their debt is simply enormous and they keep printing to meet budgets. Remember that Italy went from stable to garbage when interest rates went from 5 to 6%. Japan will fall apart if rates go to 2%. 2012 may well be a tough year for Japan as time is running out. WHAT IF QE DOESN’T WORK OVER TIME? On top of the new and re-financing needs, the Japanese government estimated that the economy will shrink 0.1% this fiscal year citing supply-chain disruptions from the earthquake and tsunami disaster in March, the strengthening of the yen and the European debt crisis. So what happens if Japan gets downgraded? S&P have threatened as much. Things could get a lot worse in Japan if that happens.

Of course there is another danger with capitalism in its truest form. Not only do you need failure but you need free markets and again I fear the heavy hand of central planning will try and manipulate markets with bans, regulation and all sorts as they try and blame the ruthless speculator for all their own errors. My fear is the Fed is still geared to the needs of the banks than the greater good of the economy and that politics, especially with gridlock in Washington for another year, will fail to grasp the nettle and act in a timely manner.

Risk

"The only thing we have to fear is fear itself - nameless, unreasoning, unjustified, terror which paralyzes needed efforts to convert retreat into advance." FDR - First Inaugural Address, March 4, 1933. We need to put this statement, as great as it was insightful, into the context of the times as it may be something we will be facing soon in our times as pessimism over the future grows. FDR was actually looking back and trying to pick up the pieces and drive citizens out of their gloomy outlooks as he knew that in crisis, consumer confidence matters. This is something I have been banging on about for a while now. One thing the politicians are trying to combat is a loss of faith or fear itself. "One of the things which danger does to you after a time is -, well, to kill emotion. I don't think I shall ever feel anything again except fear. None of us can hate anymore - or love."- Graham Greene - The Confidential Agent (1939). Again look at the date! I am trying not to be too gloomy but at a point the populous become aware and the truth is exposed and this is generally brought about by continuously rising unemployment or conflict. Depression or war. How do politicians continue to get consumers and indeed businesses to take risks and expand? Reduce the tax burden is one way but the risks are believed to be lower tax revenues when they are needed most. This is the dilemma facing the hamstrung coalition in the UK. They want austerity measures and growth. That does not compute. What it needs is a political leap of faith that suggests that in the long-term tax receipts will increase if they cut corporate tax and NI costs to small and medium sized businesses in order to stimulate growth and employment. To remove the fear they need to offer hope.

Risk is being frowned upon and those responsible for where we are point the finger at the markets. This is a big mistake as if you take away speculators you take away free, deep liquidity markets. Risk is good in other words. But where is the political will to make a true difference, rather than trying for just another session of power. Where are the politicians who believe in the best for their country and its citizens? Only those who dare to fail greatly can ever achieve greatly. ~Robert F. Kennedy.

In my mind it is time to offer free enterprise its greatest opportunity as it is here where the real recovery resides, not in the future of the next resident in the White House as “times they are a changing”. So here is the quote that highlights this best for our times now; Politics, it seems to me, for years, or all too long, has been concerned with right or left instead of right or wrong.  ~Richard Armour. Politicians need to change as much as the banks do as they are part of the risk out there. They are certainly not helping.

In Summary

Obviously I am extremely concerned with the risks out there and the part that our leaders play in all this in an effort to stay in power but the central banks are now so stressed, they are taking unknown risks as well. Something is obviously very wrong and the system is close to breakdown. It is fixable but will take a lot of political will and strength or possibly a coordinated move form a forum like the G20. The other problem I have is that to get action it seems the crisis needs to deepen further which is a major concern as most nations are still looking inward and are in all senses of the word, protecting their own. This is clear in the EU zone and is also showing up on the global stage. I fear that to get real change, we may have to see another major crisis, either banking, Sovereign or geo-political, to get anything real in place.

I am not convinced that QE works and it is evident that the impact is waning. Quite what the side effects are is unclear but looking at the maths, I suggest we are building an inherent risk of hyper-inflation in coming years as we continue to kick the debt can down the road. This problem may not be faced by current government but at some point it will. The longer the delay the greater the risk and collateral damage. Politicians come and go and for good reason. “Politicians and diapers should be changed frequently and all for the same reason”. ~José Maria de Eça de Queiroz. However whilst in power, every now and again throughout history, some are forced to take up the challenge for the country over and above himself or the political goal. This time is now so choose your next leaders wisely and reject coalitions that offer little more than compromise.

The EU is still a massive risk to the global economy but so is political inaction, over- regulated or manipulated markets, high unemployment and geo-political shifts. QE is a concern as central banks abandon inflation targeting and indeed growth to maintain ratings. The EU is still throwing liquidity at a solvency crisis at both sovereign and banking level. EU banks not only have a cash problem, more specifically, as ECB President Mario Draghi says : "hoarding at the ECB signals that the problem afflicting the Euro-zone is not so much about the amount of liquidity but that this liquidity is not circulating around the region's banks". I am not surprised as they all know that each has a similar or worse problem sitting in the vaults.

In the first throes of the new deflationary cycle the Dollar will do well, as the fight intensifies and the US uses the Dollar as a monetary tool and prints more Dollars, it will fall precipitously. Correlations will break this year and many of the “relative value” trades will implode. Gold will break away from being pressured by a strong Dollar as the hunt for alternatives to Fiat currency explode. The likes of the AUD will fall steeply as the global growth story rolls over as we have suggested for a long time. But it is China that holds the key. Hard or soft landing is the question. Can they really have a soft landing if the developed world implodes? No chance.

 


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Wed, 12/28/2011 - 14:53 | Link to Comment JPM Hater001
JPM Hater001's picture

So I gather you think things are in trouble...

I'll buy that for a dollar.

Wed, 12/28/2011 - 15:04 | Link to Comment PAPA ROACH
PAPA ROACH's picture

And that's about all a dollar buys these days too...

 

Wed, 12/28/2011 - 15:42 | Link to Comment GiantVampireSqu...
GiantVampireSquid vs OWS UFC 2012's picture

My trust in the monetary system has gone.  It has been destroyed by the manipulation of the market, the unsustainability of the debt, and the unwillingness of the powerful in society to see the need for change.

My investment stratagey revolves around building a business that is able to function independent of the monetary system, dealing in real goods that I can supply and in return recieve something of equal value.  Money is not and has never been a commodity, and has no worth, except that which we choose to give it.  Money can do no work, where then did we get the idea that money can make money?  Money is a measure and is only useful to quantify the value of labour and resources.

Simply put:- "Looking at current developments on many fronts.  The world will never again recover, because amongst the powerful of society morals, ethics and standards don't prevail"

Wed, 12/28/2011 - 16:00 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Giant Sq, you are correct. This paradigm is finished.

humpty has been dumptied and putting cracked eggshells together is not a skill currently possessed.

And WHY is everyone saying hope? Bad programming and worse dependence.

ori

/world/

 

Wed, 12/28/2011 - 16:21 | Link to Comment I think I need ...
I think I need to buy a gun's picture

over, game over,,,,,paper gold has broken 3 year and 10 year trendlines,,,,,,,,,,as they use the straight of homeruez and iran as the reason for the coming higher oil prices,,,,,,,,,,,

Wed, 12/28/2011 - 14:53 | Link to Comment Long-John-Silver
Long-John-Silver's picture

BOOM!

Wed, 12/28/2011 - 15:10 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

That would be my guess as well L-J-S.  + 1

 

I do not think that the core of our problems (debts and deficits from many corners) is being addressed by anyone.  To get our national .gov deficit down (currently 1.5 trillion give or take) would require MASSIVE cuts, real cuts.  I think we can do it!  But, there will ferocious resistance from those feeding at th trough of .gov.

Further, at all levels (including individual households) we must cut our spending and debts.  Looks like that is happening.

2012 is going to be a very bumpy year...  Get prepared!

Wed, 12/28/2011 - 15:20 | Link to Comment tarsubil
tarsubil's picture

What you describe is a heroin addict that doesn't eat anymore and is losing weight. There is nothing good about this situation. Take a look outside. Things are falling apart as we speak.

Wed, 12/28/2011 - 19:03 | Link to Comment SAT 800
SAT 800's picture

I love rolling element bearings. I just finished a job designing a 7 cylinder radial engine; all standard ball and roller bearings. Roller bearing on the crank pin no inner cage, runs on the crank pin. It's gonna be great! Just don't make any bumpy rollers, ok?

Wed, 12/28/2011 - 15:07 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

 Some people call me Mau-rice! 'Cause I speak with a pompitous of love...

 

Wed, 12/28/2011 - 15:12 | Link to Comment El Viejo
El Viejo's picture

Revealing your age there Steve.

Wed, 12/28/2011 - 15:18 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Or musical tastes maybe? I'll remind you sir, I'm an owner of the (3rd generation) iPod.

Have you read some of my other work here? Cause, it's pretty juvenile...

Wed, 12/28/2011 - 15:22 | Link to Comment El Viejo
El Viejo's picture

Ha!

Yup this place brings out my second childhood also, mostly when doing battle with Tech Ticker refugees.

Thinkin about one of those cell phones with the big numbers. I get enough of technology at work.

Wed, 12/28/2011 - 14:55 | Link to Comment fonzanoon
fonzanoon's picture

"Gold will break away from being pressured by a strong Dollar as the hunt for alternatives to Fiat currency explode. The likes of the AUD will fall steeply as the global growth story rolls over as we have suggested for a long time".

Would'nt the AUD actually hold up due to the fact that it is actually a currency that could be backed by gold?

Wed, 12/28/2011 - 19:05 | Link to Comment SAT 800
SAT 800's picture

Don't take it seriously. There are no FX gurus. None. Australia has a LOT going for it; There's no particular reason to pay any attention to this prediction.

Wed, 12/28/2011 - 14:59 | Link to Comment lolmao500
lolmao500's picture

Uh oh :

Saudi Arabia says will produce more oil of Iran supply cut (Haaretz)

And in the LOL and truth department :

Russia Slams US for Its Human Rights Record
Wed, 12/28/2011 - 15:09 | Link to Comment El Viejo
El Viejo's picture

BWUHA HA HA AHAHAHAHA!!!

I guess they'll point out that Stalin was a Ukranian.

 

Wed, 12/28/2011 - 15:11 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Dzhugashvili (sp?, but about right) was from Georgia.

Wed, 12/28/2011 - 15:55 | Link to Comment El Viejo
El Viejo's picture

Oh yeah, sorry I confused his birthplace with his victims:

http://faminegenocide.com/resources/ukraine_famine.html

He starved millions of Ukrainians out of revenge for their nationalistic stance during the 'great' revolution of 1917. Hated his own mother.

Wed, 12/28/2011 - 16:06 | Link to Comment earleflorida
earleflorida's picture

the mad,... made out of steel , 'Georgian Man', killed Lenin, Trotsky, an a mere 20ml just to prove a point

talk about, 'paranoia striking deep - into the heart it creeps' -- 'unknown' quote from 60's song    

Wed, 12/28/2011 - 19:08 | Link to Comment SAT 800
SAT 800's picture

20 million Ukrainians are now furious with you. But we forgive you.

Wed, 12/28/2011 - 15:06 | Link to Comment fonzanoon
fonzanoon's picture

HOO-LEE SHIT.

Bob Pisani just said something worthwhile.

So much for the carry trade: the amount of money European banks are depositing at the ECB keeps going up: 347 billion Friday, 411 billion Monday, 452 billion today, another record. These deposits earn 0.25 percent, well below the 4-5 percent they could earn by buying sovereign bonds. IN other words, banks borrowed 489 billion euros from the ECB last week, paid 1 percent interest, and are now parking it with the ECB and getting 0.25 percent interest. They are LOSING 0.75 percent on their investment

Wed, 12/28/2011 - 15:31 | Link to Comment cossack55
cossack55's picture

Must be gubmint banks.

Wed, 12/28/2011 - 15:34 | Link to Comment CvlDobd
CvlDobd's picture

HOO LEE SHIT !

You would have known that by reading most articles here for the past few days. Why watch CNBC?

Wed, 12/28/2011 - 15:37 | Link to Comment fonzanoon
fonzanoon's picture

I did know it. I am looking eagerly for the point in time when the average shmuck who watches cnbc starts learning what has been said here forever. To me that is when the rubber meets the road and it gets interesting.

Wed, 12/28/2011 - 16:00 | Link to Comment CvlDobd
CvlDobd's picture

Fair enough.

Schmucks never get it though. Until ZH is visited as frequently as FB they never will.

Wed, 12/28/2011 - 16:55 | Link to Comment gatorengineer
gatorengineer's picture

Rumor has it there will be a fire sale on greek islands in the first quarter.....

Or perhaps they are waiting to jump on the Italian long bond auction tomorrow......

 

Wed, 12/28/2011 - 18:59 | Link to Comment steve from virginia
steve from virginia's picture

This is classic liquidity trap, seen ... everywhere. Certainly in US where liquidity heads straight to Fed accounts as reserves.

CBs keep repeating same dumb experiment over and over expecting different results.

ECB needs to put these funds back into circulation ... it's their job, what central banks do! If they feel 'uncomfortable' doing so directly they should charge banks to keep funds in reserve.

The commercial banks won't improve their balance sheets until they start making good loans. Don't tell me there is NOTHING in the Eurozone with a worthwhile return?

Wed, 12/28/2011 - 19:13 | Link to Comment SAT 800
SAT 800's picture

Problem there; been reported that the GOOD customers, major industrials are closing their accounts and moving their business to, other places. Scandnavia and Brasil have been mentioned as well as Canada.

Wed, 12/28/2011 - 15:07 | Link to Comment El Viejo
Wed, 12/28/2011 - 15:09 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

 

balzac on hope:

When a man crushed by misfortune is once able to make the fiction of a hope for himself by a series of arguments, more or less reasonable, with which he bolsters himself up to rest his head, it often happens that he is really saved. Many a man has derived energy from the confidence born of illusions. Possibly, hope is the better half of courage; indeed, the Catholic religion makes it a virtue. Hope! has it not sustained the weak, and given the fainting heart time and patience to await the chances and changes of life? Cesar resolved to confide his situation to his wife's uncle before seeking for succor elsewhere. But as he walked down the Rue Saint-Honore towards the Rue des Bourdonnais, he endured an inward anguish and distress which shook him so violently that he fancied his health was giving way. His bowels seemed on fire. It is an established fact that persons who feel through their diaphragms suffer in those parts when overtaken by misfortune, just as others whose perceptions are in their heads suffer from cerebral pains and affections. In great crises, the physical powers are attacked at the point where the individual temperament has placed the vital spark. Feeble beings have the colic. Napoleon slept. Before assailing the confidence of a life-long friendship, and breaking down all the barriers of pride and self-assurance, an honorable man must needs feel in his heart--and feel it more than once--the spur of that cruel rider, necessity. Thus it happened that Birotteau had been goaded for two days before he could bring himself to seek his uncle; it was, indeed, only family reasons which finally decided him to do so. In any state of the case, it was his duty to explain his position to the severe old ironmonger, his wife's uncle. Nevertheless, as he reached the house he felt that inward faintness which a child feels when taken to a dentist's; but this shrinking of the heart involved the whole of his life, past, present, and to come,--it was not the fugitive pain of a moment. He went slowly up the stairs.

Cesar Birotteau PtII, ChI, last para

Wed, 12/28/2011 - 15:10 | Link to Comment SheepDog-One
SheepDog-One's picture

'Hope' is what losers do.

Wed, 12/28/2011 - 15:15 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

+1 SheepDog

 

 

Merciless comment, but quite correct.  It is up to each of us to do what is necessary to protect ourselves and our families.  Sitting around and hoping ain't gonna cut.  And look how well "Hope and Change" has worked out.  If the O is re-elected, what does THAT say about all that hope 'n' change?

Wed, 12/28/2011 - 16:13 | Link to Comment SillySalesmanQu...
SillySalesmanQuestion's picture

+2 Sheepdog and DCRB, doing is what doers do...unfortunately, do nothing seem to be the mantra of most...including the politicians and sheepie...

Wed, 12/28/2011 - 15:40 | Link to Comment vast-dom
vast-dom's picture

Futurized beggary! Fuck Hope. Hope don't make much change. Things done changed and hope only made it worse.

Wed, 12/28/2011 - 19:15 | Link to Comment SAT 800
SAT 800's picture

I believe that's a George Carlin quote; "Fuck Hope"; one of my favorite people.

Wed, 12/28/2011 - 15:54 | Link to Comment LouisDega
LouisDega's picture

Anti Andy Dufresne fan club BITCHEZZZZ

Wed, 12/28/2011 - 15:11 | Link to Comment bania
bania's picture

I'm calling 2012 "The Year of the Hoarder", as in PM hoarding.

PM's are going to get kicked down all year long, may as well accumulate.

Wed, 12/28/2011 - 15:33 | Link to Comment cossack55
cossack55's picture

OK.

Then I am calling 2011 "The Year of the Whore", as in CB whores, Primary Dealer whores (and their employees, political whores).

Wed, 12/28/2011 - 15:14 | Link to Comment tahoebumsmith
tahoebumsmith's picture

Riddle me this Batman? How will piling more debt onto a debt crisis solve anything especially given the fact that the ability to pay such debt back is shrinking? You see nothing has been solved since the financial crisis began, just a cover up to buy more time before the inevitable...

Wed, 12/28/2011 - 16:19 | Link to Comment wandstrasse
wandstrasse's picture

Sure it makes no sense, but more debt is the only way to keep the world turning, because each and every $ or € is born as somebody's debt and to pay interest there must be more money loaned into existence... IT IS A PONZI SCHEME my friend. Our monetary system is exactly the same what Charles Ponzi, Bernie Cornfeld or Bernie Maddoff did. The difference is that the crooks managed to own all governments on the planet and that they will never get caught.

Wed, 12/28/2011 - 16:56 | Link to Comment gatorengineer
gatorengineer's picture

One word hyperinflation...........  Knock a zero off the bill including the entitlements.... Get it now?

Wed, 12/28/2011 - 16:57 | Link to Comment gatorengineer
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One word hyperinflation...........  Knock a zero off the bill including the entitlements.... Get it now?

Wed, 12/28/2011 - 15:18 | Link to Comment NEOSERF
NEOSERF's picture

Don't have the facts to back it up but my guess is that after the war, government spending albeit perhaps inefficiently in places, was building roads, subsidizing airlines, building power plants and generally protecting business so $1 spent might have had a multiplier or a reasonable ROI in a reasonable timeframe after the spend.  Now after spending 30 years forward (through bond issuance), we find ourselves with too much general infrastructure, a shrinking workforce to pay for it and have pushed many industries to their physical net positive limits.  Communications, airlines, healthcare, education...yes they could be improved but only with massive government inflows continuing and allowing for 10 years of losses or with the idea it will never pay back...would bet that 96% of government spending does not generate positive returns and even when they try to do good and subsidize solar, they get burned (or should I say we)...way too easy today for Congress to spend the house's money...it needs to stop and I fear it is already too late as we are adding $1T+ to the deficit every year to sustain an unsustainable way of life in all "developed countries".

Wed, 12/28/2011 - 15:19 | Link to Comment fiftybagger
fiftybagger's picture

Silver For The People Blog and YT channel are BLOWING UP

Calling all Silverbugs - check it out

http://brotherjohnf.com/

http://www.youtube.com/user/BrotherJohnF?feature=mhee

Wed, 12/28/2011 - 19:27 | Link to Comment SAT 800
SAT 800's picture

I don't usually like these internet blogs; but I liked this one because the guy is talking professional level sense about the market structure. I wouldn't be a bit surprised if today was about it for the bottom in Silver. Bearing in mind that the metals markets love double bottoms; a repeat of todays low is certainly possible, but I think the NYMEX folks pretty much accomplished their goals today.

Wed, 12/28/2011 - 15:27 | Link to Comment MrBoompi
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I always wonder about people who refuse to admit past economic deregulation caused so many of our current economic problems, while at the same time warning us of "over regulation" as part of a solution.

I see no reason why we can't overturn the Commodity Futures Modernization Act or reinstating Glass-Steagal NOW.  Surely if you are infected by a parasite the first step is to remove the parasite.  Then again, if you are the parasite and you make the laws, I'm sure doing nothing is a great remedy.

 

 

Wed, 12/28/2011 - 15:47 | Link to Comment Dr. Engali
Dr. Engali's picture

Deregulation?  Do you really and trully believe that there has been any deregulation? The problem is and always has been the federal reserve and the moral hazard it brings with it. Had they not started bailing out companies such as Long Term Capital Management we wouldn't be in this mess. LTCM should have been allowed to fail. Instead the message was" take on more risk we the fed will back you up". Deregulation....that's the dumbest thing I've ever heard. This is the most regulated industry out there....unless you're deemed to big to fail. Then regulation doesn't mean shit.

Wed, 12/28/2011 - 16:25 | Link to Comment rosiescenario
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The SEC gives the appearance that there is regulation.....we would be better off without them....People need to assume they are about to be screwed and do their own dd on investments.

Wed, 12/28/2011 - 16:32 | Link to Comment Dr. Engali
Dr. Engali's picture

Regulation has been and always will be for the benefit of large companies. It is not nor will it ever be for the small companies or individual.  Large companies already have a fleet of accountants and lawyers. Plus any fine they pay is a slap on the wrist. But if you are a small to medium company those fines can kill you.

Wed, 12/28/2011 - 15:33 | Link to Comment kelpie-capital
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Australia loses its shine as its own consumer debt/housing bubble finally comes to light. House prices as a multiple of income are way too high and given the lack of constraints on land – they are setting themselves up for a fall. Sentiment is resolutely bullish, everyone believes the banks are in great shape, they are perceived to be insulated from the problems in the rest of the developed world. There is a lot of carry trade money that could potentially have to unwind.

To me, they are incredibly sensitive to, and resolutely unprepared for, a slowdown in Chinese growth. I think the housing bubble pops, the Aussie Dollar suffers, rates plummet, the banks hit hard times and the infatuation ends. Their 2012 is our 2008.

 

http://kelpie-capital.com/2011/12/22/2012-outlook-predictions/

Wed, 12/28/2011 - 15:34 | Link to Comment persu
persu's picture

so all gold lovers....economy fucked and PM south? what the hell? conspiracy does not work. I have gone back to main stream after reading all your stupid stories of the end of the world. I bet you hope also I am right at the end

Wed, 12/28/2011 - 15:48 | Link to Comment firstdivision
firstdivision's picture

It's really quite simple.  Dollar up, metals down.  Dollar down, metals up.  This correlation will have a complete breakdown when the US defaults on its debts.  Til then, this correlation holds up.  Good luck making informative decisions from Marketwatch.com

Wed, 12/28/2011 - 16:28 | Link to Comment rosiescenario
rosiescenario's picture

The grass is greener......if you hold Euros the dollar looks like a safe haven.....if you hold dollars and have watched our Feds in action, then pm's look pretty green....if you hold pm's, then I do not know what would appear to be better....maybe guns & ammo???

Wed, 12/28/2011 - 15:51 | Link to Comment Dr. Engali
Dr. Engali's picture

Remind me again what the 10 year return is for gold....and the S&P. How about the 10 year buying power of the dollar?

Wed, 12/28/2011 - 15:54 | Link to Comment vato poco
vato poco's picture

Well, best of luck with that, Persu. Hey, apropos of nothing....you got home/auto/fire/life insurance? You do? Why?

Wed, 12/28/2011 - 16:05 | Link to Comment High Plains Drifter
High Plains Drifter's picture

pigs always return to their slop. because that is all they know........

Wed, 12/28/2011 - 19:31 | Link to Comment SAT 800
SAT 800's picture

Well, don't let the door hit you in the ass on the way out, as I told my old lady in California. Happy trails to ya.

Wed, 12/28/2011 - 15:48 | Link to Comment Thinkor
Thinkor's picture

This is not a very good article.  I tried to read it, but it is too boring.

 

Wed, 12/28/2011 - 15:48 | Link to Comment firstdivision
firstdivision's picture

10Y is off to the races to reach negative yields.

Wed, 12/28/2011 - 15:53 | Link to Comment TheSilverJournal
TheSilverJournal's picture

All it takes is five minutes of research to realize the US is broke. How do so many not understand this?

The US brings in $2.2T and has promises to pay $100T. HELLO!?!? All of those genius "economists" out there can't figure out that a a promise to pay almost 50 X revenue just isn't going to happen.

That would be like if you earned $22,000 / year and had promise to pay someone $1,000,000...it just ain't going to happen.

TheSilverJournal.com

Wed, 12/28/2011 - 16:24 | Link to Comment Thinkor
Thinkor's picture

As the President (Prime Minister?) of Luxembourg said, we all know what to do, we just don't know how to get reelected if we do it.

 

Wed, 12/28/2011 - 16:32 | Link to Comment rosiescenario
rosiescenario's picture

....and then all you need to know is the answer to this question:

 

Who benefits most from inflation....the debtor or the creditor?

 

Not very difficult, but based upon the % of the population owning pm's, it would appear very few grasp this simple truth....perhaps they are hoping things will return to what they once thought of as 'normal'.

Wed, 12/28/2011 - 17:03 | Link to Comment TheSilverJournal
TheSilverJournal's picture

The largest debtor of the world ensures inflation because the only way they can pay the exponentially increasing debts now is by printing. If printing stops the US goes bust..if rates are kept ultra low there will be hyperinflation. 

TheSilverJournal.com

Wed, 12/28/2011 - 15:56 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

Hmmmmmm...... EURUSD and silver diving off a cliff today and all TD comes up with are these long boring pie-in-the-sky predictions of the future.

 

Wed, 12/28/2011 - 16:33 | Link to Comment WonderDawg
WonderDawg's picture

Shhhhhhh... If you ignore it, it will go away.

Wed, 12/28/2011 - 16:00 | Link to Comment Snakeeyes
Snakeeyes's picture

Like it or not, the pattern of initial jobless claims is favorable. Which is a positive sign. Even the housing coma patient is flickering it's eyes.

Initial Jobless Claims and Pending Home Sales - A Preview for Tomorrow

http://confoundedinterest.wordpress.com/2011/12/28/initial-jobless-claims-and-pending-home-sales-a-preview-for-tomorrow/

Wed, 12/28/2011 - 17:53 | Link to Comment lotsoffun
lotsoffun's picture

well yes - your name is snake eyes.  who do you swallow next?  nice.  you believe any of that?  jobs up?  i gave back my santa suit yesterday.  now i'm unemployed again.

housing?  are you joking?

 

Wed, 12/28/2011 - 16:00 | Link to Comment Whatta
Whatta's picture

anyone buying silver now?

I just added a roll of 1 oz. Eagles to my Fun Money collection.

Wed, 12/28/2011 - 19:40 | Link to Comment SAT 800
SAT 800's picture

This morning. I liked the price.

Wed, 12/28/2011 - 16:02 | Link to Comment Steel_Preacher
Steel_Preacher's picture

BTFD, Gotta run to the coin shop and gun store, bbiaf.

 

Wed, 12/28/2011 - 16:07 | Link to Comment ZeroAffect
ZeroAffect's picture

Something is obviously very wrong and the system is close to breakdown.

MISSION almost ACCOMPLISHED!!!

Wed, 12/28/2011 - 16:08 | Link to Comment HarryM
HarryM's picture

This is smack-on, but alot of it is probably beyond the 2012 election.

Will be one of the most important elections in the history of this country.

The 46 million Americans on support will vote Obama.

Since foreign policy is a weak spot for Ron Paul, he needs to LOUDLY repeat that he is not in favor of war , but will do so if Congress decides.

 

 

Wed, 12/28/2011 - 16:14 | Link to Comment HarryM
HarryM's picture

My grandparents lived through the hyper inflation in Germany.

They swore by real estate.

Wed, 12/28/2011 - 16:33 | Link to Comment ZeroAffect
ZeroAffect's picture

My forecast for a very significant event is after the US election and IMO will be on or about Spring Solstice - 2013.

 

Wed, 12/28/2011 - 16:08 | Link to Comment s2man
s2man's picture

Well written, and a good summary of our problems. 

Yet I tire of all the of the analysis and prognostication.  Someone, please page me when the first domino topples.

Wed, 12/28/2011 - 16:25 | Link to Comment Whatta
Whatta's picture

Yeah, cankicking the naysaying into yet another New Year is tiresome.

Maybe 2013 will be when it All Comes Tumbling Down. LOL.

Until then, I invest fiat, exchange some fiat for silver, and buy farm animals and equipment for fun and (possibly) survival!!

Wed, 12/28/2011 - 16:14 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Our future may be bright. Nuclear bright 

Wed, 12/28/2011 - 16:26 | Link to Comment Meremortal
Meremortal's picture

There's only one problem with most of these articles. They point out that govts caused the problems and then demand that govts solve them.

When was the last time govt solved this type of problem?

The more govts fail the more we ask of them.  

Wed, 12/28/2011 - 16:49 | Link to Comment tony bonn
tony bonn's picture

"...I fully expect our leaders to try to deliver ..."

please write me for your free dunce cap - all postage paid..

Wed, 12/28/2011 - 17:04 | Link to Comment SaveTheGreenback
SaveTheGreenback's picture

Best performing equity in my portofolio...DG

 

Worst peforming "equity" in my portfolio...AGQ

 

2012 will be the reversal...AGQ to the moon

Wed, 12/28/2011 - 17:06 | Link to Comment SaveTheGreenback
SaveTheGreenback's picture

Then when the paper starts to burn....convert to physical....

 

 

Wed, 12/28/2011 - 17:10 | Link to Comment Georgesblog
Georgesblog's picture

We have to have hope to continue to function. We must also take care that our hope is not held in denial. If we ignore the severity of the debt load ande the history of fiat currencies, our hope is not hope, but delusion.

http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/

Wed, 12/28/2011 - 17:46 | Link to Comment ShoeShineBoy
ShoeShineBoy's picture

 well let's be honest, all good and right however, are they tradable? I highly doubt it. Any doubt? look no further than garbage US treasuries, USD, US mortgages etc, etc.. we all know where all should be, yet, not tradable, in the short run, unless you want to lose your shirts along the way. I am not bashing noone, just saying, in case one misses the point, trading is different than underlyings..

 take one, for instance, Japanese bonds going to 2% anytime soon? In a country where the CB is relentlessly buying ETFs and what have you, along with those said govies, and where the very same govies hold and bought mostly by (read: more than 90%) the locals, I doubt that Japan will go through the same path Italy is going through. Plausible? yes, very much, indeed, but anytime, soon? i doubt, it. If you wanna put a fat-tailhedge, go all for it, but, I would not put even 2% of my wealth into it. That crazy ETF buying CB would not mind to buy trillions of Japanese bonds, in my view, especially in a country where people have nationalistic views much higher than any Western country you might possibly imagine.. 

 

by the same token, look USD or US govies, while most of us know that they are nothing but junk, especially those 30-yr widow-makers, some would argue they are great investments.. go figure..

 

So, my point is, make sure to discern tradable versus fundementals/investments.. we all know the fine distinction.

 

my 0,02 cents

 

 

Wed, 12/28/2011 - 19:43 | Link to Comment SAT 800
SAT 800's picture

Markets follow fundmentals like a gang plow follows prayers. If you want to trade anything you better be looking at the charts not the fundamentals.

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