Financial circles in Hong Kong are buzzing today on the new Goldman Sachs projection that gold may drop below $1,000 an ounce. The central thess: since the US economy is out of the woods, there’s no longer a need for gold as a risk hedge. But as one senior-level manager at a major investment bank noted, "Nobody knows what the f**k is going on..." However, this mentality entirely misses the point of precious metals. When the hopes and dreams of the entire global financial system rest on the lies of politicians, the whims of central bankers, and the mountains of debt they have all accumulated, things could turn on a dime... tomorrow. Gold is an insurance policy. It’s a form of money that you might never need to use. But should that need ever arise, you’ll be so much better off for owning it.
Just how will your great-grandchildren preserve their wealth - or are they stockpiling condoms and gasoline now?
It seems this morning's trial balloon has set the gamblers off as PaddyPower shows that the probability of Larry Summers becoming the next Fed Chair has soared to over 85%. Just six short weeks ago Summers was a long-shot 20% probability and Yellen the shoe-in at 75%. In the meantime, despite over 300 economists putting pen to paper to demand more of the same monetary policy that has not worked; Summers is now more probable that Yellen was at the start. Of course, given today's reaction, traders may start to position for the seemingly inevitable though we suspect that - as usual - we will be told that stocks near their highs are already discounting this and any other potential change.
Following this morning's miss on retail sales and plunge in consumer confidence, Bloomberg's Rich Yamarone points out that retailers remain anxious about the outlook as they see consumers cautious and expect a spending slowdown. The following quotes from some of the largest and most belwether names may help shed some light on the reality of the hope that is priced into markets about consumption relative to actual business expectations... perhaps best summed by Sealed Air's CEO, "we are in the fourth year of the recovery and it doesn’t feel like a recovery. Because it’s the first time ever that things, four years within a recovery, are feeling so iffy."
Even as the popular press if focused on the 5 year anniversary of Lehman, we decided to go back double that period, and take a look at what happened to the developed world economy in the past decade, starting with 2003. What we found was interesting.
Much to the amazement of doom-and-gloomers, everything's been fixed and as a result, everything's great. The list is impressive: China: fixed. Japan: fixed. Europe: fixed. U.S. healthcare: fixed. Africa: fixed. Mideast: well, not fixed, but no worse than a month ago, and that qualifies as fixed. Doom and gloomers have been wrong, just like Paul Krugman said. The solution to every problem is at hand: create more money and credit, in ever larger sums, until a tsunami of cash washes away all difficulties. Let's scroll through a brief summary of everything that's been fixed.
A month ago, when we quoted an independent expert that "TEPCO has lost control of Fukushima" many took offense, despite all signs to the contrary. Perhaps the skeptics will reevaluate their position following today's news reported by AFP, which cited Kazuhiko Yamashita, who holds the executive-level title of "fellow" at Tokyo Electric Power, who finally admitted what those not mired in prejudice about the state of nuclear energy refuse to accept, that the nuclear plant was "not under control." This promptly led to the government, which last weekend learned it would host the 2020 Olympics and promised that Fukushima would not be a concern by then, to scramble and "reassure people on Friday that they have a lid on Fukushima." Unfortunately, the lies, like the radiation in the plant, are now finally seeping through and more are becoming fully aware of just how serious the catastrophe truly is, and drove yet another steak through the heart of the official narrative by Prime Minister Abe as they "flatly contradict" his assurances.
Portuguese and Italian sovereign bond spreads have risen for four weeks in a row now (with Portugal +29bps this week alone and near 2013 wides) but the close today was unusual in its agression. Portugal had been blowing wider since yesterday, but minutes before the close today, Spain and Italy were slammed higher in yield/spread and lower in price (BMPS unwinding?) Of course European stocks didn't care - Greece up 5.6% on the week, Spain +3.3%, Italy +3%... "fixed"
Anyone else get a sense of deja vu? Following CBOE's fail this morning, now BATS and NASDAQ have declared self-help against the CBOE...
- *CBOE HAS NO FURTHER COMMENTS REGARDING ITS COMPUTER SYSTEMS
- *CBOE INVESTING CURRENT DIFFICULTIES, SPOKESPERSON SAYS
As of 10:02AM CT, *CBOE’S C2 AND CBSX HAS HALTED TRADING
Still paying your 2-and-20, despite Stanley Druckenmiller's surprise that you would, for someone to pick stocks for you? Perhaps a glance at the following 3 charts will awaken the animal investing spirits in some (or just a 'fold' from many). This is what happens when there is only one economic market-driving factor (cough Fed cough) and too many coat-tail-clinging hedge fund managers (and newsletter writers) chasing too few real alpha opportunities. The correlation between the S&P 500 and hedge fund returns has never been higher and is approaching 1, excess return (alpha) is near its all-time lows, and, sadly, there is an extremely high correlation between styles and tilts. All your hedge fund alpha are belong to Ben.
This is the first consecutive monthly drop in 14 months and the largest miss vs expectations on record. Printing at 76.8 (against an expectation of 82.0), this is the lowest in 5 months and points to the picture we have been painting of a consumer increasingly affected by rising rates and soaring gas prices amid stagnant incomes. As Citi notes below, this is the exact same pattern we have seen play out in the last 2 cycles and suggest significant downside risk to US equities. The economic outlook sub-index collapsed to its lowest since January.
Sept. 11, 2013, marked the anniversary of the attack on the U.S. Consulate in Benghazi, Libya, that left four U.S. diplomatic employees - including Ambassador Chris Stevens - dead. The anniversary saw new attacks in the eastern Libyan city, this one against a Libyan Foreign Ministry building (and this morning's awful attack in Afghanistan). The anniversary and recent attacks prompt a look at how the security situation in Benghazi has evolved over the past year, and at how the United States has tackled security issues worldwide since the consulate attack.
No surprises here: Silver and Gold are the best, Banks and Greece - worst.
For those interested in seeing a standout example of the resource misallocation resulting from 5 years (and running) of central planning, we present the following pair of data sets: restaurant workers, which in August just hit an all time high of 10.4 million, and restaurant retail sales, which moments ago we found continued to slow on a year over year basis, and at this pace in a few months, will postits first Y/Y decline since early 2010.