Marc Faber Previews Q2, Is Long Japan, Cautious The US And Gold, And Sees A 5-10% Increase In InflationSubmitted by Tyler Durden on 04/02/2012 14:17 -0400
Mark Faber was on Bloomberg TV earlier, presenting his latest outlook on markets and the economy, but first he summarizes 2011's first quarter which as repeatedly observed here before has so far been a mirror image of 2012, with the only different that while it ran up on 2010's QE2 back then, now it has surged on the transitory flow (not stock) impact of two back to back $1.3 trillion LTROs. "I think that if you look back at a year ago we made a peak of 1370 on S&P on May 4 and then dropped sharply to 1074 on October 4. Then we recaptured the lows in November and December. Since then, the first quarter has been very powerful and has surprised investors because of its strong performance. And I think now the expectations are very high. The market is no longer oversold the way it was in December. And everybody thinks that the race is on, go along with equities, the hedge funds have positioned themselves on the long side and optimism is high. I would be very careful at this stage." As for his outlook, he is "reluctant to short" in a money-printing environment, believes that Japan will provide the best equity futures returns (more easing from the BOJ appears imminent), is confident margins will roll over (as they already have) on the back of record for this time of year input costs, and thus thinks earnings will disappoint, sees inflation running 5-10% more than a year earlier, and is still accumulating gold every month. Overall, mostly as expected from the pony-tailed one.
We all know there is no shortcut to anything worth having--mastery, security, wealth-- yet all we have in America is another useless, doomed shortcut. Insolvency is scale-invariant, meaning that being unable to live within your means leads to insolvency for households, towns, corporations, states and national governments. There is no shortcut to living within one's means. Expenses must align with revenues or the debt taken on to fill the gap will eventually bankrupt the entity--even an Empire. We know this, but all we have in America is the shortcut of borrowing more to fill the gap between revenues and expenses. The Federal government is borrowing a staggering 40% of its budget this year--and it has done so for the past three years. Despite all the fantastic predictions of future solvency, the cold reality is that no plausible level of "growth" will close the gap: either expenses must be cut by $1.5 trillion or tax revenues raised by $1.5 trillion or some combination of those realities.
Think the Fed's policy of market intervention is only impacting savers and investors? Think again: courtesy of ZIRP, companies are investing increasingly less in CapEx, and thus long-term growth, and merely focusing on instant bang for the buck projects, like M&A and dividends. Sustainable? You decide.
Watching pompous politicians, egotistical economists, arrogant investment geniuses, clueless media pundits, and self- proclaimed experts on the Great Depression predict an economic recovery and a return to normalcy would be amusing if it wasn’t so pathetic. Their lack of historical perspective does a huge disservice to the American people, as their failure to grasp the cyclical nature of history results in a broad misunderstanding of the Crisis the country is facing. The ruling class and opinion leaders are dominated by linear thinkers that believe the world progresses in a straight line. Despite all evidence of history clearly moving through cycles that repeat every eighty to one hundred years (a long human life), the present generations are always surprised by these turnings in history. I can guarantee you this country will not truly experience an economic recovery or progress for another fifteen to twenty years. If you think the last four years have been bad, you ain’t seen nothing yet. Hope is not an option. There is too much debt, too little cash-flow, too many promises, too many lies, too little common sense, too much mass delusion, too much corruption, too little trust, too much hate, too many weapons in the hands of too many crazies, and too few visionary leaders to not create an epic worldwide implosion. Too bad. We stand here in the year 2012 with no good options, only less worse options. Decades of foolishness, debt accumulation, and a materialistic feeding frenzy of delusion have left the world broke and out of options. And still our leaders accelerate the debt accumulation, while encouraging the masses to carry-on as if nothing has changed since 2008.
In a day like today, when stocks and bonds are rallying, indicating that the market is once again convinced Fed "bad cop" Fisher was full of it, and more easing is expected (as noted earlier), and with NFP set to fall on a market holiday, thus the number, if weak, can be spun as one ushering in more QE over the weekend, one can only sit back and have fun with Birinyi's ruler. Which in turn brings us to the following conclusion: with the market in 2012 once again in a straight diagonal line, just like in early 2011, gaining 50 SPX point each month regardless of news, climatic conditions, liquidity and frankly anything else, it is quite obvious that the S&P market will hit 5000 by December 2019, a date which is also notable because as the second Birinyi ruler chart shows, that is when trading volume will officially hit zero.
The question of who was the marginal buyer of equities in mid February and into March appears to have been answered. It was Macro hedge funds whose correlation of returns to the S&P 500 went from a negative 0.58 on 2/15 to a very high positive 0.75. It would appear that macro funds, just as they did in Q1 of 2011, went all-in. However, just as occurred in Q1/Q2 2011, the ebbing macro backdrop of the last few weeks, as evidenced by the Citi Economic Surprise Index tumbling rapidly, appears to have stymied their risk appetite and, again just as in 2011, as the surprise index rolled over, so Macro funds started to exit the equity market very rapidly. In fact, in the last two weeks the 30-day correlation between the Macro hedge fund return index (HFRXM) and the S&P 500 (SPX) has crashed back from +0.75 to -0.55 currently as macro funds clearly shift to a negative stance of US equities in general - selling into the momentum strength of the last few weeks. As we pointed out a week ago, institutions were indeed all-in, but it seems the reality of recent macro data and European risk flares is perhaps rapidly darkening the rose-colored lens with macro-funds the first to flee.
On this first day of the second quarter, and especially since the US open (and the ISM print) European equities decided all was well and rallied broadly back to their highs of last week. In the meantime, credit markets (sovereigns, financials, and non-financials) sold off quite notably from a positive start and despite a small rally into the close (which sovereigns did not participate in) closed practically unchanged. It seems Schrodinger's cat is indeed present not just in Chinese PMI, US jobs data and regional surveys, but also in the risk asset markets as credit market participants are dramatically different in their views (and flows we suppose) going into this quarter. We also note that Europe's VIX has collapsed in the last few days to a more normalized level relative to US VIX.
Earlier today, Fed "bad cop" Dick Fisher appeared on TV and warned Wall Street to resume doing fundamental analysis on its investments as incremental easing is now over, and expectations of shotgun monetary heroin should be henceforth curbed. While we sympathize with the views of the holder of precious metal ETFs, we can't help but be skeptical that if and when global growth returns to its negative glideslope trendline, the only option, as always, will be more real dilution, resulting in more nominal asset price gains. Furthermore, in the aftermath of Fisher's warning, Wall Street sat down and redid its analysis. What it found was that no matter what happens, the Fed, and its central banking peers, will always ease. Case in point is the just released update from Morgan Stanley on what it believes the monetary firehose will look like in the next 2 years. One word: whoooosh.
In the initial stages of nearly every recorded tyranny, the saucer eyed dumbstruck masses exhibit astonishing and masterful skill when denying reality. The facts behind their dire circumstances and of their antagonistic government become a source of cynical psychological gameplay rather than a source of legitimate concern. Their desperate need to maintain their normalcy bias creates a memory and observation vacuum in which all that runs counter to their false assumptions and preconceptions disappears forever. It is as if they truly cannot see the color of the sky, or the boot on their face. The concrete world of truth becomes a dream, an illusion that can be heeded or completely ignored depending on one’s mood. For them, life is a constant struggle of dissociation, where the tangible is NOT welcome… This is the problem that we in the Liberty Movement deal with most often in our writings and films. Our confrontation with willful ignorance has been epic, even by far reaching historical standards. The gains in social awareness have been substantial, and yet the obstacles are incredible. Unprecedented. As an activist trend, we have an almost obsessive drive to draw back the curtain so that the public has at least the opportunity to see what is on the other side. Unfortunately, there is another danger that must be taken into account…
The ISM Manufacturing Index, which in the aftermath of last week's weak Chicago PMI was whispered to be a miss, came at 53.4, on expectations of 53.0, up from 52.4 in February, once again continuing the narrative of a Schrodinger economic reality. While Production and Employment both rose, New Order declined from 54.9 to 54.5; What is truly suspect is that Prices dropped also from 61.5 to 61.0, putting the validity of this report in question especially following the explosion in the Chicago PMI prices paid. Perhaps HSBC was responsible for that particular report too? In other news, Construction Spending plunged from an unrevised -0.1% (revised to -0.8%) to -1.1% on expectations of a rise to 0.6%, the lowest print since July 2011. All in all, a release pair as expected, affording Bernanke the ability to be easy if need be, although giving stocks enough pump to offset weakness from Europe and Japan, telegraphing that the drop in the market does not need to begin just yet for New QE deliberations.
Meet The Uber-Kommissar: Germany Expands European Domination Plan; Will Enact European Budget Supervision PanelSubmitted by Tyler Durden on 04/02/2012 09:56 -0400
Greece was the beta test. Now Germany, whose plan to enact a European fiscal pact in exchange for soaring Bundesbank and economic support of the PIIGS has so far delayed the inevitable, is seeking wider powers to "supervise" European budget compliance with the terms of Merkel and Schauble's fiscal pact. Spiegel writes that "Schäuble plans to propose creating independent panels of experts at both the national and EU level, who would monitor fiscal policies in the member states, the euro zone and the EU as a whole. They would be responsible for sounding a warning if they see governments' budgetary policies straying off course." Those in charge of the panels? Academics - the same people who are in charge of the Federal Reserve (with stunning success we forgot to mention). Because having a Ph.D. is sufficient and necessary to be a central planner. As for the role of the uber-commissioner? He would be able to implement EU regulations (proposed by Germany) "without the other commissioners or the Commission president having the right to object." And there goes sovereignty, without even one shot fired.
As 2Y Italian Bond yields nudge back up against 3% again, the sad euphoria of an ECB-funded cheap loan Sarkozy-Carry-trade in short-dated Italian debt is now a losing proposition for Italian banks. Even accounting for the month of carry earned on the position, the Mark-to-Market on any short-dated (less-than-three-year maturity) Italian government bond purchased with LTRO funds is now a drag on Italian bank balance sheets. Spain, of course, is even worse. The somewhat dashed hopes for an LTRO3, given the ever-diminished pile of performing collateral (and the Bundesbank/ECB split on acceptable collateral), suggests the situation is likely to only get worse leaving the defection-strategy - sell yr BTPS - (no matter its contagious impact on the sovereign itself) as optimal for Italian banks to avoid further forced balance sheets losses (which of course it won't since these bonds are never MtM'd and accrued at Par in the banking books we are sure).
As markets crave their next fix of the money-printing elixir, perhaps it is worth noting the ever-decreasing impact that the quantitative easing experiments have had on 'measures' of the real economy. This seems to suggest that either: "we're gonna need a bigger boat" and the ongoing QEs will need to be exponentially larger than the prior in order to enact change in the 'measures' of real economy; or, the Fed has hit its limit as yet another 'multiplier effect' has been proved wrong in the limit and all we get to play with is the unintended consequences of a hidden inflation peering into view. Of course this is typical Keynesian dogma: if at first you don't succeed, do it again but bigger, more global, and with more geopolitical danger.
Bernanke telling the world the Fed will ease any time there is a stock downtick is the 'good cop.' Which means there needs to be a bad cop to pretend that the Fed actually cares about more than just 10-20% red candles in the Russell 2000, and to give the impression of a balanced Fed. Last week it was Plosser (who simply regurgitated his script from March 2010). Today it is Dallas Fed's Fisher. From Bloomberg:
- FED'S FISHER SAYS U.S. ECONOMY IS IMPROVING
- FED'S FISHER SAYS U.S. ECONOMY IS IMPROVING
- FED'S FISHER SAYS LATE 2014 INTEREST RATE PLEDGE WILL NEED TO BE ADJUSTED
- FISHER SAYS FED SHOULD `SIT, WAIT AND WATCH' ON POLICY
- FISHER SEES TIME OF `SURVIVAL OF THE FATTEST' NOT FITTEST
- And finally: FISHER SAYS FED HAS `DONE ENOUGH' IN EASING
All great stuff, and truly Oscar worthy, in the daily Fed theater. Also, all 100% irrelevant.
In my continuing attempt to debunk what the European Union presents as facts; I turn my attention to France. I have already given you the correct debt to GDP ratios for Spain, Italy, Portugal and Germany which follows the exact principles of what any corporation in America or Europe would be mandated to report or suffer the slings and arrows of being held accountable for Fraud. I include contingent liabilities, derivatives, promises to pay, various guarantees and all of the normal accounting practices to be considered on any balance sheet except the sovereign nations of Europe. In the end, of course, it is your decision but at least we can begin any consideration based upon the facts and not based upon a fictitious account. Again, I divide up the liabilities into two categories, their national obligations and their European obligations; the European Union, the European Central Bank and finally for the other European institutions for which they bear some burden. Then I add it all up, divide by their GDP and we arrive at a factual accounting. Nothing complicated here except sleuthing about to get the data which is no easy task as it is hidden in various nooks and crannies.