Ford

One of the great existential debates about U.S. equities is essentially demographic in nature.  Nic Colas, of ConvergEx, asks the question, will retiring Baby Boomers cash out of stocks in the coming years, leaving lower valuations in their wake?  At least one recent Fed paper pointed to an 8x earnings multiple for stocks – down from 14x currently – in 2025, all due to the changing face (and age) of the typical investor.  But all this doom and gloom only fits if every generation has a similar risk tolerance.  If younger cohorts – dubbed Generation X and “Next” – have higher risk thresholds, they may actually buy more equities than their parents, alleviating the demographic time bomb behind that dire Fed prediction.  Getting a fix on how these nascent investors will evaluate the risk-return tradeoff is tough; they still don’t have much money to put to work.  Still, some signs exist.  Believe it or not, a third of young Americans have tattoos, an acknowledged sign of risk-loving behavior.  And if you think that is just bad decision-making, consider the business rock-stars of the under-30 set.  This latest wave of billionaires are all outsized risk takers, and role models to their generation.  Stocks may not be dead just yet.

I recently wrote an article that addresses the subject of sociopaths and how they insinuate themselves into society. Although the subject doesn't speak directly to what stock you should buy or sell to increase your wealth, I think it's critical to success in the markets. It goes a long way towards explaining what goes on in the heads of people like Bernie Madoff and therefore how you can avoid being hurt by them. But there's a lot more to the story. At this point, it seems as if society at large has been captured by Madoff clones. If that's true, the consequences can't be good. So what I want to do here is probe a little deeper into the realm of abnormal psychology and see how it relates to economics and where the world is heading. If I'm correct in my assessment, it would imply that the prospects are dim for conventional investments – most stocks, bonds and real estate. Those things tend to do well when society is growing in prosperity. And prosperity is fostered by peace, low taxes, minimal regulation and a sound currency. It's also fostered by a cultural atmosphere where sociopaths are precluded from positions of power and intellectual and moral ideas promoting free minds and free markets rule. Unfortunately, it seems that doesn't describe the trend that the world at large and the US in particular are embarked upon. In essence, we're headed towards economic and financial bankruptcy.

• Downgrades Loom for Banks (WSJ)
• China Loosens Grip on Yuan (WSJ)
• Sarkozy Embraces Growth Role for ECB (WSJ)
• A Top Euro Banker Calls for Boost to IMF (WSJ)
• Wolfgang Münchau - Spain has accepted mission impossible (FT)
• Hong Kong Takeovers Loom Large With Banks Lending Yuan: Real M&A (Bloomberg)
• Banks urge Fed retreat on credit exposure (FT)
• Drought in U.K. Adds to Inflation Fears (WSJ)
• France faces revival of radical left (FT)
• Euro Area Seeks Bigger IMF War Chest as Spanish Concerns Mount (Bloomberg)

• Low cost era over for China's workshops to the world (Reuters)
• The HFT scourge never ends: SEC Probes Ties to High-Speed Traders (WSJ)
• Rehn says Portugal may need "bridge" (Reuters)
• China's GDP likely to have slowed in the first quarter (China Daily)
• Chinese Premier Blasts Banks (WSJ)

The price of gold is being actively managed by central planners and their proxies. The main culprit here appears to be the US authorities, as the manipulation is most apparent in the US open gold market. For the most part, this 'management' has resulted in letting the price of gold rise, but not too much, or too quickly.  The price of gold has always been an object of interest for governments and central bankers. The reason is simple enough to understand: Gold is an objective measure of the degree to which fiat money is being managed well or managed poorly. As such, whenever paper money is being governed poorly, the price of gold becomes an important barometer. And this is why the actual price of gold is a strong candidate to be 'managed.' Or 'influenced'. Or 'manipulated'. Whichever word you prefer, they all convey the same intent. Some who are reading this are likely having an eye-rolling moment because they hold a belief that there is no conspiracy to manage the price of gold. This is an interesting belief to hold because it runs heavily against the odds. We could spend a lot of time discussing how a belief such as 'gold is not being manipulated' gets promoted and inserted into the popular consciousness, but we won't. Instead, we'll simply note that the people who hold this belief -- and you may be among them -- react to the concept at a visceral level, often with strong emotions such as anger or contempt, and even anxiety. When a strong emotional response surfaces during a conversation of ideas, it usually means that beliefs are in play -- neither facts nor logic. Experience has taught me that when someone becomes dismissive or angry or hostile when the idea of price manipulation is discussed, it's best to simply drop the conversation and move on. No combination of logic or facts is effective against a deeply-held belief. It's better to wait until some new evidence calls that belief into question, opening the door for revisiting the topic. But for those with an open mind, there is a very interesting trail of dots to connect.

• BOJ Crosses Rubicon With Desperate Monetary Policy, Hirano Says (Bloomberg)
• Europe’s bailout bazooka is proving to be a toy gun (FT)
• Monti Signals Spanish Euro Risk as EU to Bolster Firewall (FT)
• Merkel set to allow firewall to rise (FT)
• Banks set to cut $1tn from balance sheets (FT)
• Supreme Court weighs historic healthcare law (Reuters)
• Spain PM denied symbolic austerity boost in local vote (Reuters)
• Anti-war movement stirs in Israel (FT)
• Obama to Ask China to Toughen Korea Line (WSJ)
• Pimco’s Gross Says Fed May ‘Hint’ at QE3 at April Meeting (Bloomberg)

• More HFT Posturing: SEC Probes Rapid Trading (WSJ)
• Fed’s Bullard Says Monetary Policy May Be at Turning Point (Bloomberg)
• Hilsenrath: Fed Hosts Global Gathering on Easy Money (WSJ)
• Dublin ‘hopeful’ ECB will approve bond deal (FT)
• EU Proposes a Beefed-Up Permanent Bailout Fund (WSJ)
• Portugal Town Halls Face Default Amid $12 Billion Debt (Bloomberg)
• Hidden Fund Fees Means U.K. Investors Pay Double US Rates (Bloomberg)
• Europe Weighs Trade Probes Amid Beijing Threats (WSJ)
• Bank of Japan Stimulus Row Fueled by Kono’s Nomination (Bloomberg)

Bailed-out but un-restructured. And now Fiat-Chrysler CEO is crying for help as EU car sales crash.

• So much for that: Obama to fast track southern portion of Keystone XL Pipeline (1600 Report)
• French Police Say They Have Cornered Suspect in School Shooting (NYT); French shooting suspect had been arrested in Afghanistan (Reuters); Suspect in French shootings says he’ll surrender to end standoff (Globe & Mail), Toulouse suspect escaped from Kandahar jail in mass Taliban jailbreak in 2008 (BBC)
• Bernanke Says Europe Must Aid Banks Even as Strains Ease (Bloomberg)
• Monti faces clash with unions over reform (FT)
• UK budget to balance tax breaks with austerity (Reuters)
• Romney scores big win over Santorum in Illinois (Reuters)
• U.S. Exempts Japan, 10 EU Nations From Iran Oil Sanctions (Bloomberg)
• Bernanke Says Fed Failed to Meet Goals During Great Depression (Bloomberg)
• Revised tax deal reached on Swiss accounts (FT)

Americans have an illogical love affair with their vehicles. There are 209 million licensed drivers in the U.S. and 260 million vehicles. The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Germany has 540; Japan has 593; Britain has 525; and China has 37. The population of the United States has risen from 203 million in 1970 to 311 million today, an increase of 108 million in 42 years. Over this same time frame, the number of motor vehicles on our crumbling highways has grown by 150 million. This might explain why a country that has 4.5% of the world’s population consumes 22% of the world’s daily oil supply. This might also further explain the Iraq War, the Afghanistan occupation, the Libyan “intervention”, and the coming war with Iran. Automobiles have been a vital component in the financial Ponzi scheme that has passed for our economic system over the last thirty years. For most of the past thirty years annual vehicle sales have ranged between 15 million and 20 million, with only occasional drops below that level during recessions. They actually surged during the 2001-2002 recession as Americans dutifully obeyed their moron President and bought millions of monster SUVs, Hummers, and Silverado pickups with 0% financing from GM to defeat terrorism. Alan Greenspan provided the fuel, with ridiculously low interest rates. The Madison Avenue media maggots provided the transmission fluid by convincing millions of willfully ignorant Americans to buy or lease vehicles they couldn’t afford. And the financially clueless dupes pushed the pedal to the metal, until everyone went off the cliff in 2008.

German lawmakers are to review Bundesbank controls of and management of Germany’s gold reserves.  Parliament’s Budget Committee will assess how the central bank manages its inventory of Germany’s gold bullion bars that are believed to be stored in Frankfurt, Paris, London and the Federal Reserve Bank of New York, according to German newspaper Bild.  The German Federal Audit Office has criticised the Bundesbank’s lax auditing and inventory controls regarding Germany’s sizeable gold reserves – 3,396.3 tonnes of gold or some 73.7% of Germany’s national foreign exchange reserves. There is increasing nervousness amongst the German public, German politicians and indeed the Bundesbank itself regarding the gigantic risk on the balance sheet of Germany's central bank and this is leading some in Germany to voice concerns about the location and exact amount of Germany’s gold reserves. The eurozone's central bank system is massively imbalanced after the ECB’s balance sheet surged to a record 3.02 trillion euros ($3.96 trillion) last week, 31% bigger than the German economy, after a second tranche of three-year loans. The concern is that were the eurozone to collapse, Bundesbank's losses could be half a trillion euros - more than one-and-a-half times the size of the Germany's annual budget. In that scenario, Germany’s national patrimony of gold bullion reserves would be needed to support the currency – whether that be a new euro or a return to the Deutsche mark.  The German lawmakers are following in the footsteps of US Presidential candidate Ron Paul who has long called for an audit of the US’ gold reserves. It is believed that some 60% of Germany’s gold is stored outside of Germany and much of it in the Federal Reserve Bank of New York.

As Iran tensions mount, even the US Military needs a break and where better than The Hamptons to practice desert-driving skills? As SouthamptonPatch notes, a military spokesman said M1117s that drove through Southampton, East Hampton and Southold were not on the East End for a funeral, as previously reported. Perhaps its nothing more suspicious than a cabal of FX traders and hedge fund managers building their own fortification to protect their champagne but we must all appreciate them filling up with gas and helping our economy recover (credit or debit?).

• Cotton prices jump as India bans exports (FT)
• Goldman’s Asia Unit Lost Money First Time Since 2008 on Soured Stock Bets (Bloomberg)
• Meet Mark Spitznagel, Ron Paul's L.A. hedge-fund guy (SPCR)
• U.S., Israel Pull Closer on Iran (WSJ)
• IBM’s Watson Gets Wall Street Job After ‘Jeopardy’ Win (Bloomberg)
• US Senate OKs Bill Aimed at China Subsidies (Reuters)
• Czech Banks May Need More Funds in Crisis (Bloomberg)
• Banker Bonus Limits Sought by EU Lawmakers (Bloomberg)
• Volcker Rule Needs Extensive Revisions Amid Feedback, SEC’s Gallagher Says (Bloomberg)

It is appropriate that as a post-mortem to tonight's GOP primary, which according to initial reports has Romney as winning both Michigan and Arizona, we have ConvergEx' Nick Colas providing an extensive summary of the factors in favor and against both the presidential incumbent, and the challenger, and in doing so handicap the possibility of election victory for either Obama or the Republican candidate, whoever he may end up being. As Colas says, 'it ain't over till it's over' - "As the battle for the 2012 Presidential election begins to pick up speed, we read a flood of reports that President Obama is a lock for reelection. And just as many that he is destined to be a one-termer. Those who believe that the winner of the 2012 election will be Republican claim that the keys to Obama’s downfall will be unemployment, skyrocketing oil prices, and increased federal spending. However, according to historical data and some political science theory, it looks like Obama has a pretty good chance of staying in the White House.... The GOP isn’t out of the race yet, but it’s up against some strong historical opposition." And while we would agree that all else equal Obama likely is a shoo-in, never before will there have been a full blown debt ceiling crisis in a repeat of August 2011 in the weeks and months leading into the election - that factor alone, in our humble opinion, could end up being the swing variable that pulls the otherwise ironclad victory away from Obama's clutch, and explains why the GOP caved so quickly on the payroll tax extension which will add $100 billion in debt, and force a debt ceiling breach ahead of November, as was first predicted on Zero Hedge. That, of course, and runaway oil: should crude continue its relentless surge, which it will if QE3 occurs, or an invasion or Iran becomes reality, Obama can kiss another 4 years goodbye.

• Germany Crisis Role in Focus After G-20 Rebuff (Bloomberg)
• G20 to Europe: Show us the money (Reuters)
• Draghi’s Unlimited Loans Are No Panacea (Bloomberg)
• Geithner says Europe has lowered risks of "catastrophe" (Reuters)
• Gone in 22 Seconds (WSJ)
• Gillard beats Rudd to stay Australian PM (FT)
• Brazil Will Continue Reducing Interest Rates, Tombini Says (Bloomberg)
• China to Have ‘Soft Landing’ Soon: Zoellick (Bloomberg)
• China To Be Largest Economy Before 2030: World Bank (Reuters)
• Obama pressed to open emergency oil stocks (FT)