Ben Bernanke

Ben Bernanke

Guest Post: The Investment Everybody Loves to Hate

Imagine a stock - best for the hypothetical exercise is probably a tech stock - rising for 12 years without interruption. A net gain every year, sometimes a small one, sometimes a bigger one, but nicely compounding at an annual yield of more than 17.13% (that's a devilish 666.67% in 12 years). What would people say about this stock? Would there be a steady stream of negative press trying to dissuade people from buying it? We somehow doubt it, although almost every investment that has seen a great deal of appreciation has its detractors (and sometimes they are right). When it comes to gold, one could certainly debate the merits of buying it at what appears at least on the surface as a high price. Gold bulls can only profit from examining bearish arguments, in order to see if they have merit.

Industrial Production Soars As Sandy Reignites Economy: QEnding?

In what must be one of the scariest data points for equity bulls, Industrial Production just printed above all economist's estimates with its largest rise since Dec 2010. This 2.5 sigma beat of expectations is the biggest beat since December 2010 and, given that it was data that Ben Bernanke did not have at his previous FOMC meeting, we suggest, ever so humbly, that surely this will play into his qualitative assessment of the economic thersholds and reduce the likelhood of him accelerating his bond-purchases scheme. The driver of such exuberant Industrial Production... Motor Vehicle manufacturing; which as we already know produced the largest channel-stuffing debacle in history. Sustainable? We don't think so... As previous downward revisions appear to have provided a much bigger than expected rebound from Sandy-scuppered prior levels.

There's A Problem With Kicking The Can Down The Road

"There’s a problem with kicking the can down the road" - Ben Bernanke, (December 12 2012)... We’ve taken this quote out of context - Bernanke was actually talking about the fiscal cliff, and not monetary policy; but kicking the can down the road is exactly what Bernanke is doing in his domain. Instead of letting the shadow banking bubble burst and liquidate in 2008, Bernanke has allowed it to slowly deflate, all the while pumping up the traditional banking sector with heavy, heavy liquidity. The reduction in shadow liabilities remains a massive deflationary and depressionary force (and probably the main reason why a tripling of the monetary base has not resulted in very severe inflation). Trillions and trillions of liquidity later, Bernanke is barely keeping the system afloat. We chose the path of Japan (which has spent the last twenty years depressed) not the path of Iceland (which is emerging from its depression). We chose to kick the can down the road. The system is rotten, and the debt load is unsustainable.

Chart Of The Day: The Collapsing Half-Life Of Unsterilized Central Bank Intervention

Assuming that Ben Bernanke unveils the transition from 'sterilized' Twist to 'unsterilized' QE4 today (which if he doesn't will upset more than a few long-only managers looking to make their year), then the chart below shows the incredible and insatiable demand for money printing (and the central banks' acquiescence). Looking at just outright incremental injections of excess reserves (money-printing), since the whole 'experiment' began, the Fed and ECB have embarked on more and more frequent attempts to prop up this 'fundamentally' sinking ship. Perhaps this is what the Hong Kong Monetary Authority warned of? At the current average decay period of around 40% per action, we should see the ECB or Fed enact something new by around February 4th (just as the debt-ceiling comes to a head).

How A Handful Of Unsupervised MIT Economists Run The World

Ever get the feeling that the entire global economy is one big experiment conducted by several former Keynesian economists from MIT with a bent for central planning, who sit down in conspiratorial dark rooms in tiny Swiss cities and bet it all on green until they double down so much nobody even pays attention to the game? No? You should. Jon Hilsenrath, of all people, explains why.

Overnight Sentiment: All About QE4EVA

Today is probably the first day in a while in which minute-by-minute rumors on the Fiscal Cliff will not be on the frontburner (with yet another late day rumor yesterday of an imminent deal turning out to be a dud, when it was reported that Obama's latest grand compromise was to lower his initial tax hike demand from $1.6 to $1.4 trillion, or still $600 billion more than last summer's negotiated number), with Ben Bernanke and QE4 taking center stage instead. By now it is a foregone conclusion that Ben will proceed with extending Twist as first predicted here, into an unsterilized bond buying operation, in effect confirming that there has been zero improvement in the economy, as another $1 trillion is about to be injected until the end of 2013, and more trillions after that. The good thing is that all pretense that the Fed cares about anything but the market is now gone. The bad thing is that the Fed will continue to take over the capital markets until it and the other central banks are the only traders remaining. The only question is whether the market, now well into massively overbought territory, will fizzle and snap back after Bernanke's news announcement, and will QE4EVA (as we believe QE3+1, aka QEternity-er, should be called) have been fully priced in by the time it was announced?

"The Shape Of The Next Crisis" - A Preview By Elliott's Paul Singer

"what you realize is that the lessons of ’08 will actually result in a much quicker process, a process that I would describe as a “black hole” if and when there is the next financial crisis.... Nobody in America has actually seen, or most people probably can’t even contemplate, what an actual loss of confidence may look like. What I’m trying to struggle with as a money manager, who really seriously doesn’t like to lose money, is how to protect our capital and how to think about the next crisis."

Phoenix Capital Research's picture

During the its first term, the Obama Administration thus far has proven itself in favor of increased Government control and Central Planning. That is, the general trend throughout the last four years has been towards greater nationalization of industries (first finance, then automakers and now healthcare and insurance), as well as greater reliance on our Central Bank to maintain our finances.

Bill Gross Latest Monthly Outlook: "We May Need At Least A Decade For The Healing"

Bill Gross' latest monthly missive begins with some political commentary on the latest presidential election, pointing out the obvious: after the euphoria comes the hangover, completely irrelevant of what happens to the Fiscal Cliff: 'whoever succeeds President Obama, the next four years will likely face structural economic headwinds that will frustrate the American public. “Happy days are here again” was the refrain of FDR in the Depression, but the theme song from 2012 and beyond may more closely resemble Strawberry Fields Forever, as Lennon laments “It’s getting hard to be someone but it all works out.” Why is it so hard to be someone these days, to pay for college, get a good-paying job and retire comfortably?" And while political campaigns were just that, the truth is that nobody has the trump card to a perfect quadrangle of problems which will mire the US economy for years to come, among which i) debt/deleveraging; ii) globalization, iii) technology, and iv) demographics. Gross' outlook is thus hardly as optimistic as all those sellside reports we have been drowned by in the past 2 weeks, hoping to stir the animal spirits one more time: 'We may need at least a decade for the healing.... it is getting harder to maintain the economic growth that investors have become accustomed to. The New Normal, like Strawberry Fields will “take you down” and lower your expectation of future asset returns. It may not last “forever” but it will be with us for a long, long time." Sad: looks like it won't be different this time after all...

Guest Post: All I Want For Christmas Is The Truth

We find ourselves more amazed than ever at the ability of those in power to lie, misinform and obfuscate the truth, while millions of Americans willfully choose to be ignorant of the truth and yearn to be misled. It’s a match made in heaven. Acknowledging the truth of our society’s descent from a country of hard working, self-reliant, charitable, civic minded citizens into the abyss of entitled, dependent, greedy, materialistic consumers is unacceptable to the slave owners and the slaves. We can’t handle the truth because that would require critical thought, hard choices, sacrifice, and dealing with the reality of an unsustainable economic and societal model. It’s much easier to believe the big lies that allow us to sleep at night. The concept of lying to the masses and using propaganda techniques to manipulate and form public opinion really took hold in the 1920s and have been perfected by the powerful ruling elite that control the reins of finance, government and mass media. How many Americans are awake enough to handle the truth? Abraham Lincoln once said that he believed in the people and that if you told them the truth and gave them the cold hard facts they would meet any crisis. That may have been true in 1860, but not today.

U.S. Eagle Gold Coins Strongest Since 1999 – HNWs Taking Possession

November sales of U.S. American Eagle gold coins are on track to be the best in 14 years as uncertainty surrounding the U.S. fiscal cliff and the election of President Obama led to safe haven buying. Buyers timing the market also increased coin sales by buying during sharp price movements that occurred in the beginning and end of November, coin dealers noted. Bullion dealers in the U.S. report an influx of high net worth individuals that are buying gold coins in volume and taking physical possession of their bullion. Month to date 131,000 ounces of American Eagles sold, that tripled last year's November sales and is the strongest November since 1998, data from the U.S. Mint's website shows. In October, the U.S. Mint sold 59,000 vs 50,000 ounces the previous year, while November marked its 2nd successive monthly rise. Coin banks have come in to buy the stock as the mint usually ends 2012 coin production in early December so it can begin minting the 2013 coins.

Mark J. Grant: It's Me Baby, With Your Wake-Up Call

One of the best bond traders on Wall Street said this recently:  “Get ready for The Great Bond Shortage in North America.  If it has a cusip and it is rated, it is going higher/tighter.” The compression in bond spreads since the Fed started all of their “made-up/newly printed money for free” antics is the root of all of this and we do not expect a change anytime soon. There are various estimations for the 2013 net new issue supply in all sectors of Fixed Income but I peg it around $400 billion.  Around $800 billion will be paid to bond holders during the year in coupon payments and, if reinvested, will cause a supply deficit of about $400 billion for the year.  Exacerbating all of this is the Fed, who will buy around $500 billion in MBS this year and perhaps the same amount in Treasuries which could take $1 trillion out of the market all by itself. Consequently we face a lack of bonds denominated somewhere between $900 billion and $1.4 trillion, depending upon the Fed, which will increase the rolling train of compression, lower interest rates further in all likelihood and cause great angst for investors who will find very little of value left in the Fixed Income markets. Safety; yes but yield; no. Inflation and Deflation, it should be noted, only work in operative systems; but it is not Inflation or Deflation that are going to matter in the short run, though it will later; it will be the lack of bonds of any sort to purchase and a stock market that may be dangerously out of sync with the fundamentals opening the possibility of a crash. If so much money is printed and so little regard is placed upon fundamental economic principles then the Real Estate crash of several years ago will look like child’s play by comparison. “Systemic Breakdown” would be the functioning words.