Roubini Turns Bearish On Gold (Again), Suggests Taking Profits And Buying Puts... Much Like He Did In December 2009Submitted by Tyler Durden on 09/16/2010 16:02 -0400
Rouibini has never been much of a fan of gold. Which is why we were not too surprised when we read RGE's latest recommendation on the precious metal, which, as expected was to take profits. Doctor Realist says: "September may be a good month to take partial or full profits for an
investor with a long gold position. Alternatively an interested investor
could buy December put options." Of course, had RGE clients followed the good Doctor's advice back from December 2009, there would have been no profits to be had. To wit: "Investors should thus be wary of getting the gold bug and being stuck with this barbarous relic. The recent swings in gold price—up 10 percent one month, down 10 percent the next—prove the point that gold has little intrinsic value and that most of its price movements are based on beliefs and bubbles. As an insurance policy against the tail risk of eventual inflation, it may be useful to hold a small amount of gold in one’s portfolio, but stocking up portfolios with a fiat currency that has marginal practical use, a zero nominal interest rate, high storage costs, and the price of which is subject to volatile whims and bubbles is totally irrational. If you want to hedge against inflation, stock up on Spam or other canned food or buy futures on commodities that have more physical uses and consumer demand....Unlike other commodities, it has little intrinsic value. Much like a fiat currency, gold’s value is based largely on the irrational beliefs of investors. In a depression or near depression, one would be better off stockpiling canned food and other commodities like oil that are useful for riding out Armageddon. You cannot eat gold or burn gold." Ah yes, the good ole "can't eat gold" argument. Yet somehow, despite gold's indigestible qualities, it is precisely gold which today hit an all time high once again, despite RGE's December note and a chorus of other infidels screaming for gold's metaphoric blood. We expect to hear ever more pundits to attempt to top tick the market. Will they succeed? Sure, if the starting sample is a few thousand, one will always be spot on. Pure statistics.
Diana Olick was right - the home price double dip is not only here, it is getting worse. RealtyTrac reported overnight that general foreclosure activity (i.e., default notices, scheduled auctions and bank repossessions) — were reported on 338,836 properties in August, a 4 percent increase from the previous month. One in every 381 U.S. housing units received a foreclosure filing during the month. The spin is that this was a modest decline (5%) from August 2009, but represents another inflection point in a trend which up to now had been declining. “The trend lines of decreasing default notices and increasing bank repossessions converged in August, with virtually the same number of new default notices and bank repossessions for the month — a clear indication that the clogged foreclosure pipeline is being carefully managed on both ends by lenders and servicers,” said James J. Saccacio, chief executive officer of RealtyTrac. “On the front end, seriously delinquent loans are rolling into foreclosure at an unusually slow rate, while on the back end the dammed-up inventory of properties already in foreclosure is moving to REO in steady stream rather than a flood — presumably to prevent further erosion of home prices.” Of course, banks are doing all in their power to prevent the realization by the consumer class of just how much lower home prices have still to go. Most notably, the bulk of the foreclosure action in August occurred in bank repossessions, which came at 95,364 U.S. properties in August, the highest monthly total in the history of the report and about 2 percent higher than the previous peak of 93,777 bank repossessions (REOs) in May 2010. August REO activity increased 3 percent from the previous month and was up 25 percent from August 2009 — the ninth straight month where REOs have increased on a year-over-year basis. In other news, we expect Jim Cramer to come out with another call, like his wrong summer 2009 pronouncement that the bottom of housing is here.
- BOJ becomes 'wild card' as Kan may demand stimulus after Yen intervention.
- EU new car registrations fall 13% YoY in August.
- Geithner says US examining ways to pressure China into faster Yuan rise.
- Greece rules out possibility of default; FM says restructuring would ‘break’ Eurozone.
- India hikes rates to contain inflation; move signals end of loose monetary policy.
- Most Asian stocks fall, led by mining shares; Japanese exporters advance.
- Naked-short sellers, derivatives traders face European Union restrictions.
Only a partisan two-bit hack economist/liberal rag columnist from an Ivy League University with a Nobel Prize could look at the following two charts and conclude that the Japanese Government failed to revive the Japanese economy over the last twenty years because they spent far too little on fiscal stimulus. Japanese government debt as a percentage of GDP was 52% in 1989, prior to their real estate and stock market crash. Today it stands at 200% of GDP. Current budget projections show the debt reaching 250% of GDP by 2015. Meanwhile, Japanese consumers and corporations have been reducing their debt for the last 16 years. The net result has essentially been a 20 year recession. The pundits who never see a crisis on the horizon point to the fact that Japan has not collapsed under the weight of this debt as proof that the U.S. debt level of 90% of GDP has plenty of room to grow without negative repercussions. This is the same reasoning “experts” used in 2005 when they proclaimed that home prices in the U.S. had NEVER fallen on a national basis, so therefore there was no reason to worry about home prices. A basic economic law is that an unsustainable trend will not be sustained. When the 3rd largest economy in the world implodes, the reverberations will be felt across the globe.
An interesting observation that has developed over the past year is the ballooning spread between default risk for the US as a standalone entity (based on the country's CDS spread, which was last seen just inside 50 bps), and the cumulative risk of the constituent states that make up the US, once again based on their own standalone spreads, when adjusted by GDP contribution. This can be seen on the chart below. The computation takes the 16 states with quoted spreads from CMA (with the remaining states assigned the US spread itself), juxtaposed to the CDS of the US itself. As is evident, the spread continues to widen, and at last check was around 100 bps, just marginally tighter compared to the all time wides seen in June of 2010 when it hit over 120 bps. In retrospect this should not be all that surprising, as the general US CDS looks at the country as a whole, and gives benefit to the possible intervention that the Fed can (and does) do on a daily basis to prevent increasing default risk to the US as a whole: after all the US can always monetize its own debt, while California... can't. Nonetheless, if these spreads continue to diverge, we expect that convexity alone will start dragging the CDS of the US wider as well.
It may come as a surprise to many, but the relative size of the US commercial-banking industry has not declined following the so-called credit-market crisis, which developed in the second half of 2007. On the contrary, it has increased since then. While nominal GDP rose 4.2% from the second quarter of 2007 to the second quarter of 2010, banks' total assets rose 18.4%. In a recession one would expect an unwinding of credit-financed investments that have turned sour. Economically unsuccessful firms go out of business, malinvestment is liquidated, losses reduce investor equity capital, and the cost of borrowing increases, providing incentives for reducing overall indebtedness. However, this is not what happened in the banking industry as a whole. The Federal Reserve, in an attempt to prevent the bank system from collapsing, supplied any amount of base money that was deemed necessary to keep banks afloat. This can be illustrated by the drastic increase in banks' base money holdings since around the third quarter of 2008.
Dylan Grice On What Weimar Republic Popular Delusions Can Teach Us About Japan's Upcoming Hyperinflationary BankruptcySubmitted by Tyler Durden on 09/14/2010 13:35 -0400
Dylan Grice loves debunking popular delusions. Perhaps that is why he has picked precisely that phrase as the title of his periodic research piece at SocGen. In his latest piece Dylan asks a question so simple and profound that it should immediately force all Keynesians to provide a definitive answer, or else they should all be fired for being nothing else than card-carrying shamans of the world's most destructive religion (and if you thought the Catholic Inquisition was bad, you obviously have never been drawn and quartered by four of Bernanke's most vicious and bloodthirsty printers). Here it is: "For all I know, Keynesians might be even right in thinking policy makers can fiscally jolt economies back to life, allowing them to recover back to their ‘default mode.’ But their assumption is that ‘default mode’ is positive growth. But what if it isn’t? What if the ‘default mode’ is falling output because the population is declining? Japan might just have spent the best part of twenty years trying to fiscally stimulate its way out of a demographic compression. If this is correct, and population decline has blown the hole in Japan’s government balance sheet there’s still plenty of damage in store because the demographic compression isn’t over yet." Zero Hedge has long contended that Economists dwell so high up in their ivory towers of (flawed) theoretical construction, that they always ignore the simplest things that have the most profound systemic impact... such as demographics. Consider the creation of the Social Security Trust Fund, which would have been perfectly solvent in perpetuity... If only people died quietly as they were expected to do so in 1930s, some time in their mid- to late-60s. Now it is insolvent. Keynesianism, as an economic theory itself, is an anachronistic artifact of another time. As such, Dylan's question is arguably the most critical one that Krugman, Koo, and even the Kretins (sic) from the Fed should answer before they propose any additional and infinitely more destructive theories, and conduct any more failed experiments on a world population of roughly 7 billion people.
Plastika Kritis is one of many Greek industrial success stories. Let me introduce you to the other side of Greece which you don't know about...
- Must read: Trading Eludes Dodd-Frank as No Investors See Inside Black Box (Bloomberg)
- Japan Ozawa Might Carry Out FX Intervention Threat If Elected PM (WSJ)
- Beijing Currency Saga Returns (FT)
- Caroline Baum: the things that got us into this mess are expected to get us out? (Bloomberg)
- After welcoming everyone to the "recovery", Geithner now urges action to actually make it happen (WSJ)
- China Has Done ‘Very Little’ on Exchange Rate: Geithner (WSJ)
- Bond Buyers Getting Burned by Going Long as Yields Climb (Bloomberg)
- At Goldman, Partners Are Made, and Unmade (NYT)
- Small-business Bill Could Be Democrats’ Last Hope on Jobs (Reuters)
Coxe Advisors is out with its latest must read piece, in which Don Coxe tells readers it is time to once again reduce stock exposure, explains why gold will continue to outperform, and thus why it is a better investment than a 10 Year in the mid-2%'s, why fiscal stimulus is now too small to be effective which leaves Bernanke as the only saviour of the economy, and asks what experiments the Chairman has in store next: "Already, economists are discussing which Fed innovations lie ahead if the economy etiolates further. Among the suggestions for neat new ways to debase the Monetary Base: buying up large parcels of credit card and automobile debt. (Who knows? Maybe the Fed will become the nation’s biggest used car dealer. “Buy from Big Ben, Who’s Got the Biggest Deals!”)." All presented in Don Coxe's usual inimitable style.
United States Joint Forces Command Warns that Huge U.S. Debt Might Lead to Military Impotence, Default or RevolutionSubmitted by George Washington on 09/11/2010 22:58 -0400
British-style military impotence, Habspurg-like default or French-echoing revolution?
In the monthly CMBS Market Trends update from Fitch we read that the hotel delinquency rate has just passed the psychological 20% delinquency threshold for the first time. As of August, 20.80% of all hotel-backed loans is in some stage of delinquency (up from 18.64% in July): that means that one in five (and rising) hotel-backed loans will likely never be repaid and proceed to liquidation. These and such are the ways, when underlying assets refuse to generate enough cash flow to satisfy interest requirements, let along create equity value... Which should explain why publicly-traded REITs are trading at near record highs.
In our primers, we’ve now covered some of the important concepts that will be referenced frequently on this blog, namely deflation, the housing bubble, and the significance of mass psychology in financial events. This primer will add on to the primer on the Canadian housing bubble and give some insight into what has enabled this bubble to reach such significant proportions.
- Norway Buys Greek Debt as Sovereign Wealth Fund Sees No Default (Bloomberg), and in two years those responsible for the decision will be sued for criminal negligence; In other news ECB funding to Greek banks stays within €0.3 billion of all time high at €95.9 billion. Perhaps Norway meant buying ECB bonds?
- Funniest self-serving statement of the year: Greece Says Bonds Now an 'Opportunity' as Budget Deficit Falls (Bloomberg)... as opposed to yesterday when they were a catastrophic investment. Also not mentioned was the austerity is really working as Greek industrial production plunges far below expectations
- And guess what - more QE coming to a broke Europe near you: BOE Mulls ‘Second Wave’ of Bond Buying as Rebound Ebbs (Bloomberg)
- Base metals overnight flash crash in China (Reuters)
- OECD Says Slowdown `More Pronounced' Than Anticipated (Bloomberg)
- European Crisis Flares Up in Ireland (WSJ)
- A recent uptick in insider buying is normally considered a positive for the stock market, but it may be misleading for investors (Reuters)
- Japan Plans to Seek Discussions With China on Bond Purchases (Bloomberg)