Warren Buffett

I disagree with the “addiction” metaphor because it implies that the markets/ addict could potentially become healthy if the dealer stopped dishing out the drugs. This ties in with Bernanke’s claims that everything is under control and that he can remove the excess liquidity anytime he wants to.

• What bread... What circuses... JPMorgan Chase Faces Full-Court Press of Federal Investigations (NYT)
• European Regulators to Charge Banks Over Derivatives (WSJ) ... but forgive us if we don't hold our breath
• Cyprus readies capital controls to avert bank run (Reuters)
• Damage ripples through Cypriot economy (FT)
• G4S readies guards as Cypriot banks prepare to open (Reuters)
• Global pool of triple A status shrinks 60% (FT)
• Customers Flee Wal-Mart Empty Shelves for Target, Costco (BBG)
• BOE Says U.K. Banks Have Capital Shortfall of $38 Billion (BBG)
• U.K. Banks Facing Capital Shortfall (WSJ)
• Cyprus Details Bank Revamp (WSJ)
• Kazumasa Iwata Joins Kuroda Naysayers as BOJ to Meet (BBG)
• BRICS Nations Need More Time for New Bank, Russia Says (BBG)

Quite a few articles have been written about the importance of owning Gold and other precious metals as a means of maintaining one’s wealth in the face of rampant money printing by the world’s Central Banks.

China’s Government knows it's on thin ice and so is doing three things to try to mollify the Chinese population:

1. Launching a very public campaign to crack down on corruption (to mollify the populace).
2. Taking steps to tame inflation (slowing financial speculation and importing massive quantities of commodities to attempt to control prices).
3. Curbing its stimulus efforts.
4.  

This is precisely the formula that resulted in the Arab Spring in the Middle East: increased costs of living and a corrupt Government. Could China be heading for a similar development? It sure looks like it.

Rather than sitting nervously and passively and awaiting the coming financial dislocations and expropriations, investors and savers need to be prepared for the uncertain financial scenarios that seem increasingly likely.

Hoping for the best, but preparing for less benign scenarios remains prudent.

• Euro zone call notes reveal extent of alarm over Cyprus (Reuters)
• Stagnant Japan Rolls Dice on New Era of Easy Money (WSJ)
• Cyprus, European data batters shares and euro (Reuters)
• UK cuts taxes to revive stagnant economy (FT)
• "Quality Control" Rat Body Linked to Blackout at Fukushima (NYT)
• North Korea issues fresh threat to U.S., South probes hacking (Reuters)
• South Korea Says Chinese Code Used in Computer Attack (BBG)
• Osborne paves way for Carney to retool Bank of England (Reuters)
• Carney Gets ‘Escape Velocity’ Mandate With Limiter (BBG)
• Osborne Pledges Five More Years of U.K. Austerity (BBG)
• Bernanke Saying He’s Dispensable Suggests Tenure Ending (BBG)
• Senate Passes Bill to Fund Operations (WSJ)

Despite the all-knowing Alan Greenspan confirming there is no irrational exuberance currently, Oaktree Capital's Howard Marks is less convinced. Though he is not bearish, he lays out rather succinctly the current pros and cons for equities - based on the various 'valuation' arguments, discusses the folly of the equity risk premia, and highlights the dangers of extrapolation and what history can teach us... "appreciation at a rate in excess of the cash flow growth accelerates into the present some appreciation that otherwise might have happened in the future... it isn't just a windfall but also a warning sign."

They didn't see it coming last time either.  Back in 2007, President Bush, Federal Reserve Chairman Ben Bernanke and just about every prominent voice in the financial world were all predicting that we would experience tremendous economic prosperity well into the future.  In fact, as late as January 2008 Bernanke boldly declared that "the Federal Reserve is not currently forecasting a recession."  At the time, only the "doom and gloomers" were warning that everything was about to fall apart.  And of course we all know what happened.  But just a few short years later, history seems to be repeating itself. All of our "leaders" swear that everything is going to be okay.  You can believe them if you want, but denial is not just a river in Egypt, and another crash is inevitably coming.

Still confused why crony capitalist #1, the "rustic" Octogenarian of Omaha, and Obama tax advisor #1, Warren Buffett has been aggressively attempting to corner the railroad market, while the administration relentlessly refuses to allow assorted new, and very much competing petroleum pipelines from America's neighbor to the north to cross through the US (in gratitude for the former's generous "tax advice" and pedigree by association)? Hint: it's not concern about the environment. The answer is the chart below.

Here are some snippets from an interview from New Yorker magazine with the queen of trading on the cusp, 16-year-old Rachel Fox (as in Stocks; it rhymes, get it?), the shoeshine girl of the modern age. 

Bernanke: "None of the things you said are accurate"

Corker: "Oh yes they are"

As the markets once again approach historic highs - the overly exuberant tone, extreme complacency and weakness in the economic data, bring to mind Bob Farrell's 10 investment rules.  These rules should be a staple for any long term successful investor.  These rules are often quoted yet rarely heeded - just as they are now. Farrell became a pioneer in sentiment studies and market psychology. His 10 rules on investing stem from personal experience with dull markets, bull markets, bear markets, crashes and bubbles. In short, Farrell has seen it all and lived to tell about it. Despite endless warnings, repeated suggestions and outright recommendations - getting investors to sell, take profits and manage your portfolio risks is nearly a lost cause as long as the markets are rising.  Unfortunately, by the time the fear, desperation or panic stages are reached it is far too late to act and we will only be able to say that we warned you.

Warren Buffett’s aphorism: "price is what you pay; value is what you get" has been rightly celebrated. But to be a true value investor, it helps to have values. Courtesy of near-zero interest rates and global competitive currency debauchery, it is increasingly difficult to assess the value of anything, as denominated in units of anything else. The business of investing rationally becomes problematic when market participants are pursuing maximum nominal returns without a second thought as to the real (inflation-adjusted) value of those returns. In a global deleveraging that is likely to persist for some years, the heavily indebted countries will desperately need to attract foreign capital to help service their heavy debt loads. And in order to do so, they will likely devalue their currencies. There is an increasingly disorderly currency war going on out there, and the advantage of gold is clear – they can’t print it, they can’t default on it, and there will always be demand for it. Simply put, in the global currency wars, owning gold is like abandoning the battlefield altogether.

• G20 struggles over forex, at odds over debts (Reuters)
• Alwaleed Sells Airbus A380 to Invest in Middle East Firms (BBG)
• GOP Stalls Vote on Pick for Pentagon (WSJ)
• ECB officials rebuff currency targeting as G20 meets (Reuters)
• Not good for the reflation effort: Muto leads as Japan PM close to choosing nominee for Bank of Japan chief (Reuters)
• M&A Surges as Confidence Spurs Deals in Computers to Consumer (BBG)
• JPMorgan’s head of equity prop trading Gulati to launch own fund (FT)
• Tiffany & Co. sues Costco over engagement rings labeled ‘Tiffany' (WaPo)
• JPMorgan Said to Fire Traders, Realign Pay Amid Slump (BBG)
• Broker draws Tullett into Libor scandal  (FT)
• Airbus drops Lithium-Ion batteries for A350 (Reuters)