- First Japan now... Australia Ready to Help IMF (WSJ)
- "Not if, but when" for Spanish bailout, experts believe (Reuters)
- Spain’s Surging Bad Loans Cast New Doubts on Bank Cleanup (Bloomberg)
- Spain weighs financing options (FT)
- Spanish Banks Gorging on Sovereign Bonds Shifts Risk to Taxpayer (Bloomberg)
- Spain and Italy Bank on Banks (WSJ)
- Chesapeake CEO took out $1.1 billion in unreported loans (Reuters)
- China preparing to roll out OTC equity market – regulator (Reuters)
- Angry North Korea threatens retaliation, nuclear test expected (Reuters)
- North Korea Breaks Off Nuclear Accord as Food Aid Halted (Bloomberg)
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.
Billionaires, Corruption, and Crony Capitalism
Flashing headlines to conclude tax day:
- BUFFETT DIAGNOSED WITH STAGE I PROSTATE CANCER
- WARREN BUFFETT SAYS NO INCIDENCE OF CANCER ELSEWHERE
- BERKSHIRE SAYS CONDITION ISN'T 'REMOTELY LIFE-THREATENING'
- BUFFETT: TESTS SHOW NO INCIDENCE OF CANCER ELSEWHERE IN BODY
CNBC adds that Buffett will start a two-month treatment course in July.
Let's get it all out there. America's dirty laundry that is. Our family secrets. The skeletons in the closet. The goal is to create a list of the many and numerous ways in which our country is deluding itself into believing we are the greatest, smartest, most innovative, freedom loving country that ever was. Don't get me wrong, I'm not some unpatriotic ne'er do well. I love what the Founding Fathers of our country set out to accomplish, faults and all. I love it so much, I was willing to put my life on the line for this country by serving in a US Marine Corps special forces unit for 8 years (your move armchair patriot). But we have drifted so far from the original concepts, I believe our current central planning apparatus more closely resembles the USSR than what most people think is the USA. So I'm going to kick this list off but in no way do I intend this to be exhaustive.
Back in May of last year, just after the now historic silver slamdown of "Silver Sunday" on May 1, 2011, when the metal imploded by nearly 20% in the span of seconds, a move that some considered 'normal', primarily the CFTC, we presented the extended biopic of the infamous "Silverfinger": Bunker Hunt, who attempted to corner the silver market, and succeeded, if only briefly (and they say Playboy has no good articles). Today, courtesy of Grant Williams, we have dredged up the following clip from the archives, which is a 10 minute overview of just how there is really nothing new ever in the silver market, bringing up memories of Silver Thursday, March 27, 1980, and raising questions whether last year the move in precious metals was not due to the same attempt to corner the silver and gold markets as happened 30 years prior. A far more important question perhaps is how was it that tried a redux of the Hunt brothers (and Warren Buffett of course), and when will someone take their place next?
Who's more foolish, the fool, or the fool who follows him?
Swiss money manager and long term bear Marc Faber, aka "Dr Doom", says political risk in the Middle East has increased significantly with war between Iran and Israel “almost inevitable”, and precious metals and equities investments offer some safety. "Political risk was high six months ago and is higher now. I think sooner or later, the U.S. or Israel will strike Iran - it's almost inevitable," Faber, who publishes the widely read Gloom Boom and Doom Report, told Reuters on the sidelines of an investment conference. Brent crude traded near $123 per barrel in volatile trade on Tuesday on fears of a disruption in Iranian supplies. Israeli Prime Minister Benjamin Netanyahu showed no signs of backing away from possible military action against Iran following a Monday meeting with U.S. President Barack Obama. "Say war breaks out in the Middle East or anywhere else, (U.S. Federal Reserve chairman) Mr Bernanke will just print even more money -- they have no option...they haven't got the money to finance a war," said Faber. "You have to be in precious metals and equities ... most wars and most social unrest haven't destroyed corporations - they usually survive," he said. He said that Middle East markets had largely bottomed out, though regime changes from the Arab Spring revolutions were unlikely to be investor-friendly.
Warren Buffett loves to bash gold — claiming that stocks are inherently superior, because they produce a return, whereas gold just sits. Trouble is, stocks (and all paper assets) are subject to counter-party risk, whereas physical gold isn’t. Gold doesn’t overcompensate its CEOs, it doesn’t leverage its productive capital in toxic derivatives, it doesn’t cause industrial disasters like Deepwater Horizon, its value isn’t dependent on central banking, or securitisation, or American imperialism, or the machinations of the military-industrial complex. It just sits, retaining its purchasing power.
"Next up on CNBC - - an octogenerian fund manager who completely missed the boat on technology in the late 1990s and, since the early 2009 bottom, has underperformed the S&P by 50%. Stay tuned!"
So how many people do you think would stay riveted to their flat-panel Samsung to watch that? Not many, I'm guessing. But if the aforementioned gent is named Warren Buffett, the entire nation comes to a halt and hangs on to every word. A quick glance at Amazon yields 2,100 results when one does a search on his name (including the surprisingly-titled Warren Buffett Invests Like a Girl: And Why You Should, Too).
Bill Gross' monthly letters are always a fresh source of jovial imagery, although the bond king may have outdone himself in his latest monthly letter which collapses the principles of investing onto the football field: "My point about pigskin offense and defense is the perfect metaphor for the world of investing as well. Offensively minded risk takers in the markets have historically been the ones who have dominated the headlines and won the hearts of that beautiful gal (or handsome guy).... Canton, however, has an approximately equal number of defensive in addition to offensively positioned inductees, so there must be a universally acknowledged role for both sides of the scrimmage line. What fan can forget Mean Joe Greene, Deion Sanders or Mike Ditka? The old, now politically incorrect showtune laments that “you gotta be a football hero, to fall in love with a beautiful girl,” but football and any of life’s heroes can play on either side of the line, it seems." And it only gets better. While at its heart Gross' latest is merely yet another lamentation against the confines of the financially suppressive regime that arises from ZIRP and ends with what many expect is a whimper (when in reality they all forget to factor in the facility of hitting the CTRL+P keys as many times as necessary), the flourish of abandon this time around is palpable. We would not be surprised to soon see Gross hang up his offensive (and defensive) jersey, and sit back and enjoy the coming lunacy from a distance (but hopefully not before he allocates just a little to the Ron Paul SuperPAC).
Following on his latest bash session of gold from the weekend, when Warren Buffett dedicated a substantial portion of his annual letter to shareholders for the now routine and perfectly expected gold blasting, the Octogenarian of Omaha revealed to his faithful personal scribe Becky Quick that of all banks, he would recommend Wells Fargo as the single best bank to own. Naturally, as was previously lampooned by William Banzai, Americans, even those paying a 15% tax rate, would "do absolutely nothing for Warren trading book" if they were to buy gold instead of pooling their cash into the ponzi. As for buying WFC vs. gold, the chart below will show why the world is increasingly taking any proclamations from the man whose net worth was bailed out by the government, with humor more than serious consideration.Presenting the past decade's return of Wells Fargo and of gold. No commentary necessary.
- 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)
The real world revolves around cash flow. Families across the land understand this basic concept. Cash flows in from wages, investments and these days from the government. Cash flows out for food, gasoline, utilities, cable, cell phones, real estate taxes, income taxes, payroll taxes, clothing, mortgage payments, car payments, insurance payments, medical bills, auto repairs, home repairs, appliances, electronic gadgets, education, alcohol (necessary in this economy) and a countless other everyday expenses. If the outflow exceeds the inflow a family may be able to fund the deficit with credit cards for awhile, but ultimately running a cash flow deficit will result in debt default and loss of your home and assets. Ask the millions of Americans that have experienced this exact outcome since 2008 if you believe this is only a theoretical exercise. The Federal government, Federal Reserve, Wall Street banks, regulatory agencies and commercial real estate debtors have colluded since 2008 to pretend cash flow doesn’t matter. Their plan has been to “extend and pretend”, praying for an economic recovery that would save them from their greedy and foolish risk taking during the 2003 – 2007 Caligula-like debauchery.
Debt default means huge losses for the Wall Street criminal banks. Of course the banksters will just demand another taxpayer bailout from the puppet politicians. This repeat scenario gives new meaning to the term shop until you drop. Extending and pretending can work for awhile as accounting obfuscation, rolling over bad debts, and praying for a revival of the glory days can put off the day of reckoning for a couple years. Ultimately it comes down to cash flow, whether you’re a household, retailer, developer, bank or government. America is running on empty and extending and pretending is coming to an end.