We have been living in a new era of “fantasy finance” since the Fed officially intervened massively, in 2009, and since the non-official control of the gold price, in 2013. Investors are now thinking that everything is possible: stocks rising into infinity, oil being given to us by producers and refiners almost for free (it sells cheaper than mineral water), countries that can borrow at historically ri-di-cu-lous rates, and, no later than just a few days ago, a bank in Denmark that pays people to contract a real estate loan (negative rates) ! The financial world, with its lies and immoral management, has been transformed into a Pinocchio’s Enchanted Island... for adults !
Curency wars are zero-sum. Interest rate race is not.
Cry if you want to, but the dollar is stronger. Deny it if you want to, but the US economy is more vibrant now than the Europe or Japan. This is what is shaping the investment climate, if you are interested.
"Most investors go about their job trying to identify ‘winners’. But more often than not, investing is about avoiding losers. Like successful gamblers at the racing track, an investor’s starting point should be to eliminate the assets that do not stand a chance, and then spread the rest of one’s capital amongst the remainder." So as the year draws to a close, it may be helpful if we recap the main questions confronting investors and the themes we strongly believe in, region by region.
Unvarnished analysis as if people were not stupid, easily manipulated, or subject to false consciousness.
Foxconn workers are striking again - this time in Chongqing. But you have to look at the map to see why this is an event of extraordinary significance. In a word, these strikes mean that the rice paddies of China have been nearly drained of cheap, docile labor.
Having infamously "thrown in the bearish towel" late last year (must read), Hugh Hendry's Eclectica fund has not enjoyed the kind of money-printing melt-up euphoria he had hoped for in 2014. According to his August letter to investors, the fund is -10.9% year-to-date, shrinking the firm's performance since inception to a mere +0.7%. His positions are intriguing but his commentary can be summed with this sentence alone, "when central banks are actively pursuing a goal of higher prices the most rational course is to tenaciously remain invested in equities." And so he is...
There’s not a single day that we’re not treated to more smart treats about stimulus measures. Are they necessary, are they good, are they bad, who profits from them. It gets really long in the tooth. Today, former ECB head Trichet says unlimited stimulus ‘risks’ blowing bubbles. “Supplying unlimited amounts of liquidity at interest rates close to zero has “unintended counterproductive consequences.” No shit, assclown. Does Jean-Claude really mean to claim he just figured that one out now? Why else did he never say it before? There are 1001 other wise guys like Trichet who’ve only recently seen a sliver of light, and see fit to make the great unwashed party to their new found wisdom.
Overview of the ECB meeting and likely outcomes. More robust analysis than ideological fervor.
Rising rates would hurt bonds and equities but would support gold. This was clearly seen in the 1970s when rising interest rates corresponded with rising gold prices. Gold becomes vulnerable towards the end of an interest rate tightening cycle when there are positive real interest rates and savers earn something on their deposits.
A dispassionate look at what the ECB announced last week and the potential implications
When The Head Of The European Central Bank Lies To Zero Hedge On The Record: Presenting Europe's "Plan Z"Submitted by Tyler Durden on 05/15/2014 14:16 -0500
We are happy to report that Zero Hedge is the first media outlet that Mario Draghi has very publicly, officially, and on the record, lied to. Because as we learned overnight, Europe most certainly had a "plan in place so that the markets don't basically collapse." Only it wasn't as Margio Draghi called it, Plan B. It was a different letter of the alphabet. Thanks to the FT's Peter Spiegel we now know that just over a year ago, in order to preserve the myth that Europe's power echelons are so "confident" with the Eurozone staying together they did not even consider a break up as a potential outcome, Draghi explicitly and on the record lied.
Presenting Europe's Plan Z.
What is the Bundesbank thinking?
Despite record levels of unemployment across Europe (most specifically among the youth), record high (and surging) levels of loan delinquencies, and collapsing credit creation, the leaders of the EU continue to peddle their own brand of dis-information and willful blindness. While UKIP's Nigel Farage tongue-lashings are normally enough, EU's Barroso this morning unleashed the following:
*EU'S BARROSO SAYS ECONOMIC GROWTH 'SLOWLY RETURNING'; SAYS EU AT TURNING POINT IN CRISIS
However, as the following chart of earnings estimated for European firms shows, there is absolutely none, zero, nada sign on a 'turning point' and, as we have noted previously, unless the EUR weakens significantly, Europe will rapidly dip back into re-re-recession once again.
Despite record unemployment, record loan delinquencies, and record low loan creation, Mario Draghi and his merry European men decided now was not the time to cut rates to "help" the real economy. Of course, with peripheral bond and stock markets exploding higher why would he - Europe's 'problems' are solved if the market is to be believed. Of course the ECB press conference will have its smattering of negative rate discussions, QE teases, and OMT confidence-inspiration but the multi-year highs in EUR will continue to hurt Europe's exporters means he'll have to try sometime to jawbone it down.