As we wrap up 2010, the last thing left to do is to recall the stories that generated the most buzz on Zero Hedge. With stories touching on everything from the flash crash, to JPM's silver market manipulation, to the scramble for physical metals, to capital controls, to the manipulated (and successful) push to get Americans out of Money Market accounts, here are the top to stories of the past year (and stunningly all click-bait, slideshow free).
When Nassim Taleb and Marc Faber say that US government debt is a suicide investment, one can be allowed some skepticism. After all, they are likely just talking their book. On the other hand, when the manager of the world's biggest bond fund, whose flagship fund Treasury holdings amount to almost $80 billion goes on Bloomberg and says to "avoid dollar-denominated government debt" better known as US Treasuries, and instead recommends viewers invest in "stable" currencies like the Peso, the BRL or the CAD, then you know the bottom in bonds is in. So in addition to dumping fixed rate bonds (which means Pimco will again be able to buy on the cheap ahead of QE3, which as Larry Meyer has by now likely advised Pimco is a sure thing), Gross also told Bloomberg that his other two strategies are to buy floating rate debt (over fixed), and lastly recommend credit spreads over interest rate duration risk. For those who find something troubling with a $1 trillion fixed income manager talking down his investments, and are still wondering whether or not QE3 is coming, we suggest putting one and one together. And while at it, they should also consider that Pimco now holds over $100 billion in MBS: a notional amount last held just as QE1 was announced.
Have we hit or are very near to hitting something along the lines of an institutional tipping point in terms of the supply/demand balance for equities? This set of circumstances helps argue for a range bound market, volatility as a key construct, and the need for active asset allocation ahead. As a very quick anecdote, right now the pension system in Japan has begun liquidating JGB's (Japanese Government Bonds) to meet pension obligations. This is a first and certainly a trend that will continue. Watching Japanese experience will be important as their baby boom contingent is about a decade ahead of the US . What were once demographic tailwinds for US equities are set to become headwinds. Again, this is not end of the world stuff here. As in sailing, tailwinds turning to headwinds just requires a change in navigational technique inconsistent with the prior approach. Range bound, volatility and active asset allocation will hopefully get us safely to shore as the winds of change gather force with demographics. Can we avoid landfall on the equity index targets suggested by Mr. Dent? We believe they are extreme, but he has the direction of the trade winds correct.
Some time in mid/late 2009, after becoming convinced that the stock market is a broken topological nightmare, with feedback loops that are so unpredictable to be virtually "skyNet" self-aware, and is in essence broken, we urged readers to pull all their capital from the stock market. This happened even as we grew increasingly concerned by the Fed's ongoing ruinous actions which anyone but the staunchest propaganda foot soldier realized were going to mean ongoing pain for all dilutable assets, including stocks and fiat currencies. As a result it became abundantly clear that hard assets such as gold, silver, non-nailed down park benches, bananas, hard liquor, stripper poles, and of course strippers, would outperform paper assets. Sure enough, with regard to the first, in May 2010, our skepticism about stocks was confirmed, and anyone who had limit sell orders likely ended up losing up to 40% of their capital with no recourse. Since nothing has changed in stocks, we repeat our warning that the market is at all times a few stray millisecond algos away from total meltdown. And as for gold: the 29.7% 2010 return is double that of the S&P. Which means those who did not play stocks and bought gold did ok. And even those who shorted stocks and bought gold, are still up about 15%. As above, little has changed to weaken our long-term conviction that gold (and silver, for those who can handle the added vol) is the natural antithesis to central banker lunacy. And that we will have a lot more of in 2011. Guaranteed.
After precious metals market manipulation finally came out of the tinfoil hat closet and was officially recognized in 2010, subsequently becoming mainstream, following various whistleblowing disclosures which led to a long overdue investigation by the DOJ, and CFTC commissioners such as Bart Chilton admitting that there is in fact open market manipulation in the silver futures market by large short position holders, nobody is more relieved than Ted Butler. As the attached letter written by Butler shows, the PM expert wrote with excruciating detail everything that would subsequently be proven true. A key excerpt from the letter: "the true sorrow in this whole affair is that, in addition to the unnecessary financial punishment, the producers and owners of Silver (including the U.S. government) have experienced over the last six years, there are tens of thousands of contracts held short by innocent and unsuspecting speculators who are in for a ruinous shock. Do not be surprised, when this manipulation is attacked, to see the price of Silver open $20 per ounce higher at that time. Since that would represent a $100,000 loss on each contract held short, the current $2,000 COMEX margin will provide scant protection against the inevitable massive bankruptcies for those shorts not holding real Silver." The kicker: the letter was written on April 25, 1989.
No wonder the VIX is down to 17.50 – we are a totally complacent society aren’t we? I guess the problem is most people don’t want you to protect your portfolio – they want you to CHURN your portfolio to generate fees.
Since readers are likely eager to share their own predictions for 2011, please use the following open thread for that, as well as for anything else that may cross the collective subconscious. Additionally, any suggestions on improving (or deteriorating) the site, as well as all brainstorming, and last but not least threats, are most certainly welcome. Best of luck to all in 2011, especially those who fail in their resolutions to cease feeding the central planning monkeys.