Friday, November 11, 2011

David Rosenberg On The Depression, The ECB, MF Global As A Canary In The Coalmine... All With A Surprise Ending

Consuelo Mack has just released a long overdue interview with David Rosenberg, in which the former Merrill strategist is allowed to speak for 27 whole minutes without commercial interruptions of manic depressive momentum chasers cutting off his every sentence, demanding he tell them what stocks he is buying right this second! In addition to the traditional now discussion of America's depression (see attached extended walkthru by Rosie), probably the more interesting part in the interview starts at minute 11 when the conversation shifts to MF Global which to Rosie is a canary in the coalmine, and is merely the 2011 version of Bear Stearns as there is "never just one cockroach." Then the Q&A shifts to Europe, the ECB's next steps and the future of the Eurozone and Germany in particular. Mack concludes with some thoughts on what bond rates indicate about the future of the word, how the 7% output gap as a % of GDP will drive deflation (although in a vacuum: there is little accounting for the Fed's and global central bank kneejerk reaction), and how the corporation is now more powerful than the sovereign, courtesy of more pristine corporate balance sheets than those of actual countries, all of which are on the verge. Will the IBM Stellar Sphere, the Microsoft Galaxy, Planet Starbucks take over when Europe and the US finally tumble? Oh, and like a good M. Night Shyamalan movie, there is a surprising twist ending.


Goldman's Jim O'Neill On "The Most Important Thing This Week"

This is Jim O'Neill in about the most pessimistic light that his genetic makeup, not to mention GSAM employment contract, will allow him: "For a couple of days this week, it actually felt as though Europe’s post-war project was nearing the end of the road and, as a result, emotions have been running high. For those that never believed it was a good idea, some have been expressing a mood of jubilance. For many involved in its creation, this has not been a good week. I got more caught up in the middle of this than usual as a result of a newspaper interview, where the headline distorted what I had actually said, claiming that we were predicting a break up. While this was not a fair reflection, I did say that some major issues were now on the table and needed to be recognized. The EMU, as created, has not really worked and needs to change. It is quite clear that many countries should not have been allowed to join. It is also clear that the Growth and Stability Pact has not worked. Policymakers need to be more open in at least acknowledging this, and then doing something about it. If all of this wasn’t enough of a challenge, Italy’s issues have become front and centre. Italy is no Greece. Indeed, although the BRICs can create another Italy in 2012, Italy is close to 4 times the combined size of Greece, Ireland and Portugal. Its total debt is close to 25 pct of the Euro Area GDP. Quite simply, Italy cannot be allowed to stay in the position it found itself this week....while I can see the case for an EMU without some others, and despite all of Italy’s complications, I can’t see an EMU without Italy. At the same time, I can’t see Italy sustaining life with 6-7 pct 10-year bond yields. So something has to give. Let’s see what Italy brings over the weekend, and how Frankfurt, Berlin, Brussels and the rest of us all react."



12 Hour Gold Chart

Trader Dan at Trader Dan's Market Views - 8 hours ago
Risk trades were back on in several markets today with equities rallying, the US Dollar selling off and both gold and silver moving higher. Once again, copper was up and thus so was silver. The link between those two metals lately has been quite tight. Gold bounced from support near $1750 and is moving back to towards $1800 once again. You might recall from the other day that I mentioned a large number of fresh short positions were shoved on at $1800 and above. We will see how those new bears defend those fresh positions. Bulls can give them plenty of headaches if they can muster th... more » 
 
 
 
 

S&P Is Second Rating Agency In One Day To Warn It Will Cut Hungary To Junk

Earlier today it was Fitch; now, way after the close, it is S&P's turn: the rating agency just put Hungary on junk bond watch, due an "unpredictable policy framework", and better yet, advised readers that the almost certain downgrade from Investment Grade would happen this month. Naturally, if Hungary, AAAustria is next. Then all of Eastern Europe follows quickly and Germany finds itself in a war with contagion on every single front.




Turd Ferguson: The Inexorable March Higher For Precious Metals

Turd Ferguson is a funny guy. But there's one thing this irreverent, acerbically goofball forecaster is stone-cold serious about: the need to build personal exposure to the  precious metals. For him, it's a straightforward mathematical certainty that the global economy must collapse under the weight of the excessive (and exponentially compounding) credit amassed over the past several decades. The debt is simply too large to be serviced. As a growing number of analysts (including Chris) are predicting, Turd sees the replacement of the world's current monetary regimes as the endgame to this story. And he believes we are watching that endgame unfold in real-time now. In this interview with Chris, Turd discusses his reasons why gold and silver offer the best prospect for preserving wealth through the coming devaluation of world currencies, despite his strong conviction that the markets for these metals are heavily price-manipulated.

 
 
 

1000 DJIA Points In Past 5 Days And All We Got Was A 1.5% Move In The Market

With today's volume over 30% below average (and the lightest since July), the week ended on an up note as the Dow managed to gain just over 1% having meandered well over 1000pts to get there. EUR closed off its best levels of the day but was the outstanding achiever and with credit markets closed (cash and CDS), it seemed the last hour saw major demand for high yield corporates as HYG surged (dislocating from everything) as perhaps it was the lever to try a late day ramp. Commodities surged with copper best on the day and Oil easily best on the week as Gold and Silver added around 1.5-2% on the week. The USD ended the week practically unch despite all the excitement.




Friday Afternoon Humor: Real... Or Spam?

Dear Beneficiary,

I am Timothy F. Geithner. The Secretary of the Treasury under the U.S Department of the Treasury. The executive agency responsible for promoting economic prosperity and ensuring the financial security of the United States. However, by virtue of my position as the Secretary of the Treasury, I have irrevocably instructed the Federal Reserve Bank to approve your fund release via issuance of a CERTIFIED cheque drawn on Standard Chartered Bank california, USA, which is the authourized bank for your fund release.




Even JP Morgan Is Staying Out Of This "Frightening, 10 Sigma" Market

A note by JP Morgan released today contains the following gem: "The quite frankly frightening volatility in the Italian bond market this week together with the rapid pace of political developments (nascent new governments in Greece and Italy) confirms not only a new, more extreme phase in the European crisis, one in which the very irrevocability of the euro is now up for discussion, but also the disconnect that now exists with the currency markets. Yes EUR/USD dropped but the worst daily decline was a 3-sigma move compared to the 10 sigma surge in BTP yields Wednesday followed by the 6-sigma drop today. European developments are not only dominating all other idiosyncratic fundamentals in the currency markets and leading to an extreme lack of differentiation in currency performance (chart 1), they are  generating volatility without meaningful or tradable direction. We have steered clear of any substantive cash positions in recent weeks and make no excuses for staying sidelined, especially as liquidity is likely to tail-off quicker into this year-end period than is normal in view of the degree of frustration many investors fell with their performance and the market’s volatility." So, aside from all the rearview mirror pros on twitter and various chatboards, if even JPM is staying out of this sad yoyo excuse for a market who is actually trading?




Morgan Stanley Issues Goldman Mirror Image Call: Says To Sell EURUSD With 1.30 Target

And so the two most "credible" investment banks have had their say on the EURUSD as a result of today's 250 pip surge in the EURUSD: while Goldman earlier said to buy, buy, buy (i.e., sell) every EURUSD pip until 1.40, here is Morgan Stanley with the mirror image call.
Today we entered a short EUR/USD trade at 1.3750. While Italian 10-year bond yields have tightened from the highs reached earlier this week, we believe yields still well above 6% are unsustainable for a debt market of 1.9tr EUR (third largest in the world). This means that Italy will need to spend nearly 10% of its annual GDP on interest payments alone. Meanwhile, political uncertainties add to concerns in the Eurozone, with new regimes in Greece and Italy. We remain fundamentally bearish on EUR, and believe it will retest 1.30 as Italy runs the risk of being “too big to save.”
Confused yet? Why bother. Maybe Goldman can just skip the foreplay, dump its entire EUR inventory to Morgan Stanley and spare everyone else the drama and paternity tests.






Bernanke Says That Any Criticism Of The Federal Reserve Is Based On “Misconceptions”
ilene
11/11/2011 - 14:44
Federal Reserve Chairman Ben Bernanke is taking his show on the road. 
 
 
 
 
 
4closureFraud
11/11/2011 - 16:39
FL Clerk of Court Sues Mortgage Electronic Registration System (MERS) for Civil Conspiracy, Unjust Enrichment, as well as Fraudulent and Negligent Misrepresentation
 
 
 
 
 
The CME acts on MF customer accounts
Bruce Krasting
11/11/2011 - 19:24
I think the MF Global story comes back to the front page next week. 
 
 
 
 

In The News Today


My Dear Extended Family,

Reading, considering and doing very little is no solution. Have you acted?

Are your securities in direct registration or in certificate form? Is your account at a brokerage house in securities under SIPC minimums?

If the answer is no to any of these questions, why not?

Regards,
Jim


Jim Sinclair’s Commentary

The loss of the American Dream puts confidence in the currency on shaky ground.

REPORT – Over 50% Of U.S. Homeowners Are Underwater
New report shows the housing outlook is getting worse.
By CNBC’s Diana Olick
A new report on still falling home prices today highlights the fact that the lower those prices go, the more American borrowers fall into an negative equity position; that is, they owe more on their mortgages than their homes are worth.
Many of those borrowers are already behind on their mortgage payments, and some are likely already in the foreclosure process. The rest of them are in danger of defaulting, not because they can’t pay their mortgages, but because they either won’t want to (seeing as they will never see any real appreciation in their investment) or because any change in their economic or personal situation might force them into default (change of job, divorce).
While 14.6 million might seem like a lot, it’s not the real number when you consider negative equity in housing’s recovery. That’s because it doesn’t factor in "effective" negative equity, which is borrowers who have so little equity in their homes that they cannot afford to move.
Consider the following from mortgage analyst Mark Hanson:
On US totals, if you figure average house prices use conforming loan balances, then a repeat buyer has to have roughly 10 percent down to buy in addition to the 6 percent Realtor fee to sell. Thus, the effective negative equity target would be 85%. You also have to factor in secondary financing, which most measures leave out.
Based on that, over 50 percent of all mortgaged households in the US are effectively underwater — unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It’s as if half the potential buyers in America died over a two-year period of time.
More…

 

Market Commentary From Monty Guild


It Ain’t Over Till It’s Over…And That’s Not Happening Soon
Don’t expect the current crisis of budgetary deficits and spending restraints to stop any time soon. Instead, think in these realistic terms: the era of fiscal restraint and spending limits has come, and will be with us for at least ten to twenty more years.
It is obvious to veteran observers that Europe and America are facing hard choices that will result in slow growth and increased suffering for the people. And for that we have our incompetent legislators – past and present – to thank. They have misused their mandates, grossly exceeded their budgets, and are loath to correct wayward behaviors.
Barry Eichengreen, an economist at the University of California, summed up the situation thusly: “The U.S. and Europe have to make hard choices because of two things: slower growth and aging populations.” And Europe’s choices are harder than America’s, he adds, “Because the prospects for growth are more dubious.”
If action were to be taken quickly, it is easier to see progress; if not, there appears little else ahead except decades of slow and stagnant growth, declining social safety nets, and less military influence in the world. Oh, and don’t forget to add deflation to the equation, a result of deleveraging an over-leveraged banking system. It is not hard to see our future by looking at Japan, which entered the same rut more than twenty years ago and is still stuck in it.
Even the mainstream U.S. press is belatedly getting the message that we are in an era of spending limits. This reality doesn’t stop special interests doing what special interests always do: tempting congressional representatives with offers of money to support their specific area. Such money may be intended for election campaigns , but let’s not kid ourselves. It is still a form of paying for special favors. The ranks of federal, state, and local governments throughout the world are brimming with self-interested individuals. This is the reality. Moreover, most politicians are pre-eminently, emotionally, and intellectually designed to do what’s needed to get elected and re-elected but not to do the right thing for the electorate. They like to spend money today to help favored constituencies. The more cynical ones see the problem, but think along these lines: “Well, I will be gone when the crisis erupts, so…” The more na├»ve ones just hope for the best in the future while spending irresponsibly today.
Not surprisingly, the approval ratings of politicians in the developed world are at multi-year lows. A recent New York Times/CBS News poll gave a beyond-disgraceful 9 percent approval rating to members of the U.S. Congress. Politicians in Europe and Japan wallow in a similar level of public contempt.
The steady stream of lies from U.S. and European politicians continues apace. With elections on the horizon in many countries we can expect a lot more hot air and fiction. What we all knew has been reinforced by events. Politicians cannot be trusted.

European Central Bank Cuts Interest Rate
This week the new European Central Bank (ECB) president Mario Draghi’s first action was to cut European rates by a quarter-point to 1.25 percent. Such action is long overdue. It sent a strong signal that Mr. Draghi will be more willing to cut rates and focus on the economy instead of inflation in Europe. His predecessor, Jean Claude Trichet, raised rates twice in recent months in the face of an oncoming decline in European GDP. ECB board members unanimously supported Mr. Draghi and if the cutting continues we can expect the following results:
1) The creation of more quantitative easing (QE), meaning the printing of more money, and
2) The rate of inflation will rise in Europe.
These consequences support our recommendation to own gold and emerging market equities. The change of direction for the ECB is a positive psychological underpinning for Europe, which is now admitting that the banking crisis, not inflation, is the most immediate and pressing problem, and that actions need to be taken to address this problem.

New Development
An even more positive late developing prospect is the fact reported in the German newspaper Handelsblatt that the largest political party in Germany, Angela Merkel’s Christian Democratic Union [CDU]  are beginning to work a clause allowing countries to exit the Euro in their platform.  The way it would work is that a Euro member that does not want to or cannot comply with the common currency rules could leave the Euro currency regime without losing membership in the European Union.
Should this amendment progress from a German plan to a Europe- wide plan, it would allow any state to exit the currency area [this is not currently allowed], while still enjoying the membership benefits of being in the European Union.
Any country that left the Euro currency would revert to using its own currency, which could be devalued. They would be able to issue debt and pay debt in their own currency.  Thus, their financial decisions would reflect upon them and they would not be able to demand that other members of the community lend them money or guarantee their debt.
In our opinion, this approach should be implemented immediately. We believe that there is a very high probability that this alternative will be instituted via an amendment to the current Euro currency treaty.

Something Wrong With This Picture?
High U.S. Unemployment, Yet Many Good Jobs Go Unfilled
The Society for Human Resources Management, a Virginia-based professional organization for human resources professionals, conducted a revealing survey. It showed that employers are having difficulty filling good-paying jobs at professional, managerial, and executive levels. There are numerous openings for skilled engineers, medical and IT professionals, scientists, managers, sales representatives, accountants, HR executives, drivers, administrative support staff, and customer service reps. An article summarizing this eye-opening situation appeared earlier this week in the Wall Street Journal.
According to the article, professionals can qualify for many jobs simply “by upgrading their skill sets, moving to another part of the country, or just rewording their resumes.” It turns out that some parts of the U.S. are very short of workers. One example is Tulsa, Oklahoma, where the city has actually hired a specialist to retain a strong workforce. Now that’s a neat sign of life in the otherwise grave municipality condition. Tulsa, in fact, generates more than 1,500 new aerospace / aviation jobs every year. It also has gaps to be filled in healthcare, manufacturing, and other industries. According to recent statistics, about 3,450,000 jobs currently remain unfilled in the U.S.!
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*Wall Street Journal, "Demand is High for Skilled Job Seekers" by Julie Bennett, November 7, 2011.
*Source: SHRM Photo: Getty Images/ Maximilian Stock Ltd.

Corruption Rankings: Where Does Your Country Stand?
Take a look at the chart below – a “bribe payer’s index” – that ranks countries according to the way their national enterprises do business abroad. We found the information, collected by Transparency International, quite fascinating. Transparency International is a global network of more than 90 national chapters with members from government, civil society, business, and the media dedicated to promoting transparency in elections, public administration, procurement and business.
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Please click here to see the full article.
Russia and China are top bribers and bribe recipients, followed by Mexico, Indonesia, Turkey, and India. Nevertheless, executives of all countries play the game, especially when operating in the developing world.
Many years of investing in global markets has reinforced our belief that country selection is a key factor, and that when evaluating the reward/risk of a country, you must always consider the corruption element.

Guild Basic Needs IndexTM
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Guild Investment Management has long believed that the existing
indices used to measure cost of living changes in the United States are inadequate and misleading.
For instance, the widely quoted inflation index, the Consumer Price Index, is currently based on data collected from spending surveys given by the U.S. Bureau of Labor Statistics from approximately 14,000 urban families. In addition to basic needs, the CPI includes other expenditures, such as insurance and taxes. However, it also includes discretionary spending items such as personal care services and entertainment purchases such as the latest flat screen televisions and consumer electronics.
Another point about the CPI is that the Bureau of Labor Statistics periodically alters its content, making adjustments to the weighting of the components, and smoothing seasonal patterns. Such tinkering with data, as we have mentioned over the years, usually results in an understatement of the inflation rate and creates an unreliable, misleading cost of living index.
We believe a simpler index is necessary for tracking the price changes of basic needs. No such index exists. So, we have created one: the Guild Basic Needs IndexTM. The GBNI will not reflect spending patterns of one segment of the population. Rather, it will measure the changing prices of essential living expenditures. Another key differentiator between the GBNI and the government’s measures is that the components of the GBNI do not change. They are not adjusted, statistically smoothed or manipulated.
The October numbers are still being compiled, however we will have a changed index in our next week’s commentary.  Please stay tuned.

China News
The China Securities Journal reports that China’s gold demand for 2011 is expected to reach 400 metric tons up from 270 metric tons in 2010. According to Sun Zhaoxue, chairman of the China’s Gold Association, the increase is due to rising income levels and investment demand which has boosted jewelry and bullion sales.
According to Ting Lu Bank of America Merrill Lynch’s chief China economist the details of China’s inflation which fell from 6.1% annually in September to 5.5% annually in October are as follows; food price inflation fell to 11.9% from 13.4% in the previous month. Non food inflation fell to 2.7 % from 2.9% and housing costs fell to 4.4% from 5.1% year over year. In essence, many costs are falling in China and this will allow the country to fine tune their monetary policy and perhaps cut interest rates. Today it is hard to find the bears whom a year ago were calling for double digit out of control inflation and a major hard landing in China. Now that it is becoming more obvious that China will experience a soft landing and that the economic bulls have triumphed, perhaps the bears have returned to their caves to lick their wounds.

Investment Focus
Our primary advice to investors is to generally ignore the deafening scare and crisis screech emanating from your television screens.  The headlines and hype are meant to attract viewers. Fear and greed make good bait for attracting unsophisticated viewers, newspapers do the same. We look beyond the surface babble and stay focused on our own investment strategies.
In our opinion, Europe has no choice but to eventually print money to solve its problems. The statements you commonly hear on the TV about Europe not having enough money to recapitalize its banks and bail out the sovereign debt crisis miss the point.  It is true that currently there is not enough money to solve these serious fiscal problems. Europe, however, has the power to print money and will use this power when the crisis comes to a head. At that time, Europe will create QE in a major way to keep the union alive.
At Guild Investment Management, we watch Europe’s seemingly never-ending financial fits. It seems obvious to us that gold, oil, and many stocks will soar when Europe finally announces the inevitable money printing exercise to bail out European banks and sovereign nations. This expectation reinforces our long-term bullish view on gold, oil, wheat, emerging markets, and U.S. stocks. Historically, money printing boosts commodity prices, creates demand for income-producing real estate, and for the stocks of public companies that can grow. Such companies are often, but not always, producers of commodities such as foodstuffs, oil, fertilizer, or key industrial minerals.

Would You Like To Join The Guild team?

Would you like to join the Guild team?

    * Are you a news hound who reads and reflects upon global social, political, financial and economic trends?
    * Do you have a masters or PhD in economics or international affairs?
    * Do you follow world investment markets?
    * Do you enjoy performing economic, social, political and financial research?
    * Can you write?

If you are interested in being part of our research team, are interested in seeing your work in print, please do not hesitate to email your resume to careers@guildinvestment.com or fax it to 310-826-8611.

Thank You To Our Readers

It has been 40 years that we have been managing investment portfolios for clients.  We hope the newsletter serves to sharpen your investment perspectives and strategies.  Please feel free to forward our commentary to friends, family, colleagues.

To request information about Guild Investment Management services and offerings please call (310) 826-8600 or email us at guild@guildinvestment.com
 

Our Recommendations

  Date
Date
Appreciation/Depreciation
Investment
Recommended
Closed
in U.S. Dollars
Commodity Market Recommendations
     
Gold
6/25/2002
Open
+438.9%
Oil
10/24/2011
Open
+11.5%
Wheat
10/24/2011
Open
-1.9%
Corn
4/20/2011
8/3/201
-6.3%
Oil
2/11/2009
8/3/2011
+157.1%
Corn
12/31/2008
3/3/2011
+81.0%
Soybeans
12/31/2008
3/3/2011
+44.1%
Wheat
12/31/2008
3/3/2011
+35.0%
Currency
Recommendations
     
Long
     
Canadian Dollar
10/24/2011
Open
-1%
Long
     
Singapore Dollar
10/24/2011
Open
-1.4%
Long
     
Canadian Dollar
9/13/2010
9/21/2011
+2.2%
Long
     
Chinese Yuan
9/13/2010
9/21/2011
+5.8%
Long
     
Swiss Franc
9/13/2010
9/21/2011
+12.1%
Long
     
Brazilian Real
9/13/2010
9/1/2011
+6.4%
Long
     
Singapore Dollar
9/13/2010
8/3/2011
+10.9%
Long
     
Australian Dollar
9/13/2010
6/29/2011
+14.1%
Long
     
Thai Baht
9/13/2010
6/22/2011
+6.5%
Short
     
Japanese Yen
4/6/2011
7/27/2011
-9.7%
Short
     
Japanese Yen
9/14/2010
10/20/2010
-3.3%
Equity Market
Recommendations
     
I Shares MSCI Emerging Market Index
10/24/2011
Open
+2.5%
U.S.
10/24/2011
Open
+0.3%
U.S.
9/14/2011
9/21/2011
-2.3%
India
4/6/2011
9/21/2011
-21.6%
Malaysia
6/29/2011
8/3/2011
+0.1%
U.S.
6/29/2011
8/3/2011
-4.6%
Japan
2/15/2011
8/3/2011
-9.5%
Australia
2/15/2011
6/22/2011
-0.9%
Canada
3/24/2011
6/22/2011
-7.1%
Colombia
9/13/2010
6/22/2011
+2.6%
Malaysia
4/6/2011
6/22/2011
+0.8%
Canada
12/16/2010
3/11/2011
+7.9%
U.S.
9/9/2010
3/11/2011
+18.1%
South Korea
1/6/2011
3/3/2011
-2.9%
Colombia
9/13/2010
2/2/2011
+3.9%
China
9/13/2010
1/27/2011
+5.0%
India
9/13/2010
1/6/2011
+7.9%
Chile
9/13/2010
12/16/2010
+8.9%
Indonesia
9/13/2010
12/16/2010
+9.5%
Malaysia
9/13/2010
12/16/2010
+1.3%
Peru
9/13/2010
12/16/2010
+32.2%
Singapore
9/13/2010
12/16/2010
+4.8%
Thailand
9/13/2010
12/16/2010
+11.9%
       
Bond Market
Recommendations
     
       
30 YR Long Term
     
U.S. Treasury Bond 
8/27/2010
10/20/2010
0.0%
More..



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