Bill Gross Explains Why "We Are Witnessing The Death Of Abundance" And Why Gold Is Becoming The Default "Store Of Value"
While sounding just a tad preachy in his February newsletter, Bill Gross' latest summary piece on the economy, on the Fed's forray into infinite ZIRP, into maturity transformation, and the lack thereof, on the Fed's massive blunder in treating the liquidity trap, but most importantly on what the transition from a levering to delevering global economy means, is a must read. First: on the fatal flaw in the Fed's plan: "when rational or irrational fear persuades an investor to be more concerned about the return of her money than on her money then liquidity can be trapped in a mattress, a bank account or a five basis point Treasury bill. But that commonsensical observation is well known to Fed policymakers, economic historians and certainly citizens on Main Street." And secondly, here is why the party is over: "Where does credit go when it dies? It goes back to where it came from. It delevers, it slows and inhibits economic growth, and it turns economic theory upside down, ultimately challenging the wisdom of policymakers. We’ll all be making this up as we go along for what may seem like an eternity. A 30-50 year virtuous cycle of credit expansion which has produced outsize paranormal returns for financial assets – bonds, stocks, real estate and commodities alike – is now delevering because of excessive “risk” and the “price” of money at the zero-bound. We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time." Yet most troubling is that even Gross, a long-time member of the status quo, now sees what has been obvious only to fringe blogs for years: "Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper." Let that sink in for a second, and let it further sink in what happens when $1.3 trillion Pimco decides to open a gold fund. Physical preferably...
Mainstream Media Keeps Putting Lipstick on Pig Economy
from Greg Hunter’s USAWatchdog.com:
My slogan is “analyzing the news to give you a clear picture of what’s really going on.” So, I spend a significant amount of time watching news on TV and the Internet and even the good old fashioned newspaper. If you only got your news from the mainstream media (MSM), it’s easy to understand whyso many people think the economy is not all that bad. For example, yesterday, I heard the “R” word a lot. No, I am not talking about recession but “recovery.” This is preposterous when you consider the latest report from the Case-Shiller Home Price Index that was released yesterday. The spin from the MSM said home prices were down from October to November by 1.3%. Makes you think—ok, not too bad. The real story is home prices declined on average by nearly 4% year over year. A quote straight from the actual Case-Shiller press release said, “For a second consecutive month, 19 of the 20 cities covered by the indices also saw home prices decrease. The 10- and 20-City Composites posted annual returns of -3.6% and -3.7% versus November 2010, respectively. These are worse than the -3.2% and -3.4% respective rates reported for October.” (Click here for the complete Case-Shiller press release.)
Are you getting this? The real estate market is getting worse. The only city that saw an increase was the pork capital of the world—Washington D.C., and prices were only up by a paltry .5% year over year! All the folks I heard, yesterday, on the MSM talked as if the so-called “recovery” was alive and well, when the evidence shows unfolding disaster. Please keep in mind, home prices are falling despite the fact the Federal Reserve is suppressing interest rates. A 30-year mortgage is going for around 4%. What do you think will happen when rates rise to around 6.5% (a very good historical rate)? Don’t you think home prices will continue to slide?
Read More @ USAWatchdog.com
While
a few days ago we reported that the US was set to place a third
aircraft carrier, ostensibly the USS Enterprise, in the Arabian Gulf in
the indefinite future, it appears that the US is wasting little time in
making preparations for this latest military escalation against Iran.
As RT reports,
"two ships of the US Navy, the nuclear submarine USS Annapolis and the
destroyer USS Momsen have passed through the Suez Canal into the Red
Sea. Although their destination is confidential, they are now getting
dangerously close to the Persian Gulf. The ships’ passage was a major
operation for the Suez administration as due to safety reasons they had
to close off the canal to all other traffic and even shut down the
bridge, disrupting the link between the banks for some four hours. The
traffic on the roadways alongside the canal was also restricted,
Interfax news agency reports." What's next: reports that Russian
destroyers in Syria are also moving in the general direction of the
Arabian Gulf?
My slogan is “analyzing the news to give you a clear picture of what’s really going on.” So, I spend a significant amount of time watching news on TV and the Internet and even the good old fashioned newspaper. If you only got your news from the mainstream media (MSM), it’s easy to understand whyso many people think the economy is not all that bad. For example, yesterday, I heard the “R” word a lot. No, I am not talking about recession but “recovery.” This is preposterous when you consider the latest report from the Case-Shiller Home Price Index that was released yesterday. The spin from the MSM said home prices were down from October to November by 1.3%. Makes you think—ok, not too bad. The real story is home prices declined on average by nearly 4% year over year. A quote straight from the actual Case-Shiller press release said, “For a second consecutive month, 19 of the 20 cities covered by the indices also saw home prices decrease. The 10- and 20-City Composites posted annual returns of -3.6% and -3.7% versus November 2010, respectively. These are worse than the -3.2% and -3.4% respective rates reported for October.” (Click here for the complete Case-Shiller press release.)
Are you getting this? The real estate market is getting worse. The only city that saw an increase was the pork capital of the world—Washington D.C., and prices were only up by a paltry .5% year over year! All the folks I heard, yesterday, on the MSM talked as if the so-called “recovery” was alive and well, when the evidence shows unfolding disaster. Please keep in mind, home prices are falling despite the fact the Federal Reserve is suppressing interest rates. A 30-year mortgage is going for around 4%. What do you think will happen when rates rise to around 6.5% (a very good historical rate)? Don’t you think home prices will continue to slide?
Read More @ USAWatchdog.com
In Advance Of Third Aircraft Carrier Approaching Iran, US Nuclear Sub And Destroyer Enter Red Sea
While
a few days ago we reported that the US was set to place a third
aircraft carrier, ostensibly the USS Enterprise, in the Arabian Gulf in
the indefinite future, it appears that the US is wasting little time in
making preparations for this latest military escalation against Iran.
As RT reports,
"two ships of the US Navy, the nuclear submarine USS Annapolis and the
destroyer USS Momsen have passed through the Suez Canal into the Red
Sea. Although their destination is confidential, they are now getting
dangerously close to the Persian Gulf. The ships’ passage was a major
operation for the Suez administration as due to safety reasons they had
to close off the canal to all other traffic and even shut down the
bridge, disrupting the link between the banks for some four hours. The
traffic on the roadways alongside the canal was also restricted,
Interfax news agency reports." What's next: reports that Russian
destroyers in Syria are also moving in the general direction of the
Arabian Gulf?
Hyper Report: 120201 – CIA Setting Up Iran Again
Please prepare now for the escalating economic and social unrest. Good day.
S&P Warns of Cuts; Another US Downgrade Coming?
http://www.cnbc.com/id/46202656
http://www.politico.com/news/stories/0112/72205.html
Iran Willing to Attack on U.S. Soil
http://www.washingtonpost.com/world/national-security/iran-is-prepared-to-lau...
finds/2012/01/30/gIQACwGweQ_story.html
Venezuela Completes Repatriation Of 160 Tons Of Gold
http://www.zerohedge.com/news/venezuela-completes-repatriation-160-tons-gold
Breaking News Ellis Martin Report with Jim Sinclair
http://www.youtube.com/watch?v=9802NwSSS6U
Why Are the Chinese Buying Record Quantities of Gold?
http://www.forbes.com/sites/gordonchang/2012/01/29/why-are-the-chinese-buying...
Taxpayer-Funded Freddie Mac Caught Betting Billions Against Struggling American Homeowners
http://www.democracynow.org/2012/1/31/taxpayer_funded_freddie_mac_caught_betting
http://www.washingtonpost.com/business/economy/fannie-mae-freddie-mac-unlikel...
say/2011/10/27/gIQA7GKXMM_story.html
The 10 Rules For Your Emergency Food Pantry
http://www.shtfplan.com/emergency-preparedness/the-10-rules-for-your-emergenc...
Leverage Is A Symptom Of Artificially Low Interest Rates
Admin at Marc Faber Blog - 2 hours ago
But why is there leverage? It is a symptom of artificially low interest
rates - essentially zero interest rates - that force everybody to be a
speculator because you're not earning anything on your money. This
volatility won't disappear anytime soon, because it has little to do with
the problems in Europe and everything to do with excessive liquidity that
is being created in the system. Unless there is a general collapse of
liquidity - in other words, a credit-market collapse - the volatility will
continue, perhaps for five or 10 years.
It drives the small investor away from the ma... more »
Nobody Will Leave The Euro In 2012
Admin at Jim Rogers Blog - 2 hours ago
I don't think we'll see anybody will leave the euro zone in 2012, there are
40 elections in 2012 there will be more problems this year, governments
everywhere will do their best to make sure we get through elections. - *in
CNBC*
*Jim Rogers is an author, financial commentator and successful
international investor. He has been frequently featured in Time, The New
York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The
Financial Times and is a regular guest on Bloomberg and CNBC.*
Trend Management Is All About Controlling The Physical Market
Eric De Groot at Eric De Groot - 3 hours ago
Control of paper gold and silver resides largely in the ability to manage the physical market. For example, when the price of silver heats up, physical demand skyrockets relative to paper. This is manifested as standardized physical to paper price (STD) in the charts below. The trend managers use the paper market (short the ETF) to swamp physical demand and create an elevator shaft style... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]
Here Comes The Treasury Floater
It
appears from the Treasury's announcements and the Treasury's Borrowing
Advisory Committee (TBAC) recommendations that we will shortly see
Treasury FRNs. While details remain murky (what maturities, the
underlying index, reset frequency, and so on) we would be surprised if
they did not after all this analysis and the potential problems they may
face. Given the weight of short-dated maturing Treasury debt, if the
Treasury were roll/term this debt out at the same pro-rata distribution
of maturities as it has currently, then the weighted average maturity
of their debt would rise significantly. While avoiding the short-term
limit of zero-date issuance that many European sovereigns face is a
positive clearly, the problem for the Treasury lies in the non-domestic
(read Fed) demand is waning significantly for any longer-dated
Treasuries (while bid-to-covers on Bills remain very high and active for
foreign buyers). FRNs would implicitly provide the lender with upside
coupon on a rise in rates (a potential plus for foreign demand given
their angst and the low level of rates priced into the market) and would
benefit the Treasury by reducing potential demand issues at the
long-end (and potentially offering the Treasury upside if rates stayed
low for longer). The bottom line is that the structural decline
in the stock of global high-quality government bonds, coupled with an
increase in demand for non-volatile liquid assets, should make U.S.
government issued FRNs extremely attractive. Of course, the benefits
to the Treasury from issuing FRNs also relies significantly on the
Fed's monetary policy stance - savings are likely to be greater when the
change in the funds rate is negative, and especially when
such change is more negative than the expectations priced into forwards
(and it seems reasonable to assume that the risk to short-rates is
somewhat one-sided against the Treasury FRN).Obama Lays Out His Latest "Mortgage Plan"
Listen to the Landlord in Chief lay out his REO to LBO plan live and in stereo. Since everyone will end up paying for it, directly or indirectly, sooner or later it probably is relevant.As Individual Witholding Taxes Roll Over, It Is Time To Ask Where The Corporate Taxes Are
Two days ago, the US Treasury announced that for the Q2 fiscal quarter (January - March), the net borrowing need of the US would be $97 billion lower than its previous estimate, coming in at $444 billion for the three months (still a $115 billion monthly run rate, not nearly enough to last until the end of the year with the current debt ceiling capacity, and likely not even through the election). What the Treasury did not specify is where this incremental cash would come from, merely noting that the higher cash balance which it ended December 2011 with compared to estimates "was driven primarily by higher-than-projected receipts and lower outlays" implying that the Treasury was confident higher than expected tax receipts would continue. There is however one problem with this: as the attached chart from the just released Q1 fiscal report from the Office of Debt Management shows, withheld taxes, the primary source of US government revenues, has just rolled over and is now posting negative Year over Year numbers (chart 1). Which is bad news for Tim Geithner if he hopes that the spike in tax receipts will continue, and for the TBAC which projects a lower than expected funding needs: in fact we are confident that the net issuance in Q2 will be substantially greater than the net forecast, and will likely be funded with short-term Bills, either ad hoc, or in the form of increased program Cash Management Bills issuance. Yet the fact that America can not live within its means is not news. What however, needs addressing is why, as Chart 2 shows, have US corporate taxes never regained their historical levels from 2007, when as is well-known, corporate profits have never been higher (if now rolling over finally), and corporate cash, especially that held off shore, at record levels? Because as the green line shows, the 12 month moving average of corporate income taxes, has barely budged from the recession lows. We wonder why nobody has asked the question: why is this the case and why have neither politicians nor individual taxpayers made an issue out of this yet?
Explaining Portugal's Disappearing Risk
Early
Tuesday morning, the Portuguese 10Y bond was trading over 300bps wider
than its close last Friday. Contagion from concerns in Greece and what
that meant for a nation that while not in as dire a position as Greece
economically was well on its way to totally unsustainable debt levels
relative to what little and shrinking GDP they can garner. Market
access is of course off the cards and there are reasonable chunks of
debt maturing that will need to be funded. Since then the PGB has
rallied an incredible 300bps, now trading a mere 5bps wider on the week
as if nothing had ever happened. We know the ECB was active yesterday
and it appears also today but what is also very notable and perhaps
explains more of the compression is the huge drop in the basis between
CDS and bonds for Portugal. The basis, as we have discussed before, was
extremely wide for Portugal (a quite illiquid sovereign bond and CDS
market) and we suspect at a spread between bonds and CDS of almost
850bps, it was just too tempting for hedgies not to buy the package en
masse. This means they would have bought PGBs (bonds) and bought CDS
protection to try and 'lock-in' the spread between the two. That demand
for the basis has pushed it 200bps narrower and given the thinness of
the PGB market, the marginal demand from basis traders has exaggerated
that rally by the 300bps we noted above. So Portuguese bond risk
remains elevated (CDS around 1400bps and and 5Y PGB around 20% yield)
but the drop in the last few days is not a risk appetite signal but
reflective of an ECB-spurred risk transfer to basis traders who
we assume are more confident in Portuguese bond contracts and CDS
triggers than Greek bonds for now. It seems they have found another
pivotal security to manipulate down to show 'improvement' as Portugal
leaves the global bond indices but is mysteriously bid this week - watch
the basis for more compression and the signal for unwinds which will
stress PGBs once again.Manufacturing ISM Misses Expectations, Rises From December, Prices Paid Surge
As we hinted earlier, and contrary to 100% wrong whisper numbers, the January ISM not
only did not land in the 55+ ball park, but missed consensus estimates
of 54.5, printing at 54.1, yet up from December's 53.1. However, just
like in China, the goalseeked number was neither good nor bad, although
leaning toward the weaker side to keep with the Chicago PM's miss.
After all the Chairman needs an exit door for more QE.The internals
were not very notable with the exception of Prices Paid, which came at
55.5 compared to expectations of 50.0 and up from 47.5 in December, the
highest since September 2011. Oops margins and oops Inflation? And
what is just as bad, the traditionally leading "New Orders less
Inventories" index turned down once again, with Invs rising by +4.0,
and New Orders up just 2.8%.Please consider making a small donation, to help cover some of the labor and costs to run this blog.
Thank You
I'm PayPal Verified"Supercommittee That Runs America" Urges End To The "Zero Bound", Demands Issuance Of Negative Yield Bonds
One of the laments of the uberdoves in the world over the past several years has naturally been the fact that interest rates are bound by Zero on the lower side, and that the lowest possible rate on new paper is, by definition, 0.000%. Which is what led to the advent of QE in the first place: in lieu of negative rates, the Fed was forced to actively purchase securities to catch up to a negative Taylor implied rate. This may be about to change, because as the just released letter from the Treasury Borrowing Advisory Committee, or as we affectionately called the JPMorgan/ Goldman Sachs Chaired committee, the "Supercommittee That Runs America", simply because it alone makes up Tim Geithner's mind on what America needs to do funding wise, demand, "It was broadly agreed that flooring interest rates at zero, or capping issuance proceeds at par, was prohibiting proper market function. The Committee unanimously recommended that the Treasury Department allow for negative yield auction results as soon as logistically practical." And what JP Morgan and Goldman Sachs want, JP Morgan and Goldman Sachs get. And once we get the green light on negative yields at auction, next up will be the push for the Fed to impose negative rates on all standing securities, which means that coming soon savers will be literally paying to hold cash. And that will be the final straw.Why Non-Farm Payrolls Will Be Weak
Following
today's sizable miss and significant revision to the ADP data it is
perhaps worth taking a step back and looking at some independent
research on the adjustments and seasonality issues in forecasting jobs
around this time of year and furthermore, why one of the pillars of this extended rally and US decoupling story (a substantially improving jobs market) could be made of salt.
Bloomberg's consensus for Friday's NFP at +145k (from +200k prior) and
a 30k standard deviation, there is plenty of uncertainty among the
economic elite (with 125k to 150k the sweet spot for their guesses) and
our favorite outlier Joe LaVorgna near the top at +210k. So while the
trend is supposedly improving (though expectations are slightly off
December's exuberance), Stone & McCarthy (SMRA) point out a
disturbing trend of sizable forecasting errors for the January payroll
print with 7 straight years of estimates overshooting by an
average of 64k - strangely consistent post the BLS switch to a
probability-based sample. But its not just forecasting error,
TrimTabs takes a deep dive into the actual daily income tax deposits
from all salaried employees (which are historically more accurate than
BLS initial estimates) sees the US economy added only 45,000 jobs in January, nearly unchanged from the 38,000 in December. Noting similar forecasting errors as SMRA, TrimTabs points out that the decline in seasonal adjustment factors
and the reality of the underlying tax data suggest "It appears that the
economy has hit stall speed due to lackluster demand and a
deleveraging consumer who would rather save than spend." as wage and
salary growth (net of inflation) weakened further to -2.1% YoY in
January from -0.5% YoY in December. "The weak job market has us concerned" seems like a truer reality than the establishment trying to keep the dream alive.Is Volatility Coming Back?
VIX continues to remain low, but intraday (or intranight) volatility appears to be making a comeback. That is volatility in the true sense of moves up and down (I'm not sure when volatility came to mean 'stocks went down'). Chinese PMI is supposedly one of the reasons that futures are up, yet, that seems to be a bad explanation, since futures went from an Amazon induced low of 1306, up to 1311 on the PMI news, but then drifted lower and were at 1304 by the time Europe got up and running. It has been a relentless march higher since then as it went to 1320. Volumes remain low. Street liquidity remains very low. I don't see any reason for this trend to reverse itself, and think higher levels of intraday volatility are on the way. Is it time to buy some options to capture this? Long or short, it looks like trading some options could make sense as some timely 'delta' rebalancing could be very effective and the implied volatility you are paying seems reasonable.Irrelevant ADP Report Gyrates Epileptically, Misses Expectations, Sees 9,000 Financial Jobs Added In January
The highly irrelevant economic noise that is the ADP private payrolls indicator has
come in form the month of January, and printed at nearly half of the
December number of 325K, which was revised lower to 292K, at 170K, on
expectations of 182K. We should be the last to tell readers that
anything this unbearably noisy series says is beyond meaningless, but
since someone follows it, it bears noting that this was the weakest
number since October 2011. Furthermore, with the NFP virtually
guaranteed to be a miss for a variety of reasons, this is merely the
latest confirmation that economist expectations of the economic recovery
ramping up, were short sighted - after all the Chairman has an agenda.
Yet what makes this report a total mockery is that in the month in
which banks, and the FIRE industry in general, was firing left and
right, ADP saw 9K people in financial services added to
private payrolls. Ironically the financial jobs "added" were almost as
many as the manufacturing jobs, at +10K in January. Who says America is
not a manufacturing juggernaut and only exports weapons of financial
mass destruction?
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