Marc Faber: "I Have A Very Special Stock Tip For You. The Symbol Is G-O-L-D"
It
has been a while since the Marc Faber graced Zero Hedge. It is time to
remedy that. Providing his traditional dose of snark, tragedy and
realism, the Gloom, Boom and Doom report author spoke to Bloomberg TV,
and when asked what his outlook for the euro is, dispensed the following
pearl: "I have a very special stock tip for you. The symbol is g-o-l-d.
That is what I prefer to hold. Both the euro and the dollar are
long-term undesirable currencies, especially given zero interest rates
in the U.S. Equities to some extent become like cash because they become
a store of value compared to cash at a zero interest-rates. Paintings
become a store of value, stamps become a store of value." Needless to
say, this is the kind of response that will get him banned from CNBC for
life when Bartiromo breathlessly asks him, "ok, you think the world is
ending, so what five stocks would you buy." As for his latest report,
"It's actually quite gloomy but if you're very gloomy what do you
invest in: Treasuries, Italian bonds or commodities or equities? I
happen to think U.S. equities are not terribly expensive, so relatively
speaking to other assets, they may for a while actually do quite
well." Considering the ridiculousness of the market over the past two
weeks when it has gone up on nothing but lies, Faber just may have a
point. Pivot Capital On China's Investment Boom (And Pending Bust)
The
will-they, won't-they argument over the sustainability of China's
capex-driven growth and the transition from an
investment-led/high-growth economy to a consumption-driven/lower-growth
model is becoming more polarized every day. Pivot Capital Management's
take on the slowing growth and muddling transition will make the shift
more painful and will likely lead to a credit bust. Their thesis
focuses on the balance sheet transformation of the Chinese economy that
has attempted to postpone such a transition at a time when the
pro-cyclical shadow of global growth expectations demand it. They
expound on three main reasons for the proximity of credit bust in China: shadow banking pushing credit expansion to the edge of a crisis (as the regulated markets lose control), real estate and infrastructure investment are at a critical juncture (as worsening fundamentals significantly dampen flows), and interdependence in China's financial system.
They fully expect the upcoming credit bust to require government
intervention, they expect this to dramatically slow the investment-led
growth model and obviously this would be a global event as the world's reliance on China's 'economic miracle' is brought into question.Austrian Economics vs. Keynes
Why is Keynes tragically and horrifyingly wrong? Here's why:
THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY
CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME
SOONER AS A RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION,
OR LATER AS A FINAL OR TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED
(Ludwid Von Mises)
And that explanation is why the Austrian School of economics is correct.
Many of you have read commentary by Egon von Grayerz. He is the chief
strategist for a Swiss asset management firm and his writing is ... more »
Gold chart continues to show the tightening coiling pattern
Gold seems to be anticipating some sort of monetary stimulus and/or
agreement out of the upcoming Brussels meeting this Friday in Europe to
deal with the sovereign debt crisis in the Eurzone. For that matter, so
too do the US equity markets which are grinding higher.
Failure to come up with some sort of market pleasing action or agreement on
the part of these finance ministers will send the equity markets on a very
sharp trip lower out of disappointment. On the other hand, any agreement
reached will put a firm bid beneath those and engender buying in the Euro,
at least for the shor... more »
Jim Rogers on Europe: It’s Time for a Painful Solution
Kicking the can down the road works until we run out of pavement. Many suggest that organic growth which will never outpace the world’s debt serving costs at this point is the secret to muddling through what could easily turn into America's lost decades. Cycles suggest a confluence of time and trend inflections around 2015-2016. Those hoping for organic growth will save the day are paddling... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]
Goldman On Deleveraging And The Sovereign-Financial Feedback Loop
It is no surprise that there is both an implicit and explicit link between financial entity risk and that of their local sovereign overlord.
The multitude of transmission channels is large and the causalities,
not merely correlations, run both ways, providing for both virtuous (2009 perhaps) and vicious (2010-Present) circles. Goldman Sachs, in its 2012 investment grade credit outlook takes on the topic of the feedback
loop which is engulfing financials and sovereigns currently - noting
that despite the 'optical' cheapness of financial spreads to
non-financials (and equities) that it is unlikely to compress
significantly without a 'solution' to the sovereign crisis
being well behind us. The key takeaway is that pre-crisis sovereign
credit premia were, in hindsight, uneconomically tight (unrealistic) and
expectations of a return to those levels is incorrect as they
see the current repricing of sovereign risk as a paradigm shift as
opposed to temporary repricing due to market stress. "Sovereign spreads
will likely emerge from the crisis both more elevated and more
dispersed", meaning floors on bank spreads will be elevated and deleveraging
pressures to be maintained raising the real risk, outside of
spam-and-guns Euro-zone crashes, of a potential credit crunch.
This is already evident in European loan spreads, which as we have
discussed many times is the primary source of funds (as opposed to
public debt markets as in the US).In Past Week Americans Pull The Most Money From Stock Market Farce Since US Downgrade, Despite Market Surge
As if we needed another confirmation that the sad joke of a market has now succeeded in driving virtually everyone out courtesy of precisely the kind of bullshit we saw in the last 30 minutes of trading today, here comes ICI with the latest weekly fund flow data. It will not surprise anyone that in the week in which the S&P rose by a whopping 8 points on absolutely nothing but more lies, rumors and innuendo, US retail investors pulled a whopping $6.7 billion from domestic equity funds: the most since the week after US downgrade when a near record $23 billion was withdrawn. Only unlike then when the market bombed, this time it simply kept rising, and rising, and rising. In other words, every ES point higher serves no other purpose than to provide an even more attractive point for the bulk of that now extinct class known as investors to call it a day, and pull their cash out of this unprecedented shitshow that central planning has converted the market into. And for those keeping score, a total of $123 billion has now been pulled from stocks in 2011, well over the $98 billion withdrawn in 2010.
Equity Market Goes Winehouse
Sometimes we just shake our heads. Other times, we just sob anxiously into our handkerchieves. This afternoon's rumor-ramp-denial-no-dump was absurdity at its very best.
A 16pt rip in ES on the basis of rumor of another bigger bazooka from
the IMF (courtesy of Nikkei not the FT this time as we all know what
their rumors are full of) was ignored by pretty much every other asset
class. We tweeted almost instantly that the denial would be forthcoming
in 10 minutes and sure enough it was. But wondrously, what goes
up, does not come down as ES gave back a measly 5pts leaving it very
far bereft of broad risk asset's perspective of value. Perhaps the best perspective on the incessant IMF-and-other rumors is from Peter Tchir "This
is all circular and that circularity is coming back to haunt those
people desperately trying to come up with new ways to extend and
pretend."Update - Denied.... And Here Is Today's Completely Idiotic Rumor
Update: Steve Liesman with the party spoiler: "Imf official denies 600b aid rumor." Yet idiots still bidding stocks.With just 20 minutes left, today the rumor comes not form the FT but the Nikkei:
- G-20 CONSIDERING IMF LENDING PROGRAM FOR EUROPE:NIKKEI;
- G-20 CONSIDERING $600B IMF LENDING PROGRAM FOR EUROPE: NIKKEI
Attempt Made On Deutsche Bank Head's Life: Explosive Package Addressed To CEO Intercepted, ECB Return Address Given
It seems that popular anger at the banker minority will no longer be confined to tent-based vigils in public parks. In Germany, someone just escalated a bit to quite a bit. The irony, in this case, is that the package was addressed from the ECB. If it weren't for a potentially sensitive topic, the amusing implications could be severe. From Reuters: "A suspected parcel bomb addressed to Deutsche Bank chief executive Josef Ackermann was intercepted at a Deutsche office in Frankfurt on Wednesday, a senior U.S. law enforcement official said. The package was discovered around 1 p.m. Frankfurt time (7 a.m. EST/1200 GMT) in a mailroom, the official said. Initial analyses by investigators confirmed that it contained explosives and extra shrapnel, he told Reuters. A spokesman for Deutsche Bank in New York declined to comment. After receiving reports about the package, the New York Police Department stepped up security around Deutsche Bank's offices in New York and also notified corporate security executives around the city, the law enforcement official said. The official said the suspected bomb carried a return address from the European Central Bank, which is also headquartered in Frankfurt."Consumer Credit Rises By $7.7 Billion In October, Although Revolving Is Just 4% Of Total And Government Lends Out 90%
At first blush today's consumer credit report was simply gorgeous: an increase of $7.7 billion total on expectations of $7 billion. Just what the Keynesian voodoo doctor ordered right? Wrong. The problem is that of the $7.7 billion, just $0.3 billion was the "good" kind of credit - revolving. Everything else was either auto or student loan, or non-revolving credit. And what is worse, when looking at the breakdown (on a non seasonally adjusted basis), the monthly increase which was $4.2 billion was primarily a function of the now traditional ceaseless government lending, which rose by $3.8 billion, or 90% of the total. As can be seen on chart 3, since the start of the depression, government lending has grown by 317%, while private credit has declined by 16%. Central planning: from the government, by the government, for the government.
S&P Warns It May Cut Most European Banks, European Union Itself
Not sure why the market is surprised by this, but it is.- S&P PLACES LARGE BANK GROUPS ACROSS EUROZONE ON WATCH NEG - BNP, SocGen, Commerzbank, Intesa, Deutsche... pretty much everyone.
- EUROPEAN UNION'S AAA RATING MAY BE CUT BY S&P - you KNOW Barroso, Juncker and Gollum are going to take this very personally
- In short: Commerzbank AG, Natixis S.A., Credit Agricole S.A., Eurohypo, Deutsche Bank L-T counterparty credit rating, Deutsche Postbank AG, Intesa Sanpaolo,Societe Generale L-T counterparty credit, UniCredit SpA, Credit Du Nord L-T counterparty credit, Comapgnie Europeenne de Garanties et Cautions, Credit Foncier de France, Locindus S.A., Rabobank Nederland, CACEIS, Banca IMI SpA, Ulster Bank, Banque Kolb, Bank Polska Kasa Opieki S.A. ratings may be cut by S&P.
Jump Risk Jumps After American Bankruptcy, Sends Junk Plunging As Major Debt Refi Cliff Approaches
A week ago, the reputation of legacy carrier American Airlines as being the only one to avoid bankruptcy is not the only thing that went pop. Along with it went the fervent optimism of high yield debt investors that moral hazard spreads not only to insolvent countries and insolvent banks, but to all insolvent corporates. On Wall Street, there is actually a technical name for perspective on insolvency optimism when viewed through the prism of CDS, where it is known as "Jump Risk", or the likelihood of a company to file tomorrow as opposed to a year from now. Until AMR, jump risk was not an issue. Now, it has come back with a vengeance. As Bloomberg LevFin magazine reports, "AMR’s bankruptcy is taking the corporate debt market by surprise, with investors losing 25 percent on bets in junk-bond derivatives that there wouldn’t be a jump in defaults this year. The Chapter 11 filing from the parent of American Airlines is helping to fuel a plunge in the value of credit-default swaps that take outsized losses when companies in a benchmark index fail. The contracts, which back the debt of borrowers including ResCap and Radian, plunged to 64 percent of face value as of yesterday from 85 percent on Nov. 8. The derivatives were three weeks away from expiring with gains on Nov. 29, when AMR filed for protection." Oops. Alas, that's what happens every time unfounded optimism gets away from reality, especially when one is dealing with "junk", literally, which as the name implies is one TBTF if it is 99% unionized.
Guest Post: Central Planning's Christmas Problem
Most of human history conforms to established patterns, forming the basis of modern statistical analysis. Random walk extrapolation from any data series seems to hold up in the face of reality because the data series is extracted from the pattern itself, a sort of logical fallacy. Models constructed in this way “behave” rather well until the pattern and paradigm shifts. At that point, models should be recalibrated to the new pattern in order to maintain any kind of usefulness (or simply scrapped). This is especially true if the model failed to see the paradigm shift coming, a predictive capacity that is almost built-in since inflection points are not really points at all; they are an eventual slide into the new pattern. During the inflection “period”, models conditioned by the old pattern will increasingly look out of sync and render confusing results to their practitioners. But, due to human nature intruding into this “scientific” process, all too often these human practitioners look to rationalize and fit the wider world into their models, rather than see the paradigm shift for what it is. Combining this willful blindness with the simplifications that models have to incorporate just to function, the fact that they rarely see inflections is not at all surprising.When All Else Fails, Change The Math: Japan To Fudge GDP Calculation, Will Add Up To 2% To GDP
Proving once again that when it comes to fudging numbers, Japan (which previously was best known for changing the minimum legal radiation absorption dose on a daily basis following the Fukushima disaster, anyone remember that?) is leaps and bounds ahead of even China and the US, the Nikkei reports that the Japanese government will change the method it uses to calculate GDP, and the result will be an "increase" in the country's economic output by JPY 5-10 trillion. As a reminder, Japanese GDP is currently JPY 540 trillion, so in essence the math fudge could add about 2% to Japanese "growth." Accordingly, the main difference is inclusion of interest rate spread earned by financial institutions: we were wondering how long until blowing out CDS spreads would add to sovereign GDP. We now know. The new method will be applied to figures to be announced Friday. At least Japan has not yet adjusted its GDP pro forma for foreign currency gains vis-a-vis the dollar (there is time). And that's how things are done in a Keynesian world in which everything is now fraud, lies and relentless number fudging. Furthermore, we are 100% certain no analyst will look at the number on an apples to apples basis, and the result will be a miraculous Japanese golden age. Expect this experiment in excel spreadsheet modelling to come to a developed banana republic near you very soon.Italian Clearing House CC&G Cuts Italian Bonds Margins
There was a pop in risk minutes ago after a headline hit that margins on Italian bonds had been cut by CC&G.
Enthusiasm will likely be muted however, upon the realization that
CC&G is an Italian clearing house, is not LCH Clearnet in any of its
two variants, and is tantamount to (French) Fitch upgrading France in
terms of relevance, especially when considering that the bulk of
Italian bonds clear elsewhere. That said, this will likely be taken by
the market as a hint that LCH may go ahead and lower margins next,
although with Italian bonds trading back above 6%, the case may be a
problematic one. Of particular note in the CC&G announcement is
that the margin for bonds between 7 and 10 years was lowered from
11.65% as of November 9, to 8.15%. As for whether this is a harbinger
for more margin cuts, we will likely find out soon.Europe Weak As Equities Stall On 'Safety' Bid
Some
late-day covering as traders flattened out added a little lipstick to a
pig-like day for European equities and sovereign credit as
non-sovereign credit outperformed (but hides a few under-currents).
Markets opened gap-up with credit notably ahead of equities - another
ugly jump tighter in everything for all those option traders - but that
was the best of the day as XOver (high-yield European corporate debt)
and senior & subordinated financial credit tumbled all day. Main (investment grade credit in Europe) outperformed as investors sought the safety of this up-in-quality trade but most notably we suspect was the decompression
trades in XOver-Main (i.e. traders positioning for a bearish spread
widening between investment grade and high yield spreads). Financials
ended wider, following their sovereign's very notable deterioration
today, as the banks swung very notably from high to low.
Liquidity measures improved but that seems very clearly driven by the
Fed swap lines as opposed to improved conditions and we note that as
Europe closed, ES managed to scramble back up to VWAP - and is trading a
little ahead of broad risk assets.
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