Bill Gross: "The Cult Of Equity May Be Dying, But The Cult Of Inflation May Only Have Just Begun"
Want to buy stocks on anything than a greater fool theory, or hope and prayer that someone with "other people's money" will bail you out of a losing position when the market goes bidless? That may change after reading the latest monthly letter from Pimco's Bill Gross whose crusade against risk hits a crescendo. Yes, he is talking his book (and talking down his equity asset allocation), but his reasons are all too valid: "The cult of equity is dying. Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors’ impressions of “stocks for the long run” or any run have mellowed as well. I “tweeted” last month that the souring attitude might be a generational thing: “Boomers can’t take risk. Gen X and Y believe in Facebook but not its stock. Gen Z has no money.”.... So what is a cult chasing figure supposed to do? Well, the cult of equities may be over. But the cult of reflating inflation is just beginning: "The primary magic potion that policymakers have always applied in such a predicament is to inflate their way out of the corner. The easiest way to produce 7–8% yields for bonds over the next 30 years is to inflate them as quickly as possible to 7–8%! Woe to the holder of long-term bonds in the process!... Unfair though it may be, an investor should continue to expect an attempted inflationary solution in almost all developed economies over the next few years and even decades. Financial repression, QEs of all sorts and sizes, and even negative nominal interest rates now experienced in Switzerland and five other Euroland countries may dominate the timescape. The cult of equity may be dying, but the cult of inflation may only have just begun."Chinese Ultra-Luxury Car Bubble Pops As 1 Year Old Used Lambo Gallardo Sells 70% Off Sticker
Rumors
are circulating that reports of the demise of the Chinese auto market
may be exaggerated now that even David Einhorn is forced to defend his
GM long (because it "has a strong cash position"
- sure, and stuffs channels like no other) however stripped of
stereotypes and hype, the reality is that even the one time impregnable
ultra luxury car market in China is now faltering at an ever faster
pace. BusinessWeek reports:
"Waiting lists for ultra-luxury cars in Hong Kong are getting shorter
and used-car lots are cutting prices on Lamborghinis, Ferraris and
Bentleys in the latest sign of China’s slowdown. At first glance, the
numbers are deceiving: Sales of very expensive new autos surged 47
percent in the first six months, according to industry analyst IHS
Automotive. Look more deeply, however, and another picture emerges,
especially in the city’s used-car lots." The picture is ugly: "“The more
expensive the car, the more dry the business,” said Tommy Siu at the
Causeway Bay showroom of Vin’s Motors Co., the used-car dealership he
founded two decades ago. Sales of ultra-luxury cars have halved in the past two or three months, he said.
“A lot of bankers don’t want to spend too much money for a car now. At
this moment, they don’t know if they’ll have a big bonus.”" Sad: they
should all just go to Singapore and manipulate Libor. Oh wait, too
soon?Thanks to the Bailouts, Germany Now Has a Debt to GDP of 300%... Bye Bye Eurozone!
07/31/2012 - 09:51
Greece Runs Out Of Money. Again
While
we are not certain how many times we have used the above headline in
the past we know it is not the first time. Nor the fifth. Yet here we
are again, reporting that Greece is out of money again. "Near-bankrupt
Greece is fast running out of cash while it waits for its next
installment of aid from international lenders, a deputy finance minister
said on Tuesday, sounding the alarm on the country's precarious
financial position. Greece's European partners have repeatedly promised
the country will be funded through August, when it must repay a 3.2
billion euro bond, but the details of the funding have yet to be disclosed.
In the absence of that money, Greece would run out of funds to pay
everyday public expenses ranging from police and other public service
wages to pensions and social benefits. "Cash reserves are almost
zero. It is risky to say until when (they will last) as it always
depends on the budget execution, revenues and expenditure,"
Deputy Finance Minister Christos Staikouras told state NET television"
In other words just like the US yesterday, Greece has also overestimated
its revenues and underestimated its expenditures; also Greece in
August is what the US itself will be in about 3-4 months, when the debt
ceiling is hit. Luckily, the political environment in D.C. is open and
cordial, and a prompt resolution to both the debt ceiling issue and
the fiscal cliff, especially as they all coincide just in time for the
presidential election is guaranteed.
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I'm PayPal Verified Schauble Makes It Clear: Beggars Can't Be Choosers
Merkel may still be on vacation, but Germany decided to make it all too clear just who is in charge after last week's idiotic headfake by Draghi et cie:- GERMAN FINANCE MINISTRY SEES NO NEED TO GIVE ESM BANK LICENSE
- GERMAN MINISTRY SAYS THERE ARE NO SECRET TALKS ON BANK LICENSE
- GERMAN MINISTRY SAYS NOT HOLDING TALKS ON BANK LICENSE FOR ESM
Bundesbank Pulls Cloud Nein From Under Hollande, Draghi
Minutes ago French socialist president Hollande once again climbed on top of Cloud Nine, fully hopeful that Draghi's bluff would be enough:- HOLLANDE CITES `STRONG WORDS' BY ECB'S DRAGHI ON EURO
- HOLLANDE SAYS ALL WILL BE DONE TO `DEFEND, PRESERVE' EURO
- BUNDESBANK TELLS LIESMAN MONETARY POLICY SHOULD FOCUS SOLELY ON PRICE STABILITY, STATES NEED FISCAL INTERVENTION
Europe's Second Scariest Chart
The unemployment rate across the 17-nation euro-zone reached its highest level on record (22 years) at 11.2%
and becomes Europe's second scariest chart. The silver medal in scary
factor is quite an accomplishment with parabolic TARGET2 exposures and
plunging core short-term yields but the gold medal holder remains the
extreme levels of youth unemployment that remain in the periphery. It
would appear that Europe, in its haste to follow the lead of the US in
cost-cutting and blood-letting amid a significant depression recession that clearly CEOs do not believe wil be short-lived, is seeing "Companies
generally are under serious pressure to keep their labor forces as
tight as possible to contain their costs in the face of the current
limited demand, strong competition and worrying and uncertain growth
outlook,” and as Reuters points out from IHS's Howard Archer, "there looks to be a very real danger that the euro-zone unemployment rate could reach 12 percent in 2013."
May's unemployment was revised up from 10.1% to 11.2% as even glorious
employer-uber-alles Germany saw the ranks of the unemployed swell.FaceBook Hits 21 The Hard Way
Was
it only two months ago that Faceplant was heralded as bringing in the
new era of, well something... the public markets are a cruel friend it
seems as FB just traded with a $21 handle for the first time - down a
marvelous 53% from its IPO-day highs... Volume exploded once it crossed
that barrier as we suspect Margin Stanley was aggressively defending
its new line in the sand (how did that defense work at $38, $37, $35,
and $30 - but maybe this time is different).Europe Unfixed Again As Scramble For All Things Swiss Resumes
This is what happens when the BIS is limited to buying EUR and selling gold at one time: something leaks. In this case the Swiss 2 year which is plunging to -0.45% sending the curve negative to the 6 year mark,
while in Germany the Bund curve is now negative to the 3 year mark.
And so Europe is unfixed again - even though the SNB seems to 'love'
EUR as it is entirely unable to diversify its reserves which now have surged to 60% EUR as questions over the sustainability of the peg increase.Households Hunker Down As Saving Rate Soars To Highest Since August 2011
Confirming that the economy continues to be on life support and that the consumer has been actively withdrawing from providing that key lifeblood so needed to regain the "virtuous circle" [RIP: XXXX-2009] is the just released revised personal consumer data, which showed even further retrenchment, as personal spending came unchanged in June on expectations of a modest 0.1% increase, while income rose 0.5% on expectations of a 0.4% increase (among other things due to "Contributions for government social insurance -- a subtraction in calculating personal income -- increased $3.5 billion in June, compared with an increase of $0.8 billion in May."). End result: the Personal Savings Rate (revised) rose from 3.6% in April, to 4.0% in May, to 4.4%, in June: the highest it has been since August 2011, just before the economy as manifested by the Fed's favorite metric, the Russell imploded. All those expecting the consumer to step up and pick up the pieces will have to defer hope and prayer for one more month. Luckily, for everything else there is the Fed's Taxpayercard.
The Central Banking Theater of the Absurd
Central bankers present themselves as Masters of the Universe. They are, but only in their own little Theater of the Absurd.
In the real world, they are as clueless as any other mortals about the
unintended consequences of their actions and the speed with which the
corrupted, unsustainable financial Status Quo will decay and die. To admit the usustainable is not sustainable would bring the entire rotten edifice crashing down,
so the central bankers invite us into their little Theater of the
Absurd and evince a phantom confidence in their phantom solutions that
depend on phantom assets.Consumer Confidence Adds To Very Unwelcome Trifecta Of "Ugly" Good News
Just
when you thought it was safe to hope for more bad news being good news
we complete the triumvirate of housing, manufacturing, and now
confidence all beating expectations. But we Moar QE. Consumer Confidence just beat expectations for the first time in 5 months
rising to its highest level since April as it appears the
self-reinforcing 'Fed's got your back' belief once again becomes a
self-defeating 'how can we QE when everything's peachy' scenario. To
wit, 12-month inflation expectations rose from 5.3% to 5.4% - as we noted the inflation-argument for NEW QE here.
This is simply remarkable levels of cognitive bias considering the
savings rate just rose to a one-year high implying people are
expectation deflation - dis-inflation at the least. It would appear that
indeed - given the market's downward trajectory - that the stealing of one's own punchbowl realization is occurring.Chicago PMI Beats Expectations At The Worst Possible Time
If there was one thing the market did not nead 24 hours ahead of the FOMC in the aftermath of the better than expected Case Shiller May print (yes, 2 months ago) it was a follow up beat by the Chicago PMI, as this would only make any further forceful QE tomorrow less than likely. Sure enough, this is just what happened, as the PMI printed better than expected rising from June's 33 month low, printing at 53.7 from 52.9 in June on expectations of a modest decline to 52.5. And so in a market in which everything continues to be driven by hope and prayer that Bernanke will wake up at just the right angle, Risk is once again suddenly OFF. If there was one saving grace it is that the Seasonally adjusted Employment index plunged from 60.4 to 53.3 (60.0 to 57.0 NSA) which is the lowest print since July 2011 which in turn brings it back to May 2010. This leaves hope that the NFP print on Friday will come negative. However, that will be too late for the August FOMC meeting. Oh well, there is always hope that in September the Fed's mind will change as long as some more horrible economic data comes between now and then.
GM Ramps Up Risky Subprime Auto Loans To Drive Sales
Eric De Groot at Eric De Groot - 3 hours ago
Risky subprime loans got the automakers in trouble in 2007. GM should have
died in 2009, but the taxpayer saved the day. Naturally, it's back to risky
subprime auto loans to drive sales as the economy continues to recover.
This logic gives new meaning to Nietzsche famous quote what doesn't kill us
can only make us stronger. This means GM will be a dominant global car
company by...
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content, and more! ]]
Gold Share Trend From The Perspective of Fear and Discipline
Eric De Groot at Eric De Groot - 3 hours ago
Gold Share Trend From The Perspective of Fear and Discipline: Fear sees the
red arrows after the breakout of massive consolidation in 1961 and 2010
(chart 1). Discpline sees a retest of 27- and 30-year breakouts of
consoldiation patterns and the eventual resumption of the trend (chart 2).
Chart 1: S&P Gold (Formerly Precious Metals Mining)* S&P Gold from 1945,...
[[ This is a content summary only. Visit my website for full links, other
content, and more! ]]On The Financial Press
The
financial press is far behind in what the public would like or needs
as evidenced by the outflow of money from equities and equity funds and
into bonds and bond funds. The financial TV press is still
fixated on stocks, addressing day traders that are a much smaller group
of people than in times past and many shows treat investments as if
they were some kind of casino enterprise. In other words, there is a
lot of coverage that is directed towards speculators and not nearly
enough directed toward investors. The bond markets are multiples of the size of the equity markets
and coverage here is close to nil as retail and institutions alike
concentrate much more on investing in bonds rather than putting their
core money in equities. There is an old saying on Wall Street that to be
successful one must “follow the money” and it is quite statistically evident that the money has flowed into fixed-income investments and that the financial press has not followed it. The investment world has changed and we encourage the media to grasp it and to change as a result.Daily US Opening News And Market Re-Cap: July 31
European equities are trading in flat-to-positive territory going into the North American crossover with the FTSE-100 the primary laggard, being driven lower by individual earnings releases. Oil supermajor BP released a disappointing set of Q2 earnings, reporting a net loss of USD 1.39bln, pressing the stock lower by 4.25% at the midpoint of the European trading day. Data releases from Europe today have picked up in volume, but come alongside expectations, proving unreactive across the asset classes, as German unemployment changes matches estimates at a reading of +7K for July. The topic of a banking licence for the ESM has arisen once more, as German politicians have begun voicing their concerns on the issue, with a German senior lawmaker commenting that he cannot see an ESM banking licence becoming a reality. However, this appears to be another reiteration of the German political stance, and therefore not a particular shock to markets. With today the last trading day in the month, larger than average month-end extensions have proved supportive in the longer-end of the curve today, with notably large extensions in Germany, France and the Netherlands.Frontrunning: July 31
- Hilsenrath: Heat Rises on Central Banks (WSJ)
- Some at Fed Are Urging Pre-Emptive Stimulus (NYT)
- Obama Warns of Headwinds in Europe; Urges European Leaders to Take Decisive Action on Euro (WSJ) - also needs reelection
- ECB thinks the unthinkable, action likely weeks away (Reuters)
- Games Turn London Into ‘Ghost Town.’ (FT)
- Greek Leaders Seek to Defer Austerity Cuts (FT)
- Hong Kong Builders Unload Properties to Raise Cash for Land Rush (Bloomberg)
- North India Crippled by Power Cuts (FT)
- Euro-Area Unemployment Rate Reaches Record 11.2% on Crisis (Bloomberg)
- Italy's Monti sees hope of end to euro crisis (Reuters)
670 Million People In India Without Power As Electric Grid Fails
Two weeks ago we touched upon the possibility that the US climatic deep fried black swan could soon stretch to India where
the Monsoon season was 22% below normal conditions for this time of
year. Today India is the locus of another flightless bird sighting
following an epic powergrid meltdown which left half of its 1.2 billion
people without power on Tuesday "as the grids covering a dozen states
broke down, the second major blackout in as many days and an
embarrassment for the government as it struggles to revive economic
growth... More than a dozen states with a total population of
670 million people were without power, with the lights out even at major
hospitals in Kolkata." Indicatively this is the same as every
man, woman and child in America having no electricity. Twice
over."Stretching from Assam, near China, to the Himalayas and the
deserts of Rajasthan, the power cut was the worst to hit India in more
than a decade. Trains were stranded in Kolkata and Delhi and thousands
of people poured out of the sweltering capital's modern metro system
when it ground to a halt at lunchtime. Office buildings switched to
diesel generators and traffic jammed the roads." Hopefully, two events
in a row don't confirm a trend. Although if indeed systemic, and if
suddenly the Indian power infrastructure is unable to handle the local
drought-related conditions, thus serving as a natural cap on economic
expansion, all bets may be off as to the unlimited upside potential
capacity of the BRICs.Today’s Items:
People around the world are just not
falling for the line about Syria. The U.S. Government and the media have
cried wolf once too often and now people are not only looking at them
with a skeptical eye… They are all but calling them all liars. Many
young consumers of news are looking to the rising global independent
media to get the facts about critical issues and conflicts. In the
process, their worldview is changing and their government-made beliefs
are dying.
Hope, promises, and expectations cannot
change the truth about the fiscal condition in the EU. To that end,
Moody’s is correct in their perception about the European Central Bank’s
ability to put off the enviable. With the Spanish economy contracting
for the third quarter in a row, the European Central Bank’s actions
will not resolve the debt crisis. Resolution will ultimately rest upon
changes in budgets of the member states. In short, let the chips fall
where they may and then pick up afterwards.
History repeats itself in the precious
metals market. The next few years will likely prove to be
exceptionally rewarding for those who invest in silver and other
precious metals like gold. The value ratio between silver and gold is
substantially skewed from its traditional and historical value.
Because of this and what lies ahead, silver investors are potentially
going to be very wealthy in the next few years.
Many local governments across the US face
steep budget deficits as they struggle to pay off debts accumulated over
years. There have been 26 municipal bankruptcy filings since 2010 and
the pace is accelerating. While allegations of fraud and improper use
of public monies loom over city officials, the fact that cities have
witnessed a sharp decline in property taxes, and foreclosures, in recent
times has only exacerbated the budgetary crises.
Government Motors, under the indirect leadership of Obama, is going to offer sub-prime auto loans to drive up car sales. Sub-prime loans are loans to those who have a FICO
score below 660. In short, if a person has a pulse, they can get a GM
car. This is going to create another Union Worker bonanza at the
taxpayer expense in the very near future.
Well, it looks like the Secret Service is
being fiscally responsible with taxpayer money. Newport Beach billed
Obama for security during his fundraiser and the Secret Service stated
that security is its job, not the Presidents campaign. In short, the
city lost $35,000 protecting Obama. Perhaps U.S. cities will be wary
about paying their police force to protect the president. What would
happen if cities refused to provide any police support? Would that be a
fiscal teaching moment for Obama? Or, would we now have an additional
TSA like force in protecting the dictator while on tour.
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