Category: zerohedge

Even the most ardent of bulls would ‘admit’ that the period of the last 90s was a bubble in US equities. What started at the margin quickly morphed into a euphoric valuation for any and everything that could be pitched. Even The Fed’s Jim Bullard ‘knew’ there was a bubble back then… Today’s recovery of the NASDAQ to 4,000 – levels not seen since this period – is quickly dismissed by those that need things to go higher on the basis of earnings, multiples, or some such forward-looking hope-based methodology that reinforces their bias. However, Tobin’s Q – among the longest-lived and most well-respected of longer-term valuation methodologies has just reached levels only ever seen during the 1999/2000 bubble. BTFATH valuation?

 

Doug Short provides more color here…

The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. It’s a fairly simple concept, but laborious to calculate. The Q Ratio is the total price of the market divided by the replacement cost of all its companies. Fortunately, the government does the work of accumulating the data for the calculation. The numbers are supplied in the Federal Reserve Z.1 Financial Accounts of the United States of the United States, which is released quarterly.

 

 

Source: Doug Short’s Advisor Perspectives

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/OaS7cPIxzT0/story01.htm Tyler Durden

Even the most ardent of bulls would ‘admit’ that the period of the last 90s was a bubble in US equities. What started at the margin quickly morphed into a euphoric valuation for any and everything that could be pitched. Even The Fed’s Jim Bullard ‘knew’ there was a bubble back then… Today’s recovery of the NASDAQ to 4,000 – levels not seen since this period – is quickly dismissed by those that need things to go higher on the basis of earnings, multiples, or some such forward-looking hope-based methodology that reinforces their bias. However, Tobin’s Q – among the longest-lived and most well-respected of longer-term valuation methodologies has just reached levels only ever seen during the 1999/2000 bubble. BTFATH valuation?

 

Doug Short provides more color here…

The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. It’s a fairly simple concept, but laborious to calculate. The Q Ratio is the total price of the market divided by the replacement cost of all its companies. Fortunately, the government does the work of accumulating the data for the calculation. The numbers are supplied in the Federal Reserve Z.1 Financial Accounts of the United States of the United States, which is released quarterly.

 

 

Source: Doug Short’s Advisor Perspectives

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/OaS7cPIxzT0/story01.htm Tyler Durden

Submitted by Peter Schiff via Euro Pacific Capital,

Herd mentality can be as frustrating as it is inexplicable. Once a crowd starts moving, momentum can be all that matters and clear signs and warnings are often totally ignored. Financial markets are currently following this pattern with respect to the unshakable belief that the Federal Reserve is ready, willing, and most importantly, able, to immediately execute a wind down of its quantitative easing program. How this notion became so deeply entrenched is a mystery, but the stampede it has sparked is getting more violent, and irrational, by the day.

The release last week of the minutes of the October Fed policy meeting was a case study in dangerous collective delusion. Although the report did not contain a shred of hard information about the certainty or timing of a “tapering” campaign, most observers read into it definitive proof that the Fed would jump into action by December or March at the latest.

But while the Fed was gaining much attention by saying nothing, the Chinese made a blockbuster statement that was summarily ignored. Last week, a deputy governor of the People’s Bank of China said that buying foreign exchange reserves was now no longer in China’s national interest. The implication that China may no longer be accumulating U.S. government debt would amount to the “mother of all tapers” and could create a clear and present danger to the American economy. But the story barely rated a mention in the American media.

Instead, the current environment is all about the imminent Fed taper: the process of winding down the Fed’s monthly purchases of $85 billion of treasury debt and mortgage-backed securities. However, the crowd fails to grasp that the Fed has embarked on an impossible mission. The herd is blissfully unaware that the Fed may not be able to reverse, or even slow, the course of QE without immediately sending the economy back into recession.

In an interview this week, outgoing Fed Chairman Ben Bernanke likened the QE program to the first stage in a multiple stage rocket that gets the spacecraft off the ground and accelerates it to the point where it is close to achieving permanent orbit. Like a first stage that has spent its fuel and has become dead weight, Bernanke seems to concede that QE is no longer capable of providing positive thrust, and as a result can now be jettisoned (like a first stage) so that the remainder of the spacecraft/economy can now move higher and faster. The Chairman’s nifty metaphor provides some inspiring visuals, but is completely flawed in just about every way imaginable.

In real rocketry, when the first stage separates, it falls back to earth and is no longer a burden to the remainder of the ship. Subsequent booster rockets (which in economic terms Bernanke imagines would be continuation of zero interest rate policies) build on the gains made by the first stage. But the almost $4 trillion in assets that the Fed has accumulated as a result of the QE program will not simply vaporize into the stratosphere like a discarded rocket engine. In fact it will remain tethered to the rest of the economy with chains of solid lead.

In the process of accumulating the world’s largest cache of Treasuries, the Fed has become the most important player in that market. I believe the Fed can’t stop accumulating and dispose of its inventory without creating major market disruptions that will drag the economy down.

This would be true even if the economic rocket were actually approaching escape velocity. In reality, we are still sitting on the launch pad. By keeping interest rates far below market levels and by channeling newly created dollars directly into the financial markets, the QE program has resulted in major gains in the stock, real estate, and bond markets. Many have argued that all three are currently in bubble territory. Yet to the casual observer, these gains are proof of America’s surging economic vitality.

But things look very different on Main Street, where the employment picture has not kept pace with the rising prices of financial assets. The work force participation rate continues to shrink (recently falling back to levels last seen in 1978),real wages have declined, and since the end of 2009 the temporary workforce has grown at a pace that is 14 times faster than those with permanent jobs. Americans are driving less, vacationing less, and switching to lower quality products and services in order to deal with falling purchasing power.

But the herd is closely watching the Fed’s rocket show and does not understand that stocks and housing will likely fall, and bond yields rise steeply, once the QE is removed. The crowd is similarly ignoring the significance of the Chinese announcement.

Over the past decade or so, the People’s Bank of China has been one of the largest buyers of U.S. Treasuries (after various U.S. government entities that are essentially nationalizing U.S. debt). China currently sits on $1 trillion or more in U.S. bond obligations.

So, just as many expect that the #1 buyer of Treasuries (the Fed) will soon begin paring back its purchases, the top foreign holder may cease buying, thereby opening a second front in the taper campaign. This should cause any level-headed observer to conclude that the market for such bonds will fall dramatically, causing severe upward pressure on interest rates. But the possibility is not widely discussed.

Also left out of the discussion is the degree to which remaining private demand for Treasuries is a function of the Fed’s backstop (the Greenspan put, renewed by Bernanke, and expected to be maintained by Yellen). The ultra-low yields currently offered by long-term Treasuries are only acceptable to investors so long as the Fed removes the risk of significant price declines. If the private buyers, the Fed, China (and other central banks that may likely follow China’s lead) refuse to buy Treasuries, who will take on the slack?  Absent the Fed’s backstop, prices will likely have to fall considerably to offer an acceptable risk/reward dynamic to investors. The problem is that any yield high enough to satisfy investors may be too high for the government or the economy to afford.

Little thought seems to be given to how the economy would react to 5% yields on 10 year Treasuries (a modest number in historical standards). The herd assumes that our stronger economy could handle such levels. In reality, 5% rates would likely deeply impact the financial sector, prick the bubbles in housing and stocks, blow a hole in the federal budget, and cause sizable losses in the value of the Fed’s bond holdings. These developments would require the Fed to devise a rocket with even more power than the one it is now thinking of discarding.

That is why when it comes to tapering, the Fed is all bark and no bite. In fact, toward the end of last week, Dennis Lockhart, President of the Federal Reserve Bank of Atlanta, said that the Fed “won’t taper its bond-buying until the economy is ready.”He must know that the economy will never be ready. It’s like a drug addict claiming that he’ll stop using when he no longer needs them to stay high.

But the market understands none of this. Instead it is operating under dangerous delusions that are creating sky-high valuations for the latest social media craze, undermining the investment case for gold and other inflation hedges, and encouraging people to ignore growing risks that are hiding in plain sight.

This is not unusual in market history. When the spell is finally broken and markets wake up to reality, we will scratch our heads and wonder how we could ever
have been so misguided.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/wp1CZULar2E/story01.htm Tyler Durden

Submitted by Peter Schiff via Euro Pacific Capital,

Herd mentality can be as frustrating as it is inexplicable. Once a crowd starts moving, momentum can be all that matters and clear signs and warnings are often totally ignored. Financial markets are currently following this pattern with respect to the unshakable belief that the Federal Reserve is ready, willing, and most importantly, able, to immediately execute a wind down of its quantitative easing program. How this notion became so deeply entrenched is a mystery, but the stampede it has sparked is getting more violent, and irrational, by the day.

The release last week of the minutes of the October Fed policy meeting was a case study in dangerous collective delusion. Although the report did not contain a shred of hard information about the certainty or timing of a “tapering” campaign, most observers read into it definitive proof that the Fed would jump into action by December or March at the latest.

But while the Fed was gaining much attention by saying nothing, the Chinese made a blockbuster statement that was summarily ignored. Last week, a deputy governor of the People’s Bank of China said that buying foreign exchange reserves was now no longer in China’s national interest. The implication that China may no longer be accumulating U.S. government debt would amount to the “mother of all tapers” and could create a clear and present danger to the American economy. But the story barely rated a mention in the American media.

Instead, the current environment is all about the imminent Fed taper: the process of winding down the Fed’s monthly purchases of $85 billion of treasury debt and mortgage-backed securities. However, the crowd fails to grasp that the Fed has embarked on an impossible mission. The herd is blissfully unaware that the Fed may not be able to reverse, or even slow, the course of QE without immediately sending the economy back into recession.

In an interview this week, outgoing Fed Chairman Ben Bernanke likened the QE program to the first stage in a multiple stage rocket that gets the spacecraft off the ground and accelerates it to the point where it is close to achieving permanent orbit. Like a first stage that has spent its fuel and has become dead weight, Bernanke seems to concede that QE is no longer capable of providing positive thrust, and as a result can now be jettisoned (like a first stage) so that the remainder of the spacecraft/economy can now move higher and faster. The Chairman’s nifty metaphor provides some inspiring visuals, but is completely flawed in just about every way imaginable.

In real rocketry, when the first stage separates, it falls back to earth and is no longer a burden to the remainder of the ship. Subsequent booster rockets (which in economic terms Bernanke imagines would be continuation of zero interest rate policies) build on the gains made by the first stage. But the almost $4 trillion in assets that the Fed has accumulated as a result of the QE program will not simply vaporize into the stratosphere like a discarded rocket engine. In fact it will remain tethered to the rest of the economy with chains of solid lead.

In the process of accumulating the world’s largest cache of Treasuries, the Fed has become the most important player in that market. I believe the Fed can’t stop accumulating and dispose of its inventory without creating major market disruptions that will drag the economy down.

This would be true even if the economic rocket were actually approaching escape velocity. In reality, we are still sitting on the launch pad. By keeping interest rates far below market levels and by channeling newly created dollars directly into the financial markets, the QE program has resulted in major gains in the stock, real estate, and bond markets. Many have argued that all three are currently in bubble territory. Yet to the casual observer, these gains are proof of America’s surging economic vitality.

But things look very different on Main Street, where the employment picture has not kept pace with the rising prices of financial assets. The work force participation rate continues to shrink (recently falling back to levels last seen in 1978),real wages have declined, and since the end of 2009 the temporary workforce has grown at a pace that is 14 times faster than those with permanent jobs. Americans are driving less, vacationing less, and switching to lower quality products and services in order to deal with falling purchasing power.

But the herd is closely watching the Fed’s rocket show and does not understand that stocks and housing will likely fall, and bond yields rise steeply, once the QE is removed. The crowd is similarly ignoring the significance of the Chinese announcement.

Over the past decade or so, the People’s Bank of China has been one of the largest buyers of U.S. Treasuries (after various U.S. government entities that are essentially nationalizing U.S. debt). China currently sits on $1 trillion or more in U.S. bond obligations.

So, just as many expect that the #1 buyer of Treasuries (the Fed) will soon begin paring back its purchases, the top foreign holder may cease buying, thereby opening a second front in the taper campaign. This should cause any level-headed observer to conclude that the market for such bonds will fall dramatically, causing severe upward pressure on interest rates. But the possibility is not widely discussed.

Also left out of the discussion is the degree to which remaining private demand for Treasuries is a function of the Fed’s backstop (the Greenspan put, renewed by Bernanke, and expected to be maintained by Yellen). The ultra-low yields currently offered by long-term Treasuries are only acceptable to investors so long as the Fed removes the risk of significant price declines. If the private buyers, the Fed, China (and other central banks that may likely follow China’s lead) refuse to buy Treasuries, who will take on the slack?  Absent the Fed’s backstop, prices will likely have to fall considerably to offer an acceptable risk/reward dynamic to investors. The problem is that any yield high enough to satisfy investors may be too high for the government or the economy to afford.

Little thought seems to be given to how the economy would react to 5% yields on 10 year Treasuries (a modest number in historical standards). The herd assumes that our stronger economy could handle such levels. In reality, 5% rates would likely deeply impact the financial sector, prick the bubbles in housing and stocks, blow a hole in the federal budget, and cause sizable losses in the value of the Fed’s bond holdings. These developments would require the Fed to devise a rocket with even more power than the one it is now thinking of discarding.

That is why when it comes to tapering, the Fed is all bark and no bite. In fact, toward the end of last week, Dennis Lockhart, President of the Federal Reserve Bank of Atlanta, said that the Fed “won’t taper its bond-buying until the economy is ready.”He must know that the economy will never be ready. It’s like a drug addict claiming that he’ll stop using when he no longer needs them to stay high.

But the market understands none of this. Instead it is operating under dangerous delusions that are creating sky-high valuations for the latest social media craze, undermining the investment case for gold and other inflation hedges, and encouraging people to ignore growing risks that are hiding in plain sight.

This is not unusual in market history. When the spell is finally broken and markets wake up to reality, we will scratch our heads and wonder how we could ever have been so misguided.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/wp1CZULar2E/story01.htm Tyler Durden

Submitted by Ben Hunt of Epsilon Theory

The 18th Brumaire of Janet Yellen

One of the more painful lessons in investing is that the prudent investor (or ‘value investor’ if you prefer) almost invariably must forego plenty of fun at the top end of markets. This market is already no exception, but speculation can hurt prudence much more and probably will. Ah, that’s life. And with a Fed like ours it’s probably what we deserve.

      – Jeremy Grantham, macro fund manager and noted Bear (Nov. 19, 2013)

 

I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends.

      – Hugh Hendry, macro fund manager and noted Bear (Nov. 22, 2013)

 

The hippies, who had never really believed they were the wave of the future anyway, saw the election results as brutal confirmation of the futility of fighting the establishment on its own terms.

      – Hunter S. Thompson, “The Hashbury is the Capital of the Hippies” (1967)

 

In the sunset of dissolution, everything is illuminated by the aura of nostalgia, even the guillotine.

      – Milan Kundera, “The Unbearable Lightness of Being” (1984)

 

The Greek word for ‘return’ is nostos. Algos means ‘suffering.’ So nostalgia is the suffering caused by an unappeased yearning to return.

      – Milan Kundera, “Ignorance” (2000)

 

The class which has the means of material production at its disposal, has control at the same time over the means of mental production. The ruling ideas are nothing more than the ideal expression of the dominant material relationships.

      – Karl Marx, “The German Ideology” (1846)

 

“Let’s go.” “We can’t.” “Why not?” “We’re waiting for Godot.”

      – Samuel Beckett, “Waiting for Godot” (1953)

Karl Marx may not have had a small-l liberal bone in his body, but he was one of the keenest observers of the human condition to ever live, and his writings are a phenomenal resource for anyone seeking to understand our lives as social animals. In 1852 Marx published an essay titled The 18th Brumaire of Louis Bonaparte, recounting the 1851 coup where Louis-Napoleon Bonaparte (nephew of THE Napoleon) seized dictatorial powers in France. The essay was, Marx wrote, intended to “demonstrate how the class struggle in France created circumstances and relationships that made it possible for a grotesque mediocrity to play a hero’s part,” and it is here that Marx describes his view of the individual’s role in history. Which is to say … not much, as individuals are almost always prisoners of the past and their class, particularly shadow or derivative individuals, as Louis-Napoleon was to his uncle and Yellen is to Bernanke. This was the essay where Marx famously said that history always repeats itself, only the second time as farce, a phenomenon I’ve written about at length as the emergency Fed policies that saved the world in 2009 have been transformed into a more or less permanent government insurance program.

I started this note with quotes from two prominently bearish money managers – Jeremy Grantham and Hugh Hendry – both of whom are throwing in the towel on the upward trajectory of the market in the face of inexorable government bond-buying. Their change of heart reflects (finally and begrudgingly) the overwhelmingly dominant Narrative of Central Bank Omnipotence, that for better or worse it is central bank policy (particularly the Fed’s QE policy) that determines market outcomes. This Narrative is encapsulated in the following chart, a graph that we’ve all seen a million times in one form or another and has become a meme unto itself.

This is the Common Knowledge of our day … that so long as the Fed continues to buy, the market will continue to go up. Maybe they taper the rate of purchases or even stop expanding altogether, but if the market gets squirrelly they will just start buying again. The Narrative of Central Bank Omnipotence doesn’t mean that the market will only go up; it means that central bank policy is the overwhelming causal factor for market levels. It is as powerful a Common Knowledge structure as I’ve ever measured, and it’s at the heart of Grantham and Hendry’s hand-wringing. They aren’t capitulating to the market going up, but to WHY the market is going up. It’s a market dynamic that is alien to their (formidable) talents as money managers and to their (strongly held) belief structures on the meaning of an investment.

But for both Grantham and Hendry (and I suspect every investor who has been fighting the Fed in one way or another), this is a temporary capitulation. They both cling to the notion that this, too, shall pass, that we shall someday return to a market environment where real-world business fundamentals matter more than monetary policy. Maybe the return to “normal” comes with a bang … some sort of “Minsky moment” and asset price collapse where there’s a sudden realization that the Emperor has no clothes (or no more bonds to buy) … or maybe it comes with a whimper, as the Fed slowly and calmly drains the excess reserves it has built up in the financial system with the magical “tools” that are touted every time Bernanke (and now Yellen) testifies before Congress. To which I say … maybe. Or maybe that’s just wishful thinking for a market clearing Shock Ending or Happy Ending, as opposed to what seems to me to be the more likely outcome of the Entropic Ending, a long gray slog through a more or less permanently depressed world and a more or less permanently Fed-centric market.

Louis-Napoleon’s reign may have been a farcical shadow of his uncle’s Emperorship, but the truth is that Napoleon I set into motion structural changes in the world that dominate o
ur lives still. Napoleon changed the meaning of nationalism. He changed the meaning of war. He changed what it means to live as a human animal in a mass society. I mean, the entire concept of mass society really begins with Napoleon and the levée en masse, the Napoleonic Code, the notion of Total War, and the authoritarian co-opting of revolutionary ideals. Put the political inventions of Napoleon (and his Prussian and English opponents) together with the mechanical inventions of the Industrial Revolution and you have … the modern nation-state, a massive and entrenched insurance company attached to an equally massive and entrenched standing army.

I think it’s likely that government policy initiatives of the past ten years, particularly monetary policy and particularly US monetary policy, have created a structural shift in the meaning of capital markets and the global economy that rivals what Napoleon did almost exactly 200 years ago. I think Larry Summers is right – we are mired in a world of secular stagnation and a more or less permanent liquidity trap. The degree to which ZIRP and QE and bubble-promoting monetary policy creates that secular stagnation by delaying the deleveraging, loss assignment, and creative destruction that vibrant growth requires is ludicrously underappreciated in Summers’ speech, but as a statement of economic reality it’s pretty spot-on. I think Paul Krugman is right, too – in for a penny, in for a pound. Central bankers have come this far. Do you really think they’re going to back down now? I’m not saying that Krugman’s argument is “right” in terms of being intellectually honest or even very smart. I’m saying that I believe it is an accurate representation of the world as it is.

Here’s the crucial part of what Summers and Krugman are saying: this is not a temporary gig. This isn’t going to just “get better” on its own over time. This really is, as Mohamed El-Erian of PIMCO would call it, the New Normal. And if you’re Jeremy Grantham or anyone for whom a stock has meaning as a fractional ownership stake in a real-world company rather than as a casino chip that gives you “market exposure” … well, that’s really bad news.

So what’s the point of all this?

Denial ain’t just a river in Egypt, and alienation ain’t just a movie with Mandy Patinkin in heavy make-up. For my money, the smartest thing Marx ever wrote was on the concept of alienation, the separation of a worker from the meaning of his labor. Marx believed that the greatest theft that capitalism perpetrated on the working class was psychological. The Industrial Revolution and the assembly line crushed a worker’s spirit by eliminating the sense of pride, the sense of accomplishment, the sense of place and meaning that an honest day’s work previously imbued. Instead of seeing, feeling, and knowing the object of his labor, the modern worker made … a widget. He made a cog and he was a cog.

What traditional value investors like Grantham are experiencing today is alienation in the traditional Marxist sense. In today’s context it’s not the separation of a worker from the meaning of his labor, but the separation of an investor from the meaning of his investment. Sure, you can go on investing on the basis of your discounted cash-flow model or your earnings margin reversion-to-the-mean model or whatever it is that floats your boat, but it’s just going to be a continuing exercise in frustration so long as we live in a Fed-centric universe. As Hugh Hendry says, it’s hard to look at yourself in the mirror every morning when everything that you’ve held dear as your investment belief structure doesn’t seem to matter much anymore. Nostalgia, as Milan Kundera points out, is a form of suffering. Life’s way too short to wallow in those waters.

Marx has an answer to the alienation problem … end it, don’t amend it. Take your ball and go home, or at least find a different game. For the alienated proletariat, this is easier said than done. You’ve got to throw off your chains, rise up in violent class struggle, create a vanguard political party that maintains the necessary ideological discipline, watch out for counter-revolutionaries … creating a worker’s paradise is hard work! For the alienated value investor, on the other hand, the portability of capital makes the road to greener pastures quite a bit easier — just get out of public markets. Go buy a farm … or an apartment building … or a fleet of tankers … or a portfolio of bank loans … anything where your investment process has meaning again and isn’t hijacked by the game-playing and trend-following that dominates public capital markets. If you have to stay in public securities, at least move into areas of the market where you are not dominated by the game-players and where there remains a critical mass of your fellow value investors to make a community of sorts … small and mid-cap industrials, say, or maybe activist targets. Just don’t kid yourself into thinking that your deep dive into the value fundamentals of some large-cap bank has any predictive value whatsoever for the bank’s stock price, or that a return to the happy days of yesteryear is just around the corner. It doesn’t and it’s not, and even if you’re making money you’re going to be miserable and ornery while you wait nostalgically for what you do and what you’re good at to matter again. Spoiler Alert: Godot never shows up.

But maybe you’re not a dyed-in-the-wool value investor wracked by feelings of severe alienation. Maybe you’re pretty agnostic about the whole investment style box thing and you’re just looking to grow your wealth as quickly as possible with the least risk as possible. If you don’t really care WHY the markets are going up, only that they ARE going up; if you don’t feel an existential angst about Fed policy, but are actually quite happy that they’ve got your back; if you’re looking to play the investment game better, regardless of what the rule changes might be … well, Marx has some good advice for you, too. Think for yourself.

Marx is most famous for his concept of “the means of production”, the notion that human history is best seen and understood through an economic lens, that what we have been told is a story of Great Men and Empires and Discovery is really just a byproduct of class struggle for the control of those economic means of production. But what’s less appreciated is that Marx made a distinction between material production (all the stuff that we characterize as economic activity) and what he described as “mental production” – the creation of “the ruling ideas” that do all the heavy lifting in maintaining control over the proletariat. Now Marx wrote this in the 1840’s (!), so it’s going to need some contextual updating to speak clearly to us 170 years later. To wit: in the same way that Marx’s concept of alienation is more relevant today to capitalist investors than it is to labor, so, too, is this concept of mental production and ruling ideas. We investors – big or small, retail or institutional – are the proles. A well-to-do and content proletariat, to be sure, kind of like professional athletes, but a proletariat nonetheless. We control neither the means of material production (the public capital markets in which we labor) nor, more importantly, the means of mental production – the creation of the ruling ideas that drive our behavior and are taken for granted. We are ALL suckers for a good story that has more truthiness (to use Stephen Colbert’s word) than truthfulness, and you don’t have to be a raving Marxist to believe that the institutio
ns that do in fact control the means of material and mental production depend on this central truth about human nature to maintain their position.

What are the ruling ideas in investment theory and practice today? There are plenty, but I’ll highlight two: “stocks for the long haul” and Modern Portfolio Theory. I’m not going to go into a long critique of either ruling idea, as I’ve written on this topic here, and I have lots more planned for the future. But for now I’ll just ask this: does the Narrative of Stocks For the Long Haul or the Narrative of Modern Portfolio Theory serve your best interests and your clients’ best interests … or theirs? It’s a question that deserves to be asked and explored again and again, and that’s what I’ll keep doing with Epsilon Theory.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/WFFtEElf37M/story01.htm Tyler Durden

Led by countries such as Russia and China, central banks have recently become net buyers of gold. Meanwhile, ETF gold outflows have been a temporary source of supply this year, but obviously this cannot persist. It’s also unreasonable to assume that recycling will make up a significantly greater piece of supply without the price of gold increasing substantially. With the grade of current producing gold mines being 32.6% higher than undeveloped deposits, it makes the supply scenario even more clear. Not only is the current yearly mine supply difficult to sustain, but future mines coming online will be challenged by grade and margins to be economical at today’s prices. Mathematically, unless we have high-grade, high ounce deposits that are being fast tracked online, it will be very difficult to find a way to get supply to match demand. Have we reached peak gold?

 

(click image for large legible version)

 

And The Full Natural Resource Holdings’ 40-page Global Gold Mine and Deposit Rankings report is available here: 

 

Global Gold Mine and Deposit Rankings 2013

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/8kIIKPvLObc/story01.htm Tyler Durden

Led by countries such as Russia and China, central banks have recently become net buyers of gold. Meanwhile, ETF gold outflows have been a temporary source of supply this year, but obviously this cannot persist. It’s also unreasonable to assume that recycling will make up a significantly greater piece of supply without the price of gold increasing substantially. With the grade of current producing gold mines being 32.6% higher than undeveloped deposits, it makes the supply scenario even more clear. Not only is the current yearly mine supply difficult to sustain, but future mines coming online will be challenged by grade and margins to be economical at today’s prices. Mathematically, unless we have high-grade, high ounce deposits that are being fast tracked online, it will be very difficult to find a way to get supply to match demand. Have we reached peak gold?

 

(click image for large legible version)

 

And The Full Natural Resource Holdings’ 40-page Global Gold Mine and Deposit Rankings report is available here: 

 

Global Gold Mine and Deposit Rankings 2013

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/8kIIKPvLObc/story01.htm Tyler Durden

From consumer and retailer surveys to quantitative data such as household spending and private jet bookings, ConvergEx’s Nick Colas has amassed a collection of 10 clues about this year’s holiday shopping season. On the plus side, disposable personal income and consumer spending on discretionary items are rising, and travel to Palm Beach via private jet is quite popular this Christmas season. However, consumer confidence surveys are particularly weak, and consumer debt has ballooned to a 5-year high. Roughly equal parts good and bad, Colas’ collection of holiday spending indicators points to a mediocre (at best) 2013 shopping season (as we noted earlier).

Via ConvergEX’s Nick Colas,

There are conflicting projections out there, so it’s hard to know on which to rely, but when in doubt go with the National Federation of Retailers (NRF) gauge. They have the season pegged for a 3.9% positive comp to last year. While the NRF has been overly conservative in prior years, our indicators actually point to a weaker Holiday 2013: something closer to a 1-2% seems more realistic. Even a negative reading wouldn’t be a surprise.

Note from Nick: Only 30 days until Christmas Day, and some of the most important for the U.S. economy. Today Beth goes through the key drivers of consumer spending to baseline how much holiday shoppers will spend versus last year. Bottom line: it may not be the ‘Most wonderful time of the year.’ Read on for the Top 10 reasons why…

So far the only person I’ve checked off my Christmas shopping list is my dog, Floyd. He’s got a candy cane collar and a monogrammed blue whale collar for after the holidays coming his way. I always intend to finish my shopping by now – as I’ve gotten older I’ve grown to resent Black Friday and the holiday shopping crowds, an activity for which I used to giddily set a 3am alarm – but it never seems to happen. f you’re in the same boat, here’s an useful list of some top gift ideas for 2013 from a variety of retailers (just in case you need another gift guide):   

• Amazon: Cards Against Humanity, Twisted Bandz Rainbow Loom, Kindle Fire HD 7″
• The Discovery Store: 1-Rex Slippers, Shark Week bottle opener
• Macy’s: Starbucks gift box, Jean Paul Gaultier “LE MALE” cologne, Michael Kors Hamilton tote
• Audubon Institute: Adoption of an animal, tour of the elephant barn
• Toys “R” Us: Sofia the First Royal Talking Vanity, “Despicable Me 2” Minions, Flutterbye Flying Fairy

I’m not sure what most of these are, but thankfully Best Buy has some more traditional suggestions: the PS4, the Xbox One and the iPhone. For the first time in 11 years, Thanksgiving fall as late as the calendar possibly allows, reducing this year’s holiday season by 6 full days – and retailers are clearly taking note. You can’t use the internet at the moment without being bombarded by gift ideas and promotional announcements. Huge retailers such as Wal-Mart, K-Mart and Macy’s are under fire for cutting into family time by opening on Thanksgiving Day just to extend the shopping season by a few more hours. And consumers are responding as expected: 23.5% (or 33 million) of those who plan on shopping during Thanksgiving weekend will hit the stores Thursday before the turkey is even off the table, according to a survey by the National Retail Federation (NRF).

So how much will they spend? The most crucial question isn’t who or when or where, after all – it’s how much. And to answer it, we’ve compiled a top 10 list of clues for 2013’s holiday shopping season. From consumer and retailer surveys to quantitative data such as personal spending/income and household debt, our collection encompasses the economics behind this year’s shopping season. Read on for the details.

1) Disposable personal income is on the rise. According to the Bureau of Economic Analysis (BEA), real disposable personal income increased 4.5% in the 3rd quarter from the prior period, for the biggest Q3 jump since 2006. This compares to gains of 1.7% and 3.9% in the quarter immediately preceding the holiday shopping season in 2012 and 2011, respectively. So consumers theoretically have more to spend, but are they spending it?

 

2) The answer is yes – spending is also up. The BEA’s data on personal consumption expenditures shows that core expenditures (excluding the food and energy components) were 2.1% higher in Q3 2013 versus Q3 2012 and 4.6% greater in Q3 2013 compared with Q3 2011. More importantly for the holiday shopping season, spending on discretionary items such as recreational goods and vehicles (a category that includes video, audio, and photographic equipment; sporting goods; and information processing equipment and media) was up 10.5% versus 2012 and 22.9% versus 2011. Strong spending patterns during the quarter immediately prior to the Christmas shopping season certainly bodes well for holiday spending.

 

3) The latest retail sales figures also support the case for increased spending habits. We combined sales figures from the government’s most recent retail sales report for all of the retailers from which people are likely to purchase discretionary gifts (clothing, sporting, book, music, hobby and department stores). The total came to $42.3 billion, which is a post-Fnandal Oisis recovery peak and 1.3% higher than the year-ago month, as well as 4.0% higher than in October 2011.

 

4) As for the 1%, it seems they’re doing just fine too. Private jet travel bookings are up more than 70% for the November 2013 and December 2013 holiday travel season, according to Sentient It (a Directional Aviation G3pital firm). The most popular holiday vacation destinations include Palm Beach, FL; Aspen, OD; and New York, NY.

 

5) An NRF survey predicts that total holiday spending will be up 3.9% this year. Americans reported plans to spend an average of $737 on gifts this year, or a total of $602 billion. Something to note, however. This survey occurred in early October, before the psychological headwind that was the partial government shutdown. Caution aside, however, the NRF has underestimated holiday spending for the past two years. In 2011 it projected per person spending at $704, but the actual number result was much higher – $741. Last year was a little closer – $749.50 projected versus $752 actual. This year’s estimate of $737 is likely a safe bet.

 

6) A separate, more recent, survey noted that Americans plan to trim their spending habits this year. Gallup’s most recent poll from November shows that consumer intend to shell out an average of $704 on holiday presents, down from $786 in the October poll and $770 in the November 2012 poll. Even the “20 percent” seem to be affected by economic uncertainty: For those earnings more than $75,000 per year, the average gift budget is $1,035 versus $1,122 a year ago.

 

7) Another study concurs. Morgan Stanley anticipates this will be the worst holiday season since 2008, with total gift spending per person down 2.5% from last year to $537, marking the first forecasted per capita spending decline in five years. The research predicts total holiday sales to rise 1.6% versus last year and attributes the increase to a greater number of shoppers in 2013.

 

8) Meanwhile, consumer debt is at a 5-year high. The Federal Reserve Bank of New York reported that debt expanded 1.1% in the 3rd quarter to $11.28 trillion, the biggest quarterly jump since Q1 2008. Though this is below the peak o
f $12.68 trillion in the 3r1 quarter of 2008, it indicates that the near 5-year deleveraging pattern has perhaps come to an end. People are purchasing houses and cars in greater numbers, which runs the risk of crowding out spending on other items, such as gifts. Plus, additional debt isn’t exactly a psychological “plus” for Christmas shopping.

 

9) Consumer confidence surveys support the notion of a psychologically-damaged consumer. The University of Michigan’s consumer confidence index fell for a 4th consecutive month in November. Its current reading of 72.0 is well below the year-ago mark of 82.7, and its current expectations component stands at 62.3 versus the July peak of 76.5. Meanwhile, the Conference Board’s consumer sentiment index currently stands at 71.2, compared with 72.2 in the year-ago month. f there is a bright spot here, it is gasoline prices. These can push confidence numbers higher or lower pretty quickly, and the trend is our friend on this count. Nationwide, gas prices currently average $3.24 versus $3.44 a year ago.

 

10) Lastly, the NRF projects seasonal hires to be roughly in line with 2012. A survey found that retailers plan to hire somewhere between 720,000 and 780,000 seasonal workers this year, compared with the incremental 720,500 hired last year (which was a 13% year-over-year increase from 2011). We’ll call this our sole neutral indicator.

With five indicators on the positive side, four on the negative and one in the middle, we can’t help but call for a lukewarm holiday shopping season. Logically, the length of the shopping season shouldn’t have any effect on comps, but this year does have a 6-day disadvantage. The macro economy is still shaky, and heightened promotional activity among retailers is likely to harm the 203 gift-buying season. Hanukkah actually falls quite early this year, so perhaps sales next week will give some indication about the overall strength of this holiday shopping season.

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One is a dystopian society of haves and have-nots (favored or disfavored) controlled from The Capitol by a totalitarian ‘big’ government and entertained by reality TV shows… the other is a fictional movie entitled “The Hunger Games”…

 

 

(h/t Sunday Funnies at The Burning Platform blog)

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Twice in the same day? Coincidence?

 

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