Tag: news

It’s like deja vu all over again…

 

 

(h/t Jim Quinn’s Burning Platform Sunday Funnies)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Q9PvZ7ZHjZY/story01.htm Tyler Durden

“Since September 2011’s $1921 peak, gold has been in correction mode,” Mark Faber tells Barrons in this brief clip, but the overhwleminly bearish sentiment combined with the major accumulation (most notably by China) means “gold prices have probably bottomed,” and some gold mining stocks are well positioned. While Faber has recently expressed concern at the potential for a major correction in stocks, he notes that there are pockets of value worth investigating including European Telcos and Indo-China travel-related stocks. However, the Gloom, Boom & Doom report writer warns that “stocks could be dead money for a while.”

 

On Gold and Gold Miners:

Gold peaked at $1,921 an ounce in September 2011. Since then, it has been in a correction mode. Sentiment is bearish, but some countries are accumulating gold, notably China, which will buy an estimated 2,600 tons this year, exceeding annual production. Prices probably are bottoming.

 

Gold-mining shares aren’t expensive either, although many exploration companies won’t make it. If you buy the miners, look for companies that have raised capital already or have sufficient reserves. They are best-positioned to survive the next few years if there is no upturn in the gold price.

Full Barrons’ Interview below:

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/mbcIR6zsHzg/story01.htm Tyler Durden

“Since September 2011’s $1921 peak, gold has been in correction mode,” Mark Faber tells Barrons in this brief clip, but the overhwleminly bearish sentiment combined with the major accumulation (most notably by China) means “gold prices have probably bottomed,” and some gold mining stocks are well positioned. While Faber has recently expressed concern at the potential for a major correction in stocks, he notes that there are pockets of value worth investigating including European Telcos and Indo-China travel-related stocks. However, the Gloom, Boom & Doom report writer warns that “stocks could be dead money for a while.”

 

On Gold and Gold Miners:

Gold peaked at $1,921 an ounce in September 2011. Since then, it has been in a correction mode. Sentiment is bearish, but some countries are accumulating gold, notably China, which will buy an estimated 2,600 tons this year, exceeding annual production. Prices probably are bottoming.

 

Gold-mining shares aren’t expensive either, although many exploration companies won’t make it. If you buy the miners, look for companies that have raised capital already or have sufficient reserves. They are best-positioned to survive the next few years if there is no upturn in the gold price.

Full Barrons’ Interview below:

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/mbcIR6zsHzg/story01.htm Tyler Durden

Submitted by F.F. Wiley of Cyniconomics blog,

If you’re anything like us, you may have reached the conclusions that:

1. Our elected officials are charting a course to a fiscal disaster.
2. The Fed is repeating past mistakes by setting us up for another bust.

After the drama of the debt ceiling debate and the Fed’s non-tapering surprise, we see no reason to doubt these views.

But the latest developments got us thinking, and we have an unusual proposal. Before we share it, we’ll need to provide some background.

Recall that the Fed extended and released its economic outlook at its non-tapering meeting in September, and the Congressional Budget Office (CBO) published new projections at about the same time.

The chart below compares GDP growth forecasts from both institutions, including one path per FOMC member for the Fed’s outlook (from September’s meeting) and a single path for the CBO’s outlook (from figures published in May and used in the latest projections):

Apparently, the CBO’s Kool-Aid is much stronger than the Fed’s. You might even say it’s more hallucinogen than sugary fruit drink. Forecasting helpers aside, though, note that the predictions fit perfectly with themes favored by each institution:

CBO: The buoyant growth projection is merely an annual renewal of a long-standing CBO assumption that we’ll snap back to normal. It’s not so much a forecast but a connect-the-dots exercise of joining today’s GDP with a long-run trend line. It also explains the popular claim that there’s nothing urgent about our debt problem. By assuming a robust recovery, the CBO bends debt-to-GDP projections downward for the next few years, providing a convenient excuse for inaction. (See here or here for the debt charts and further discussion).

Fed: The unspectacular but unalarming growth forecasts are exactly what you would expect from our monetary policymakers. They’re unalarming for the obvious reason – the FOMC can’t just say the economy’s headed down a sinkhole, at least in public. And they’re unspectacular because policymakers have begun to grasp how broken the economy is, even if they don’t accept that their own policies helped with the breaking. Also, the tepid forecasts justify policymakers’ “whatever it takes” story, preserving both ZIRP and QE.

An intriguing solution

Getting back to our proposal, why not just trade the CBO’s economists for the Fed’s economists? One group of forecasters moves from the Eccles Building to the Ford House, and the other moves in the opposite direction. That’s 2.26 miles according to Mapquest, all in the same taxi zone. Relocation reimbursements would surely be unnecessary.

Think about the policy implications:

• With a growth outlook matching the Fed’s figures above, the CBO’s projected debt ratios would no longer bend downward. This wouldn’t completely pull the rug out from under the “deficits don’t matter” crowd, but it should have some effect. We should at least see a little more urgency on measures to fix our fiscal problems.
• As for the Fed, the buoyant outlook reported by the CBO’s economists would make QE less defensible if not redundant. This should encourage policymakers to follow through on their tapering plan, instead of reprising this year’s head fake.

But wait, you say: “Deep down, the CBO doesn’t like delivering bad news; and deep down, the Fed doesn’t want to taper. You can switch economists, but you can’t change outcomes.”

We know.

Even if it were plausible, our proposal wouldn’t necessarily work, and that doesn’t reflect well on the research that shapes public policies.

Which leaves us where?

In all seriousness, CBO and Fed forecasts have been wildly inaccurate, year after year. Evidence shows that these institutions don’t understand our economy. Yet, they refuse to migrate from failed methods to more successful ideas. They may claim to be learning from mistakes, but the basic approach is unchanged. You might say they’re trying to adjust to the automobile age by strapping wheels to a horse.

Take Austrian business cycle theory, for example. Fair-minded people recognize that recent years’ booms and busts were predicted by the Austrian school, even as mainstream macroeconomists were mostly flummoxed. But the mainstreamers refuses to concede that simple truth. Austrian principles are just too far removed from the abstract mathematical modeling that dominates the profession. Acknowledging that real life has proven these principles accurate and the modeling useless would not only devalue resumes but invalidate entire careers.

Unfortunately, much of the establishment considers CBO and Fed pronouncements to be gospel. We know better. The next time you hear someone giving the fiscal “all clear” based on CBO debt projections, pull out the chart above to show what’s really behind them. And the next time you hear someone extolling the Fed’s expertise, point out that a whole school of economists who actually got things right would disagree.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ZV7vZ2nmWkg/story01.htm Tyler Durden

Three weeks ago, I outlined six key investment themes for the next decade. I neglected to mention one for wont of space and because I wanted to devote an entire post to it. Namely, further technological disruption to established industries. Everyone knows how the likes of retail and newspapers have been transformed by the internet. Well, there’s much more to come as it’s clear that supermarkets, healthcare and education are next in line for technological upheaval.

For instance, UK online grocer Ocado appears to have nailed an industrial scale pick and delivery model. For more than a decade, companies have tried and failed to make inroads into the online grocery business, the most notable failure being the 1990s internet-bubble inspired, Webvan. Through trial and error, Ocado seems to have mastered the notoriously difficult logistics involved in the business. And it will soon be out-doing supermarkets, offering a broader range of products, at lower prices and with the convenience of ordering via a simple click of the mouse. What Amazon did for books, Ocado is about to do for groceries.

As investors though, how can you take advantage of the emerging opportunities from the digital revolution? The obvious answer is through up-and-coming tech companies. But this is more difficult than many suppose. For every Facebook, there’s a Myspace – the wannabe Facebook originally backed by media billionaire Rupert Murdoch – and hundreds of others. In other words, the creative destruction in tech is enormous and trying to pick winners requires extensive knowledge and a large dose of luck.

I’d argue that the best way to play future technological disruption is through companies servicing the key players. What I’d term: facilitators. They would seem to be surer bets. For example, the internet’s transformation of retail and soon groceries means supply chains will need to quicken even further. Consumers are going to want goods delivered yesterday. That means quality logistics companies will be in high demand. And industrial warehouses near key airports and ports will be valued at a premium given increased demand for the fast turnaround of goods.

Today, Asia Confidential is going to discuss these opportunities and more, as well as the companies which are likely to benefit.

Digital revolution is just beginning 

There are many who think that tech is a gigantic bubble waiting to burst. You have the IPO of Twitter, a company being valued at US$13 billion and yet doesn’t earn a cent. And on a larger scale, Amazon (Nasdaq: AMZN) is still loss marking despite sporting a US$166 billion market capitalisation.

Then you have the internet start-ups being sold for millions and the venture capitalists backing them becoming quasi celebrities. Not to mention that residential property in Silicon Valley is now one of the most expensive in the United States.

But before writing tech off as a bubble, a few things should give you pause. For one, many large tech companies are now cheap as they’re considered yesterday’s heroes. Apple (Nasdaq: AAPL) is valued at less than 10x earnings if you strip out its enormous cash pile, compared to the S&P 500 12-month forward price-to-earnings ratio (PER) of 16x. Similarly, Microsoft (Nasdaq: MSFT) is on a PER of just 11x. More broadly, the tech sector has actually under-performed the S&P 500 this year. And similar tech under-performance has been witnessed in my neighbourhood of Asia.

The other thing is that history suggests this may not be a bubble. The evolution of railways in conjunction with the industrial revolution in the 1800s resulted in a long series of stock market booms, aka bubbles. The creative destruction involved then was similar to that of tech today.

Finally, if you think about the history of the current digital revolution, you may appreciate the enormous opportunities which lay ahead. Go back to the 1990s and the enthusiasm generated by browser technology. Then there was the advent of domain names and portals as well as email and instant messaging reaching the masses. Domain names assumed less importance with the rise of search and the behemoth, Google. And increased bandwidth has since paved the way for a huge uplift in web traffic.

While the digital revolution has been largely confined to the web so far, that’s starting to change as it moves into the real world. And that’s where things are about to get interesting.

I’ve talked previously about how 3-D printing is transforming the world of manufacturing. Physical objects can be designed on laptops and the designs can be shared online as files. Factories have been able to do this for decades but the big change is that now anyone with a computer can do it.

There are other examples of how the internet is being applied to the real world. You’ll know that smart phones are like quasi-computers these days. But do you know that each phone is uniquely identifiable on the internet? That is, the smart phone which may be in your hand right now has a mobile internet address. That means you can be connected to the internet 24/7. And companies can track your location via your device at any time.

One of Paypal’s latest inventions is Beacon, which gives retailers the power to recognise Paypal members as they enter their store (or walking past) and for these members to be able to make a transaction with a phone swipe or simple nod of agreement. In other words, there’s no need for these people to use credit cards or paper money. A virtual world, indeed. Needless to say, card issuers like Visa aren’t happy about it.

Think about the broader implications of this though. Retail companies no longer have to lure you into their store via your laptop at home. They can track you in real-time to market business opportunities.

Next industries to be hit

< p style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">There are tens of thousands of start-up internet companies which are currently targeting digital applications for the real world. The most vulnerable industries are likely to be those which don’t offer the best prices, broad product ranges and convenience – or a combination of all three.

Online companies have been targeting supermarkets for the best part of 20 years. Everyone to date has tried and failed with an online grocery model. The most famous failure was Webvan, which went bankrupt in 2001 as the Nasdaq bubble burst. Amazon has also attempted to make headway in the space with AmazonFresh.  But to little avail.

Now, however, a UK company has emerged and appears as a genuine contender to take on the big supermarkets. Ocado (LON: OCDO) was formed by three former Goldman Sachs bankers in 2002. It received early backing from large UK department store operator John Lewis. And it listed in the UK in 2010 to much investor skepticism.

That skepticism is slowly dissipating though as the company is set to turn its first profit. It follows a huge 25-year deal with UK supermarket chain Wm Morrison to distribute online groceries. Ocado suggests overseas deals may flow from the Wm Morrison agreement.

Other sectors besides supermarkets also appear ripe for tech disruption. Education and healthcare are probably at the top of the list.

With education for instance, everyone know the enormous price inflation which has occurred across universities over the past 30 years. And yet education standards, particularly in the developed world, have shown minimal improvement during that time. What’s worse is that many university graduates don’t have the skills to get jobs in the current tough marketplace.

It doesn’t take a genius to realise how online study could totally displace university lectures and tutorials. And slash university costs along the way. In essence, universities should soon turn into venues where students go to collaborate or discuss what they’ve learned online.

Emerging tech companies worth looking at

But now you’re probably thinking: that’s all great, but how do we, as investors, take advantage of this tech revolution? The easy answer to that is to find the next Google (Nasdaq: GOOG). Only, that’s not so easy.

The U.S. offers some great tech companies, including Google itself as well as the likes of Ebay (Nasdaq: EBAY). These companies are innovators, with enormously scalable business models and generating prodigious amounts of cash.

Less known is that Asia also has some fantastic tech companies which probably offer even greater opportunities. China’s version of Google, Baidu (Nasdaq: BIDU), is one. You also have Sina (Nasdaq: SINA), which owns the Chinese equivalent of Twitter. Then there’s Youku (Nasdaq: YOKU), which you may have guessed is a wannabe Youtube in China.

There are many others which look just as interesting. I’d suggest Naver (KRX: 035420) in Korea is worth a look. It has a 70% share of search in South Korea. And it owns a social messaging service which has attracted more than 250 million users across Asia.

The problem that I have with investing in many of these tech companies is that it’s extraordinarily difficult to predict how the digital revolution will evolve from here. And who the winners will be. If you’re going to invest directly into tech companies, it’d be sound to spread your bets across a variety of companies, given this uncertain future.

But there may be a better way…

Better potential opportunities

Let me give you a rough analogy first. Unless you’ve lived in a cocoon for the past decade, you’ll know about the enormous commodities boom which has taken place. Many mining companies generated an enormous amount of wealth. What’s not publicised to the same degree is the number of failures during the period. I’d estimate 1000 failures for every success story.

Not only that, but even the largest miners wasted enormous amounts of cash on projects which has since been mothballed. Since the pullback in commodity prices from 2011, there’s been much criticism about this and that’s why you see the large mining companies cutting back on capital expenditure and promising to give more money back to shareholders via dividends (a revelation that’s been a decade in the making!)

Anyhow, my point is that investing directly into the mining companies, even the large ones, was not the best bet. For instance, most of these companies trailed commodity indices by a distance.

The companies where investors made more money were those servicing the mining industry. The mining contractors. As well as others servicing the areas where new mines developed, such accommodation providers and so forth. These companies were surer, less risky, but more profitable investments.

I’d suggest that same thinking may be profitable in the digital world too. Rather than playing the tech companies directly, investing in those servicing the industry may have a better payoff.

I’ll give you one example. Think about who else will benefit from the ongoing disruption in the retail sector. Inventory management and distribution have been, and will continue to be, crucial as the industry evolves. That means faster supply chains. To enable faster chains, logistics will be at a premium.

In addition, many distributors will prefer warehouses around key airports and ports, so goods can be turne
d around quickly to consumers across the country or abroad. That means real estate around key infrastructure should become more valuable given relative supply scarcity versus growing demand. And also ports themselves, particularly in oligopoly-type markets should also become more valuable as greater throughput occurs from quickening supply chains.

For logistics companies, you probably have to look to the U.S. as they’re are few quality listed vehicles in Asia. The likes of UPS (NYSE: UPS) and Fedex (NYSE: FDX) would seem to have bright futures.

In terms of industrial real estate around key infrastructure, Goodman Group (ASX: GMG) in Australia and Mapletree Industrial (SGX: ME8U) in Singapore give you partial exposure to this. I also like the world’s largest industrial property operator, Prologis (NYSE: PLD), in the U.S. It focuses purely on property near key infrastructure and is run by one of real estate’s most brilliant minds, Hamid Moghadam.

For exposure to port operators La Ka-shing’s Hutchison Whampoa (HKG: 13) is a great play not only on Hong Kong but European ports too. Chinese state-owned Cosco Pacific (HKG: 1199) also gives you exposure, though the quality of the company is questionable.

The above provides just a few examples of how to potentially invest in those facilitating the digital revolution.

This post was originally published at Asia Confidential: 
http://asiaconf.com/2013/10/27/playing-next-tech-disruption/

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/s9YmkMV-s3w/story01.htm Asia Confidential

If there is ever a case study about people who built up their reputation and then squandered it for first being right for all the wrong reasons, and then being wrong for the right ones, then Meredith Whitney certainly heads the list of eligible candidates. After “predicting” the great financial crisis back in 2007 by looking at some deteriorating credit trends at Citigroup, a process that many had engaged beforehand and had come to a far more dire -and just as correct – conclusion, Whitney rose to stardom for merely regurgitating a well-known meme, however since her trumpeted call was the one closest to the Lehman-Day event when it all came crashing down, it afforded her a 5 year very lucrative stint as an advisor. Said stint has now been shuttered.

The main reason for the shuttering, of course, is that in 2010 she also called an imminent “muni” cataclysm, staking her reputation once again not only on what is fundamentally obvious, but locking in a time frame: 2011. Alas, this time her “timing” luck ran out and her call was dead wrong, leading people to question her abilities, and ultimately to give up on her “advisory” services altogether. Which in some ways is a shame because Whitney was and is quite correct about the municipal default tidal wave, as Detroit and ever more municipalities have shown, and the only question is the timing.

However, as Citi’s Matt King recent showed, when it comes to stepwise, quantum leap repricings of widely held credits, the revelation is usually a very painful, sudden and very dramatic one. This can be seen nowhere better than in the default of Lehman brothers, where while the firm’s equity was slow to admit defeat it was nothing in comparison to the abject case study in denial that the Lehman bonds put in. However, as can be seen in the chart below, when it finally came, and when bondholders realized they are screwed the morning of Monday, Septembr 15 when the Lehman bankruptcy filing was fact, the move from 80 cents on the dollar to under 10 cents took place in a heartbeat.

It is the same kind of violent and anguished repricing that all unsecrued creditors in the coming wave of heretofore “denialed” municipal bankruptcy filings will have to undergo. Starting with Detroit, where as Reuters reports, the recovery to pensioners, retirees and all other unsecured creditors will be…. 16 cents on the dollar!…  or less than what Greek bondholders got in the country’s latest (and certainly not final) bankruptcy.

From Reuters:

On Friday, city financial consultant Kenneth Buckfire said he did not have to recommend to Orr that pensions for the city’s retirees be cut as a way to help Detroit navigate through debts and liabilities that total $18.5 billion.

 

Buckfire said it was clear that the city did not have the funds to pay the unsecured pension payouts without cutting them.

 

“It was a function of the mathematics,” said Buckfire, who said he did not think it was necessary for him or anyone else to recommend pension cuts to Orr.

 

“Are you saying it was so self-evident that no one had to say it?” asked Claude Montgomery, attorney for a committee of retirees that was created by Rhodes.

 

“Yes,” Buckfire answered. 

 

Buckfire, a Detroit native and investment banker with restructuring experience, later told the court the city plans to pay unsecured creditors, including the city’s pensioners, 16 cents on the dollar. There are about 23,500 city retirees.

One wonders by how many cents on the dollar the recovery to pensioners would increase if the New York-based Miller Buckfire were to cut their advisory fee, but that is not the point of this post (it will be of a subsequent).

What is the point, is that creditors across all products, aided and abetted by the greatest credit bubble of all time blown by Benny and the Inkjets, will find the kind of violent repricings that Lehman showed take place whenever hope dies, increasingly more prevalent. And since retirees and pensioners are ultimately creditors, this is perhaps the fastest, if certainly most brutal way, to make sure that the United Welfare States of America is finally on a path of sustainability.

The only question is how will those same retirees who have just undergone an 84 cent haircut, take it. One hopes: peacefully. Because among those whose incentive to work effectively has just been cut to zero, is also the local police force. In which case if hope once again fails, it is perhaps better not to contemplate the consequences. For both Meredith Whitney, who will eventually be proven right, and for everyone else.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/N2zhEdnrFvY/story01.htm Tyler Durden

From Sean Corrigan Of Diapason Commodities Management

Material Evidence

At present the whole world is happy to treat the post?Shutdown US as a Goldilocks fable. Herein, such good macro numbers as do occur are eitherdeemed an aberration soon to reversed as the supposed disruption of the budget dispute filters its way into the reckoning, or else they serve to underpin the assumptions of higher earnings to come. Weaker ones – like the just?released NFP – are also welcome for their prophylactic effect since they can only continue to disarm an already bedraggled flock of Fed hawks, leaving the rest of us hoarsely Yellen for more.

So, in the run?up to book closing, we may see everyone scramble out to their waiting Sopwith, silk scarf flapping jauntily in the slipstream of the ‘crate’s’ spinning propellers, to the exultant cryof, “Chocks away, Ginger!? Off will go our heroes, soaring not so much to a tumult in the clouds as to the wide, blue yonder of ever higher equity prices and ever fatter bonus cheques.

Ye Gods! Even that discredited old hack, Alan Greenspan ? the man who bears as much responsibility as anyone for the hypertrophy of state- supported finance and thus for the havoc it continues to wreak ? is at it, trying to tell us that because of a low ‘equity premium’ (read: ludicrously intervention?depressed bond yields), the ‘momentum’ of stocks ‘is still relatively up’.

Such a market is therefore likely to suck everyone in to its last, Plinian updraft no matter how stretched everything becomes and no matter how great the risk of being cast into perdition in the pyroclastic collapse to come. That said, one cannot fail to be tempted by the fact that margin debt is in the stratosphere (a new dollar high and a fraction of market cap only outdone in QI’00); sentiment is heavily bullish (the AAII Bull?Bear index is at levels only once beaten to any significant degree in the past since the start of 2006; while that same index multiplied by stock prices is in the 97th percentile of a quarter?century sample), put?call skews are high and vols are low.

In turn, this means that our favourite ‘Blue Sky’ indices (index levels divided by volatility measures, such as OEX/VXO) are off the charts. Indeed, that particular example is now 2.7 sigmas over a 28?year mean, in a 99th percentile which has only once been surpassed, at the start of 2007, before the first rumblings of the CDO cyclone and sub?prime tsunami were audible to any but the most perceptive listener. In Germany, the DAX/VDAX equivalent sits at a major, new 21?year high, a whopping 3.7 sigmas over its period mean.

There are one or two other technical signals, too. The S&P500 ex?financials has all but completed a handsome?looking long?term profile during the DDIE. The financials, meanwhile, have retraced 50% of their LEH?AIG meltdown. Nasdaq has been on one of Didier Sornette’s exponential accelerations, climbing more ever more rapidly on ever shorter timeframes up into the top few percent of another clean, projected top mapped out off the 2009 lows. Looking further back in time, since that same 2009 nadir, the DJIA has ascended by an amount only exceeded in the run up to 1920, 1929, 1937, 1987, and 2000 – all of them major tops. Juicy!

What we must caution here, however, is that anyone tempted to lean into this particular wind must have the patience to wait for signs of even a temporary exhaustion before setting shorts. Critical, too, will be the discipline to stop out if and when those initial selling ‘tails’ start to fill back in, for fear that this is a signal that the mania has not yet ended and that the buyers of dips are still all too dominant.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/wmfn3uwhSyU/story01.htm Tyler Durden

From Sean Corrigan Of Diapason Commodities Management

Material Evidence

At present the whole world is happy to treat the post?Shutdown US as a Goldilocks fable. Herein, such good macro numbers as do occur are eitherdeemed an aberration soon to reversed as the supposed disruption of the budget dispute filters its way into the reckoning, or else they serve to underpin the assumptions of higher earnings to come. Weaker ones – like the just?released NFP – are also welcome for their prophylactic effect since they can only continue to disarm an already bedraggled flock of Fed hawks, leaving the rest of us hoarsely Yellen for more.

So, in the run?up to book closing, we may see everyone scramble out to their waiting Sopwith, silk scarf flapping jauntily in the slipstream of the ‘crate’s’ spinning propellers, to the exultant cryof, “Chocks away, Ginger!? Off will go our heroes, soaring not so much to a tumult in the clouds as to the wide, blue yonder of ever higher equity prices and ever fatter bonus cheques.

Ye Gods! Even that discredited old hack, Alan Greenspan ? the man who bears as much responsibility as anyone for the hypertrophy of state- supported finance and thus for the havoc it continues to wreak ? is at it, trying to tell us that because of a low ‘equity premium’ (read: ludicrously intervention?depressed bond yields), the ‘momentum’ of stocks ‘is still relatively up’.

Such a market is therefore likely to suck everyone in to its last, Plinian updraft no matter how stretched everything becomes and no matter how great the risk of being cast into perdition in the pyroclastic collapse to come. That said, one cannot fail to be tempted by the fact that margin debt is in the stratosphere (a new dollar high and a fraction of market cap only outdone in QI’00); sentiment is heavily bullish (the AAII Bull?Bear index is at levels only once beaten to any significant degree in the past since the start of 2006; while that same index multiplied by stock prices is in the 97th percentile of a quarter?century sample), put?call skews are high and vols are low.

In turn, this means that our favourite ‘Blue Sky’ indices (index levels divided by volatility measures, such as OEX/VXO) are off the charts. Indeed, that particular example is now 2.7 sigmas over a 28?year mean, in a 99th percentile which has only once been surpassed, at the start of 2007, before the first rumblings of the CDO cyclone and sub?prime tsunami were audible to any but the most perceptive listener. In Germany, the DAX/VDAX equivalent sits at a major, new 21?year high, a whopping 3.7 sigmas over its period mean.

There are one or two other technical signals, too. The S&P500 ex?financials has all but completed a handsome?looking long?term profile during the DDIE. The financials, meanwhile, have retraced 50% of their LEH?AIG meltdown. Nasdaq has been on one of Didier Sornette’s exponential accelerations, climbing more ever more rapidly on ever shorter timeframes up into the top few percent of another clean, projected top mapped out off the 2009 lows. Looking further back in time, since that same 2009 nadir, the DJIA has ascended by an amount only exceeded in the run up to 1920, 1929, 1937, 1987, and 2000 – all of them major tops. Juicy!

What we must caution here, however, is that anyone tempted to lean into this particular wind must have the patience to wait for signs of even a temporary exhaustion before setting shorts. Critical, too, will be the discipline to stop out if and when those initial selling ‘tails’ start to fill back in, for fear that this is a signal that the mania has not yet ended and that the buyers of dips are still all too dominant.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/wmfn3uwhSyU/story01.htm Tyler Durden

Roughly five years ago, when we first started warning that the Fed’s QE program, which we predicted will never end (five years later this is as true as ever), instead of leading to a virtuous economic cycle would result in a world where the labor force is increasingly converted from full-time workers to part-time labor, in which spending on growth capital is entirely replaced with such short-term shareholder friendly actions as dividends and buybacks, where the government is more broken than ever and where, courtesy of monetary policy, Congress can just tell the Chairman to “get to work” any time there is a crisis, and in which the record wealth disparity between the wealthiest few (0.6% control 40% of the world’s wealth) and the poorest 99% (now that the middle class is on the path to extinction) will inevitably lead to a 18th century French outcome complete with guillotines, or worse, one of the more traditional financial pundits, John Maudlin, espoused the “Muddle Through” theory – in a nutshell, that all, even if at a far lowered output and standard of living, would be well, one which we (much to the chagrin of Cypriot – to start – depositors) refuted.

Some five years later, now that the prevailing mainstream media consensus has finally caught up with our “tinfoil” view, which for years was mocked by the same media, usually on an ad hominem basis, and even the Fed has realized (confirmed by the latest Jackson Hole symposium) it is in a trap as it understands it has to end the market’s dependency on monetary heroin but has no idea how to do it without in the process undoing five years of central planning, we have seen some spectacular opinion flip flops take place. Which aside from the occasional headscratcher such as David Rosenberg going bull-retard (we once again wonder: just what does Ray Dalio serve in his cafeteria?) have been almost exclusively from optimistic to pessimistic, or as we call it, realistic. And as the case may be, such as with John Mauldin and his latest missive to potential clients, A Code Red World, a very deep and red shade of pessimistic.

Some extracts from the man whose Muddle Through has now become the Fumble Through and Through:

The arsonists are now running the fire brigade. Central bankers contributed to the economic crisis the world now faces. They kept interest rates too low for too long. They fixated on controlling inflation, even as they stood by and watched investment banks party in an orgy of credit. Central bankers were completely incompetent and failed to see the Great Financial Crisis coming. They couldn’t spot housing bubbles, and even when the crisis had started and banks were failing, they insisted that the banks they supervised were well regulated and healthy. They failed at their job and should have been fired. Yet governments now need central banks to erode the mountain of debt by printing money and creating inflation.

 

Investors should ask themselves: if central bankers couldn’t manage conventional monetary policy well in the good times, what makes us think that they will be able to manage unconventional monetary policies in the bad times?

 

And if they don’t do a perfect job of winding down condition Code Red, what will be the consequences?

 

Economists know that there are no free lunches. Creating tons of new money and credit out of thin air is not without cost. Massively increasing the size of a central bank’s balance sheet is risky and stores up extremely difficult problems for the future. Central bank policies may succeed in creating growth, or they may fail. It is too soon to call the outcome, but what is clear (at least to us) is that the experiment is unlikely to end well.

 

The endgame for the current crisis is not difficult to foresee; in fact, it’s already underway. Central banks think they can swell the size of their balance sheet, print money to finance government deficits, and keep rates at zero with no consequences. Bernanke and other bankers think they have the foresight to reverse their unconventional policies at the right time. They’ve been wrong in the past, and they will get the timing wrong in the future. They will keep interest rates too low for too long and cause inflation and bubbles in real estate, stock markets, and bonds. What they are doing will destroy savers who rely on interest payments and fixed coupons from their bonds. They will also harm lenders who have lent money and will never be repaid in devalued dollars, if they are repaid at all.

 

We are already seeing the unintended consequences of this Great Monetary Experiment. Many emerging market stock markets have skyrocketed, only to fall back to earth at the hint of an end to Code Red policies. Junk bonds and risky commercial mortgage-backed securities are offering investors the lowest rates they have ever seen. Investors are reaching for riskier and riskier investments to get some small return. They’re picking up dimes in front of a steamroller. It is fun for a while, but the end is always ugly. Older people who are relying on pension funds to pay for their retirement are getting screwed (that is a technical economic term that we will define in detail later). In normal times, retirees could buy bonds and live on the coupons. Not anymore. Government bond yields are now trading below the level of inflation, guaranteeing that any investor who holds the bonds until maturity will lose money in real terms.
We live in extraordinary times.

 

When investors convince themselves central bankers have their backs, they feel encouraged to bid up prices for everything, accepting more risk with less return. Excesses and bubbles are not a mere side effect. As crazy as it seems, reckless investor behavior is, in fact, the planned objective. William McChesney Martin, one of the great heads of the Federal Reserve, said the job of a central banker was to take away the punch bowl before the party gets started. Now, central bankers are spiking the punch bowl with triple sec and absinthe and egging on the revelers to jump in the pool. One day the party of low rates and money printing will come to an end, and investors will make their way home from the party in the early hours of sunlight half dressed, with hangovers and thumping headaches.

 

The coming upheaval will affect everyone. No one will be spared the consequences – from savers who are planning for retirement to professional traders looking for opportunities to profit in financial markets. Inflation will eat away at savings; government bonds will be destroyed as a supposedly safe asset class; and assets that benefit from inflation and money printing will do well.

Such fire and brimstone , such a dramatic shift in perception? Well, better late then never, right… But one wonders – why now?

This book will provide a roadmap and a playbook for retail savers and professional traders alike. This book will shine a light on the path ahead. Code Red will explain in plain English complicated things like zero interest rate policies (ZIRP), nominal GDP targeting, quantitative easing, money printing, and currency wars. But much more importantly, it will explain how what is in store will affect your savings and offer insights on how to protect your wealth. Code Red will be an invaluable guide for the road ahead.

 

Code Red will be available on Amazon on Monday, Oct. 28.

… and suddenly it all makes sense.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/p7lZpsBruuc/story01.htm Tyler Durden

U.S. leaders have long:

• Condemned China for spying and hacking our computers … But the Snowden leaks show that America is doing the same thing — on a much larger scale

• Considered waterboarding to be a war crime and a form of torture, including when the Japanese did it in WWII (and see this). But when we did it, we insisted it was not torture

• Proselytized other countries to follow free market capitalism. But we no longer follow free market capitalism in America. Instead, we have socialism for the rich and sink-or-swim capitalism for everyone else.  Whether you call it crony capitalism, fascism, communist style socialism, kleptocracy, oligarchy or banana republicanism … it ain’t real capitalism

• Labeled indiscriminate killing of civilians as terrorism.  Yet the American military  indiscriminately kills innocent civilians (and see this),  calling it “carefully targeted strikes”.   For example, when Al Qaeda, Syrians or others target people attending funerals of those killed – or those attempting to rescue people who have been injured by – previous attacks, we rightfully label it terrorism.  But the U.S. government does exactly the same thing (more), pretending that it is all okay

• Lambasted those who do not follow a rule of law as tin-pot tyrants.  But the rule of law has broken down in America, and we now have less access to justice than in many parts of the world

• Blasted oppressive regimes which do not allow free speech, a free press and other liberties for their people … But have discarded most of those same liberties in our homeland

• Scolded tyrants who launch aggressive wars to grab power or plunder resources. But we ourselves have launched a series of wars for oil (and here) and gas

• Said that those who support terrorists should be treated as terrorists.  But the U.S. government has long supported terrorists for cynical political purposes.

• Sought to “spread democracy” around the world.  But democracy is not being honored at home (more here and here)

• Said that we must stamp out terrorism.  But we are doing the exact same things we accuse the terrorists of doing (or worse)

Can you spot a pattern of hypocrisy?

Indeed, the worse the acts by officials, the more they say we it must be covered up … for “the good of the country”.

For example, Elizabeth Goitein – co-director of the Liberty and National Security Program at New York University School of Law’s Brennan Center for Justice – writes:

The government has begun to advance bold new justifi
cations for classifying information that threaten to erode the principled limits that have existed — in theory, if not always in practice — for decades. The cost of these efforts, if they remain unchecked, may be the American public’s ability to hold its government accountable.

 

***

Obviously, the government wants to stop whistleblowers because they interfere with the government’s ability to act in an unaccountable manner. As Glenn Greenwald writes:

It should not be difficult to understand why the Obama administration is so fixated on intimidating whistleblowers and going far beyond any prior administration – including those of the secrecy-obsessed Richard Nixon and George W Bush – to plug all le
aks. It’s because those methods are the only ones preventing the US government from doing whatever it wants in complete secrecy and without any accountability of any kind.

But whistleblowers also interfere with the government’s ability to get away with hypocrisy.  As two political science professors from George Washington University (Henry Farrell and Martha Finnemore) show, the government is so hell-bent to punish Manning and Snowden because their leaks are putting an end to the ability of the US to use hypocrisy as a weapon:

The U.S. establishment has often struggled to explain exactly why these leakers [Manning, Snowden, etc.] pose such an enormous threat.

***

The deeper threat that leakers such as Manning and Snowden pose is more subtle than a direct assault on U.S. national security: they undermine Washington’s ability to act hypocritically and get away with it. Their danger lies not in the new information that they reveal but in the documented confirmation they provide of what the United States is actually doing and why. When these deeds turn out to clash with the government’s public rhetoric, as they so often do, it becomes harder for U.S. allies to overlook Washington’s covert behavior and easier for U.S. adversaries to justify their own.

 

***

 

As the United States finds itself less able to deny the gaps between its actions and its words, it will face increasingly difficult choices — and may ultimately be compelled to start practicing what it preaches. Hypocrisy is central to Washington’s soft power — its ability to get other countries to accept the legitimacy of its actions — yet few Americans appreciate its role.

 

***

 

American commitments to the rule of law, democracy, and free trade are embedded in the multilateral institutions that the country helped establish after World War II, including the World Bank, the International Monetary Fund, the United Nations, and later the World Trade Organization. Despite recent challenges to U.S. preeminence, from the Iraq war to the financial crisis, the international order remains an American one. This system needs the lubricating oil of hypocrisy to keep its gears turning.

 

***

 

Of course, the United States has gotten away with hypocrisy for some time now. It has long preached the virtues of nuclear nonproliferation, for example, and has coerced some states into abandoning their atomic ambitions. At the same time, it tacitly accepted Israel’s nuclearization and, in 2004, signed a formal deal affirming India’s right to civilian nuclear energy despite its having flouted the Nuclear Nonproliferation Treaty by acquiring nuclear weapons. In a similar vein, Washington talks a good game on democracy, yet it stood by as the Egyptian military overthrew an elected government in July, refusing to call a coup a coup. Then there’s the “war on terror”: Washington pushes foreign governments hard on human rights but claims sweeping exceptions for its own behavior when it feels its safety is threatened.

 

***

 

Manning’s and Snowden’s leaks mark the beginning of a new era in which the U.S. government can no longer count on keeping its secret behavior secret. Hundreds of thousands of Americans today have access to classified documents that would embarrass the country if they were publicly circulated. As the recent revelations show, in the age of the cell-phone camera and the flash drive, even the most draconian laws and reprisals will not prevent this information from leaking out. As a result, Washington faces what can be described as an accelerating hypocrisy collapse — a dramatic narrowing of the country’s room to maneuver between its stated aspirations and its sometimes sordid pursuit of self-interest. The U.S. government, its friends, and its foes can no longer plausibly deny the dark side of U.S. foreign policy and will have to address it head-on.

 

***

 

The era of easy hypocrisy is over.

Professors Farrell and Finnemore note that the government has several options for dealing with ongoing leaks.  They conclude that the best would be for the government to actually do what it says.

What a novel idea …

* Note: That may be why Guantanamo is really being kept open, and even prisoners that the U.S. government admits are innocent are still being blocked from release: to cover up the widespread torture by keeping the evidence – the prisoners themselves – in a dungeon away from the light of day.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/d_pIiAY8jZs/story01.htm George Washington