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Without growth all of Europe is going down
Austerity is only making thinks worse. There is no easy way out. And it's not just Greece that will default unless the ECB prints like crazy (making the Euro worthless) or there is a miraculous economic recovery (not going to happen). One thing is for sure, European sovereign debt becomes less desirable (ie rates rise) in the event of a Greek default and that puts more pressure on the remaining PIIGS.
It's not about Greece
It's about the Greek sovereign debt being held by the European banks. And if you add in Spain and Portugal as Mish suggests, the problem for the banks becomes even larger. In the end, I think they will just print Euros to bail out the banks.
Home ownership and dating
My comment: I think the question should have been: Would you rather date someone who is renting and debt free or someone who is deeply underwater on their home mortgage ? You course, the numbers already support the fact that Americans are not very smart about marrying or about home buying.
Want a date? Buy a home : http://money.cnn.com/2012/02/14/real_estate/dating_homeownership/index.htm?iid=HP_LN
Excerpt:
In a survey of 1,000 single people, more than a third of women and 18% of men said they would much rather date a homeowner than a renter.
Only 2% of women said they preferred to date a man who rents, while only 3% of men said they would choose a woman who rents over one that owns her home, according to the survey, which was conducted by Harris Interactive for real estate site Trulia.
Inflation=Increased Consumer Spending
Consumers holding back, especially on cars : http://money.cnn.com/2012/02/14/news/economy/retail_sales/index.htm?iid=HP_LN
Excerpt:
"To write this off as a weak report is a mistake," said Carl Riccadonna, senior U.S. economist at Deutsche Bank. He pointed out that most categories other than autos, furniture, health care products and nonstore retailers, primarily the online shopping, posted gains.
Part of what drove higher spending was an increase in gasoline prices, which lifted money spent at gas stations by 1.4%.
But there was also an increase in spending at general merchandise retailers, which includes department stores. Those sales rose 2% compared to December.
"All the post-holiday markdowns and gift cards received during the holidays worked their magic. They brought people into the stores," said Libby Bierman, analyst at Sageworks.
0:00 / 2:06 Cyber-shopping from your cab
Sales at food stores climbed 1.3%. Riccadonna said that like the increased spending at gas stations, part of rise at supermarket checkouts was due to rising prices. But unlike the gas station rise, food prices accounted for only part of that gain.
re: Divergence between gold and miners
There's no divergence today as both gold and the miners (at least the ones I hold) are higher. Over a longer period the miners have been lagging the POG but I expect that to change on the next leg up in gold.
But they will not be able to limit their exposure any time soon except by selling everything to the ECB which is just passing the buck. It will get even worse as Europe goes into recession. And hedging will not work either because counter parties are unreliable in the event of sovereign defaults, especially if they involve "voluntary" debt restructuring/haircuts on the part of the bond holders.
Argentina is also not mining friendly given that they have instituted new taxes on miners
Argentina Becomes Less Mining Friendly : http://howestreet.com/2011/10/argentina-becomes-less-mining-friendly/
US Trade deficit=$558B for 2011
My comment: The export led recovery is missing in action. The country's twin deficits continue to climb inexorably higher with almost $2Trillion being added to the debt annually.
Trade Deficit in U.S. Rose in December to Six-Month High on Import Growth: http://www.bloomberg.com/news/2012-02-10/trade-deficit-in-u-s-rose-in-december-to-six-month-high-on-import-growth.html
Excerpts:
The gap increased 3.7 percent to $48.8 billion from $47.1 billion in November, Commerce Department figures showed today in Washington. Purchases of goods and services produced overseas were the strongest in more than three years on record demand for capital equipment like machinery and semiconductors.
For all of 2011, the shortfall grew 12 percent to $558 billion, the most since 2008. Both imports and exports climbed to records.
Credit is readily available, especially for the poor
First Premier's $400-a-year credit card
By Blake Ellis @CNNMoney February 9, 2012: 5:45 AM ET
0:00 / 2:21Leaving the plastic (and fees) behind
NEW YORK (CNNMoney) -- Would you pay $400 a year to own a credit card?
That's how much the First Premier Platinum card can easily wind up costing its customers, according to CardHub, a credit card-tracking website that has examined more than 1,000 credit card offers.
First Premier's Platinum card, aimed at consumers with poor credit, not only boasts a sky-high 36% APR but it also comes loaded with some of the highest fees in the credit card industry, said Odysseas Papadimitriou, CEO of CardHub.
Buffett: A man for one season
My comment: Of course the key here is picking the right time. And as long as the CBs are hell bent on providing excess liquidity (ie money printing) gold will continue to rise relative to paper asset classes. My own impression is Buffett is really not all that smart and it would be interesting to see just what the stock market's performance would be without Fed intervention.
Warren Buffett: Why stocks beat gold and bonds: http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-shareholder-letter/?iid=HP_LN
Excerpts:
In an adaptation from his upcoming shareholder letter, the Oracle of Omaha explains why equities almost always beat the alternatives over time.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce -- it will remain lifeless forever -- but rather by the belief that others will desire it even more avidly in the future.
The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As "bandwagon" investors join any party, they create their own truth -- for a while.
Expensive wheels
February 2 - Bloomberg (Scott Reyburn): “Car dealers who are in Paris for sales of Porsche and Aston Martin classics have revealed that a Ferrari was bought this year for about $32 million. The GTO -- one of 36 produced by the Italian company in 1962 to 1963 -- was sold privately in the U.K. within the last two weeks… Investors are looking to rare autos as an alternative to volatile financial markets. The show is luring collectors with an exhibition that includes a Bugatti, said to be the world’s most expensive auto and bought for as much as $40 million.”
Focus on Japan
My comment: Japan's fiscal conditions continues to deteriorate and, due to their inordinate public debt, it would not take much of a rise in JGB rates to sink the country.
February 3 – Bloomberg (Shunichi Ozasa and Kathleen Chu): “Japan Inc. is suffering and the supply chain is bearing the cost. Sumco Corp., a supplier to Sony Corp. and Toshiba Corp., said yesterday it will cut 1,300 jobs. Auto windshield maker Nippon Sheet Glass Co., which sells to Mazda Motor Corp., said it will cut 3,500 jobs. They join NEC Corp… which said last month it would eliminate 10,000 positions. The yen’s 7% surge against the dollar in the past 12 months has widened losses at Sony, Mazda and Sharp Corp., which plans to halve TV production at its biggest factory… Manufacturers have been forced to both relocate production outside of Japan and to press their suppliers for cost cuts.”
Re-inflating the bubble
February 3 – Financial Times (Tracy Alloway): “The use of lower-rated debt in a key US funding market has returned to pre-crisis levels, fuelling fears that the so-called shadow banking system is becoming riskier. The repo market is an important part of the shadow banking sector, which consists of unregulated financial institutions and activities… When the US housing bubble burst, the banks’ trading partners refused to accept such securities as collateral and the repo market rapidly contracted. However, a study by Fitch Ratings says the proportion of bundled debt being used as security in repo transactions has returned to pre-crisis levels… ‘These are less liquid, longer-tenor assets that are funded short-term by highly risk-averse lenders,’ said Robert Grossman, head of macro credit research at Fitch. ‘In a period of market turbulence, all of the parties to a repo would be affected,’ he added, meaning that both banks and funds could be hit.”
February 1 – Financial Times (Nicole Bullock and Robin Wigglesworth): “Junk bonds, until last year one of the favoured post-crisis asset classes for many investors, are enjoying a vigorous rally that has drawn comparisons with the credit boom. US corporate debt rated below investment grade, or junk, has notched up a 3% return this year, according to Barclays Capital… Issuance has reached $19.5bn, Dealogic says… European junk bonds have returned 5.3% to investors and issuance has rebounded to almost $6bn. ‘We’ve seen nothing like it [in Europe] since the halcyon days before the subprime crisis,’ Suki Mann, a strategist at Société Générale said… ‘This is effectively a massive rally in credit. The message isn’t hidden or subtle: buy corporate bonds, simple. Rather add risk, any risk and there’s no point in being measured about it.”
It's a "Risk-On" environment (for now)
Price Instability : http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10627
Excerpts:
Not for a minute have I ever believed that the proliferation of derivative trading would end well. When a meaningful part of the marketplace moves to implement hedging strategies (as was the case again last year), the market will immediately find itself both prone to illiquidity and vulnerable to trend-following selling pressure. And, as we’ve seen, when policymakers then aggressively intervene to stem deepening market stress, markets abruptly become susceptible to a destabilizing reversal of hedging-related exposures. The unwind of both hedges and bearish short positions creates a powerful burst of buying power and marketplace liquidity. In short order, dangerously illiquid markets can be transformed into abundantly – I would argue, overly – liquid. And there is nothing like the specter of buying panic associated with a major short squeeze to really empower the markets’ animal spirits. Nervousness and risk aversion are so second-half 2011.
The NYSE Financial Index is already up 13.6% year-to-date. Bank of America has gained 41%, Citigroup 27%, and JPMorgan 15%. Morgan Stanley and Goldman Sachs have jumped 34% and 30%, respectively. The S&P500 Homebuilding index has a 2012 gain of 20.9%. The Morgan Stanley Cyclical index is up 16.0%. The small cap Russell 2000 has gained 12.2% and the S&P400 MidCap Index has jumped 10.5%. The Morgan Stanley High Tech index is already up 14.0%, and the Nasdaq100 closed today at the highest level since early-2001.
It’s a backdrop that had me this week recalling the 1990s. I certainly haven’t heard so much bullish technology chatter since the tech Bubble. The outperformance of heavily shorted stocks also brings back memories of the nineties’ squeezes and all the trading fun and games. In the nineties, liquidity and market distortions were being fueled by the explosion of Wall Street debt instruments and leveraged speculation. The GSEs (chiefly Fannie, Freddie and the FHLB) were there to covertly provide a powerful liquidity backstop in the event of heightened market stress. The market incentive structure was pro-Bubble, and especially toward the end of the decade the marketplace had become rather emboldened from repeated crises resolutions. Today, the distortions are fueled largely by an explosion of Treasury debt and speculative leveraging, with the Fed and global central banks acting conspicuously as market liquidity backstops. Players are again emboldened.
I’ve been at this for awhile, so you won’t hear me calling for the imminent demise of this Bubble. I will, however, continue to warn that when this one blows there will be hell to pay. And what a fascinating juncture for the marketplace to so emphatically embrace risk-taking. Especially with readily available derivative risk protection, it is indeed rational for players to aggressively play the (policy-induced) global risk market rally – with one eye on buying cheap risk insurance. And I will assume the sophisticated global speculators will play this for all its worth (multi-billions, literally) – with an eye on the exits in the event Europe begins to unravel. Policymaker efforts to avoid a system blowup have created a backdrop conducive to a destabilizing speculative blow-off. And the Fed can still somehow trumpet “stable prices.”
What happens to stocks if Greece defaults next week ?
The Fed, Gold, and US$ (Believe it or not !)
My comment: It's not just the Chinese, Russians, and Iranians who want an alternative to the US$.
http://money.cnn.com/2012/02/03/pf/states_currencies/index.htm?iid=GM
Excerpts:
NEW YORK (CNNMoney) -- A growing number of states are seeking shiny new currencies made of silver and gold.
Worried that the Federal Reserve and the U.S. dollar are on the brink of collapse, lawmakers from 13 states, including Minnesota, Tennessee, Iowa, South Carolina and Georgia, are seeking approval from their state governments to either issue their own alternative currency or explore it as an option. Just three years ago, only three states had similar proposals in place.
"In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System ... the State's governmental finances and private economy will be thrown into chaos," said North Carolina Republican Representative Glen Bradley in a currency bill he introduced last year.
The state gold rush: Utah became the first state to introduce its own alternative currency when Governor Gary Herbert signed a bill into law last March that recognized gold and silver coins issued by the U.S. Mint as an acceptable form of payment. Under the law, the coins -- which include American Gold and Silver Eagles -- are treated the same as U.S. dollars for tax purposes, eliminating capital gains taxes.
Since the face value of some U.S.-minted gold and silver coins -- like the one-ounce, $50 American Gold Eagle coin -- is so much less than the metal value (one ounce of gold is now worth more than $1,700), the new law allows the coins to be exchanged at their market value, based on weight and fineness.
Doing God's work ?
Obama: Jesus would back my tax-the-rich policy : http://money.cnn.com/2012/02/02/news/economy/obama_tax_rich_jesus/index.htm?iid=Lead
China hard landing ?
China Economy Heading for ‘Hard Landing’ as Exports Decline, Shilling Says: http://www.bloomberg.com/news/2012-02-02/china-economy-heading-for-hard-landing-as-exports-decline-shilling-says.html
Excerpts:
About 61 percent of investors in a Bloomberg survey in December said that they anticipate a crash in the financial industry by late 2016. China’s new loans totaled $4 trillion in the past three years, twice the size of the Italian economy, raising concern that some of the lending to local governments and property developers will turn sour.
China’s government won’t allow the nation’s banks to trigger another credit crisis, said Joseph Taylor, an emerging- markets strategist at Boston-based Loomis, Sayles & Co., which oversees $163 billion in assets.
“Banks are still the instrumentality of the state,” Taylor said at the conference. “They won’t be allowed to go under. They won’t be allowed to trigger a systemic crisis.”
While the economy won’t get to crisis point, growth will probably slow because China has had “almost no success” in increasing consumption as a percentage of gross domestic product, and the nation has too much bad debt, Taylor said.
<a href="http://www.bloomberg.com/news/2012-02-02/china-economy-heading-for-hard-landing-as-exports-decline-shilling-says.html">China Economy Heading for ‘Hard Landing’ as Exports Decline, Shilling Says</a>
Bernanke is a madman. The inmates are in charge of the asylum. Bernanke is using his ammo at a time when it is not needed. What will he do when Europe goes into a tailspin ? I know: low interest rates till 2020.
While evaluating different sites to post on, here are a few worth considering (finviz looks interesting although I have not seen their bullboards):
http://www.finviz.com/
http://talkingstocks.acestocktrader.com/user/categories.aspx
investorvillage.com
siliconinvestor.com
Japan faces moment of truth.
Japan Faces Moment of Truth
Excerpts:
Japan is in deep serious trouble the moment it enters a sustainable period of negative or neutral current account balances. If Japan becomes dependent on foreigners to finance rollovers on its debt either the Yen sinks or interest rates rise. Interest rates at a mere 3% would currently consume all of Japan's tax revenue.
The government only announced its draft proposals for tax and social security reform on January 6. The plan involves a hike in the consumption tax rate from the present 5 percent to 8 percent in 2014 and to 10 percent in 2015. The government’s ambiguous language implies further increases in the future, with some in business circles pressing for a rate as high as 25 percent, according to the Yomiuri Shimbun.
This is a moment of truth for Japan, perhaps the first of many. The question at hand is critical: Is the trade deficit a new trend or simply the long-lasting spillover from the tsunami?
Today's answer may be different than tomorrow's.
A prolonged European recession coupled with stubbornly high oil prices and a slowdown in China is the disaster scenario for Japan.
That scenario is not at all unlikely. A deep European recession is a given and I believe a serious slowdown in China is a given as well. By pressing for tax hikes, it seems Japan's prime minister feels the same way, regardless of what the Bank of Japan says for public consumption.
True Greece is a small economy. And I've seen the argument many times that a Greek default should therefore not have much effect on the rest of Europe. The problem is that it has ramifications for all bond holders of EU sovereign debt, including virtually all of the European banks. It brings into question the viability of all sovereign debt and it is the reason that large sums of money are being moved from the banks in the periphery to German banks. Bond holders are demanding much higher interest rates in order to compensate for the risk of owning debt which may not be repaid by the PIIGS. A default by Greece also brings into question all of the Euro denominated contracts Greece has with other countries and whether these contracts will be honored. So, yes Greece is small, but it has a large impact.
I expect there will be another opportunity to buy gold at lower prices. Greece is on the verge of default. An actual default would have negative repercussions for the Euro and lend strength to the US$. It is possible that would also weaken gold, at least until the next round of LTRO due in late February. I also think the stock market is overextended and it did not perform as well as it should have given Bernanke's announcement. So, the stock market looks vulnerable. We'll see.
To Infinity and Beyond. Fed to keep rates low into 2014:
Fed to keep rates low until 2014
The real question is will the market allow them to do that as the Federal deficit is on target to surpass $20Trillion in 2015. At some point bond holders will demand higher rates to compensate for the risk of being paid in worthless paper currency.
Gold has been following stocks lately and stocks are dependent on what happens in Europe. I expect more problems from Europe leading to a higher US$ and lower gold and stock prices near term. But, I'm a buyer of mining shares on gold prices below $1600. I see a global financial crisis this year with the major developed countries in the edge of the precipice (so it would not take much to push them over the edge). Japan is a fine example:
Japan's endgame nears
The developed countries (Europe, UK, US, Japan) are like a bunch of weak dominoes ready to fall once the weak link breaks.
2012: The year of a major global financial crisis
Here's John Mauldin's report on Europe:
Staring into the Abyss
China's housing market is set for a hard landing:
insert-text-here
Excerpts:
The numbers are grim: China's property bubble is heading for a spectacular burst, and its effect on the country's economy will be widespread.
Investors also remain buoyant on China's future. They appear to be buying the official line that the gigantic property price bubble is gradually and smoothly deflating, posing little risk to an engine that's so crucial to the future of global trade.
But the math tells a different story. The housing frenzy has driven prices so high, so fast, that a crash on the scale of the real estate collapse in Japan in the 1990s is a virtual certainty. And China's already exaggerated official growth rate could take a pounding, all the way to the zone of the unthinkable, into the low single-digits.
As Aliber puts it, "In China, the housing boom is a far bigger source of growth than is widely recognized, and it's totally unsustainable."
Aliber got his first clue that the craze spelled disaster from a former student living in Beijing. The young Chicago alumnus told Aliber that he'd just moved into an apartment building with several hundred units, and was the only one living there. Investors had bought all the other apartments that hadn't sold.
Later that year, Aliber visited the office of an upscale developer in Beijing, who was getting $600,000 for 1100 square foot units with bare walls. The folks doing the purchasing were earning between $20,000 and $30,000. Given those modest incomes, it was obvious that the buyers weren't purchasing an affordable new residence, but speculating in real estate, either to live there for awhile then flip the unit, or simply leave it vacant while seeking a buyer willing to hand them quick windfall.
testing to see if this works