Mike Krieger’s Macro Themes For 2011
by Zero Hedge - December 30th, 2010 2:45 pm
Courtesy of Tyler Durden
From Mike Krieger of KAM LP
Macro Themes for 2011
Death may come invisible, or in the holy wall of fire
In the breath between the markers, or on some black I-80 mile
From the madness of the government, to the vengeance of the sea
Everything is eclipsed by the shape of destiny
- Conor Oberst/Bright Eyes, No One Would Riot for Less
2010 Recap: Macro Trends Playing Out as Expected with Some Surprises…
Heading into 2010 I focused on three investment areas that I thought would benefit the most from the insane policies of desperate global Central Banks and governments adhering to the orders of the financial oligarchs that control them. They were to be long precious metals, agricultural commodities and oil. Not only was I a believer that most globally traded “hard assets” (as opposed to residential real estate) would do well as global fiat currencies are competitively devalued, but I thought that the three subgroups mentioned above would do particularly well since they are also strategic commodities. Basically, in a world going through the type of dangerous geopolitical shift we are in at the moment (these happen once in a generation and are called “Fourth Turnings” by Neil Howe and William Strauss) governments and in fact all institutions become subject to upheaval and revolution. Since governments are made up of human beings (generally narcissistic power hungry ones) we can generally forecast how they will react to such tension. In their attempt to maintain power and status governments usually do one of two things. They turn on their own people (or minorities within their own societies) or they turn the anger of the populace on a foreign enemy. In an environment where the global financial system is based on digital monopoly money created with a keystroke by Banana Ben and company, money itself will become suspect and any large foreign government with even a basic understanding of money matters will buy all the gold they can so that if necessary they have real money to use the basis for a new currency if necessary down the road. Just as gold is a necessary hedge for individual Americans that can see the destruction of currency values by their own government, it is too a hedge for China, Russia and others against their U.S. dollar reserve assets and indeed the global…
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DiggA Happy 2011 And A Disillusioned Outlook For The New Year From Nic Lenoir
by Zero Hedge - December 30th, 2010 2:36 pm
Courtesy of Tyler Durden
From Nic Lenoir of ICAP
Happy 2011! Disillusioned thoughts for the year ahead
Going into 2011, I decided to first reflect on my January 2010 strategy piece on the year ahead. I remember at the time of writing it that I made a conscious effort to temper my fervor and tried to think objectively without letting my own opinions dominate what should be one’s realistic expectations. My conclusion was at the time that with liquidity withdrawal at the top of the central banks agenda, runaway asset prices were unlikely. My conviction was also that as they tried to withdraw liquidity central banks would quickly realize that it was the only thing holding the system up and therefore would adjust their agenda accordingly, resulting in a range for asset prices. I had in particular 1,014/1,236 for the S&P. At the time I did get a lot of criticism for not making a call as to whether we would end the year at the top or the bottom of that range. In retrospect I am actually thrilled with that call. Taking a step back and thinking of what realistically would happen was the best thing I could have possibly done. Certainly and for reasons I will cover in more details below I was inclined to short strength a fair part of the year, with great success in April, and less so in late October. All in all though, having recommended to cover shorts in late August and possibly getting long tactically, realizing the technical picture did not support my strong desire for a break lower, and having capitalized on sharp reversals earlier whether it is the spring debacle in equities or the move towards lower rates started around the same period, I feel it was a good year yet not a great one. My biggest mistake was not to embrace the enthusiasm ahead of QE 2.0 and get behind asset prices. Because I trade more tactically when it comes to positioning I did not hang myself and throw the year away, but I do feel I missed out and more importantly I did so because I let my personal beliefs surpersede fundamental developments. I stick however to the fact that around 1,155/1,165 we had a technical set-up very prone for a reversal, and I think it was very fair at the time to take a…
“There’s a Huge Difference Between What is Good for American Companies Versus What is Good for the American Economy”
by Zero Hedge - December 30th, 2010 2:13 pm
Courtesy of Washington’s Blog
As I wrote last year:
Some of the top economists say that America has suffered a permanent loss of jobs:
JPMorgan Chase’s Chief Economist Bruce Kasman told Bloomberg:
[We've had a] permanent destruction of hundreds of thousands of jobs in industries from housing to finance.
The chief economists for Wells Fargo Securities, John Silvia, says:
Companies “really have diminished their willingness to hire labor for any production level,” Silvia said. “It’s really a strategic change,” where companies will be keeping fewer employees for any particular level of sales, in good times and bad, he said.
Former Merrill Lynch chief economist David Rosenberg writes:
The number of people not on temporary layoff surged 220,000 in August and the level continues to reach new highs, now at 8.1 million. This accounts for 53.9% of the unemployed — again a record high — and this is a proxy for permanent job loss, in other words, these jobs are not coming back. Against that backdrop, the number of people who have been looking for a job for at least six months with no success rose a further half-percent in August, to stand at 5 million — the long-term unemployed now represent a record 33% of the total pool of joblessness.
Nobel Prize winner Edmund Phelps and Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian say the fallout from the deepest recession in more than five decades is driving the so-called natural rate higher, perhaps to 7 percent.
And Former Labor Secretary Robert Reich wrote yesterday:
The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that’s been going on for years but which the Great Recession has dramatically accelerated.
Under the pressure of this awful recession, many companies have found ways to
…
Why Does Brian Sack Interact With Goldman’s “FX Committee”?
by Zero Hedge - December 30th, 2010 2:13 pm
Courtesy of Tyler Durden
Following the release of Bill Dudley’s daily schedules from the beginning of 2009, through September 30, 2010, there have been some amusing, if not very surprising, disclosures. Among them: Dudley’s penchant to meet with Jamie Dimon, Vik Pandit and, of course, former boss Lloyd Blankfein. Other meetings include Sullivan and Cromwell chairman, and the banking cartel’s personal chief attorney H. Rodgin Cohen. Those are to be expected: after all Dudley has to conduct the New York Fed policy exactly in accordance with Wall Street’s expectations, and per Wall Street’s recommendations. What is a little more surprising is that on February 9, 2009, Bill Dudley hosted a lunch roundtable with hedge fund SAC Capital… Perhaps now Dudley knows almost as much about the chances of various Phase II/III drugs to make it to market as ole’ Stevie himself. Additionally, on May 14 Dudley invited Ken Griffin and Adam Cooper from Citadel into his office at about 2:00 pm. One wonders just what the quid pro quo between the New York Fed and Citadel may have been, over and above of the traditional dark pool securities purchasing relationship between the two entities of course. Where it gets a little confusing is why Dudley had to have two informal meetings with the man who singlehandedly determines US fiscal and monetary policy: Goldman’s Jan Hatzius, first on March 11, and then, less than a month later, on April 6, both times as the Pound and Pence. And where it gets downright bizarre, is trying to explain why Bill Dudley on June 11, 2009, had to bring over one still unknown Brian Sack, now pervasively known as the head of the Fed’s Open Market Operations Committee, to not only walk over to Goldman Sachs for a meet and greet (as opposed to Goldman coming over to the NY Fed), but specifically “introducing Brian Sack to the Goldman FX Committee” between 4:00 and 4:30 PM on that day. Just which of Brian’s myriad functions is the one that requires the participation of Goldman’s FX team? Last time we checked, purchasing bonds and MBS in POMO operations had little if any impact on Goldman’s FX trading flow…
But that’s not all… In fact the very first official presentation of Bill Dudley of his market manipulation henchman occurred on April 16, 2009 to none other than Fed Expert Network head Larry…
Guest Post: If We Close Our Eyes, The Monster Will Go Away
by Zero Hedge - December 30th, 2010 12:56 pm
Courtesy of Tyler Durden
Submitted by Charles Hugh Smith from Of Two Minds
If We Close Our Eyes, The Monster Will Go Away
Refusing to face the need for radical change and adaptation only makes the eventual adjustment more traumatic and less likely to succeed.
As an initial reaction to unwelcome crises, denial serves a psychological purpose. Closing our eyes and hoping the Monster will go away is the first stage of eventual acceptance and engagement with unwelcome reality.
Clinging to denial sets up pathology, anger and collapse. If we continue to keep our eyes closed, and demand the Monster go away because we don’t want to deal with change and challenge, then we either detach ourselves from reality altogether (a pathological psychosis perfectly depicted in the classic film Sunset Boulevard) or we rage in fear and dread at the challenge/Monster, as if it is somehow unfair that change has occurred without our express permission.
The longer we close our eyes and hope the Monster will magically go away when we finally open them, the more likely our eventual collapse.
As a nation, two years after the demise of the status quo, we are still closing our eyes hoping the Monster goes away. Frequent contributor U. Doran recently sent me Hiding a Depression: How the Government Does It by Daniel Amerman, a blow-by-blow description of how Federal and state spending has expanded to replace the private-sector GDP which has vanished.
The article notes how this massive replacement of the private sector by Federal (borrowed) spending has gone largely unremarked.
In other words: if we close our eyes and borrow 10% of the nation’s GDP ($1.4 trillion) every year (or perhaps more accurately, $2 trillion a year) from now on, then when we finally open our eyes the Monster of change and challenge will have magically vanished and everything will be as it was before the Monster’s terrible appearance.
Yes, this is childlike. We have turned to the Central State as our Mommy and Daddy who will save us from the Monster.
Unfortunately, our own desires and derangements are feeding the Monster that is threatening us with change--a dynamic illustrated by the classic sci-fi film Forbidden Planet.
The more we cling to our deranged dependence on systemic fraud, exponential expansion of credit, corporate cartels/political Plutocracy, Central State largesse, corporate-media propaganda and a financial system that…
As Irish ECB Borrowings Surge, The Country’s Bank Run Picks Up Speed
by Zero Hedge - December 30th, 2010 12:36 pm
Courtesy of Tyler Durden
Following the publication of the monthly Central Bank of Ireland flow statistics for November, that the country’s bank ended up borrowing another massive amount of capital from both Europe and the central bank itself, should not be surprising. After all it was in November that Ireland followed Greece into the insolvency abyss, a place where none other than Olli Rehn guarded the gates to feudal hell. However, one much more troubling factor is that the depositor run from Irish banks, a development which many have cited as potentially being the catalyst for the next major step down in the European house of cards tumble, is accelerating. From the report: “Deposits from the Irish resident private sector were 6.7 per cent lower on a year-to-year basis in November 2010. The annual rate of change in deposits from Irish households was minus 4.5 per cent, whereas deposits from Irish NFCs fell by 14.9 per cent on an annual basis in November.” What this means simply said, is that as more deposit capital is withdrawn from Irish banks, the more they will need to rely on ECB and ICB funding, the more distressed they will be perceived as, the more capital will be withdrawn and so on… But that is a 2011 story.
From Reuters:
The European Central Bank lent banks in Ireland, including foreign lenders, 138.2 billion in November, an increase on the 136 billion euros Ireland’s central bank said lenders had received up to November 26.
Domestic banks accounted for 97.3 billion euros of the total, a rise of 13.7 percent during a month that ended with Ireland securing an 85 billion euro IMF/EU bailout, the central bank said in a statement on Thursday.
However, as every financial transaction in Europe has a secondary central bank intermediary, the realy bulk of money actually came from the Irish Central Bank (which in turn had also borrowed from the ECB):
On top of the ECB funding, Ireland’s central bank had lent the country’s banks nearly 45 billion euros in exceptional liquidity assistance by November 26, a 10 billion euro increase on the previous month. No update was provided for this figure.
Before one dismisses these amounts, keep in mind that Irish GDP is about $170 billion (assuming one can believe…
At 4.86%, The Fannie 30 Year Fixed Mortgage Is Back To 7 Month Highs
by Zero Hedge - December 30th, 2010 11:29 am
Courtesy of Tyler Durden
To all who have been following the recent rout in both the 10 year and the mortgage market, today’s most recent jump in the 30 Year Freddie Fixed-rate mortgage, which at 4.86%just hit a 7 month high, will not come as a surprise. To Ben Bernanke, however, this is a flashing red sign, that QE2 is only working for Wall Street: its primary function of creating imaginary wealth in the form of additional home equity is not only failing, but the recent jump in mortgage rates by 1%, has had the indirect impact of forcing home prices to drop by another 10%. Look for this to hit Case Shiller data in March-April when today’s near-5% mortgage rates diffuse through the marketplace. Robert Shiller describes it best: “Optimism is fading from the housing market.” QE3 should promptly abort any last traces of anything even remotely resembling a housing recovery.
Some more from Bloomberg:
Rising home loan rates may limit homebuyer demand as housing remains a weak link for the economy. Home prices in October fell 0.8 percent from a year earlier, the largest year- over-year decline since December 2009, the S&P/Case-Shiller index of property values showed this week.
Sales of new and existing homes rose less than economists estimated in November even as mortgage rates sank to the lowest levels on record, reports from the Commerce Department and the National Association of Realtors showed last week.
Pending home sales climbed more than forecast in November, a sign demand is recovering following a post-tax credit plunge, according to a report from the Realtors group today. The data are based on contract signings, while existing-home sales represent closings.
The rate for a 30-year loan has climbed for six of the past seven weeks amid speculation that President Barack Obama’s agreement to a two-year tax cut extension will boost economic growth and inflation. The rise pushed the monthly cost of a $300,000 loan to $1,585 from $1,462.
The bolded text is all one needs to be aware of, and every incremental rise in rates, results in even more money out of pocket that makes the monthly payment that much higher. Of course all this assumes that someone is still paying their mortgage somewhere in this taxpayer subsidized country.
New Years Prediction (II): The U.S. Economy in 2011
by ilene - December 30th, 2010 11:16 am
Courtesy of Robert Reich
What will happen to the US economy in 2011? If you’re referring to profits of big corporations and Wall Street, next year is likely to be a good one. But if you’re referring to average American workers, far from good.
The two American economies — the Big Money economy and the Average Working Family economy — will continue to diverge. Corporate profits will continue to rise, as will the stock market. But typical wages will go nowhere, joblessness will remain high, the ranks of the long-term unemployed will continue to rise, the housing recovery will remain stalled, and consumer confidence will sag.
The big disconnect between corporate profits and jobs is likely to continue because America’s big businesses are depending less and less on U.S. sales and U.S. workers. Their big profits are coming from two sources: (1) growing sales in China, India, and other fast-growing countries, and (2) slimmed-down US payrolls.
In a typical recovery, profits lead to more hiring. That’s because in a typical recovery, American consumers head back to the malls — and their buying justifies more hires. Not this time. All the hype about Christmas sales over the last few weeks masked the fact that American consumers demanded bargain-basement prices. And the price-cutting dramatically reduced sellers’ margins. In short, profits aren’t coming from American consumers — and profits won’t be coming from American consumers in 2011.
Most Americans don’t have the dough. They’re still deep in debt, can’t borrow against their homes, and have to start saving for retirement.
The Dow Jones Industrial Average is rising because of foreign sales. General Motors is now making more cars in China than in the US, and two-thirds of its total sales are coming from abroad. When it went public last month it boasted that soon almost half its cars will be made around the world where labor is less than $15 an hour.
Wal-Mart isn’t doing especially well in America but Wal-Mart International is booming. And Wal-Mart is hiring like mad outside the US.
General Electric is keeping its payrolls down in the US but plans to invest half a billion dollars in Brazil and hire 1,000 Brazilians, and invest $2 billion in China.
Corporate America is in a V-shaped recovery. That’s great news for investors and everyone whose savings are mainly in stocks and bonds. It’s also great news for executives and Wall Street traders, whose
…
New Years Prediction (I): The Tea Party Conservative Strategy for 2011
by ilene - December 30th, 2010 11:15 am
Courtesy of Robert Reich
Next week starts the new Congress, and with it the Tea Party conservatives. What’s their strategy? What will they rally around?
They’ll grouse endlessly about government spending but I don’t think they’ll use any particular spending bill to mobilize and energize their grass roots. The big bucks are in Social Security, Medicare, and defense, which are too popular. And their support for a permanent extension of the Bush tax cuts will make a mockery of any argument about taming the deficit.
Nor will they focus on the debt ceiling. Their opposition to raising it will generate a one-day story but won’t rally the troops or register with the public. Most Americans aren’t particularly interested in the debt ceiling, don’t know what it means, and don’t feel affected by it.
Instead, I expect their rallying cry will be about the mandatory purchase of health care built into the new healthcare law. The mandate is the least popular, and least understood, aspect of that law. Yet it’s the lynchpin. Without it, much of the rest of the law falls apart: It’s impossible to cover all high-risk Americans, including those with pre-existing conditions, unless those at far lower risk are required to buy insurance.
Knowing they don’t stand a chance of getting a direct repeal of the mandate (even if they could get a majority in the House for it, they won’t summon 60 votes in the Senate, and have no possibility of overriding a presidential veto), they’ll try to strip the federal budget appropriation of money needed to put the mandate into effect. This could lead to a standoff with the White House over government funding in general, and a possible government shutdown.
My betting is Tea Party conservatives wouldn’t mind a government shutdown over the healthcare mandate. Unlike Bill Clinton’s showdown with Newt Gingrich, which hurt the conservative cause, Tea Partiers believe this one could be helpful. In their view, it would enable them to stand on principle, dramatize their argument that the Obama administration overstepped with healthcare, and generate a particular event around which they can summon the energy and enthusiasm of their ground troops — all with an eye on mobilizing for the 2012 general election.
Advice to Obama White House: Get ready.
CLAIMS & CHICAGO FED POINT TO BULLISH START IN 2011
by ilene - December 30th, 2010 11:06 am
Courtesy of CULLEN ROCHE, The Pragmatic Capitalist
The positive trends in regional ISM reports and initial jobless claims continued this week as both reports came in substantially better than expected. Initial jobless claims fell by 34,000 to 388,000. Analysts had been expecting 415,000. Some seasonal adjustments have caused volatility in the data of late, but on the whole the trend is very clear – the labor market is improving and could begin to show some real signs of life in 2011.
The Chicago PMI report was even stronger with manufacturing firms in the Chicago region reporting a booming economy (via Econoday):
Purchasers in the Chicago area are reporting red hot conditions in December. Their business barometer index jumped more than six points to 68.6. Details show major acceleration in new orders, to a 73.6 level which isn’t likely to be exceeded in future reports, at least exceeded by much. In other words, incoming business is as good as it gets in the Chicago area.
Production, at 74.0, is keeping up with new orders while employment, at 60.2 for a nearly four point gain, is expanding sharply. Inventories are building, deliveries are slowing and input prices are rising — all indications of strength.
A pivotal sign of strength is a big build for backlog orders which also increased in the Philadelphia and Richmond Fed reports. Rising backlogs point to the need to increase output, increase capacity and hopefully increase employment. The Chicago sample includes purchasers from both the manufacturing and non-manufacturing sectors, and today’s report points to robust strength in next week’s national purchaser reports from the ISM.
Highlights from the ISM report:
- PRODUCTION reached its highest levels since October 2004;
- NEW ORDERS improved to 2005 levels;
- EMPLOYMENT reached its highest level in more than 5 years;
- PRICES PAID accelerated to its highest point since July 2008.
Chicago manufacturers also provided a glimpse into 2011 with equally bullish commentary:
1. 2010 was a very, very good year, 2011 looks just as strong thru Q1!
2. The level of business keeps increasing and the resources to handle are not available.
3. Our backlog is increasing. Supplier lead times are still too long.
4. Employee turnover is starting to increase, this along with continued downsizing and increased outsourcing is driving consultant hiring.
5. Lending market slowly thawing but only for strong (financially) borrowers. Weak borrowers are
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