One Investment Strategy for Q1 2011: Cash, Baby, All the Way
by ilene - December 28th, 2010 10:09 pm
Charles Hugh Smith agrees with us on the wisdom of cash: One Investment Strategy for Q1 2011: Cash, Baby, All the Way - Ilene
Courtesy of Charles Hugh Smith
In response to readers’ requests, I disclose my own amateur’s Investment Strategy for Q1 2011: cash is king, and the U.S. dollar looks good simply because almost everyone expects it to collapse.
Despite my oft-avowed amateur-market-observer status, readers often ask me for advice or opinions on where to put their capital. This is not advice (please read the HUGE GIANT BIG FAT DISCLAIMER below), it is a disclosure of my own personal opinion, what we might call "one investment strategy of many possible investment strategies" for the first quarter of 2011: cash, baby, cash all the way.
Why am I in cash? Because I don’t trust the parallel rallies, and I am extremely skeptical of the various "stories" which are driving the rallies. Why am I skeptical? Because everybody and their sister has bought into the stories, and a one-sided trade is rarely the winning one.
Yes, it’s my contrarian nature: when everyone is a believer in a "story" that is too good to be true, then I become skeptical. This often gets me in trouble. When everyone was buying GM at $50, I was shorting it. When everyone was buying Fannie Mae at $60, I was shorting it (via puts). Both GM and FNM were obviously, painfully insolvent, but it took practically forever for reality to intrude on the fantasy/narrative that each firm was a "solid blue chip" investment with numerous analyst recommendations. In the meantime, I lost money treading water for quarter after quarter.
So even though the market is clearly top-heavy, the short-side trade may yet be ground down by the Fed’s prop-job and the Wall Street/Central State partnership’s desperate desire to use a rising stock market as a propaganda proxy for the "recovery."
(Hey, just borrow and squander roughly 13% of GDP, year after year after year (roughly 45% of the entire Federal budget), and you might stimulate a modest "recovery," too.)
So let’s examine each of the "stories" driving the rallies.
1. The global recovery is solid, and Central State stimulus and quantitative easing will keep growth rising and interest rates low. This narrative drives capital into "risk assets," i.e. stock markets, commodities, FX carry trades, Chinese real estate, junk bonds, etc.
I’m not really sure…
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DiggWILLIAM BLACK: THE EURO COULD COME UNDONE IN 3-4 YEARS
by ilene - December 28th, 2010 3:20 pm
Courtesy of CULLEN ROCHE, The Pragmatic Capitalist
William Black of UMKC believes the Euro could unravel in the coming 3-4 years as the political tension continues to increase and ultimately creates a divide between the core and periphery. Black says the economies on the periphery are likely to remain very weak and will lead to civil unrest and political overhaul. In the end the strains will be too much for the region to overcome.
Black also discusses the imbalances in China and why the Chinese are likely to experience their own crisis in the coming years. (Video here.)
Source: Bloomberg
Post Mortem for the World’s Reserve Currency
by ilene - December 15th, 2010 2:34 pm
This is a thoughtful analysis by Mike Whitney showing what a financial mess we’re in – the proverbial rock and a hard place scenario. – Ilene
Post Mortem for the World’s Reserve Currency
Courtesy of MIKE WHITNEY, originally published at CounterPunch and Global Research
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Paul Volcker is worried about the future of the dollar and for good reason. The Fed has initiated a program (Quantitative Easing) that presages an end to Bretton Woods 2 and replaces it with different system altogether. Naturally, that’s made trading partners pretty nervous. Despite the unfairness of the present system--where export-dependent countries recycle capital to US markets to sustain demand—most nations would rather stick with the "devil they know", then venture into the unknown. But US allies weren’t consulted on the matter. The Fed unilaterally decided that the only way to fight deflation and high unemployment in the US, was by weakening the dollar and making US exports more competitive. Hence QE2.
But that means that the US will be battling for the same export market as everyone else, which will inevitably shrink global demand for goods and services. This is a major change in the Fed’s policy and there’s a good chance it will backfire. Here’s the deal: If US markets no longer provide sufficient demand for foreign exports, then there will be less incentive to trade in dollars. Thus, QE poses a real threat to the dollar’s position as the world’s reserve currency.
Here’s what Volcker said: “The growing sense around much of the world is that we have lost both relative economic strength and more important, we have lost a coherent successful governing model to be emulated by the rest of the world. Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate…..The question is whether the exceptional role of the dollar can be maintained."
This is a good summary of the problems facing the dollar. Notice that Volcker did not invoke the doomsday scenario that one hears so often on the Internet, that China, which has more than $1 trillion in US Treasuries and dollar-backed assets, will one day pull the plug on the USA and send the dollar plunging. While that’s technically possible, it’s not going to happen. China has no intention of crashing the dollar and thrusting its own economy into a long-term slump. In fact, China has…
TLP: Just This Once, I Swear
by ilene - December 7th, 2010 8:24 pm
Courtesy of Jr. Deputy Accountant
That didn’t take long.
After Francisco "Quico" Canseco beat Rep. Ciro Rodriguez (D-Tex.) as part of the Republican wave on Nov. 2, the tea party favorite declared: "It’s going to be a new day in Washington."
Two weeks later, Canseco was in the heart of Washington for a $1,000-a-head fundraiser at the Capitol Hill Club. The event--hosted by Reps. Pete Sessions (R-Tex.) and Jeb Hensarling (R-Tex.)--was aimed at paying off more than $1.1 million in campaign debts racked up by Canseco, much of it from his own pocket.
After winning election with an anti-Washington battle cry, Canseco and other incoming Republican freshmen have rapidly embraced the capital’s culture of big-money fundraisers, according to new campaign-finance reports and other records.
Dozens of freshmen lawmakers have held receptions at Capitol Hill bistros and corporate townhouses in recent weeks, taking money from K Street lobbyists and other powerbrokers within days of their victories. Newly elected House members have raised at least $2 million since the election, according to preliminary Federal Election Commission records filed last week, and many more contributions have yet to be tallied.
OK, so this is not surprising. Politics takes money if you want to win. And it doesn’t matter if you’re an old school Democrat like Charlie Rangel, a Tea Party upstart like Rand Paul or a relative unknown like Quico Canseco.
The part that’s incredible when you read stories like this is that voters get taken in, over and over. Wave after wave, from the post-Watergate Democrats to the Reaganauts to Blue Dogs and the Republican Revolution in ’94. It’s a rare case when someone comes to Congress vowing change and is able to resist the influence of the permanent political class.
Quico fell fast. Plenty more still have a chance.
The Three Stages of Delusion
by ilene - December 7th, 2010 1:48 pm
Courtesy of John Mauldin, Outside the Box
I am back from the Forbes cruise to Mexico and starting to deal with a thousand things, but first on the list is making sure you get this week’s Outside the Box. And a good one it is. In fact, it is two short pieces coming to us from friends based in London over the pond.
Both of them have to deal with the unfolding crisis that is Europe, which is going to unfold for several years as they lurch from solution to solution. The first is from Dylan Grice of Societe Generale and reminds us why we should put no stock in what leaders say about a crisis. He has lined up the statements of leaders from one crisis after another. He finds a simple, repeating pattern. And shows where we are now.
The second is from hedge fund manager Omar Sayed, who I met last time I was sin London. A very bright chap and good guy. He offers us very succinctly four paths that Europe can take. Some of them are not pretty. It all makes for a very interesting OTB. I trust your week will go well.
Your over-dosed on guacamole (and it was worth it) analyst,
John Mauldin, Editor
Outside the Box
Flashback to Crises Past: Three Stages of Delusion
Popular Delusions
By Dylan Grice
The recent sequence of reassurances from various eurozone policymakers suggests we are in the early, not latter, stages of the euro crisis. Only an Anglo-Saxon style QE will prevent dissolution of the euro. Such a radically un-German solution will only be taken with a full acceptance of how serious the euro’s problems are. But denial persists.
The dawning of reality hurts. Prodded and bullied along a tortuous emotional path by events unforeseen and beyond our control, we descend through three phases: the first is denial that there is a problem; the second is denial that there is a big problem; the third is denial that the problem was anything to do with us.
US policymakers’ three steps during the housing crash fit the template well. Asked in 2005 about the danger posed to the economy by the housing bubble, Bernanke responded: “I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis.” Here was the…
Miss In US Non-Farm Payrolls Number 39,000 Vs.150,000 Expected – Unemployment Up to 9.8%
by ilene - December 3rd, 2010 4:54 pm
Courtesy of Jesse’s Americain Cafe
Reality briefly penetrated the fog of appearance this morning as US Non-Farm Payrolls came in at 39,000, a significant miss from the expected 150,000. Unemployment ticked up higher from 9.5% to 9.8%.
An analysis of the data showed a slight indication that the recovery has stuttered and stopped, but it will take a few more months data to confirm this.
The adjustments seems to dampen the potential headline number but are within bounds of the prior six years. The Birth Death Model actually came in negative which was a bit of an outlier but certainly a refreshing nod to reality.
Looking at the historical Oct-Nov growth in the unadjusted numbers for the past six years shows a clear downward trend from the high in November 2005, with the low coming in November 2008. The growth as it stands in 2010 is roughly the same as it was in 2004, although the 2010 numbers will likely be revised in the next two reports.
Stocks and the Dollar initially plunged on the news while gold rallied threatening to take out psychological resistance at 1400. I guess we now know why gold and silver were obviously hit by sharp manipulative selling yesterday, in order to take the prices down below breakout levels. Be on watch for shenanigans in the markets today, especially the SP futures markets.
There can be no sustained economic recovery until the median wage and employment improve and this requires specific reforms and programs to repair the damage caused by twenty years of irresponsible monetary, regulatory, and fiscal policy and a growing imbalance in the balance sheets of the middle class. Repairing the status quo merely restores the unsustainable.
The Fed’s approach to quantitative easing is nothing more than an adjunct to the trickle down, supply-side approach. Provide money to the banks and the people will borrow; provide subsidies and tax cuts to those who have the most already and the condition of the many will improve. Trickle down, supply side, and efficient markets hypothesis are at best mistaken economic theories, and at worst coldly calculated propaganda by the same people who co-opted the political process and brought forward the control frauds that led to the financial crisis.
Originally published at Jesse’s Americain Cafe, Miss In US Non-Farm Payrolls Number 39,000 Vs.150,000 Expected – Unemployment Up to 9.8%.
Rosie’s Must Read On A Hope-Based Rally Now, Followed By Shock Therapy Later
by ilene - December 3rd, 2010 3:56 pm
Tyler Durden presents Rosie’s Must Read On A Hope-Based Rally Now, Followed By Shock Therapy Later. This is practically in answer to Joshua Brown’s depiction of a lonely, frustrated bear searching the world for negative data. Frustrated, perhaps; lonely, not so fast. – Ilene
Courtesy of Zero Hedge
Now that his relentless skepticism, following today’s abysmal data release (orchestrated or not), has been fully validated, much to the chagrin of top ticking flippers such as Goldman and other sundry blog sites, Rosenberg comes out with a must read essay on the state of the economy now versus later, entitled very appropriately "Hope-Based Rally Now, Shock Therapy Later." This is certainly one Rosie’s better pieces out there and a must read for those who refuse to be led by the propaganda machine into believing lies and manipulation: "This has become such a hope-based market that the Dow jumped over 100 points earlier this week on a Reuters news story in Brussels, which reported that the U.S.A. would back an even greater financial commitment to Europe! Quick — get Sarah Palin on the line." Incidentally, if there is any confusion where Zero Hedge stands, we suggest rereading our post from last night which made it all too clear that we still refuse to drink the hopium (and self-aggrandizement) that seems to have gotten straight to the head of such a broad (literally and metaphorically) cross-section of the financial punditry.
HOPE-BASED RALLY NOW, SHOCK THERAPY LATER
I’m on the way back from a two-day business trip in London, U.K. with a few of my Gluskin Sheff colleagues. It’s been a good year-and-a-half since I was last there (the next best thing to old New York), and the first time I can remember it snowing this early — a few centimetres almost shut down the city (enough to make a Torontonian chuckle).
While we continue to refrain from hyperventilating as others throw in the towel, it is completely understandable that investor sentiment has improved. Moreover, the incoming economic data, at least when benchmarked against the double-dip fears that prevailed in July and August, currently look “green shooty” in nature. But is the U.S. economy really out of the woods? Hardly.
The recovery is obviously still so fragile that the Fed felt the need to expand its balance sheet by an additional…
Bernanke Is Making the Crisis Worse
by ilene - November 23rd, 2010 7:10 pm
Bud Conrad of Casey Research delivers some more harsh criticism to Ben Bernanke regarding QE2, foreign relations and currency devaluation. – Ilene
Courtesy of Casey Research
The Fed is a corrupt and powerful institution, and Chairman Bernanke is making the global crisis worse. His new speech given last week in Europe was terribly misguided and will upset markets as the Chinese and Germans won’t ignore his challenges. Bernanke’s interpretations of the markets have been wrong since before he was appointed to head the Fed, and his actions are doing nothing but aggravating the situation.
In this seminal speech, titled “Rebalancing the Global Recovery,” Bernanke not only defended QE II as the right policy, but also attacked the monetary policy of China, the biggest holder of U.S. debt, an action that must be understood for how misdirected it is.
Here are a few excerpts from the speech:
On our "tepid" recovery
- In sum, on its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years.
Indeed, although I expect that growth will pick up and unemployment will decline somewhat next year, we cannot rule out the possibility that unemployment might rise further in the near term, creating added risks for the recovery.
On China
- The strategy of currency undervaluation has demonstrated important drawbacks, both for the world system and for the countries using that strategy.
… For large, systemically important countries with persistent current account surpluses, the pursuit of export-led growth [i.e., China and its strategy] cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account.
On defending QEII as the right policy
- Following up on this earlier success, the Committee [i.e., the Federal Open Market Committee] announced this month that it would purchase additional Treasury securities. In taking that action, the Committee seeks to support the economic recovery, promote a faster pace of job creation, and reduce the risk of a further decline in inflation that would prove damaging to the recovery.
Fully aware of the important role that the dollar plays in the international monetary and financial system, the Committee believes that the best way to continue to deliver
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Ireland’s “String and Sealing-Wax Fix”; Irish PM Loses Confidence of Own Party; European Sovereign Default Risk Hits All Time High
by ilene - November 23rd, 2010 4:53 pm
Mish reports on Ireland’s "String and Sealing-Wax Fix"; Irish PM Loses Confidence of Own Party; European Sovereign Default Risk Hits All Time High.
Courtesy of Mish
News in Europe regarding Ireland, Spain, and Portugal is ominous. Credit Default Swaps (CDS) are soaring in Spain and Portugal. European sovereign risk jumped to an all-time high.
Lloyds TSB says "Ireland’s debt woes may spread because investors have lost confidence in policy makers".
Members of his own party are calling on Irish Prime Minister Brian Cowen to resign.
The quote of the day goes to Bill Blain, a strategist at Matrix Corporate Capital LLP in London who said "“Bailouts are nothing but a short-term string-and-sealing-wax fix”.
With that let’s take a look at some specific news.
Zero Confidence in Irish Solution
Lloyds says Ireland’s Woes May Spread on ‘Zero Confidence’
“The markets currently have virtually zero confidence that the bailout in Ireland will solve the European crisis even though fiscal austerity measures in both Portugal and Spain have been severe and prima facie, sufficient to ease market concerns,” Charles Diebel and David Page, fixed-income strategists in London, wrote in an investor note today.
“With markets effectively in a position to dictate policy, the risk is that the credibility crisis shifts to more sizeable European Union countries and thereby poses a greater risk to the system as a whole,” they wrote. That may also raise “valid questions about the prescriptive policy measures being sufficient to deal with issues of such magnitude.”
Credit Default Swaps Soar in Spain, Portugal
In spite of the Irish bailout, Spain, Portugal Bank Debt Risk Soars as Traders Look South
The cost of insuring Spanish and Portuguese subordinated bank bonds soared as traders of credit-default swaps turned their focus to southern Europe following Ireland’s bailout.
Swaps on Portugal’s Banco Espirito Santo SA rose to a record while contracts on Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest lender, climbed to the highest in more than five months. The benchmark gauge of European sovereign risk also jumped to an all-time high, while two indexes tied to bank debt surged the most since June.
Ireland’s rescue “achieves completely the opposite of what it allegedly tries to achieve, namely to calm markets,” Tim Brunne, at UniCredit SpA said in a report.
“Instead, the credit profile of both the sovereign and the impaired financial institutions has been weakened,” the Munich-based strategist wrote.
…
Geithner Politicizes the Fed, Warns Congress to Not do the Same; Idiocies and Ironies; Economist James Galbraith Unfit to Teach
by ilene - November 22nd, 2010 4:37 pm
Mish discusses how Geithner Politicizes the Fed, Warns Congress to Not do the Same; Idiocies and Ironies; Economist James Galbraith Unfit to Teach. – Ilene
Courtesy of Mish
The hypocrisy of treasury secretary Tim Geithner would be stunning except for the fact hypocrisy from Geithner is pretty much an every day occurrence.
Geithner is blasting Congress for politicizing the Fed, while doing the same thing himself. To top it off, the Fed itself is politicizing the Fed by interfering and commenting on Fiscal policy while bitching about Congress commenting on monetary policy.
Please consider Geithner Warns Republicans Against Politicizing Fed.
U.S. Treasury Secretary Timothy F. Geithner warned Republicans against politicizing the Federal Reserve and said the Obama administration would oppose any effort to strip the central bank of its mandate to pursue full employment.
“It is very important to keep politics out of monetary policy,” Geithner said in an interview airing on Bloomberg Television’s “Political Capital with Al Hunt” this weekend. “You want to be very careful not to take steps that hurt our credibility.”
Fed Chairman Ben S. Bernanke defended the monetary stimulus in a speech in Frankfurt today and in a meeting with U.S. senators earlier this week.
The best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke said in his speech.
The asset purchases will be used in a way that’s “measured and responsive to economic conditions,” Bernanke said. Fed officials are “unwaveringly committed to price stability” and don’t seek inflation higher than the level of “2 percent or a bit less” that most policy makers see as consistent with the Fed’s legislative mandate, he said.
Bernanke Comments on Fiscal Policy
Flashback, October 4, 2010: MarketWatch reports Bernanke calls for tougher budget rules
In a speech delivered at the annual meeting of the Rhode Island Public Expenditure Council and devoid of comments on monetary policy, Bernanke said that fiscal rules might be a way to impose discipline, particularly if those rules are transparent, ambitious, focused on what the legislature can control directly, and are embraced by the public.
“A fiscal rule does not guarantee improved budget outcomes; after all, any rule imposed by a legislature can be revoked or circumvented by the same legislature,” Bernanke said,
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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