John Williams Discusses The Reasons For The Upcoming Dollar Dump
by ilene - December 19th, 2010 2:46 am
Courtesy of Tyler Durden
Lately, anywhere we look, there seems to be a pattern emerging: those economic thinkers who actually construct and run their own macro models (not the glorified powerpoint presenter variety) and actually do independent analysis and tracing of the money flow, instead of relying on Wall Street forecasts that have as much credibility as a Moody’s home price hockey stick from 2006, almost inevitably end up having a very dire outlook on the economy. One such person is and has pretty much always been Shadowstats‘ John Williams, whose "shadow" economic recreation puts the BLS data fudging dilettantes to shame. That said any reader of Zero Hedge who has been with us for more than a few weeks, knows all too well our eagerness to ridicule the increasingly more incoherent lies coming out of the US department of truth, so no surprise there. Yet another aspect over which there is much agreement is that no matter how one slices the data, the outcome for the US currency is a very grim one. Which is why Williams over the past several years has become a major fan of the shiny metal. Below we recreate portions of his latest observations on the upcoming currency collapse, courtesy of King World News.
John Williams today was dispatching information regarding gold, silver, M3, nearby massive selling of dollars and inflation. Here is a portion from his commentary, “Despite November 9th’s historic high gold price of $1,421.00 per troy ounce (London afternoon fix) and the multi-decade high silver price of $30.50 per troy ounce (London fix) on December 7th, gold and silver prices have yet to approach their historic high levels, adjusted for inflation.”
Real Money Supply M3: The signal of the still unfolding double-dip recession, based on annual contraction in the real (inflation-adjusted) broad money supply (M3), continues and is graphed (above). Based on today’s CPI-U report and the latest estimate on the November SGS-Ongoing M3 Estimate, that annual contraction in November 2010 was 4.0%, narrower than October’s 4.5% contraction, and May’s post-World War II record annual decline of 7.9%.
Incidentally, if there is one thing we disagree with John on is that the broadest aggregate (M3 for Williams, Shadow Banking for Zero Hedge) is declining. That said, an expansion in the most critical broad money signal is merely the missing piece of the puzzle that we…
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Gross isn’t buying corporates, high yield or equities even with zero rates
by ilene - November 19th, 2009 7:58 pm
Gross isn’t buying corporates, high yield or equities even with zero rates
Courtesy of Edward Harrison at Credit Writedowns
I pick up Bill Gross where I left him on Friday. He said in his monthly newsletter that the Fed is going to keep interest rates at zero percent through 2010. But, he is not willing to stick his neck out in a liquidity seeking return kind of way even though this is what reflation is all about. He advises lower risk assets over higher risk ones cognizant that this could mean under-performance.
What I found interesting is that Gross highlighted only two bits in his piece. That should lead you to believe these are the most important points he makes. The first bit is the rationale behind why he thinks the Fed is on hold through 2010:
The Fed is trying to reflate the U.S. economy. The process of reflation involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks. Once your cash has recapitalized and revitalized corporate America and homeowners, well, then the Fed will start to be concerned about inflation – not until.
This is what’s called an asset-based recovery and is exactly the same model we followed in 1992 and 2002. the Federal reserve lowers rates so much that the cash in your pocket burns a hole in it. Grandma may be stuffing her dollars in a mattress, but investors judged against an investment benchmark get fired if they don’t seek returns. How did Chuck Prince put it: When the music’s playing…
If you are an insurance company, you have a ton of money invested expecting 6-7% nominal returns. But, in a deflationary environment you have to be smoking something if you think you’ll get that return in low risk assets. So everyone is running the liquidity-seeking-return play.
The Wall Street Journal mentioned this today:
Though insurers continue to buy bonds, the rally does "make it challenging in terms of getting yield," Steven Kandarian, chief investment officer at MetLife Inc., told analysts in an Oct. 30 earnings call.
Life insurers have long been one of the nation’s biggest bond buyers, currently holding about $1.78 trillion in corporate debt, or 16% of the total outstanding, according to industry
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Of Oil and Equities
by ilene - November 18th, 2009 11:15 pm
Of Oil and Equities
Courtesy of Joshua M Brown, The Reformed Broker
Oil (as represented by USO) and Stocks (as represented by SPY) Year-To-Date 2009
I had an interesting conversation with a colleague this morning on the counterintuitive concept of higher energy prices being “good” for equities.
For most of my career, the oft-repeated maxim was that higher energy prices were, on balance, a negative for the S&P 500. Essentially, higher energy prices translate into lower margins for companies that have to pay shipping costs and utility bills. The fact that consumers would have higher gasoline and heating/ ac costs was also looked at as a drag on profits as people had less money to spend.
So what’s changed?
First, the makeup of the S&P 500 has shifted to accomodate the fact that energy stocks have much greater market capitalization, hence a larger weighting n general.
Another factor worth noting is that in a DEflationary environment like the one we’ve been in all year, higher oil prices tend to be looked at as signs of economic strengthening, hence the correlation with strengthening stock prices. During INflationary environments, however, the old rule of thumb that oil is not great for stocks may in fact have more truth to it.
One other thing to consider is that global trade, the burgeoning economies of the BRIC nations and the more widespread belief in Peak Oil Theory are currently playing havoc with all of the old and trustworthy relationships between asset classes. This is playing out as we speak, and as a result, to the old-timers, what they’re seeing on their screens looks ludicrous – even impossible.
With all of these corollaries in flux, I am reminded of something that Socrates said (as recorded by Plato), “The only thing I am certain about is that I can be certain of nothing.”
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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 site