IS GOLD GETTING OVERBOUGHT?
by Chart School - September 8th, 2010 9:43 pm
IS GOLD GETTING OVERBOUGHT?
Courtesy of The Pragmatic Capitalist
In a recent piece Nomura Group highlighted some of the more interesting gold ratios with the implication that gold is bumping up against some high historically levels:
Personally, I still believe the “irrational” move in gold is very much alive and will likely find support on any significant weakness. Gold is likely to remain the “go to” asset for investors looking for a hedge to the fear and uncertainty of the current environment. The Euro is being viewed as a faulty fiat currency (incorrectly I believe) and the US dollar is believed to be in long-term disarray due to the actions of the Fed. As long as the de-leveraging cycle persists and the sovereign
Source: Nomura Group
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CONSUMER CREDIT CONTINUES TO CONTRACT
by ilene - September 8th, 2010 5:09 pm
CONSUMER CREDIT CONTINUES TO CONTRACT
Courtesy of The Pragmatic Capitalist
Consumer credit contracted $3.6B in July. In short, the year over year rate is improving, but the bottom line is that consumer credit continues to contract as the de-leveraging continues at the household level (via Econoday):
“Consumer credit outstanding in June contracted $1.3 billion-but at least it was at a slower pace than in recent months. Credit in May fell $5.3 billion while April dropped a particularly severe $14.9 billion. Simply, the consumer sector is showing weak demand for loans combined with tight bank lending and heavy charge offs by banks.”
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THE DETERIORATING MACRO PICTURE
by ilene - August 31st, 2010 3:59 am
THE DETERIORATING MACRO PICTURE
Courtesy of The Pragmatic Capitalist
Over the course of the last 18 months I’ve been adhering to a macro view that can best be summed up as follows:
1) The explosion in private
sector debt (excessive housing borrowing, excessive corporate debt, etc) levels would reveal the private sector as unable to sustain positive economic growth, de-leveraging and deflation would ensue.2) Government intervention would help moderately boost aggregate demand, improve bank balance sheets, improve sentiment, boost asset prices but fail to result in sustained economic recovery as private sector balance
sheet recession persists.3) Extremely depressed estimates and corporate cost cutting would improve margins and generate a moderate earnings rebound, but would come under pressure in 2010 as margin expansion failed to continue at the 2009 rate.
4) The end of government intervention in H2 2010 will reveal severe strains in housing and will reveal the private sector as still very weak and unable to sustain economic growth on its own.
The rebound in assets was surprisingly strong and the ability of corporations to sustain bottom line growth has been truly impressive – far better than I expected. However, I am growing increasingly concerned that the market has priced in overly optimistic earnings sustainability – in other words, estimates and expectations have overshot to the upside.
What we’ve seen over the last few years is not terribly complex in my opinion. The housing boom created what was in essence a massively leveraged household sector. The problems were compounded by the leveraging in the financial sector, however, this was merely a symptom of the real underlying problem and not the cause of the financial crisis (despite what Mr. Bernanke continues to say and do to fix the economy).
As the consumer balance sheet imploded the economy imploded with it. This shocked aggregate demand like we haven’t seen in nearly a century. This resulted in collapsing corporate revenues. The decrease in corporate revenues, due to this decline in aggregate demand, resulted in massive cost cutting and defensive posturing by corporations. This exacerbated the problems as job losses further weakened the consumer balance sheet position. Consumers, like, corporations, got defensive and began cutting expenses and paying down liabilities. Sentiment collapsed and we all know what unfolded in 2008.
The government responded by largely targeting the banking sector based on the belief that fixing the banks would fix Main…
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Fed Z1: Blah
by ilene - June 11th, 2010 4:52 pm
Fed Z1: Blah
Courtesy of Karl Denninger at The Market Ticker
Well, there’s nothing here that indicates any sort of real change. Let’s start with the grand-daddy chart:
The arrow is approximately where the outstanding credit in the system began to decline. Note that the slope of each sub-component hasn’t done much in terms of change in this last report.
Has there been ANY improvement? Let’s zoom in:
Well, not really.
Households and non-profits contracted their outstanding credit by $60 billion in non-mortgage instruments and a sizable $99 billion in mortgages. Non-financial business credit expanded very slightly (about $30 billion in the quarter) as did state and local governments ($25 billion.) Interestingly enough it appears that farm credit decreased while non-farm increased – I will do some more digging in that area, as it may be a leading indicator of distress in the farm space – particularly family farms. The Federal Government increased its debt by a net $361.5 billion (!) while financial instrument credit decreased awhopping $638.5 billion. Rounding out the numbers is the rest of the world (exposure in the US), which was up a modest $28.6 billion, continuing a trend that has run since the end of 2008.
All-in all, nothing to see here. Anyone who claims that "activity in credit is increasing" has to explain how, when consumers and non-financial businesses continue to de-lever and financial instruments are literally being shunned like a leper colony - the contraction this quarter ran at a seventeen percent annualized rate while the actual annual rate of change over the last 12 months is only 13.5%. In other words, the deleveraging is accelerating, not stabilizing, among financial instruments.
As for the "de-levering" of the consumer, that’s still to come. Outstanding credit has contracted a mere 2.7% since this mess began with credit peaking in the second quarter of 2008, or about 1.5% annualized. Mortgages have delevered only 3.7% from the top in the first quarter of 08 in total, or about 1.9% annualized.
The short form here folks is that all the "prop jobs" have been intended to do one thing and one thing only - protect the banks from having to recognize their bad loans.
To believe that consumers and non-profits could have only de-levered at a rate of less than 2% annualized including all the bad mortgage debt that is out there, and is now "recovering", is not only ludicrous but is utterly unsupported by the data, which is not showing the alleged "growth."
What has…
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SHOULD YOU SHORT THE TREASURY MARKET?
by ilene - February 23rd, 2010 7:19 am
SHOULD YOU SHORT THE TREASURY MARKET?
Courtesy of The Pragmatic Capitalist
Good thoughts on the credit markets from this week’s episode of Wealth Track. Nassim Taleb has described treasuries as a “no brainer” short position. Marc Faber refers to treasuries as junk bonds. Bond experts David Darst and Robert Kessler provide their outlooks for obtaining yield in a de-leveraging world:
Source: Wealth Track
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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