I originally found this on Jesse's Cafe Americain. Jesse's posts the last three days are must reads.
World Markets Weekend Review: A Modest Improvement
5 minutes ago
Thursday, December 31, 2009
Wednesday, December 30, 2009
GOLDMAN’S 2010 COMMODITY OUTLOOK
I took down Kunstler as it was not useful to The Hive. I took this from The Pragmatic Capitalist blog. It is hard to argue with GS since Blankfein said "He is doing gods work" I am adding his blog to the list. http://pragcap.com/ Check out the 2010 commodity predictions at the bottom.
Read more: http://www.marketfolly.com/2009/12/sprott-launching-physical-gold-trust.html#ixzz0bDbqfoRk
23 DECEMBER 2009 BY TPC
The rally is going to continue into 2010 according to Wall Street’s most influential bank (Please see here for Goldman’s top 10 trades of 2010). Analysts at Goldman 
Goldman sees very low rates, stronger than expected earnings, strong commodity demand and investor reallocation driving prices higher. Goldman sees no rate changes through 2011 – one of the most accommodative outlooks of any bank we have covered. Stronger than expected revenue growth and continued margin expansion will result in 15%+ equity returns in the upcoming year. Although they see a continuation in the rally some moderation is expected. As we previously mentioned, their analysts expect many similarities to 2004. David Kostin wrote:
“Continued profit margin resiliency from prior aggressive cost reductions should drive strong returns in early 2010 and push the S&P
500 towards 1,300.”
Their analysts in Europe are even more bullish. They see the DJ STOXX 600 rising 20% to 300 by the end of 2010.
Goldman argues that we are transitioning into the growth phase of the recovery from the hope phase. This period is generally characterized by stabilization in economic growth and lower equity returns than the hope phase. Nonetheless, doubt remains and catalysts for higher stock prices remain.
Perhaps most important, Goldman sees a continued influx of cash to the equity markets. Thus far, investors have been risk averse and either remain in cash or have moved into bonds. Goldman sees a substantial move into equitiesas investors become less risk averse.
How to play it? Thematically they focus on three key themes:
- Dispersion – higher growth and higher sustainable returns companies.
- BRICs exposure.
- High and growing dividend growth companies.
* You can find Goldman’s 2010 commodity predictions here.
I also found this on Sprott
Sprott Launching Physical Gold Trust
It was only a matter of time. Sprott Asset Management has jumped in the recent gold fund pool by filing a preliminary prospectus in the US. While hedge fund Paulson & Co's new gold fund is aimed at betting on gold related investments, Sprott's offering is a little different. Eric Sprott's firm is aiming to launch a $575 million gold bullion fund that will store physical gold and offer investors easy exposure to the metal. This could easily serve as a competitor to the SPDR Gold Trust (GLD) that is currently a popular way for investors to get exposure to the precious metal. This really should come as no surprise given that Sprott had previously penned a piece entitled Gold: The Ultimate Triple-A Asset. Not to mention, their portfolio is littered with metals and mining plays.
Read more: http://www.marketfolly.com/2009/12/sprott-launching-physical-gold-trust.html#ixzz0bDbqfoRk
Dave Skarica
 | David Skarica 2010 Chart Preview *AUDIO* |
2010 Chart Preview Click for Dave's charts | |
V
Tuesday, December 29, 2009
Biggs, Faber Predict Dollar Rally as S&P 500 Surges
By Nikolaj Gammeltoft
Dec. 29 (Bloomberg) -- Barton Biggs and Marc Faber, who recommended buying stocks in March when investors were dumping them, are again united as they predict gains for U.S. equities and the dollar.
Shares in the largest equity market and the U.S. currency may add 10 percent as economies improve around the world, Biggs of New York-based hedge-fund firm Traxis Partners LP said in a Bloomberg Television interview yesterday. Faber, publisher of the “Gloom Boom & Doom” newsletter, told Bloomberg TV that the dollar may rise 5 percent to 10 percent against the euro while stocks gain, reversing the inverse relationship that existed between March and November.
Biggs and Faber’s advice nine months ago proved profitable as the Standard & Poor’s 500 Index surged 67 percent in the biggest rally since the 1930s. They saw a buying opportunity as investors speculating the financial crisis would cause a depression drove stock valuations to the cheapest level since 1986. Now, Biggs, 77, and Faber, 63, see gains as the economic recovery accelerates and investors shift money from Treasuries.
“History would suggest that after such a severe economic shock like we’ve just had that the odds are that we’re going to have a pretty good burst of growth in 2010, 2011,” Biggs said. “I don’t see any reason why we can’t have a further rally in the dollar and a further rally in stocks. And my guess is that the next move in both could be on the order of 10 percent.”
For more read http://www.bloomberg.com/apps/news?pid=20601082&sid=aeByrayLjqdA
Fed Proposes Selling Term Deposits to Absorb Excess Reserves
By Craig Torre
Dec. 29 (Bloomberg) -- The Federal Reserve proposed a program to sell term deposits to banks to absorb some of the banking system’s $1 trillion in excess reserves now threatening to accelerate inflation as the economy recovers.
The plan, subject to a 30-day comment period, “has no implications for monetary policy decisions in the near term,” the central bank said yesterday in a statement released in Washington.
Fed Chairman Ben S. Bernanke and his fellow policy makers are debating how to shrink or neutralize the inflationary impact from the biggest monetary expansion in U.S. history. Some central bankers, including Richmond Fed President Jeffrey Lacker, have suggested that the Fed reduce excess reserves by selling Treasuries or mortgage-backed securities.
Term deposits may help policy makers “assert operational control over the federal funds rate” once they raise the interest rate from the current range of zero to 0.25 percent, said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. Excess cash “would be locked up,” easing downward pressure on the federal funds rate, he said.
The Fed has expanded its balance sheet to $2.2 trillion through several liquidity programs, including purchases of $1.25 trillion in mortgage-backed securities. Excess reserves constitute cash held by banks in excess of what they are required to keep against deposits. The Fed proposal says the term deposits could be sold in an auction or through a formula.
The rest of the story linked below:
http://www.bloomberg.com/apps/news?pid=20601068&sid=aioeVBhCvFB4
Sprott Says S&P 500 to Tumble Below its March Low
By Matt Walcoff
Dec. 29 (Bloomberg) -- The Standard & Poor’s 500 Index will collapse below its March lows as an expected rebound in economic growth fails to materialize, according to hedge fund manager Eric Sprott.
The Toronto-based money manager, whose Sprott Hedge Fund returned 496 percent over the past nine years while the S&P 500 lost 32 percent, said the index’s 67 percent rally since March reflects investors misinterpreting economic data. He’s predicting the gauge will fall 40 percent to below 676.53, the 12-year low reached on March 9.
“We’re in a bear market that will last 15 or 20 years, and we’ve had nine of them,” Sprott, chief executive officer of Sprott Asset Management LP, which oversees C$4.3 billion ($4.09 billion), said in an interview Dec. 18.
Investors in Sprott’s funds have been rewarded by his holdings in gold, which has climbed 40 percent since October 2007 as the S&P 500 lost 26 percent. The metal has retreated 9.3 percent since closing at a record $1,218.30 on Dec. 3.
The S&P 500 added 0.1 percent to 1,128.52 as of 10:09 a.m. today in New York, rising for a seventh day.
Sprott said the Federal Reserve has kept bond yields and interest rates artificially low through its program to buy agency debt and mortgage-backed securities. The central bank expects the securities purchase program to finish by the end of March.
Expiration of the program would reduce demand for fixed- income securities, forcing up bond yields and interest rates and hurting economic growth, Sprott said.
Loss of Faith
Should the Fed renew the programs while the U.S. government continues to run record deficits, investors will lose faith in the U.S. currency, he said.
“If they announce another quantitative easing, trust me, the gold price will go up another 50 bucks that day,” he said. Gold futures rose 1 percent to $1,104.80 an ounce Dec. 24, data compiled by Bloomberg show.
Click below for the rest of the article:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNKd7Uck3FoM&pos=6
Monday, December 28, 2009
Morgan Stanley Sees 5.5% Note as U.S. Faces Deficits
This is the re-emergence of the bond market vigilantes: http://www.bloomberg.com/apps/news?pid=20601009&sid=a7I0yRLF4adQ
By Oliver Biggadike and Daniel Kruger
Dec. 28 (Bloomberg) -- If Morgan Stanley is right, the best sale of U.S. Treasuries for 2010 may be the short sale.
Yields on benchmark 10-year notes will climb about 40 percent to 5.5 percent, the biggest annual increase since 1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The surge will push interest rates on 30-year fixed mortgages to 7.5 percent to 8 percent, almost the highest in a decade, Greenlaw said.
Speculative short positions, or bets prices will fall, outnumbered long positions by 52,781 contracts on the Chicago Board of Trade. It was the biggest increase since October 2008.
In a short sale, investors borrow securities and sell them hoping to profit by repurchasing the securities later at a lower price and returning them to the holder.
Ten-year notes will end 2010 at 3.97 percent, according to the average of 60 estimates in a Bloomberg News survey that gives greater weight to the most-recent forecasts.
The U.S. will face increased competition from other debt issuers, spurring investors to demand higher yields as the Federal Reserve ends a $1.6 trillion asset-purchase program, according to James Caron, head of U.S. interest-rate strategy in New York at Morgan Stanley.
Mortgage rates last reached 7.5 percent in 2000 as productivity gains slowed after the demise of some Internet companies. The average rate on a typical 30-year fixed-rate mortgage climbed to 5.05 percent in the week ended Dec. 24, according to McLean, Virginia-based Freddie Mac.
Yields on mortgage securities issued by Fannie Mae rose to a four-month high of 4.54 percent last week. Fannie and Freddie securities are used to guide borrowing costs on almost all new U.S. home lending.
Higher borrowing costs as the U.S. shows signs of beginning to emerge from the longest economic contraction since the 1930s puts Treasury SecretaryTimothy Geithner in a situation similar to one faced by his predecessor Robert Rubin.
“This is the re-emergence of the bond market vigilantes,” said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed-income officer for Fifth Third Asset Management, who oversees $22 billion. “The vigilantes are saying, OK guys you want to do this, you’re going to pay a higher price for it.”
Bond Market Signal
Inflation-adjusted 10-year note yields have more than tripled this year to 1.5 percent at the end of November, according to Bloomberg data, subtracting the gains in the consumer price index excluding food and energy from the nominal yield on the securities.
“Rubin went to Clinton and said we have to do something to support the recovery, and taxes went up,” Greenlaw said. “You don’t really start to put pressure on policy makers to respond until the market sends a signal.”
Sales of existing homes rose 7.4 percent last month, following October’s 10.1 percent gain. The difference between two- and 10-year yields to a record 2.88 percentage points on Dec. 22 as traders added to bets a recovery will fuel growth and inflation. The yield curve contracted a day later after a separate report showed sales of new homes unexpectedly fell in November.
‘Indigestion Problems’
“When you couple the growing probability of a belief in a recovery combined with the supply, it could mean some indigestion problems for Treasury yields,” said James Sarni, senior managing partner in Los Angeles at Payden & Rygel, which oversees $50 billion. “As long as the demand is there, the supply won’t be a problem. I think what’s going to happen is there’s going to be a problem with the demand.”
Spending by Obama and lawmakers is increasing as the Fed winds down its stimulus programs. The Senate voted on Dec. 24 to raise the limit on federal borrowing to $12.39 trillion, enough to tide the government over for about two months. The House approved the legislation Dec. 16, along with a $154 billion aid package to pay for extended unemployment benefits, new infrastructure projects and help for state governments.
Greenlaw says the U.S. will probably have to offer investors such as foreign central banks and mutual funds real returns of more than 3 percent for 10-year notes to attract funding.
Deficit Spending
“There’s no free lunch, and when you take these kinds of aggressive policy actions to prevent a depression, you have to clean up after yourself,” Greenlaw said. “Foreign central banks are just not going to be able to finance these kinds of budget deficits for very long.”
The decline in interest expense was the biggest decrease since before 1989 and came even as the nation’s debt increased by $1.38 trillion this year to $7.17 trillion in November, the data show.
An increase in yields may even add to demand for Treasuries, said Ian Lyngen, a senior government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. He doesn’t anticipate 10-year note yields rising above 4.25 percent in the first quarter.
Foremost Concern
White House officials have acknowledged the bond market’s message about the need to cut the federal deficit. Rahm Emanuel, Obama’s chief of staff, said on Nov. 17 in a speech in Washington that a plan for reducing budget deficits “is foremost” on the president’s mind.
Morgan Stanley’s Caron predicts the spread between 2-and 10-year yields will rise to 3.25 percentage points next year.
The Deflationists Are Keynesians in Drag and on Steroids: Karl Denninger as Well as Mish Shedlock
By: Gary North
Dec. 28, 2009
John Maynard Keynes was the most destructive economist of the twentieth century. Political conservatives know this, although they have not read The General Theory of Employment, Interest, and Money (1936). But, then again, almost no one has. I have. It is an incoherent defense of big government. It swept the non-Communist world, 1945 to today.
Oddly enough, Keynes' arguments have persuaded a group of non-economists in the hard-money camp. These men are known as deflationists. They predict inevitable deflation. They use Keynes' arguments. Yet they are so poorly informed on economic theory that they are unaware that they are Keynesians. I call them Keynesians in drag.
Keynes argued in 1936 that the private capital markets cannot always allocate capital by means of the interest rate. He said there can be permanent economic stagnation under some conditions. This means falling prices.
Deflation must be stopped, he said. It can be stopped, he said. The solution is for the government to run large deficits. It has to spend. Lenders will lend if the government is the borrower.
http://www.garynorth.com/public/5873.cfm
Here is Karl's response. Take it for what it is worth. I am not taking sides on this issue.
http://market-ticker.denninger.net/archives/1796-Gary-North-You-Asked-For-It.html
Jim Rogers on Bloomberg
12/10/09 (1/2) Jim Rogers on Bloomberg: Buy Commodities!
12/10/09 (2/2) Jim Rogers on Bloomberg: Buy Commodities!
Sunday, December 27, 2009
We’re Screwed
Nothing like a little gloom and doom article. Hyperinflation is coming according to Mr. Williams and there is nothing we can do about it. Who knows maybe he is right.
Thursday, December 31, 2009
Courtesy of John Williams
Contributed by Shaza (thank god you're back)
ShadowStats.com founder John Williams explains the risk of hyperinflation. Worst-case scenario? Rioting in the streets and devolution to a bartering system.
Comments (99)Thursday, December 31, 2009
Courtesy of John WilliamsEconomist/statistician John Williams shifts through the government’s rose-tinted data
Do you believe everything the government tells you? Economist and statistician John Williams sure doesn't. Williams, who has consulted for individuals and Fortune 500 companies, now uncovers the truth behind the U.S. government's economic numbers on his Web site at ShadowStats.com. Williams says, over the last several decades, the feds have been infusing their data with optimistic biases to make the economy seem far rosier than it really is. His site reruns the numbers using the original methodology. What he found was not good.
Maymin: So we are technically bankrupt?
Williams: Yes, and when countries are in that state, what they usually do is rev up the printing presses and print the money they need to meet their obligations. And that creates inflation, hyperinflation, and makes the currency worthless.
Obama says America will go bankrupt if Congress doesn't pass the health care bill.
Well, it's going to go bankrupt if they do pass the health care bill, too, but at least he's thinking about it. He talks about it publicly, which is one thing prior administrations refused to do. Give him credit for that. But what he's setting up with this health care system will just accelerate the process.
Where are we right now?
In terms of the GDP, we are about halfway to depression level. If you look at retail sales, industrial production, we are already well into depressionary. If you look at things such as the housing industry, the new orders for durable goods we are in Great Depression territory. If we have hyperinflation, which I see coming not too far down the road, that would be so disruptive to our system that it would result in the cessation of many levels of normal economic commerce, and that would throw us into a great depression, and one worse than was seen in the 1930s.
What kind of hyperinflation are we talking about?
I am talking something like you saw with the Weimar Republic of the 1930s. There the currency became worthless enough that people used it actually as toilet paper or wallpaper. You could go to a fine restaurant and have an expensive dinner and order an expensive bottle of wine. The next morning that empty bottle of wine is worth more as scrap glass than it had been the night before filled with expensive wine.
We just saw an extreme example in Zimbabwe. ... Probably the most extreme hyperinflation that anyone has ever seen. At the same time, you still had a functioning, albeit troubled, Zimbabwe economy. How could that be? They had a workable backup system of a black market in U.S. dollars. We don't have a backup system of anything. Our system, with its heavy dependence on electronic currency, in a hyperinflation would not do well. It would probably cease to function very quickly. You could have disruptions in supply chains to food stores. The economy would devolve into something like a barter system until they came up with a replacement global currency.
What can we do to avoid hyperinflation? What if we just shut down the Fed or something like that?
We can't. The actions have already been taken to put us in it. It's beyond control. The government does put out financial statements usually in December using generally accepted accounting principles, where unfunded liabilities like Medicare and Social Security are included in the same way as corporations account for their employee pension liabilities. And in 2008, for example, the one-year deficit was $5.1 trillion dollars. And that's instead of the $450 billion, plus or minus, that was officially reported.
Wow.
These numbers are beyond containment. Even the 2008 numbers, you can take 100 percent of people's income and corporate profit and you'd still be in deficit. There's no way you can raise enough money in taxes.
What about spending?
If you eliminated all federal expenditures except for Medicare and Social Security, you'd still be in deficit. You have to slash Social Security and Medicare. But I don't see any political will to rein in the costs the way they have to be reined in. There's just no way it can be contained. The total federal debt and net present value of the unfunded liabilities right now totals about $75 trillion. That's five times the level of GDP.
What can we, the people, do to stop the government from, you know, taking all our money?
We should have acted 20 years ago. There's not much you can do at this point to prevent the eventual debasement of the dollar. This involves both sides of the political spectrum. It's not limited to the Republicans or the Democrats. They've both been very active in setting this up.
What can individuals do?
The only thing individuals can do now is look to protect themselves. I wish I could see a way, but shy of severe slashing of the social programs that is so politically reprehensible and would create such problems and social unrest, I don't see that as a practical solution.
If you're a young 20- or 25-year-old guy or gal, would you move to another country? What would you do?
We still have a great country. We're going through a period of economic pain. It's happened before. This is the kind of thing that's taken us decades to get into and it will take us decades to get out. Although the hyperinflation is going to be limited largely to the U.S., the economic downturn will affect things globally. I can't tell you how things will go with a hyperinflationary Great Depression, which is where I see things going.
It's the type of thing that will tend to lead to significant political change. People tend to vote their pocketbooks. You could have the rise of a third party. You could even have rioting in the streets. I'm not formally predicting that — anyone can run these different scenarios. For the individual, what you need to do, from an investment standpoint, look to preserve your wealth and assets. Don't worry about the day-to-day fluctuations in the markets. What I'm talking about here is over the long haul...
[Gold is] going to be highly volatile, as will the dollar, over the near term, but longer term, physical gold I would look at as a primary hedge for preserving the purchasing power of your wealth and assets. Maybe some physical silver. Get some assets outside the U.S. dollar. I might even look to move some assets physically outside the United States. The key here is to look at a longer range survival package, battening down the hatches, and preserving your wealth and assets during a very difficult time. Once you're through that, you'll have some extraordinary investment opportunities, and I can't tell you what it's going to be like on the other side of this crisis.
Dr. Phil Maymin is an Assistant Professor of Finance and Risk Engineering at NYU-Polytechnic Institute. The views represented are his own.
Subscribe to:
Posts (Atom)