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Marc Faber Warns “Insiders Are Selling Like Crazy… Short US Stocks, Buy Treasuries & Gold” | Zero Hedge
Beginning by disavowing Mario Gabelli of any belief that rising stock prices help ‘most’ people (“Fed data suggests half the US population has seen a 40% drop in wealth since 2007“), Marc Faber discusses his increasingly imminent fears of the markets in this recent Barron’s interview.
Quoting Hussman as a caveat, “The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There’s no calling the top,” Faber warns there are a lot of questions about the quality of earnings (from buybacks to unfunded pensions) but “statistics show that company insiders are selling their shares like crazy.”
His first recommendation – short the Russell 2000, buy 10-year US Treasuries (“there will be no magnificent US recovery”), and miners and adds “own physical gold because the old system will implode. Those who own paper assets are doomed.”
Faber: This morning, I said most people don’t benefit from rising stock prices. This handsome young man on my left said I was incorrect. [Gabelli starts preening.] Yet, here are some statistics from Gallup’s annual economy and personal-finance survey on the percentage of U.S. adults invested in the market. The survey, whose results were published in May, asks whether respondents personally or jointly with a spouse have any money invested in the market, either in individual stock accounts, stock mutual funds, self-directed 401(k) retirement accounts, or individual retirement accounts.Only 52% responded positively.
Gabelli: They didn’t ask about company-sponsored 401(k)s, so it is a faulty question.
Faber: An analysis of Federal Reserve data suggests that half the U.S. population has seen a 40% decrease in wealth since 2007.
In Reminiscences of a Stock Operator [a fictionalized account of the trader Jesse Livermore that has become a Wall Street classic], Livermore said, “It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight.” Here’s another thought from John Hussmann of the Hussmann Funds: “The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There’s no calling the top, and most of the signals that have been most historically useful for that purpose have been blaring red since late 2011.”
I am negative about U.S. stocks, and the Russell 2000 in particular. Regarding Abby’s energy recommendation, this is one of the few sectors with insider buying. In other sectors, statistics show that company insiders are selling their shares like crazy, and companies are buying like crazy.
Zulauf: These are the same people.
Faber: Precisely. Looking at 10-year annualized returns for U.S. stocks, the Value Line arithmetic index has risen 11% a year. The Standard & Poor’s 600 and the Nasdaq 100 have each risen 9.4% a year. In other words, the market hasn’t done badly. Sentiment figures are extremely bullish, and valuations are on the high side.
But there are a lot of questions about earnings, both because of stock buybacks and unfunded pension liabilities. How can companies have rising earnings, yet not provision sufficiently for their pension funds?
Good question. Where are you leading us with your musings?
Faber: What I recommend to clients and what I do with my own portfolio aren’t always the same. That said, my first recommendation is to short the Russell 2000. You can use the iShares Russell 2000 exchange-traded fund [IWM]. Small stocks have outperformed large stocks significantly in the past few years.
Next, I would buy 10-year Treasury notes, because I don’t believe in this magnificent U.S. economic recovery. The U.S. is going to turn down, and bond yields are going to fall. Abby just gave me a good idea. She is long the iShares MSCI Mexico Capped ETF, so I will go short.
What are you doing with your own money?
Faber: I have a lot of cash, and I bought Treasury bonds.
Faber: I have no faith in paper money, period. Next, insider buying is also high in gold shares. Gold has massively underperformed relative to the S&P 500 and the Russell 2000. Maybe the price will go down some from here, but individual investors and my fellow panelists and Barron’s editors ought to own some gold. About 20% of my net worth is in gold. I don’t even value it in my portfolio. What goes down, I don’t value.
Which stocks are you recommending?
Faber: I recommend the Market Vectors Junior Gold Miners ETF [GDXJ], although I don’t own it. I own physical gold because the old system will implode. Those who own paper assets are doomed.
Zulauf: Can you put the time frame on the implosion?
Faber: Let’s enjoy dinner tonight. Maybe it will happen tomorrow.
There is a colossal bubble in assets. When central banks print money, all assets go up. When they pull back, we could see deflation in asset prices but a pickup in consumer prices and the cost of living. Still, you have to own some assets. Hutchison Port Holdings Trust yields about 7%. It owns several ports in Hong Kong and China, which isn’t a good business right now. When the economy slows, the dividend might be cut to 5% or so. Many Singapore real-estate investment trusts have corrected meaningfully, and now yield 5% to 6%. They aren’t terrific investments because property prices could fall. But if you have a negative view of the world, and you think trade will contract, property prices will fall, and the yield on the 10-year Treasury will drop, a REIT like Hutchison is a relatively attractive investment.
Faber: The outlook for property in Asia isn’t bad because a lot of Europeans realize they will need to leave Europe for tax reasons. They can live in Singapore and be taxed at a much lower rate. Even if China grows by only 3% or 4%, it is better than Europe. People are moving up the economic ladder in Asia and into the middle class.
Are you bullish on India?
Faber: I am on the board of the oldest India fund [the India Capital fund]. The macroeconomic outlook for India isn’t good, but an election is coming, and the market always rallies into elections.The leading candidate is pro-business. He is speaking before huge crowds.
In dollar terms, the Indian market is still down about 40% from the peak, because the currency has weakened. In the 1970s, stock market indexes performed poorly and stock-picking came to the fore. Asia could be like that now. It is a huge region, and you have to invest by company. Some Indian companies will do well, and others poorly. Some people made 40% on their investments in China last year, but the benchmark index did poorly.
I like Vietnam. The economy has had its troubles, and the market has seen a big decline. I want you to visualize Vietnam. [Stands up, walks to a nearby wall, and begins to draw a map of Vietnam with his hands.] Here’s Saigon, or Ho Chi Minh City, the border with China, and the Mekong River. And here in the middle, on the coast, is Da Nang.
Faber: I recommend shorting the Turkish lira. I had an experience in Turkey that led me to believe that some families are above the law. When I see that in an emerging economy, it makes me careful about investing.
Despite Erdogan’s paranoia over “an interest rate” lobby or blaming the Lira’s collapse on the Fed, as Gavekal’s Nick Andrews notes, Turkey is showing no signs of stabilization. As the sell-side scrambles to explain how this is all priced in and “contained,” it is very apparent from the following chart just how vulnerable to contagion the world is if Turkey defaults. The country’s liabilities have multipled dramatically in recent years with over $350 billion of foreign bank exposure to Turkey on an ultimate risk basis.
Fragile and Complacent… (and in denial)
Gavekal notes – Turkey is not, however, showing any signs of stabilization. The lira continues to fall, and policymakers are doing little to contain the situation.
With soaring inflation, a plunging currency and a run for the exits, one would think Turkey would do what other emerging markets did during last year’s taper tantrum, and hike rates.
Instead the new economy minister said recently that this is not necessary, since the country is in tip-top shape. “We couldn’t create an economic crisis in Turkey even if we wanted to, it’s that strong,” said the minister, whose predecessor was purged in the recent corruption scandal.
Turkey has some uniquely bad problems…
Not only is its current account deficit at nearly 8% of GDP – the highest in the MSCI’s emerging markets universe—but the country is also geographically closer and thus more dependent on the eurozone, whose economic recovery is painfully slow. Its political situation is also clearly very unstable.
Still, as the chart below shows, the country’s liabilities have multiplied in recent years – adding to global contagion pressures if Turkey defaults.
Indeed, already fragile Greece is particularly exposed to the Eurasian republic. Turkish credit as a proportion of total Greek bank assets stands at over 5%, compared to 0.7% for the next two largest (Dutch and UK banks).
As Gavekal notes though – Europe’s exposure would likely be mitigated by the European Central Bank with their now standard response of pumping excess liquidity into the euro system to ensure no bank runs out of cash. This might explain why the peripheral eurozone countries are not suffering more fallout from Greece’s exposure to Turkey.
However, with the new template in place, depositors in Europe’s banks exposed to Turkey may well prefer to pull their cash than trust their will be no haircuts for ECB aid…
Terrifying Technicals: This Chartist Predicts An Anti-Fed Revulsion, And A Plunge In The S&P To 450 | Zero Hedge
“Sooner or later everyone sits down to a banquet of consequences.”
– Robert Louis Stevenson
1. History is written as much by the unforeseen consequences of key events as by the events themselves. We prefer not to think in these terms, but history clearly reveals that the adverse consequences of well intended efforts often have a much more dramatic and lasting impact than the original efforts themselves.
2. In fact history suggests a law of adverse consequences where the more insistent and forceful the well intended effort, the more dramatic, powerful and harmful the blowback. In simple terms,attempts to force the world to improve have always ended badly.
3. This law of adverse consequences is a very common phenomena in medicine and is known by the euphemism of ‘side effects’. Adverse drug reactions to prescribed medications are the fourth leading killer in America, right after heart disease, cancer, and stroke. However this expression of the law of unintended consequences gets even less press than its expressions in human history. Neither is a popular topic.
4. One could easily write several volumes of history focused exclusively on the unwelcome repercussions from otherwise well-intended efforts. However as this is a subject that we would all rather avoid I suspect it would be a very difficult book to market.
5. Instead of a book I have opted for two pages of examples. The present situation strongly suggests that the high risk of unexpected blowback from current economic policies are much more deserving of our full attention than the past history of unwelcome consequences.
6. QE has already created what is arguably the most bullish market sentiment in history. And that extreme bullish sentiment has already driven most stock indices to new all time highs. So now would be a good time for some sober reflections on what could go wrong.
7. One sector that seems dangerously poised to go badly wrong are the junk and emerging bond markets. What will happen when Treasuries start yielding the same rates as previously issued junk debt? A massive exodus will happen. Junk bonds and emerging market debt will become a disaster area.
8. We already know how wildly successful Fed stimulus has been at creating speculative bubbles. Fed inflated bubbles that have already burst include a Dot-Com bubble, a credit bubble, a real estate bubble, and a commodity market bubble. The biggest bubble of them all is still inflating. That would be this stock market bubble.
9. There are now fewer banks than ever before in modern history. And the biggest banks are larger than ever before in history. The war against ‘too big to fail’ was lost before it began. Fewer, bigger banks means a more fragile financial system.
10. The worst of the bullish sentiment extremes of previous major stock market peaks have all returned. Analysts are positively gushing with ebullience. There is a competition to see who can come up with the highest targets for the various stock indices. No one sees any downside risk. All are confident that the Fed can and will fix anything. This is a situation ripe for adverse consequences. This is a market where blowback will be synonymous with blind-sided. No one will prepare for what they cannot see coming.
Comparing Costs: Major US Wars versus Quantitative Easing
The chart above suggests that the magnitude of the Federal Reserve economic stimulus program is only comparable to previous major war efforts. The dollar costs plotted here bears that out.
All of the war costs on the previous page were taken from one report dated 29 June 2010. That report was prepared by Stephen Dagget at the Congressional Research Service. I adjusted his numbers to 2013 dollars. You can find his report in PDF format on-line. However some further comments may be useful here.
The Civil War number combines the Northern or Union costs and the Southern or Confederate costs. In 2011 dollars the price of waging the war for the Union was $59.6 billion dollars and $20.1 billion for the Confederacy. I simply added these two numbers and then converted to 2013 dollars.
Post 9/11 Wars
Here I combined the costs of the Persian Gulf war, and Iraq war, and the war in Afghanistan into one category and then adjusted to 2013 dollars.
Sending a Man to the Moon
I thought it would be interesting to compare the costs of sending a man to the moon to the costs of QE. Most references to the cost of putting a man on the Moon only cite the Apollo project. But of course that is very wrong. Apollo arose from Gemini which grew out of Mercury. So for the true cost of sending a man to the Moon I included all costs for the Mercury missions, the Gemini program, the Lunar probes, the Apollo capsules, the Saturn V rockets, and the Lunar Modules. I relied on numbers gathered from NASA by the Artemis Project. I then converted those costs to 2013 dollars.
World War II versus Quantitative Easing
World War II transformed the United States from a sleepy agricultural enterprise into the world’s dominant economic super-power, and defeated both Nazi Germany and Imperial Japan at the same time. It may seem entirely callous to calculate US Dollar costs for a war that claimed 15,000,000 battle deaths, 25,000,000 battle wounded, and civilian deaths that exceeded 45,000,000 but there is a point to this exercise.
The second world war defeated the strategy of geographical conquest through militarism as a national policy. Of course WW II had it’s own undesirable blowback as anything on this gigantic a scale would. However it seems pretty clear that replacing fascism and militarism with democracy was a step of progress for mankind.
WW II and QE
Since the 1950’s many have argued that it took World War II to pull the world out of the Great Depression. As a life-long student of the Great Depression Bernanke must be aware of this debate. In terms of the dollar amounts involved, World War Two is the only project comparable in size to QE. So it seems reasonable to assume that Bernanke’s goal here is to have QE fulfill the economic role of a World War Three; a war-free method of pulling the world out of the Great Recession. However human history suggests that the sheer magnitude and forced nature of the QE program all but ensures serious, unexpected and adverse consequences.
Learning from History
I am not bearish on the human race. When I read history I see things getting better. When I read history I find the slow replacement of brutality with compassion. When I read history I find the long term trend to be the replacement of centralized authority with local self-determination. And I find that every single effort to fight these long term trends has failed. And as history continues to unfold the efforts to fight these trends tends to fail more quickly, more dramatically, and more decisively.
There is an ancient Chinese proverb that states “Plan too far ahead and nature will seem to resist.” That aphorism definitely resonates with my experience and observations. If there is something inherent in the flow of time that unfolds an improvement in the human condition, then there is also something in the nature of things that resists the application of force, whether well intended or not.
If all of the above is an accurate accounting of things, then the key issue for policy makers is finding the fine line that separates supporting the natural flow of human evolution from attempting to force change. The former will help while the later will end badly. The question today has to do with Quantitative Easing. Is QE a gentle nurturing of economic evolution or is it the next doomed attempt to force things to get better? The QE program is so enormous, and relentless, and insistent, that I fear it is the later. And if QE is a huge attempt to force the economy to improve, than we had better start bracing for the blowback.
QE: the blowback to come
What kind of blowback should we prepare for? The lesson of history is that trying to force things to get better does not merely create unwelcome repercussions. It does not merely slow the pace of natural evolution. Attempts to enforce a certain outcome always appears to create the opposite effect. We do not find a law of adverse consequences. We find a law of opposite impacts.
Let us review the sample examples from the previous charts. Every effort to jam an ideology or a plan down the throat of the world only creates the opposite of the intended effect. I would maintain that this is one of the few lessons from history that can be relied on.
If the Federal Reserve is trying to force feed us prosperity then the inevitable blowback will be adversity. If the Fed is trying to compel the most dramatic economic recovery in history, then the blowback may well be the deepest depression in history. If the Fed is trying to enforce confidence and optimism then the blowback will be fear and despair. If the Fed is trying to force consumers to spend then the blowback will be a collapse in consumer confidence.
I sincerely hope that I am completely wrong here, that I am missing something, that there is a flaw in my logic. However until I can locate such a flaw I must trust the technical case for treating this Fed force-fed rally in the stock market as something that will end badly.
Here’s how it plays out…
By: Tom Chatham
So, you’ve got your food all stored away to last the next several years. You have your fuel barrel full and your generator and solar panels ready for the end of the power grid. You have enough weapons and ammo to deal with anything. You are mentally and physically prepared for the long hard days ahead.
You are prepared to fight the war that will eventually show up at your front door someday in some form and for an unknown length of time. You are prepared for the chaos, but are you prepared for the eventual peace?
At some point, the situation will stabilize in some form. It will become possible to walk down the street without being shot at. It will become possible to reopen businesses or to barter. It will become possible to breathe a sigh of relief.
When that day comes, how will you survive? You probably have your stash of silver or gold and some barter items but how long will that last? When the system goes down it will take most peoples jobs, their savings, their retirement accounts and pensions and much of the property they thought they owned.
Everyone will be forced to start over again. It could be years before the job market is functioning again. Until then, how do you plan to take care of yourself and your family? What is your plan to generate some income to live on and acquire the things you need?
Surviving the chaos will be a full time job but when it’s over, then what? Your gold and silver will take you a long ways but they only provide you with a temporary solution to your future needs. At some point you will need to start saving for the day when you are no longer able to do useful work.
Most people are busy preparing to just survive the coming chaos but some thought needs to be given to the day after it all ends. Even a few minutes spent now developing a basic plan will be critical to helping you transition to the new normal. A basic idea and the acquisition of a few basic tools or supplies to help you develop your new income stream will help you leverage your time and supplies to get by in the future.
Knowledge is the primary tool you need to navigate the future. Knowing how to make physical things or repair things will help you meet the future needs of society. Next to that, the storage of tools, machines, raw materials and information relevant to start a new business needed by the community will give you an edge.
In a prolonged period of chaos much of our infrastructure will likely be destroyed. In the aftermath, those with the skills and tools to rebuild will be a valuable asset to society. The ability to repair vehicles or machines, carpentry, masonry, plumbing, electrical, healthcare, farming and skills to build physical products will all be needed by a populace that wishes to regain some of the creature comforts they have lost in past years.
The more skills and materials you have when that day comes the sooner recovery can happen. Some may say it is a bit presumptive to plan for a day when things get better but if you feel things will never get better then why prepare to get through the worst of times at all? If you have the courage to plan for difficult times then you should also give yourself the ability to enjoy the day when things get better. Planning ahead for the distant future was never more important than it is right now.
No Jobs For Americans
Paul Craig Roberts
The alleged recovery took a direct hit from Friday’s payroll jobs report. The Bureau of Labor Statistics reported that the economy created 74,000 net new jobs in December.
Wholesale and retail trade accounted for 70,700 of these jobs or 95.5%. It is likely that the December wholesale and retail hires were temporary for the Christmas shopping season, which doesn’t seem to have been very exuberant, especially in light of Macy’s decision to close five stores and lay off 2,500 employees. It is a good bet that these December hires have already been laid off.
A job gain of 74,000, even if it is real, is about half of what is needed to keep the unemployment rate even with population growth. Yet the Bureau of Labor Statistics reports that the unemployment rate fell from 7.0% to 6.7%. Clearly, this decline in unemployment was not caused by the reported 74,000 jobs gain. The unemployment rate fell, because Americans unable to find jobs ceased looking for employment and, thereby, ceased to be counted as unemployed.
In America the unemployment rate is a deception just like everything else. The rate of American unemployment fell, because people can’t find jobs. The fewer the jobs, the lower the unemployment rate.
I noticed today that the financial media presstitutes were a bit hesitant to hype the drop in the rate of unemployment when there was no jobs growth to account for it. The Wall Street and bank economists did their best to disbelieve the jobs report as did some of the bought-and-paid-for academic economists. Too many interests have a stake in the non-existent recovery declared 4.5 years ago to be able to admit that it is not really there.
I have been examining the monthly jobs reports for a decade or longer. I must say that I am struck by the December report. Normally, a mainstay of jobs gain is the category “education and health services,” with “ambulatory health care services” adding thousands of jobs. In December the net contribution of “education and health services” was zero, with “ambulatory health care services” losing 4,100 jobs and health care losing 6,000 jobs. If memory serves, this is a first. Perhaps it reflects adverse impacts of the ripoff known as Obamacare, possibly the worst piece of domestic legislation passed in decades.
I was also struck by the report that the gain in employment of waitresses and bartenders, normally a large percentage of the job gain, was down to 9,400 jobs, which were offset by declines elsewhere, such as the layoff of local school teachers.
Aren’t Washington’s priorities wonderful? $1,000 billion per year in Quantitative Easing, essentially subsidies for 6 banks “too big to fail,” and nothing for school teachers. It should warm every Republican’s heart.
A tiny bright spot in the payroll jobs report is 9,000 new manufacturing jobs. The US manufacturing workforce has declined so dramatically since jobs offshoring became the policy of American corporations that 9,000 jobs hardly register on the scale. Fabricated metal products, which I think is roofing metal, accounted for 56% of the manufacturing jobs. Roofing metal is not an export. Employment in the production of manufactured products that could be exported, such as “computer and electronic equipment,” and “electronic instruments” declined by 2,400 and 3,500 respectively.
Clearly, this is not a payroll jobs report that provides cover for the looting of the prospects of ordinary Americans by the financial and offshoring elites. One can wonder how the BLS civil servants who produced it can avoid retribution. It will be interesting to see what occurs in the January payroll jobs report.
While the mainstream media continue to push the meme that the economy is in (slow) recovery, some important facts point out that things are not as rosy as you are being told. In fact, most Americans feel the recessionnever ended.
An analysis of retail sales post-Christmas indicates that in-store retail sales decreased more than 3 percent over the same week last year. Retail brick-and-mortar shopper traffic decreased by 21.2 percent over thesame period in 2012. The lack of in-store sales didn’t translate to an increase in Web sales.
In September, homes sales dropped more than at any time in the last 40 months. New mortgage applications dropped 66 percent from an October 2012 peak, reaching a lownot seen in 13 years.
We are now seeing business and personal debt reaching levels not seen since 2007, right before the last crash. Household incomes have not improved at all and, in fact, have dropped. The unemployment numbers are completely cooked. The unemployment rate will drop again due to the ending of benefits to 1.3 million workers who will no longer be counted.
There are 107 million Americans on government assistance. About 50 million Americans get food stamps. The U.S. population has increased by 16 million people since 2006, but there are 1.5 million fewer Americans employed today. Workforce participation rates are the lowest in decades.
According to the consumer price index, the economy is growing at about 2.5 percent. But official inflation is also 2.5 percent. Real inflation is closer to 8 percent.
Yes, the stock market is hitting record highs. But that’s because the Federal Reserve is dumping $85 billion a month into the economy through QE to infinity to prop up the banksters and the market.
The Fed has inflated your dollar away to nothing. One dollar is now equal to 5 cents.
All so-called “growth” in the economy can be directly attributed to inflation. Inflation is not increasing prices, which is a symptom of inflation, but an increase in the money supply.
Inflation is a hidden tax on the wealth of the people.
Helicopter Ben Bernanke has succeeded in creating the illusion of a recovery. The illusion is about to end.
- How Japan Could Be Behind Gold’s Crash (cnbc.com)
- Gold Bubble Pops – Silver And Gold Prices Crashing (americanlivewire.com)
- Gold to reach $2500 within two years: Rosenfeld (bnn.ca)