OldLimey

Dollar Weakness, The Problem with Intervention and Goldman's Wild Optimism

Surely there must be one or two permabulls out there who are just a tad discomfited by the fact that around this time last year GS were touting the prospect of $200 oil. That ended well.

Faber Expects a Total Collapse

True enough, but simply hitting 'ENTER' too many times could be enough to cause a collapse in itself.

My first reaction to Faber's piece was that it was intended as a headline-grabber. Trouble is, his logic is not without merit.


On Jul 21 09:02 AM Francis Schutte wrote:

> Nothing has been solved but all don't pay attention to the fact that
> authorities have embarked on a journey to quantitative easing or
> they can - by simply hitting ENTER - print as much money they need
> to ensure the markets don't crash. And, believe me, they won't hesitate
> to do it!

Bulls Push Through Bears' Lines of Defense

Agree entirely. The higher this rally has run without a meaningful correction, the more implausible it has become. The game is really quite straightforward now: continue holding small long positions with tight stops, and get ready to short big-time once we move from the implausible to the truly absurd.


On Jul 21 09:13 AM Nick36 wrote:

> Perhaps a lot of so called 'Bears' are simply staying out of the
> market and waiting for better stock valuations. That's why trading
> volumes have been far below average in Dow and S&P 500 for the
> last couple months.
>
> And the thing about Bulls bidding up stock prices based on technical
> analysis regardless of the fundamentals. Is that they've done this
> before and ended up being very sorry about it. In October 2007,
> the Dow and S&P 500 were both reaching record highs. Which was
> after the sub-prime mortgage mess was already discovered and was
> working its way through the financial system.
>
> It's not enough to look at what other investors are doing. You
> also need to look at whether their actions are reasonable or not.
> Or else you end up running of the cliff with the crowd, like a bunch
> of lemmings.

Can China's Raging Bull Market Last?

China bulls need to get a grip. Yes, China is going to be of growing importance going forward. But in the here and now, just consider:

1. Chinese statistics are not universally considered to be reliable.

2. The 'China can lead us anywhere' crew are forgetting the flaw in decoupling theory: China still has far too much industrial capacity targeted at the US consumer. This can change over time, but not in just a few months.

3. The specialist aerospace press reported a few months back on (well-corroborated) comments from the top of a leading Chinese company that had been compelled to borrow the equivalent of $35 billion for which it had no use. Probably not a unique example of the purported 'efficiency' of stimulus allocation.

Just as the US 'Goldilocks economy' only impressed the gullible or folks looking for something to be impressed by, we also need to be suspicious of the news out of China. Supertankers don't turn on a yuan, and anybody who can brush off this truism by pointing to the benefits of central planning under crisis conditions is not old enough to have had initimate experience of communist economies and certainly doesn't know today's China.

Supporting the Financial System by Bleeding the 'Real' Economy

Those who have bought and paid for what used to be the finest democracy in the world are now showing utter contempt for the (surprisingly) silent majority who fund it. Very sad.

Summer Will Ultimately Prove Bullish

I agree entirely with the article. Assuming we can get through the June high, the bulls will have won a short-term victory they would have been much better off losing. The higher the manipulators take this market without a meaningful correction, the harder it's going to fall. Maybe that's their plan.

What's So Great About Intel's Earnings?

Intel's earnings were fairly shabby. The spin put on them by the folks in Wall Street who just want our money (and by their advertising conduits in the media) was very shabby - but only to be expected.

Boomers in Trouble: The Unheralded Economic Mega-Trend, Part 2

I'm a boomer, albeit not in the US. Some facts to counter the stereotyping:

1. I don't and never have done drugs. (Free love also seems to have passed me by for the most part, but as this is a family show I'll move on.)
2. I have no debt, preferring to save.
3. I have never overconsumed. (I have, nonetheless, cut back on discretionary expenditure over the last year or so and see no reason to revert to the former pattern, modest though it was.)
4. I realised 30 years ago that neither my employer nor the state was going to be able to fund my retirement - so I did it myself.
5. I am not unique. Indeed, looking at the people I know it is those between 20 and 40 who seem to be the most devil-may-care overconsumers, not my fellow boomers.

It is not boomers as a whole who are responsible for the mess that future generations will inherit. It is the institutional structure created by a relatively small number of us. Specifically, the 'I want it all and I want it now' world that our leadership elite has created to enrich itself has been bought into lock-stock-and barrel by the 20-40s. The Boomers' sin has been to create an aspirations monster.

The Deflation-Inflation Seesaw

Excellent synopsis. The Fed's revised 2010 GDP growth forecast is delusional - or worse.


On Jul 15 08:20 PM conceptwizard wrote:

> U.S. household leverage, as measured by the ratio of debt to personal
> disposable income, increased modestly from 55% in 1960 to 65% by
> the mid-1980s. Then, over the next two decades, leverage proceeded
> to more than double, reaching an all-time high of 133% in 2007. That
> dramatic rise in debt was accompanied by a steady decline in the
> personal saving rate. The combination of higher debt and lower saving
> enabled personal consumption expenditures to grow faster than disposable
> income, providing a significant boost to U.S. economic growth over
> the period.
>
> In the long-run, however, consumption cannot grow faster than income
> because there is an upper limit to how much debt households can service,
> based on their incomes. For many U.S. households, current debt levels
> appear too high, as evidenced by the sharp rise in delinquencies
> and foreclosures in recent years. To achieve a sustainable level
> of debt relative to income, households may need to undergo a prolonged
> period of deleveraging, whereby debt is reduced and saving is increased.
>
> Going forward, it seems probable that many U.S. households will reduce
> their debt. If accomplished through increased saving, the deleveraging
> process could result in a substantial and prolonged slowdown in consumer
> spending relative to pre-recession growth rates. ("U.S. Household
> Deleveraging and Future Consumption Growth
>
> What makes this cycle “different” is that three-quarters of the workers
> that were fired over the last year were let go on a permanent, not
> a temporary basis. A record 53% of the unemployed today are workers
> who were displaced permanently .
>
> But the strides in personal enrichment have come at great cost. The
> US consumer, long considered an inexhaustible resource, is tapped
> out. Without job security and access to easy credit; consumer spending
> will slow, prices will fall, demand will flag and the economy will
> tank. There won't be a recovery, because pre-crisis levels of consumption
> will not return; that much is certain.

Four Reasons Why the British Pound Will Soar

Short-term you might be right. Longer-term, truly appalling public finances, a hollowed-out manufacturing base, a still-retrenching financial services industry, a still-overinflated housing market, and the likelihood that it will be many years before we see unemployment drop below 2m again make sterling a very risky bet - except, perhaps, against the USD.

Fed Throws a Wet Blanket on Equities Markets

Facts are just so 'yesterday'. Until they become 'now' again - which will be when GS is loaded-up on shorts and ready to go. As for 3.3% GDP growth in 2010 - just remember what Bernanke was predicting about sub-prime and its wider ramifications back in 2007: $50B and nil respectively. There are very few central banks left which can be trusted, and the Fed most surely isn't one of them.

Why Does Goldman Sachs Need a Fed Exemption for VaR Calculations?

The notion that GS has to 'ask' the federal government before doing anything flies in the face of the last 12 months' experience.

Why Is the U.K. Recovery Outpacing the U.S.?

"Regular readers will have noticed a stream of articles suggesting the UK recovery is outpacing the US."

What recovery? Getting worse at a slower pace is not a recovery. With specific regard to the UK, how on earth do you spin this week's employment numbers as a 'recovery'? As for property, maybe if you're living in central London you're seeing some stabilisation as foreign buyers go bargain-hunting, but there is no recovery in any part of the country I'm familiar with. Assuming a recovery by debating its apparent inconsistencies will not, I'm afraid, create one.

Don't Be Fooled: Earnings, Not Sales, Are What Truly Matter

The author is correct. However, whilst revenues can certainly be fabricated (e.g., Enron), earnings - particularly bank earnings - are now too open to manipulation under US GAAP for them to be taken seriously. Of the companies listed, GS could report pretty much whatever suits its bonus pool whilst a look under the hood at INTC makes it clear the cheerleaders have run ahead of themselves.

By the way, how many quarters-worth of low-hanging fruit is there on the cost side before sustainable revenue growth is going to be necessary to provide the level of earnings the current market is now discounting?

U.K. Housing Still a Risky Buy

Entirely agree. Putting aside central London (where foreign buyers are able to cash-in on the fall in GBP as well as property prices), the UK market remains ludicrously overvalued. It still takes close to 5x the average wage to buy buy a house priced at the national average. Fair bit of mean reversion yet to come.