30 Truths I’ve Learned In 30 Years, and other Weekend Reads

Friday, September 30th, 2011

Here are this week’s reading diversions for your personal enlightenment. Have an inspiring and restful weekend!

30 Truths I’ve Learned In 30 Years
Since today is my 30th birthday I thought it fitting to share 30 things I understand now that were complete mysteries to me just a few short years ago.  These are simple lessons about life in general that I picked up while traveling

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10 Foods To Prevent Osteoporosis
Although the dairy industry have done a great job in convincing everyone that they need to consume dairy products to avoid osteoporosis, the …

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10 Foods For Healthy, Glowing Skin
2 days ago … Skin health is almost always approached from an outside-in perspective. With all the creams, moisturizers, sunscreens and cosmetics out there,

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6 Ways To Avoid Overeating
Sep 18, 2011 … By Tina HaupertIn my book, “Carrots ‘N’ Cake: Healthy Living One Carrot and Cupcake at a Time,” I share my experiences and advice on how …

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Why You Yawn
A study found that yawning may, at least to some extent, be linked to exterior temperature. The authors’ research indicates one function of yawning may be to cool the brain.

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Truly Magical Mushrooms
The hallucinogenic compound in illegal “magic” mushrooms was shown to cause permanent personality changes among 51 participants in a recent Johns Hopkins University study.

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Cancer Truths and Myths
People still don’t recognize the cancer-causing effects of an unhealthy diet or lack of exercise, and mistakenly focus too much on pollution or stress, a new study finds.

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China Launches Its First Space Station Module Into Orbit
At 9:16 p.m. local time–that was at 9:16 a.m. eastern time here in the U.S.–China successfully lofted its first inhabitable space station module into orbit on the back of a Long March 2F launch vehicle, marking a milestone for both the People’s space program and for the Party’s geopolitical

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The Future of the Book
Writers, artists, and public intellectuals are nearing some sort of precipice: Their audiences increasingly expect digital content to be free. Jaron Lanier has written and spoken about this issue with great sagacity.

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Saw Palmetto No Better Than Placebo for Prostate Problems
The millions of middle-aged men who take saw-palmetto supplements to cope with the symptoms of an enlarged prostate might as well be popping sugar pills.

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Tags: 30th Birthday, Book Writers, Cupcake, Dairy Industry, Few Short Years, First Space Station, Glowing Skin, Johns Hopkins University, Lack Of Exercise, Launch Vehicle, Long March 2f, Magic Mushrooms, Magical Mushrooms, Personal Enlightenment, Personality Changes, Restful Weekend, Skin 2, Space Station Module, Study Cancer, Unhealthy Diet
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Goldman Sachs: 40% Chance of “Great Stagnation” in Developed Markets

Friday, September 30th, 2011

Interesting tidbit on the CNBC site:

• Having analyzed 150 years of macroeconomic data, Goldman has found 20 examples of stagnation similar to those experienced by Japan in the 1990’s, most of which occurred during the last 60 years in developed economies.
• “During these episodes, GDP per capita growth hovers below 1 percent and is less volatile than usual. They are also characterized by low inflation, rising and sticky unemployment, stagnant home prices, and lower stock returns,” Jose Ursua, an economist at Goldman Sachs, said in a research note on Thursday.
• He predicts a 40 percent chance of stagnation in the world’s developed markets.
• “Stagnations are more likely than you would like. Because these events are correlated with financial crises, the conditional probability of stagnation in the current environment is higher than normal,” he said. “Trends in Europe and the US are so far still following growth paths typical of stagnations.”
• In order to avoid such an outcome, Ursua said, requires governmental policy that restores confidence and growth.  “Whether these countries manage to avoid a ‘Great Stagnation’ by a pick-up in the recovery is likely to depend on policy being able to restore confidence and putting in place reforms that can decisively jolt growth,” he said.
• A lack of reliable data makes it difficult to know what sorts of policy remedies have helped pull economies out of stagnation in the past, he said, but there is a clear correlation on what causes stagnation.  “Stock-market crashes, currency crises, external debt crises and a higher income level raise that probability. Twin crises, higher growth or higher volatility lower that probability, either because they signal a worse outcome or a better outcome, not a stagnation,” Ursua said.
• “The good news is that policymakers are more aware—thanks to Japan’s experience—of at least a part of that historical experience, if not all that we present here,” he said. “The bad news is that it is still far from clear whether enough has been done to jolt economic growth upwards and outside the zone where prolonged stagnation is a serious risk.”

Tags: Cnbc, Conditional Probability, Correlation, Currency Crises, Economist, External Debt, Financial Crises, GDP, Gold, Goldman Sachs, Governmental Policy, Growth Paths, inflation, Interesting Tidbit, Macroeconomic Data, Sorts, Stagnation, Stock Market Crashes, Stock Returns, Twin Crises, Volatility
Posted in Gold, Markets | Comments Off

QE and the “Crowding Out” of the Bond Market Vigilante

Friday, September 30th, 2011

Submitted by Global Macro Monitor

QE and the “Crowding Out” of the Bond Market Vigilante

We’ve updated our chart of the sources of financing of the U.S. budget deficit from the Fed’s Flow of Funds data released on September 16th.   The chart illustrates how the Fed and foreign central banks have been indirectly fully funding the  massive U.S. budget deficit for the last three quarters.   It will be interesting to see the data for the quarter ending today as no doubt there will be less yellow with the end of Q2 on June 30 and more “flight to quality” blue (domestic) and red (rest of world).

Ronald McKinnon, professor of international finance at Stanford University, has an excellent piece in today’s Wall Street Journal about the damage the Fed’s zero interest rate policy (ZIRP) is doing to the U.S. and global economy.  One of his main points is the Fed and other central banks, who are not yield sensitive,  have been financing the U.S. budget deficit and crowding out the now extinct U.S. bond market vigilante.

As you know the Global Macro Monitor is not a fan of ZIRP and believes it one factor that ails the economy not what will cure it.  We take comfort to be the same company of such an intellectual heavyweight as Professor McKinnon.

The professor makes several excellent points in his piece,

Without the [bond market] vigilantes in 2011, the federal government faces no immediate market discipline for balancing its runaway fiscal deficits.

 

…the vigilantes have been crowded out by central banks the world over.  [see the yellow/red bars in the chart]

 

Central banks generally are not yield-sensitive.

 

True, in the last two months, this “bubble” of hot money into emerging markets and into primary commodities has suddenly burst with falls in their exchange rates and metal prices. But this bubble-like behavior can be traced to the Fed’s zero interest rates.

 

Beyond just undermining political discipline and creating bubbles, what further economic damage does the Fed’s policy of ultra-low interest rates portend for the American economy?

 

First, the counter-cyclical effect of reducing interest rates in recessions is dampened…

 

Second, financial intermediation within the banking system is disrupted…

 

Third, a prolonged period of very low interest rates will decapitalize defined-benefit pension funds—both private and public—throughout the country…

 

Perhaps Fed Chairman Ben Bernanke should think more about how the Fed’s near-zero interest rate policy has undermined fiscal discipline while corrupting the operation of the nation’s financial markets.

Amen!

(click here if chart is not observable)

Tags: Ails, Bond Market, Budget Deficit, Central Banks, Commodities, Fiscal Deficits, Global Economy, Global Macro, Hot Money, Interest Rate Policy, International Finance, Last Two Months, Market Discipline, Qe, Ronald Mckinnon, Stanford University, Three Quarters, Vigilantes, Wall Street Journal, Zero Interest, Zirp
Posted in Commodities, Markets | Comments Off

China – The Great Stabilizer

Friday, September 30th, 2011

For the past ten years, whenever global base metals demand dissipated, China’s voracious appetite stepped in to gobble up the leftovers. Since 2001, China has increased the country’s share of total global demand for base metals from about 15 percent to over 40 percent in 2011, as shown in the yellow line. This has made China more important to commodities than ever before, according to Macquarie.

Macquarie says China has been a “great stabilizer” for commodities: “As growth elsewhere in the world tends to weaken, Chinese call on supply from the rest of the world tends to rise and visa versa when demand weakens.”

As global demand declines, the world “exports disinflationary pressures to China in the form of lower Chinese export demand and also lower energy and other commodity prices. When inflationary pressures ease in China, the Chinese authorities have generally eased monetary and fiscal policies, leading to a strong restocking and domestic demand recovery,” says Macquarie.

The stabilizing effect we’ve seen over the past decade could be in danger if Chinese demand continues to weaken. So far this year, China’s metals demand has slowed despite continued growth in industrial production and construction.

Macquarie thinks there are near-term downside risks in prices due to weak financial markets but things look rosier farther out on the time horizon. The firm says demand for base metals will be weak but not “disastrously” so. Industrial growth in many developed economies has mostly recovered from the Japan earthquake in March and Chinese industrial production growth will likely remain strong around 12 percent on a year-over-year basis in 2012.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Tags: Base Metals, Chinese Authorities, Chinese Demand, Chinese Export, Commodities, Commodity Prices, Downside Risks, Export Demand, Financial Markets, Fiscal Policies, Global Base, Global Demand, Inflationary Pressures, Japan Earthquake, Leftovers, Rest Of The World, Stabilizer, Time Horizon, Voracious Appetite, World Exports
Posted in Commodities, Markets | Comments Off

Not All Interest Rates Are Falling (Bespoke)

Friday, September 30th, 2011

by Bespoke Investment Group

While the purpose of the Fed’s Operation Twist program is to lower long term interest rates, the reality is that the only long-term rates that are falling are Treasury rates.  In the chart below, we compare the change in the yield on the 10-year US Treasury to the change in High Yield Credit Spreads (spread between junk rated bond yields and 10-year US Treasury).  As shown in the chart, although Treasury yields are falling, spreads on high yield debt are rising at just as fast, if not a faster, rate.

In order to get an idea of how high yield bonds are trading, in the chart below we have added the spread on high yield bonds to the yield of 10-year US Treasuries.  In early August, spreads blew out just as the US saw its AAA credit rating cut by S&P.  Since then, spreads have been essentially range bound at around 9.5%.  That is until the last week.  Coincidentally, just as Operation Twist was formally announced, yields on high yield debt actually broke out of their recent range and are now approaching 10%.  If the Fed’s intention is to lower overall long-term interest rates instead of just Treasury yields, as of now, it isn’t working.

Tags: Stocks
Posted in Bonds, Brazil, Markets | Comments Off

ECRI’s Lakshman Achuthan Makes the Call: Recession

Friday, September 30th, 2011

Two weeks ago ECRI’s Lakshman Achuthan told NPR he would be able to make a definitive call on if we face recession within 75 days.  It didn’t take that long.  ECRI’s indicators now point to recession, per a CNBC interview this morning.  Clients were actually told last week, but this is their first public acknowledgement.  This would confirm what copper has been ‘telling’ us.  Based on their track record, it’s essentially now in the bag.  Or what government statistics (always biased to sunny side up due to ‘statistical adjustments’ over the past few decades) say.  As to depths of the recession – he says it is too soon to say.

6 minute video:

Tags: Cnbc, Cnbc Interview, Copper, Decades, Ecri, Face, Government Statistics, Lakshman, Lakshman Achuthan, Public Acknowledgement, Recession, Statistical Adjustments, Sunny Side
Posted in ETFs, Markets | Comments Off

Jeffrey Gundlach: ‘We’re in a Recession Right Now’

Friday, September 30th, 2011

by Trader Mark, Fund My Mutual Fund

My posts today seem to have a Negative Nelly tone – I am looking very hard for some positive stories to offset what I’m posting. ;)

WSJ’s Dealbook has an interview with one of the smartest men in the room – Doubeline’s Jeffrey Gundlach.  Many would consider this guy the best bond investor on planet Earth, alough PIMCO’s Bill Gross gets all the press.  His Total Return Fund is once again smacking its index year to date.

Gundlach believes the U.S. is in recession right now – I’ll wait for the ECRI to confirm, but the bigger picture is, no matter if ’official’ GDP is -1% or +1%, that does not matter much for economic prospects.  This economy needs to be moving at 3%+ for quarters on end to truly have any serious impact on the lives of most Americans.  At best we’re at muddle through speed, despite massive stimuli.

More from Gundlach:

• The country is already in a recession, according to bond manager Jeffrey Gundlach, who predicted “there’s going to be a big loss in Europe.”  The much-watched head of Los Angeles-based DoubleLine Capital addressed a crowd of roughly 100 financiers and reporters at the New York Yacht Club this afternoon.
• Gundlach reinforced his often dark views about the status of the U.S. economy and future for Europe. “We’re in a recession right now,” Gundlach said, as he reviewed a hefty deck of slides with dreary data. Statistics on the polarization of wealth in the U.S., dim headlines about sentiment in locales abroad and the European bond market were among the reasons Gundlach cited for his dour forecasts.
• Echoing the sentiments of many money-managers, Gundlach said that the Eurozone is bound for problems. “I don’t know what is going to happen,” he said. “But I think there is going to be a big loss in Europe.” DoubleLine has no investments in Europe, he said.
• He then flashed a chart of 10-year sovereign debt spreads for the so-called “PIIGS” (Portugal, Italy, Ireland, Greece, Spain) and circled their recent spike in red. Next to the spike he wrote “These are crashes, why no understanding of that?” in red ink. Greece’s spreads showed signs of woe as far back as February 2010, he said.
• As for what’s ahead in the United States, Gundlach pointed out that the rally in the municipal bond market was helped by many states not having a choice but to balance their budgets.  However, that may mean that “the man on the street thinks it’s a depression,” he says, as many local governments have slashed jobs, cut down hours for public resources and stalled projects.  He pointed to the closing of bathrooms near his home in Southern California as an example. “You can’t go to the beach and drink your lemonade because there’s no bathroom,” he says.
• DoubleLine’s strategy has no exposure to Europe, Gundlach says, and is entirely denominated in dollars.
• The bets have paid off so far. The DoubleLine Total Return Fund is up 8.76% year to date, according to Morningstar Inc., compared to a 2.52% increase in the Barclays Aggregate index.

Tags: Bill Gross, Bond Manager, Bond Market, Dealbook, Economic Prospects, Ecri, Eurozone, Financiers, Money Managers, Muddle, New York Yacht Club, PIMCO, Planet Earth, Polarization, Recession, Smartest Men In The Room, Sovereign Debt, Stimuli, Wsj, York Yacht Club
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Wall Street Week Retrospective – Tracking the Dow & Predicting the Future

Friday, September 30th, 2011

From WSW 30 years Retrospective — Must See

Tracking the Dow & Predicting the Future

Hat Tip: Doug Kass

Source: Barry Ritholtz, The Big Picture

Tags: Barry Ritholtz The Big Picture, Doug Kass, Dow 30, Hat Tip, Predicting The Future, Retrospective, Wall Street, Wall Street Week
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Shilling Sees Evidence of Deflation in 5 of 7 Key Areas; Bernanke Begs Congress for Fiscal Stimulus, Admits Fed is Out of Bullets

Friday, September 30th, 2011

by Michael ‘Mish’ Shedlock, Global Economic Trends Analysis

Shilling Sees Evidence of Deflation in Financial Assets, Tangible Assets, Median Income, Commodities, Currencies

Shilling says “Forces of deleveraging and deflation are greater than the Fed can handle.”

I certainly agree and have been saying the same thing (correctly I might add) for several years. All the Fed has ever managed to do is slow the deflationary outcome and that is in spite of $trillions in both monetary stimulus from the Fed and fiscal stimulus from Congress.

Once again, if you mistakenly think inflation and deflation are about consumer prices instead of vastly more important credit, you will come to a different conclusion.

For further discussion as to what deflation is all about, please see

• Yes Virginia, U.S. Back in Deflation; Inflation Scare Ends; Hyperinflationists Wrong Twice Over
• Bizarro World Inflation; About that 2011 Hyperinflation Call …

Fed Out of Bullets

In spite of what the Fed says and wants everyone to believe the Fed is Out of Bullets

Let’s Twist Again (and Not Much More) as I expected

There were a lot of expectations regarding numerous options the Fed might take today. I did not expect the Fed would risk trying them.

See Six Things the Fed May Announce Tomorrow (But Likely Won’t); Would Any of Them Matter? Gaming the Reaction for details.

The Fed said “Let’s Twist Again” and not much more other than throwing a bone at mortgages. Neither will work and the Fed is out of bullets.

Bernanke Begs Congress for Fiscal Stimulus

In a question session following Bernanke’s speech Lessons from Emerging Market Economies on the Sources of Sustained Growth (in which Bernanke proves he does not really understand what is really happening in China), Bernanke begged Congress for help and admitted the Fed is out of bullets.

Yahoo Finance reports Bernanke: Long-term unemployment a national crisis

Federal Reserve Chairman Ben Bernanke said Wednesday that long-term unemployment is a “national crisis” and suggested that Congress should take further action to combat it. He also said lawmakers should provide more help to the battered housing industry.

Bernanke said the government needs to provide support to help the long-term unemployed retrain for jobs and find work. And he suggested that Congress should take more responsibility.

In the question-and-answer period, Bernanke cautioned U.S. lawmakers against cutting deficits too quickly to reduce budget deficits. He has said that could put the fragile economy at risk.

In practical terms, Bernanke was begging Congress for help, and in the Q&A session, Bernanke went even farther.

Please consider Everyone Missed It, But Ben Bernanke Peed On The Fed Again Last Night by Joe Weisenthal.

We’ve talked about this before, the fact that Ben Bernanke is growing increasingly vocal about his skepticism that monetary policy can do much to save this economy.

This is a HUGE change from someone who once said that the Great Depression was entirely the Fed’s fault, and that the Fed would never let that happen again!

In his daily note, Art Cashin caught a key bit from a Ben Bernanke Q&A last night after he gave a speech, further emphasizing that Bernanke has radically changed his views.

“Monetary policy can do a lot, but monetary policy is not a panacea,” Bernanke said.

That is a close an admission that the “Fed is out of Bullets” that you are ever going to see.

Mike “Mish” Shedlock

http://globaleconomicanalysis.blogspot.com

Tags: Bullets, Commodities, Deflation, Emerging Market Economies, Financial Assets, Fiscal Stimulus, Global Economic Trends, Hyperinflation, inflation, Key Areas, Long Term Unemployment, Median Income, Michael Mish, Mish Shedlock, National Cris, Question Session, Shilling, Spite, Tangible Assets, Trillions
Posted in Commodities, Markets | Comments Off

Currency/Trade Wars, They Have Begun …

Thursday, September 29th, 2011

We have written extensively over the course of the last few weeks on the increasing rhetoric from Asia over currency fluctuations and furthermore how China was playing the US and Europe off against one another in a quasi-trade-war gambit. A flurry of headlines today/tonight via Bloomberg reminded us to revisit what is also a very worrying trend in Chinese CDS (and more broadly Asian sovereigns), as perhaps sophisticated investors look for the cheapest low cost long vol trades on a non-decoupled world devolving to its lowest common denominator.

Between Carney’s ‘substantially undervalued Yuan’ comments, record slides in Dim Sum Bonds, growing concerns over growth longevity, Japanese retail sales, Aussie home prices, Sony’s troubles in currency-land, and Barclay’s warning of a restart to the Yuan peg in the case of global recession – contagion and transmission channels appear alive and well in global trade.

Via Bloomberg, this morning:

*CARNEY SAYS ADMINISTRATION `REVIEWING’ CHINA CURRENCY BILL

*CARNEY SAYS CHINA CURRENCY `SUBSTANTIALLY UNDERVALUED’

followed quickly by:

Yuan Drop Spurs Record Slide in Dim Sum Bonds: China Credit

Yuan-denominated (Dim-Sum) bonds in Hong Kong are headed for record monthly loss, erasing gains for the year, as worsening outlook for global economy fuels concern China will slow pace of its currency’s appreciation.

which was ‘helped’ by this evening’s comments:

*CHINA MAY RESTART YUAN PEG IN GLOBAL RECESSION, BARCLAYS SAYS

*STRONG CASE TO PEG YUAN TO BASKET OF CURRENCIES, BARCLAYS SAYS

And growing concensus that growth in China will slow significantly:

In the latest Bloomberg Global Poll of investors, most global investors and analysts, or 59 percent, foresee China will register economic gains of less than 5 percent annually by 2016.

that were around the same time as Sony’s headlines hit:

*SONY SAYS EURO WEAKNESS TO HAVE `HUGE IMPACT’ ON EARNINGS

*SONY SAYS IT HAS NO COUNTERMEASURES AGAINST WEAK EURO  :6758 JP

…noting that “Sony doesn’t buy many components from Europe, limiting its ability to benefit from euro weakness”

Which leaves Chinese CDS (denominated in USD remember) hitting their highest levels since early March 2009 as the spread between 5y and 10Y Chinese CDS rises to record wides of 74bps

While we suspect much of the steepening and widening of China sovereign CDS is speculative revaluation/global-recession bets, Chinese CDS still has a long way to go to meet up with the other global majors in terms of its risk relative to government bonds (since CDS have the implicit currency/devaluation premium and not just technical default).

Charts: Bloomberg

Tags: Barclays, Bill Carney, Bonds, China Currency, Chinese Cds, Contagion, Currency Fluctuations, Currency Trade, Dim Sum, Economic Gains, Gambit, Global Economy, Global Investors, Global Poll, Global Recession, Lowest Common Denominator, Outlook, Sophisticated Investors, Sovereigns, Trade War, Transmission Channels, Yuan
Posted in Bonds, Brazil, Markets, Outlook | Comments Off