Great analysis here from Howard Davidowitz who is one of the leading retail analysts on Wall St.
Howard brilliantly explains why we saw such a bump up in retail despite the continuing deterioration of the economy and consumer. Essentially Howard concludes that 70% of the consumers in this nation are dead as they remain jobless and on food stamps.
However, he explains that the other 30% of the consumers basically drive consumer spending overall, and they began spending once again this year after the capital markets recovered.
Nonetheless, Howard remains extremely bearish on retail and real estate adding that the key driver for retail sales was the huge rally in the markets which we all know is unsustainable.
Make sure you check out the last few minutes of the interview where he explains how the Fed is basically bankrupt if interest rates rise by 1%.
In summary: Howard still sees no economic recovery and remains pessimistic on the consumer moving forward. It's hard to think why anyone could come to a different conclusion when 70% of this nation is either unemployed, broke, or on food stamps.
Howard points to Wal Mart's poor performance versus other retailers as proof that the average consumer is suffering.
He also discusses the rising threat that online retailers like Amazon pose to brick and mortar retail stores. Stores will be forced to shrink and consolidate as online sales continue to soar. Davidowitz then brilliantly describes how this will have a catastrophic effect on the values of commercial real estate.
Great stuff below:
Also:
The markets are quiet but the US dollar is once again selling off hard today. It's been a rough few days for bucky:
Quick Take:
This is something to take notice of as we head into the new year. Volume is light today so I don't read into it too much. Nonetheless, gold, crude, and silver are all surging on the drop.
The Bottom Line
I want to wish everyone a Happy New Year! Be safe if you decide to go out and play!
I finished up my predictions for 2011 during today's Wall St snoozefest. As always, these are just my opinions and they shouldn't be used as investment advice.
Here we go:
1. The US dollar will strengthen in the first half of the year thanks to the European debt crisis. This trend will then reverse midyear and the USD will close down 10% from 2010 levels by the end of the year.
2. Treasuries will trade in a large range early in the year before selling off later on as the Fed turns off QE2 and/or the the bond vigilantes finally get their way. The 10 year bond will end the year at 4.5%.
3. Gold will trade violently between $1000-$2000 as it reacts to inflationary and deflationary panics based on various central banking decisions that are made around the world in 2011. Gold will end the year at $1700 due to increasing demand as fears around fiat currencies continue to rise.
4. China will encounter severe inflationary issues and will raise rates substantially in order to avoid social unrest and political turmoil. I think these efforts will fail and I wouldn't be surprised to see another " Tiananmen Square" type event by the end of the year.
5. Two of the PIIGS will default and leave the Euro in an attempt to get their arms around their solvency issues. Just so we're clear here: A debt restructuring/haircut will be counted as a default.
6. Stocks: Volatility will rule the day. Equities will rise early in the year as a result of a massive European capital flight to safety. This will also help the treasury market. The S&P will then sell off hard as bond yields begin rising and the markets slowly realizes that the "economic recovery" was the recovery that never came. The S&P will close down 20% from today's levels by the end of 2011.
7. Oil and other commodities will see violent volatility as inflation/currency fears battle huge drop offs in demand as the economy slows down dramatically. This will trigger a giant tug of war on price. Oil will trade in a range of $50-150 dollars during the year and will end the year at $70.
8. 1-2 states will default and will need restructure their debts.
9. President Obama's approval rating will fall below 30% as the economy fails to recover and continues it's downward spiral.
10. One TBTF institution will need to be bailed out for a second time. If Congress refuses to approve the bailout then 1 TBTF bank will fail(unlikely scenario).
11. Housing prices will steadily continue dropping throughout the year and will end up down 20% down from today's levels. I will end my last prediction with an important graph.
One only needs to look at the chart below to see where home prices are eventually heading. In case you are blind or can't read let me help you: Home prices will eventually head back to their 2000 pre bubble levels. This may take several years but all bubbles revert to the mean. Just look at where tulip prices are today versus the 1630's!
Anyone involved in housing needs to eat a huge piece of "Reality Pie" and realize that prices are never coming back. Rates are going to rise and things are only going to get worse.
The Fed has basically thrown everything but the kitchen sink at housing for 3 years and it has done NOTHING to stop the price declines. Take this chart and hold it as a reminder in your back pocket and make sure you look at it if you ever have any urge to buy a house.
"NEW YORK (MarketWatch) - The Treasury Department sold $29 billion in 7-year notes /quotes/comstock/31*!ust7yr (UST7YR 2.72, -0.16, -5.55%) on Wednesday at a yield of 2.83%, the highest since April. Bidders offered to buy 2.86 times the amount of debt sold compared to an average of 2.96 times at the last four monthly sales. Indirect bidders, a group which includes foreign central banks, bought 64.2% of the sale, the highest allotment since June 2009 and well above the average of 49.9% of recent sales. Direct bidders, a class which includes domestic money managers, purchased 4.6%, down from 9.1%, on average. After the auction, the broader bond market extended gains, as traders expressed relief that the final auction of the year was completed. Yields on 10-year notes /quotes/comstock/31*!ust10y (UST10Y 3.36, -0.14, -3.87%) , which move inversely to prices, fell 9 basis points to 3.39%."
My Take:
Get used to this volatility folks! 2011 will be the year of volatility IMO. My first thought after seeing today's spectacular bond auction was something must be brewing in the Eurozone. The real buying strength of this auction were the indirects overseas that I highlighted above.
As I have said in recent weeks, the Eurozone will take center stage early in 2011. Risk is relative and the perception is that the PIIGS will die before the US. I agree and Ben is going to get a free pass to continue printing via QE in the short term as a result.
The Bottom Line
Busy tonight so I have to be brief. All I can say is be prepared for a series of crises next year. I expect to see wild swings in all asset classes. There will be a series of inflationary and deflationary panics as the financial system tries to survive multiple threats as a result of their massive debtloads.
On the inflation side, there will be plenty of fuel for speculation in things like commodities as the central banks continue printing. This money printing will obviously be devastating for all currencies.
The difficulty for traders and investors will be trying to figure out which country or large bank blows up first. Investors in 2011 will act like a bunch of mental patients with ADHD as they try and profit on the wild volatility as these huge news events hits the wires. The specs will also focus closely on how the central banks respond to them.
Currencies will trade violently as a result of these events as this global financial crisis plays out. For example: Currencies like the Euro will fall sharply on bad news out of the PIIGS and then rise when bad news around the debt issues here in the US hits. You are going to have to be very nimble if you want to trade the markets next year.
On the flip side, I expect to see deflationary panics as well. These panics will be created as start seeing defaults. If a country like Greece defaults and haircuts are forced to be taken then I think you will see the big money run scared and hide in safe havens. This will be very deflationary for the markets.
These deflationary panics will create large market sell offs and they will also likely temporarily strengthen the US dollar because the first few blowups will likely be overseas.
I will have more around this in my 2011 piece. Keep an eye out for it.
As for the market today all I can say is BORING!. I think I fell asleep watching the tape this afternoon.
This auction was flat out ugly. 40% of the allotment was sold at the highest yield, and the bid to cover was only 2.6 which is weak considering the fact that this was 5 year paper.. Bill Gross called this auction a "stinker". I can think of some other words to use but I will contain myself.
As you can see above, the bond market didn't like it either and pummeled bonds all afternoon following the results.
Stocks rose of course despite the negative news today which included more bad numbers in housing and consumer sentiment. Would you expect anything else from the trading robots? They think all of the news is bullish! In fact, stocks have now risen 27 times in the last 30 trading sessions. This recent rally has gotten beyond absurd at this point.
One of my more wild 2011 predictions is that the stock market will decouple from the bond and currency markets. This decoupling will then expose the equity market as nothing more than a manipulated robot controlled fraud. As this crisis unfolds it will eventually trigger a violent flash crash/sell off type event as investors start losing confidence in the stock markets ability to be used as safe investment mechanism. I might be a year early on this one but I think it's going to happen. More on this list later.
The Bottom Line
I will be hit and miss here this week. I am in the process of taking a well needed break. Needless to say I think the news will get increasingly worse as we head into the new year as consumers see gas close in on $4 a gallon. Oil was up once again today after the US dollar weakened following China's interest rate hike.
Gold and silver also rose on the dollar news. One other thing to note: Volume was extremely low today so I am not paying much attention to what stocks do the rest of the week. In fact, I am starting to not even care how stocks do because the market refuses to reflect whats going on in the economy.
I cannot be long or short something that becomes more and more blatantly manipulated after each trading session. How stocks could rise given the news today is beyond me. I guess one could blame low trading volumes. Nonetheless, I refuse to participate in something that continues to bury it's head in the sand hoping that this debt nightmare will just go away at some point.
It's not folks, and the longer they deny this reality the more painful it's going to be on the way down.
From The Housing Time Bomb. Travel safe and enjoy spending time with your family. If this is impossible because your family is dysfunctional then I suggest you start drinking heavily:)
It appears the Fed is coming to the conclusion that a reversion to the mean in home prices is the only answer and.as you can see below, we need to see another 23% drop in housing in order to get there:
In a nutshell, the Fed shockingly admits that their meddling via HAMP and other programs were ineffective and only juiced housing prices by about 5%.
The Fed candidly discussed how poorly the program worked:
"A study found that in a best-case outcome, 20 to 25 percent of modifications will become permanent.[5] In 2008, one in three homeowners devoted at least a third of household income to housing; one in eight was burdened with housing costs of 50 percent or more.[6] Failed modifications suggest that, without strong income growth, the bounds of affordability can be stretched only so far.
Without intervention, modest home price declines could be allowed to resume until inventories clear. An analysis found that home prices increased by about 5 percentage points as a result of the combined efforts to arrest price deterioration.[7] Absent incentive programs and as modifications reach a saturation point, these price increases will likely be reversed in the coming years. Prices, in fact, have begun to slide again in recent weeks. In short, pulling demand forward has not produced a sustainable stabilization in home prices, which cannot escape the pressure exerted by oversupply (Chart 3)."
As a result, they are dramatically ramping down HAMP modifications:
As you can see below, the effects of pulling forward demand using the housing tax credit were catastrophic:
The Fed is basically admitting that housing has been a complete nightmare since the tax credit has expired. The time on the market for homes has surged, prices have continued to fall dramatically, and the number of offers and closed transactions and offers have also collapsed after pulling forward demand.
The Bottom Line
The Fed is basically admitting that the programs they designed to prop up housing was a total failure. 75-80% of the modifications have failed. I have been screaming about this would not work for two years now. One must wonder how many billions could have been saved by just allowing prices to revert to the mean.
As I have said before, you cannot re inflate bubbles once they burst. Housing prices were simply mathematically unaffordable when they rose 85% from their mean. The only answer in the first place was to just let them fall to levels where buyers could afford them.
That being said: I give the Fed some serious kudos for coming out with this report. It's the first logical thing I have heard from them in a few years. I will always give the Fed credit where credit is due. I am often very hard on them, but I will be the first to admit that I am pulling for them if they decide to do the right thing.
They have a long ways to go yet but hey: It's a start.
This will not be good in the short term for the housing or banking industries if the Fed winds down these programs. A 23% drop in housing prices to the reversion of the mean is a long ways down, and we all know that bubbles almost always overshoot the mean when they are in the process of bursting.
Prices are already down 33% so the total peak to trough drop in housing prices according to the Fed would be 56% when it's all said and done. I guess this is possible but it sounds optimistic to be when you consider the fact that housing prices rose 85% in 2006 at the peak of the bubble.
The banking stocks are all down today and I am sure this housing report isn't helping.
Stocks were quiet once again today as the market begins to wind down for the holidays. Stocks closed slightly higher. Bonds were down and gold was also down slightly.
I sold some gold today. Many of you may ask why I would turn this holding into worthless US dollars. Don't get me wrong here: I still remain bullish on the metals longer term. However, I haven't liked how gold has acted over the last few weeks especially relative to other commodities. It's feeling toppy to me and I figured I can always buy it back later.
Speaking of commodities I wanted to discuss oil and gas a bit tonight. I am sure many of you have noticed that it has gotten increasingly more expensive to fill your gas tank in recent weeks. In fact, there has been a pretty large spike in gas prices just in the last few days:
Oil also remains stubbornly high despite weak demand:
My Take:
This is not helping things folks. Oil is used to make pretty much everything in our economy. Gas prices act like a tax on the consumer when it starts to rise substantially. People begin changing their purchasing habits when it rises over $100 a barrel. I think it's already having an effect right now as wages fall and unemployment rises.
The NIKE warning of higher input costs needs to be taken seriously by the markets.
It's not just oil folks: Other commodities like cotton are also rising sharply as the middle class in the emerging markets continue to rise.
Over the longer term I see no reason why this will change. We could see a hiccup in the shorter term as a result of some severe deflationary forces as the westernized world's economies collapse but this will only be temporary.
There are two reasons why I say this: China and India.
The one area where I remain bullish longer term is Asia and India. When I look at China I see late 1800's America. We were a manufacturing powerhouse back then, and our middle class flourished as we produced things like steel for the rest of the world.
As our nation developed into the most powerful economy on earth in the 20th century we slowly morphed into a service/consumption based economy.
As a result, we decided to ship our manufacturing jobs over to China/India. We are now learning that this was a HUGE mistake. This is a shame because it's too late to change things now. These jobs are never coming back unless Americans agree to work for $300 a month.
At any rate, "it is what it is" which means China will eventually replace America as the largest economy on the planet. There will be some growing pains along the way but I don't see how it doesn't eventually happen.
That being said, in the shorter term China is going to have some serious problems to deal with as a result of the westernized world's economic issues. For example, the Fed is essentially destroying our currency as we continue to spend money that we don't have.
This threatens China's treasury holdings and it also creates severe inflation problems in the Far East. China is also facing other inflationary forces from it's people that want higher wages and a better life.
China has no choice but to give in to this pressure in order to avoid social unrest. As a result, their middle class is soaring and their demand for better food and goods is soaring right along with it.
The Bottom Line
China's growth is going to put us in a precarious position because it's going to create inflation for the necessities that we need in order to live at a time when we cannot afford it.
The inflation/deflation debate IMO has been resolved:
We will see inflation in the things that we need for everyday life, and we will see deflation in assets like housing that are not. This is going to be my theme for 2011.
The Fed's trashing of the US dollar will make this problem even worse. They are getting a free pass for now thanks to Europe's troubles but this is a temporary reprieve.
Making matters even worse is the speculative money that continues to fly into commodities as the smart money continues to lose confidence in the equity/bond markets.
This hot money will make the commodity trade increasingly volatile as the economy continues to free fall. I expect too see wild swings in all commodities throughout the year.
None of this will be good for the consumer of course. I could see $3 per gallon swings in gas prices over the next 12 months as oil deals with currency,demand, and speculative forces that will become increasingly more volatile in 2011 as the world suffers through another year of global financial chaos.
Hang on tight folks. It's going to be a bumpy ride.
Try a different morning routine today as you sip your coffee before you go to work. It's amazing what you can learn when you look at our financial markets from the outside:
Stocks rose once again today as the Santa rally rolls on. Meredith Whitney was out with some more bear porn this afternoon on CNBC as she explained her "municipal default" thesis.
Please watch her interview below ESPECIALLY if you own a lot of munies in your portfolio.
My Take:
Meredith hits it out of the park once again. I gotta admit I think I am in love with this woman. She is sharp as a tack. IMO, her greatest asset is that she has the ability to see problems before her competitors do as a result of her tireless research.
Mosty analysts feel compelled to ignore the facts and say whatever they need to say in order to get you to buy stocks. This is why 98% of these blowhards on CNBC need to be ignored.
There are very few analysts that I pay attention to. However, I stop and listen when someone like a Jim Rogers gets on TV because they don't have an agenda. He already made his billions so he doesn't care what you do with your money.
I don't believe Meredith has one either because I see the research that she does. It would probably be much more profitable for Meredith to sellout and become a bulltarded shill. Obviously it's not in her blood to sell her soul to the devil for a few bucks.
She bravely continues to march on and preach the truth. All I can say is god bless her. It hasn't been easy: Meredith received death threats after telling the truth about Citi before it collapsed and had to be saved by the government. I am sure she didn't make any freinds today either.
IMO, she continues to do some of the best work on Wall St and she is 100% right on the muni crisis. I had no idea muni debt issuance doubled in the last 10 years. This tells me minues are just another Wall St Ponzi scheme that is not sustainable.
Hearing Mrs. Whitney discuss social unrest was also an eye opener. If she is right, you can expect to see massive union riots similar to what we have seen in Greece. The gangsters on Wall St must have been choking on their caviar once she got done with this interview.
"Nike CEO Mark Parker sounded confident on the footwear and apparel giant’s second quarter conference call, but he warned analysts that Nike (NKE) will see margin pressure in the quarters ahead as input costs rise. Nike beat analysts’ earnings and revenue estimates for the second quarter, but the stock fell more than 5% in after-hours trading.
Parker and the other executives on the call said costs for commodities like cotton, as well as labor and transportation costs, have increased in recent months and will soon begin to hit Nike’s bottom line.Parker said margins could be squeezed through the end of the fiscal year, and CFO Donald Blair said he expected margin pressure for up to 18 months. Blair also said that a stronger dollar could weigh on future results."
Quick Take:
I hate to say it but I told you so!!! You can thank Ben Bernanke's idiotic QE for triggering the commodity run and the Chinese inflation which is forcing wages to rise over there. You can also thank the European debt crisis for the rising dollar in recent weeks.
The Bottom Line
Wall St can't have it both ways. Everything is always bullish. If our dollar falls then exports will rise. If the dollar rises then it's a sign our economy is strong.
I say BS. Stocks have risen 22% from the summer lows and are priced for PERFECTION. This rise has occurred despite learning that our states are broke, 1/5 of the country is unemployed, and the PIIGS in Europe now stand on the brink of collapse.
How on earth does Wall St think this run will continue given the state of the global economy? Are they now dealing crack down on the trading floors?
One thing has been clearly obvious for over a year now: The stock market decoupled from the economy over a year ago as the trading robots took over Wall St. How long this lasts is anyone's guess, but I do believe that eventually the two will get back on the same page. When it does look out below.
I hope the Fed is watching companies like NIKE struggle as a result of their zero interest rate/QE money printing policies.
You create bubbles throughout the financial system when you are reckless with monetary policy, and companies are going to start feeling the pain down the road as inflation takes center stage in 2011.
It's time to end all of this nonsense and start focusing on creating stability and confidence within our markets instead of running them like a casino on steroids.
I love the CMI because it looks at how the consumer is actually performing in the 10 key areas of consumer spending. Here are the 10 sectors that they use to compile their consumer spending data(Technology and Travel are the two that get cutoff at the end below):
Automotive
Entertainment
Financial
Health
Household
Housing
Recreation
Retail
Technology
Travel
The CMI does not include the numbers like inventory builds and government spending which are what the government uses to create our quarterly GDP number number.
As you can see below, the consumer spending trends are pretty nasty:
This chart looks at what the consumer does once GDP begins to start contracting. The first contraction started in 2008 following the financial crisis. The second contraction began in 2010 after GDP peaked in Q4 2009.
As you can see above, in 2009 we saw a massive rally in spending as the government threw the kitchen sink at the consumer via "cash for clunkers" and "housing tax credits" in an attempt to revive the consumer.
Back at the time I had warned that all these government stimulus programs were going to do was pull forward future demand which would be devastating down the line.
The data is now starting to support this. As you can see above the consumer has been in contraction for all of 2010 once GDP growth peaked in the end of 2009. In fact, if you look at the number of days of contraction this year in 2010 versus the 2007-2009 downturn the numbers are actually worse:
Take Continued:
The CMI goes on to explain how the majority of our growth in 2010 was as a result of massive government stimulus combined with improved exports thanks to a falling currency.
However, they believe this tailwind is about to wind down:
"► The growth in exports has primarily benefited major corporations. These same corporations have been growing margins over the past year by cutting jobs, and now appear reluctant to start major re-hiring.
► The growth in governmental spending has probably peaked, with both the future impact of Federal ARRA spending capped and with local governments being forced to deal with looming deficits.
We have said before that the real consequences of the "Great Recession" on U.S. consumers were triggered by rising energy prices, dropping home values and persistent unemployment. Until something dramatically turns around in those specific areas consumer demand for discretionary durable goods is not likely to improve."
The Bottom Line
The consumer is still on life support and the various government stimulus that turned things around are all now beginning to wind down.
Corporations are doing well because they are slashing jobs and seeing an increase in exports. CNBC will tell you that companies are recording record profits because the economy is receovering. This couldn't be further from the truth. They are hoarding profits and slashing jobs as they prepare for the worst economic crisis since The Great Depression.
As deleveraging continues the consumer is likely to disappear once again now that the government is being forced to wind down their massive stimulus as a result of rising concerns around their solvency.
The tax cuts were the last big spending bill IMO. As the tea partiers get into office I expect the government to switch gears and start talking austerity versus bailouts.
This is going to be a very painful reality to the millions who count on government checks to finance their lifestyles that allow them to watch Dancing with the Stars on their 70" flatscreen TV's.
The Fed's spending binge is on it's last legs and the consumer is starting to roll over and play dead. This being said: I wouldn't be surprised to see them spend what little they have left on Christmas which means the shopping season may not be a disaster this year.
Why would Americans do such a crazy thing when the economy teeters on collapse? Because most Americans are too stupid to look and see what's happening all around them.
They turn on their massive flatscreens and are told by the media talking heads that the economy is recovering, and they believe them because they are too lazy and stupid to take the time to do some research and realize they are being sold a bag of goods.
In fact, as the market rises, many of them are once again piling into stocks thinking that this is some sort of massive new bull market.
Folks, when the herd piling into stocks like this you can be sure this rally is likely on its last legs. Wall St loves to sell to the suckers and take huge profits as Main St piles into the rally at the top.
As the economy rolls over once again as a result of the collapsing consumer, Main St will once again get left holding the bag as Wall St laughs all the way to the bank.
Thank god it's Friday! Things are quiet for the most part. I was happy to see treasuries rally today.
Here is the 10 year:
Quick Take:
PHEW! I am not looking forward to bond Armageddon and I would have hated to see it right before Christmas. The Wall St Journal reported that treasuries rallied as a result of European flight to safety trades:
"The bond market extended Thursday's rally, a relief for a market that has been hammered over the past week. The benchmark 10-year note's yield, which moves inversely to its price, fell by about 16 basis points from the seven-month peak of 3.568% hit Thursday.
Many investors bought Treasury's after Moody's downgraded Ireland's sovereign credit ratings by five notches amid worries about the euro-zone debt crisis.
"Negative news from Europe spurred flight-to-safety flows into Treasurys," said Jason Rogan, director of U.S. government trading in New York at Guggenheim Partners LLC, adding that some foreign central banks and investment funds bought Treasurys with 10-year yield around 3.55%, providing attractive value.
As of 10:49 a.m. EST, the 10-year note was 8/32 higher to yield 3.405%. The 30-year bond was 22/32 higher to yield 4.498%.
The bond market is "oversold," said James Combias, head of U.S. Treasury trading at Mizuho Securities USA Inc."
The Bottom Line:
Everything else is pretty much a snoozefest today. Metals are up a bit. Stocks are flat.
I gotta be honest: I am looking forward to shutting it down for the holidays. All of this impending doom is quite tiring and stressful.
FYI, the blog will be hit and miss over the next two weeks. I will be pretty regular next week. This weekend and the holiday week might get a bit quiet. Don't be fooled though: The Housing Time Bomb will be back in full gear as we head into next year!
Let me wrap things up for today.
I have a feeling that Europe will be center stage as we head into 2011. It will be interesting to see what bonds do in the meantime.
Christmas came early for the Fed this year. Their gift was the European debt crisis. It's creating huge revenue streams for treasuries as the Europeans flock to safety. It's also taking the focus off of the US and our own debt issues and placing it on the squarely on the PIIGS.
Some advice:
Enjoy the holidays with your family because I expect 2011 to come in with a whirlwind.
We are nearing the tipping point of this whole crisis. How it all plays out remains to be seen, but one thing is becoming very clear: Radical change is coming and life as we know it will never be the same.
I know it's hard but try and forget about our economic insanity for now and enjoy some time with your family.
Since it looks like the holiday trade is on I thought I would look back and see how various sectors performed in 2010:
My Take:
If you were an inflationist you did pretty darn well last year. Commodities were clearly the play of the year. I find it kinda funny to look at the S&P 500 performance relative to other investment options.
CNBC would love to make you believe that buying stocks was and always is the best thing to do. As you can see above, this was clearly not the case in 2010. Ironically, bonds gave a lot back since November when the Fed started it's brilliant QE strategy.
You can thank the Fed's reckless policies(along with lots of Chindians) for the commodity run. The dollar has held up well as of late as a result of the European debt fiasco but it's clearly evident above that the market believes inflation is coming.
If you were a deflationist in 2010 you pretty much got slaughtered. The classic deflation trade is to go short stocks and energy and go long the dollar and bonds. So much for that idea in 2010.
Personally, I was pleased with my year for the most part. I did well with gold and silver. My bond funds did well thanks to PIMCO. I lost a little on some short hedges but I was glad I owned them when we dipped this summer.
My cash didn't do anything thanks to low rates. In fact, I probably lost money from an inflation adjusted standpoint but that's OK. The security of knowing it's there is invaluable from my perspective at this point in the game.
Where Do We Go From Here?
This is the million dollar question. I will touch on this today but stay tuned for a THTB Top 10 prediction list for 2011. I see this done a lot and i liked it so I figured I would give it a shot.
I think a lot of what happens in 2010 will come down to the Fed, the bond market, and politics.
I think Obama put himself in a bad spot by passing the tax cuts. I say this because Washington DC is going to change drastically starting next year.
The House and the Senate will both be filled with several new tea partying Republicans who are going to want to cut spending. As the deficit worsens we will see increasing pressure to do something to stop it.
This is going to lead to job cuts and other austerity measures beginning in 2011. I don't expect anything drastic but it will start nonetheless.
Obama is going to end up looking bad when the Republicans start cutting because the middle class are the ones who are going to feel the pain.
Obama will then get painted the President who gave the middle class the shaft after giving tax cuts to the rich. This will be a political nightmare for him down the line and ironically I think the left may hate on him on this issue as much as the right does.
The Bottom Line
We have clearly reached a fork in the road when it comes to the markets and the economy. Unemployment remains high and is getting worse. Our deficit is on the verge of not being manageable as bond yields continue to rise.
Stocks have priced in a strong 2011 recovery which I don't think is going to happen. I can't see any material recovery without a nice uptick in jobs. The only reason we had a recovery this year was because the government was willing to put it on it's credit card. The economy would have been miserable this year without their handouts.
The Fed would love to rinse and repeat the same thing this year which is why we got QE2. The problem with this idea is the Fed now has the bond market to deal with.
They aren't too keen on this idea. They are becoming increasingly worried about our deficits because they see no recovery that can pull us out of this mess.
The Fed doesn't see the recovery either. If they did then they would have never pushed the QE2 button. Bernanke knows this can't work but he did it anyway because there was no other option.
The after shocks are still being felt from our "printing" announcement. Bonds have collapsed and commodities have soared ever since.
This is going to be felt down the line by stocks as increased costs hurt margins. Remember: Oil remains stubbornly high and you need oil to make pretty much everything in our economy.
I'll have more on my thoughts later. The bottom line is I expect lower stock prices in our future as the market realizes that the great 2011 recovery was nothing but a pipedream.
It looks like the Greeks decided to not be upstaged by Italy today:
My Take:
Nothing like seeing angry mobs trying to light cops on fire. How long can this last until the police say "F" this and join the other side.
Folks, take it all in because you are going to see a replay of this over here. I say this because the US is in the same fiscal shape as Greece.
The images above are horrifying and it's only going to get worse. This is what happens when your debt levels can no longer be sustained, and you must slash the cost of government via austerity in an attempt to stay solvent.
The problem we have is the people in the world today are soft and have no idea what it's like to experience real HARD TIMES. Go watch a few clips from WWII or the Great Depression if you want to see what it's like to really struggle in order to survive.
As a result, citizens like the Greeks are completely unprepared when the government stops writing checks when they run out of ways to borrow more money.
The bottom line here is reality is beginning to set in and they don't like it. The people of Greece are now broke and jobless, and the government has no money or answers for them. This is not an acceptable answer for it's citizens so they turn to violence and upheavel as they become enraged with the situation over time.
Things is only going to get worse as people become more desperate. If I was a politician over there I would be strongly considering getting the hell out of dodge before getting bloodied like the stooge at the end of the video above.
I know if I lived in Greece and had money I would getting out of there because inevitably people will start stealing from others in order to survive. Think about it: What other options do people have when there are no jobs and no future?
Some advice:
Before you go spend your last $2000 on a 50" HDTV I suggest you reconsider unless you have at least 6 months of cash in the bank.
In case you missed the move in bonds, we are now seeing something similiar to what Greece saw a year ago in their own debt markets. Take a look at the 10 year today:
Now take a look at the 10 year since the Fed decided to QE in early November:
The Bottom Line:
Are we officially Greece yet? No, but we are well on our way if we don't dramatically change our government spending.
Greek 10 year bonds got up to around 9% yield before all hell broke loose in their debt markets. How did they get there? Just like we did by spending.
Remember folks, the path to insolvency does not matter. We got here by bailing out the rich and hiding our losses. Greece got there by allowing their public sector to retire at the ridiculous age of 53.
The point I make here is it doesn't matter what path you take. Once you are considered to be insolvent from a debt vs GDP perspective it's over because no one will continue to lend you money.
Does anyone really think the Chinese will keep lending us money via buying treasuries if they don't think they will get paid back? You are delusional if you believe so.
Everyone likes to think that it's different over here. Yeah OK.... I recall a realtor telling me the same bullshit when I looked at houses during the peak of the housing bubble.
Like my father always says: "It is what it is". Insolvency is insolvency no matter what country you live in.
Whats scary to me is I think we are toast over way before we reach the 9% yields that Greece did because we have issued so many trillions of dollars in treasury bonds that we must pay interest on.
For example: If we hit 6-7% yields on the 10 year then a huge chunk of our GDP would have to be used to service our $14 trillion of public debt. Austerity would then be forced upon us because no one would lend to us without a realistic budget.
Fortunately, the US is allowed extra time to get it's house "in order" because we have been the world's "safe haven" for several decades.
This luxury has arrogantly made us think that we can keep acting like Greece without the consequences. How else can you explain the passage of another $900 billion spending bill on tax cuts?
The bond market is currently telling us that we are no different than anyone else.
The US politicians need to learn the from the lesson that our Realtors were taught a few short years ago: Housing doesn't always go up if you treat it like a Ponzi scam and our reckless spending is no different.
Government spending will be forced to collapse once we reach the tipping point of sustainability just like the Greeks and the housing industry learned.
If we fail to recognize this and take action then our debt bubble will end up popping just like the housing bubble did.
"It's beginning to look a lot like Christmas!...All Around the world!"...Except Europe that is.
Rome is burning today as protesters took to the streets in protest of the Berlusconi re-election:
"Demonstrators, background, clash with police in Rome's Piazza del Popolo Square on Tuesday, Dec. 14, 2010. Premier Silvio Berlusconi won back-to-back votes of confidence in the Italian parliament Tuesday to survive one of the toughest tests of his political life. But he was left with a razor-thin majority that will make it hard for him to govern effectively. As lawmakers cast their votes, a violent core of anti-Berlusconi protesters outside clashed with police, smashing shop windows, setting cars on fire and hurling firecrackers, eggs and paint."
You won't see pics like this in the American media of course. CNBC is too busy painting rainbows as they pump the economic recovery.
"Greek unions grounded flights, kept ferries docked at ports and shut down public services today to protest wage cuts as the government sticks to conditions of an international bailout.
Air-traffic controllers walked off the job, canceling all flights to and from Athens International Airport. Public transport workers, whose salaries were cut 10 percent under a bill approved early today in parliament, will work on and off between 9 a.m. and 5 p.m. to carry protesters to rallies.
“In terms of our salaries, we are going back at least 20 years,” said Stamatis Klapsis, 52, who has worked as a stationmaster at a suburban Athens bus depot for 31 years. “They are taking us back to the Middle Ages.”
Quick Take:
Santa may decide to fly right by Europe as he delivers his presents on Christmas Eve. Could you blame him? Who in the heck wants to land a sleigh in a place where all hell is breaking loose.
It's clear that the people are waking up and realizing their countries have sold them to slavery as they bailout the banking cartel at their expense.
I am sure our banks aren't too happy about this unrest considering we have about $350 billion in exposure to the PIIGS as reported on Zero Hedge:
Stocks are trading down a bit at the opening. No need to fear. I am sure the trading robots will have us in the green in no time.
Former Reagan Budget Director David Stockman hits it out of the park during this segment on Dylan Ratigan's show. He calls the market a casino thanks to the Fed and adds that he believes we no longer have capital markets in this country.
Word is getting out folks: Our whole so called "capitalist" system is nothing but a gigantic fraud:
In fact, they were pretty much disgusted by it. You gave the bond market zero respect by not mentioning the rise in rates since you announced your QE.
You made zero adjustments in your statement despite seeing rates rise almost a full percentage point! You decided to continue with your QE purchases despite the bond market telling you they hated the idea of it.
Keep ignoring the bond market and see what happens.
The arrogance of these jerk offs is unfathomable as Santelli just said on Bubblevision.
Ben: It's time to get out of your little bubble and stop extending and pretending as Rome burns. This is not an acceptable policy for the bond market or THE AMERCAN PEOPLE!!!
Keep it up and you will pay the price. Chicago has had enough. HEAR THEM ROAR!!!
You can thank the Fed and it's QE currency trashing policy for this sudden rise in goods. Rememeber: The Fed came out with QE on November 3rd which means the inflation rate essentially doubled following their announcement from the previous month.
This works out to a 9% inflation rate annually which is brutal considering unemployment remains at 9.8% and closer to 20% when you include the people that have rolled off of UE benefits or simply given up trying to find a job.
The bond market didn't like this one bit:
Bonds HATE inflation and sold off hard on the news following a rally yesterday thanks to some large Fed QE bond purchases.
"During the fiscal third quarter of 2011, Best Buy’s revenue decreased 1 percent to $11.9 billion, compared with revenue of $12.0 billion for the third fiscal quarter of 2010. The decrease reflected a 3.3 percent decline in comparable store sales, partially offset by the impact of net new stores in the past 12 months. The Domestic segment’s fiscal third quarter revenue totaled $8.7 billion, a decrease of 3 percent versus the prior-year period."
Bbbut.....I thought the economy was recovering. Well, one of your largest retail bell weathers just told you sales suck so I don't know what tell ya.
Of course, stocks rallied on the news as the robots continue the "Pollyanna" trade in their own little dream world.
"Even if this quarter only matches the third, the banks' revenue will top that of any year except 2009," when the top five banks hauled in $127.8 billion. (Through the first 9 months of 2010, the five firms generated $93.7 billion in revenue, Bloomberg reports.)
Given those tallies, it's no surprise Wall Street bonuses are also expected to be robust this year. Overall pay per employee is expected to be down from the peak years, and more is coming in the form of restricted stock. But the overall bonus pool is projected to hit $144 billion this year, which would be a record, The WSJ reports.
Given the ongoing struggles in the "real" economy, it's no surprise most Americans most definitely do begrudge Wall Street's outsized compensation structure, more especially since these firms only survived 2008 thanks to tax-payer funded bailouts.
As separate Bloomberg survey shows over 70% of Americans think big bonuses should be banned this year while over 85% of those surveyed favor a 50% tax on bonuses exceeding $400,000."
My Take:
I'm sorry folks, I can't help it, I must rant about the bankers after watching this. I know I have done this repeatedly so please forgive me. However, I feel the need to hammer it home again in case some of my newer readers haven't experienced one of my Wall St rants.
Time to let it rip:
OK, so let me get this straight: Wall St gets to pay themselves record compensation based on profits from the money that was given to them by the US taxpayers via the TARP.
A few questions here: Where is our cut Wall St.? It's OUR money you are gambling with. Why don't we get to share in the profits that you never would have made without us bailing you out when you were up to your neck in toxic mortgages?
folks, This makes me LIVID. Where does Wall St get the balls to pay themselves this type of bonus as this country sits in financial ruin?
Why isn't at least half of this money getting paid back to the taxpayer? How does the government allow this to happen? It's just flabbergasting to see something like this when 20% of this nation is unemployed.
Folks, this is the type of stuff you see in 3rd world nations. It's not supposed to happen in the civilized world. Why aren't 2 million Americans marching on DC demanding blood after being flat out looted by Wall St?
Let's not forget, our major banks are INSOLVENT. They wouldn't have changed the mark to market accounting rules if this wasn't the case. This is why most TBTF institutions were trading in the single digits in early 2009. The street was basically betting that these firms were TOAST.
The truth is they would have all FAILED without the bailouts and mark to market changes.
Since this is the reality of the situation: WHY ISN'T THE GOVERNMENT AT LEAST FORCING THE BANKS TO TAKE THEIR PROFITS AND USE THEM TO ABSORB THE LOSSES THAT REMAIN ON THEIR BALANCE SHEET?
This country is about to go tits up and $150 billion would come in pretty handy right now.
You have to wonder: Why are the feds legally allowing the bankers to line their pockets when America sits on the brink of default?
The Bottom Line
Please remember:
Remember this post when America is forced to pay the piper.
Remember this post when your pension fund payout is cut in half.
Remember this post when the retirement age rises to 75.
Remember this post when inflation soars as our dollar turns into toilet paper.
Remember this post when your home is worth 70% less 5 years from now.
Remember this post when our 10 year bond yield rises to "Greece" levels.
Remember this post when stocks collapse.
Wall St created this problem and we were forced to clean up the mess. They have thanked us by paying themselves $150 billion.
Warning: Be prepared to bail them out again folks. This bubble is going to end in tears just like the housing bubble did, and Wall St will be back to pillage the taxpayer a second time. Like subprime, our government debt levels are unsustainable and it's just a matter of time until it all ends in tears.
Mathematically the money cannot be paid back without extreme catastrophic cutbacks in spending and benefits. I am not even sure we can come up with a solution where we are able to pay off our debts.
The fat cats on Wall St obviously could care less. If they did then they never would have never paid themselves such a disgusting amount of money.
Karma is a bitch and one day they will get theirs. Unfortunately, we will probably go right down with them.
The dollar fell sharply today as Congress prepares to shove through some form of tax cut legislation that will add another $900 billion in Ponzi spending to our deficit:
Quick Take:
Gold and oil were also up sharply on the dollar move. The move in commodities was also fueled by China's decision to not raise rates over the weekend.
Stocks were up slightly which isn't a surprise when you look at the dollar. If/when the tax vote gets done it will be interesting to see how treasuries react. Bonds are down once again in early trading this morning.
What I find interesting here is the fact that the dollar sold off despite the fact that the Chinese failed to hike interest rates rates. You would have thought this would have strengthened the USD. You would also think the dollar would rise as the European debt crisis continues to intensify.
This tells me that perhaps the debt hawks and currency traders are focusing more on out deficit and future government spending.
I expect some fireworks on approval of the tax bill because any deal that's made to juice it up for the Democrats in order to get it through will do nothing to help our deficit. If anything it will likely be filled with more pork that will make things worse.
The Fed is playing with fire and our dollar is it risk. Treasuries have continued selling off as I write this post. Keep an eye on bonds.
Well it didn't take the bond vigilante's long to get started this week:
Let's try and put this dump into perspective from a longer term basis:
My Take:
The Fed made it's QE announcement on November 3rd. As you can see above, the bond market has been done nothing but sell treasuries since.
This is no longer a short term knee jerk reaction folks. This is a trend, and it sends a message to Ben that he doesn't control rates in the bond market: Credit traders do!
If this continues and the 10 year heads for 4% it's going to get real ugly in a hurry. What the bond market is telling the Fed that their plan cannot work. You can't finance yourself by printing money. This is an end game not a solution and the bond market knows it.
This situation could rapidly spiral out of control. We all saw how fast the PIIGS got murdered. Don't think it can't happen here. We are pulling the same stunts so why should we expect different results?
" There will be no Eurobond, no increases in the EU’s €440bn (£368bn) rescue fund, and no mass purchases of Spanish and Italian bonds by the ECB. Nothing. The system is politically and constitutionally paralysed. Spain and Portugal will be left nakedly exposed before their funding crunch in January
What the German people are being asked to do is to surrender fiscal sovereignty and pay open-ended transfers to Southern Europe, taking on a burden up to six times reunification with East Germany.
“If we pool the debts of the countries in the south-west periphery of Europe, we are blighting our children’s future: the debt levels are astronomic,” said Hans-Werner Sinn, head of Germany IFO institute.
The ECB has postponed its threat to pull away the lending props beneath the banking systems of the PIGS. Beyond that it has limited itself to tactical strikes in the small illiquid debt markets of Ireland and Portugal, buying enough bonds to ram down yields and burn a few hedge funds.
The effect has faded within days. It had little impact on Spanish and Italian bonds in any case. Spanish 10-year yields reached 5.45pc last week, far above 5pc level where compound arithmetic comes into play.
Credit Agricole said last week that it would hold back at next week’s auction of Spanish debt because it is not yet clear whether the ECB will back-stop the country. “The risk is simply too large for our appetite,” it said
“Leaders grudgingly do what is needed to prevent disaster at the last minute before it is too late, and the next minute they go back to the behaviour that brought them against the wall in the first place. The eurozone is in bad need of a psychiatrist,” he wrote at VoxEU
Did it not lock in chronic imbalances between North and South? Has it not left victim states trapped in debt deflation or slumps which have gone too far to respond an austerity cure, and from which there seems to be no escape on terms acceptable to Germany?
Should we blame the current hapless leaders, or the guilty men of Maastricht who created this doomsday machine? If the project itself is rotten, surely what the eurozone needs most is an undertaker."
The Bottom Line
Translation? Germany is going to tell the PIIGS to piss off in order to save itself.
Further down in the article you can see that Spain delayed a bond auction.
The fiscal situation of the western economies is now beyond absurd. The only answer the elites have is to continue throwing money at the debt bubble in hopes they can kick the can a little further down the road because they realize the alternative is gruesome austerity that would surely end with social chaos and wars.
The problem here is solvency, and it's going to hit the PIIGS in 2011. Spain has about 6 months of cash left, and it appears that Germany is ready to "walk away" as it logically decides to save itself versus going under with the rest of Southern Europe.
Can you blame them? I would do the exact same thing.
What the stock market refuses to understand is that this crisis is systemic versus individual.
People are not feeling pain yet because the government keeps sending out handouts in the form of employment benefits and welfare. We are seeing other forms of stimulus as well: Many homeowners are deciding to stimulate themselves(ok, get your mind out of the gutter, you know what I mean) by deciding to stop paying the mortgage knowing that it will take 2 years or more to get evicted.
This gives many families an extra few grand to "play with" every month. Unfortunately, most Americans are too retarded to realize that they should be socking away the money instead of spending it on vacations and flatscreen TV's.
What will end up making this financial crisis different is it will be the governments that go broke before the sheeple. The people will then be next as the government scrambles to pay the bills. The "free money" checks will stop getting mailed and the public sector will me massively slashed in a dramatic attempt to save the system.
Party on America because this is going to be the last one you will see for awhile if ever.
It was a slow day in the stock market despite the chaos we are witnessing in Washington.
Bernie Sanders basically blew a gasket on C-Span this morning. I thought the old guy was going to pop a clot at one point as he flipped out on the TBTF banks, tax cuts, and the rest of the villains on Wall St. We still have no tax deal and it's now only a matter of days until the cuts expire.
By the end of the day, Obama basically bailed on the whole fiasco and handed the baton over to former President Bill Clinton. From a PR perspective this is another disaster for Obama who seems like he is in way over his head politically.
Leaving the scene in the middle of a crisis hardly looks presidential. Obama once again looks like weak polictial ametuer in front of the world. When the kitchen got too hot it's obvious that Bubba ws called in to take the heat because it's clear Obama can't handle it.
The bond market didn't like any of this as the 10 year sold off all day. The futures continued selling after the close:
The Bottom Line
The 5 year yields also rose sharply today as they closed at a shade under 2%.
We should be in for a helluva week next week as the big showdown in DC continues. The markets were surprisingly quiet despite the theatrics in Washington. It looks like stocks are taking a "wait and see" approach.
Nonetheless, Bubblevision was busy all day rolling out one retard out after another telling us to buy stocks for next year. Several analysts also came out with bullish calls on the markets 2011.
Should be surprised? 2010's gains are locked in for the most part. Wall St's pump machine now must get focused on 2011 as they begin working on next years fat cat bonuses.
Great idea guys! Going long from here after an 80% bounce from the lows in 1-1/2 years sure looks like a good idea to me...NOT!
I will be the first to admit that I missed out on a nice gain the past two years in stocks even though I profited along the way with metals and bonds. However, it's only a gain when you sell and at some point Wall St is going to start taking profits.
The Fed can only string this economic disaster along for so long before they destroy the dollar and Wall St knows it. Their printing policy has already created huge inflation in China, massive deficits in the USA, and sent gas prices soaring past $3 a gallon in most states.
No one can no for sure when the music stops because Ben can do a QE 3,4,5, and 6. However, this can only continue for so long before the currency is destroyed.
Don't be fooled, when the printing press no longer works this whole house of cards is going to come tumbling down. Trying to time when this happens is a fools game.
Let me start things with a chart of the S&P of the past 12 months:
My Take:
I think this chart is very interesting. As you can see above, we saw a huge rally this fall as the market roared back to it's post crash highs. What's interesting to me is it looks like the market is having a hard time breaking through to the upside since getting back up here.
Could we be hitting an inflection point where the trend reverses? It's to soon to tell, but what I can say is if the longer the market continues to stall up here the higher the risk is to the downside.
I think the market is realizing there are many questions that need to be answered before marching higher:
Are the bond vigilantes going to take rates higher?
Are rates rising due to a strong economic recovery or rising deficits?
How bad will housing get hit if rates keep heading north?
What will this do to the banks balance sheets?
Will QE cause inflation or will the deflationary forces of a bursting credit bubble eventually win out?
Will unemployment continue to worsen?
If unemployment continues how will this effect the consumer?
Can Europe contain the Sovereign debt crisis?
If it can't will the Euro survive?
Will QE destroy the US dollar?
Can the Fed react fast enough if inflation hits as the currency weakens?
Take Continued:
Can you blame the market from taking a pause here? The market seems to be running on fumes at this point given the risks I described above.
I loved the two tech tickers below that discuss some of the same worries:
Take Continued
I couldn't agree more with the guests above. QE2 is "criminal" and the fact that Bernanke feels he needs to go on 60 minutes and sell it makes me extremely uneasy.
Bernanke's point about being 100% in control of this situation is borderline delusional.
How could anyone be 100% certain of anything given the risks above? Some of the most brilliant hedge fund managers quit the game because the market became so uncertain. How can this guy get on air and actually say something like this?
I mean just look at their history as the commentator above brilliantly points: The Fed has always been late in reacting to key "inflection" points over the past 15 years. Their biggest mistake was holding rates down for too long which then created the housing bubble. This will likely go down in the history books as the worst policy decision in history.
In fact, after looking at their history, I am 100% sure that they will be too late to react when this all blows up in their face. God help us all when this happens.
The Bottom Line
The one thing you can count on right now is uncertainty. The Democrats have now decided to not go through with Obama's idiotic tax cut deal(thank god).
Let's hope the Democrats have enough balls to hold out long enough for a better deal. I must admit I am skeptical because in their eyes they can't afford to not do anything. The Republicans have time on their side because the clock is ticking and something must get done now.
If this thing gets strung out without compromise then my guess is the Democrats will end up eating the whole **it sandwich at the 11th hour before the critters go home for the holiday. We will see what the bond market has to say if this is how it plays out.
In the meantime, cash is king until we get more clarity around the economy. As "the credit trader" told me last week: "Now is a time to sit on capital because bigger opportunities lie ahead".
Remember, we are in the middle of a housing crash and we still have a long ways to go especially if rates keep rising. This is the 1000lb gorilla in the room that everyone keeps trying to ignore.
Every now and then he rears his ugly head, beats his chest, and reminds us how bad it really is:
