Mish's Global Economic Trend Analysis

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• Contrary Indicator Alert: Greenspan Says U.S. Stocks ‘Very Cheap,’ Likely to Rise
• Bank of Spain Confirms Foreigners Dump Spanish Bonds; Spanish Banks Foolishly Load Up
• I'm Swapping Some Gold for Silver

Contrary Indicator Alert: Greenspan Says U.S. Stocks ‘Very Cheap,’ Likely to Rise Posted: 01 May 2012 11:21 AM PDT Bloomberg authors By Steve Matthews and Tom Keene report Greenspan Says U.S. Stocks 'Very Cheap,' Likely to Rise Former Federal Reserve Chairman Alan Greenspan said U.S. stocks offer good value and are likely to rise as corporate earnings increase over time. "Stocks are very cheap," Greenspan said today at the Bloomberg Washington Summit hosted by Bloomberg Link, citing "a very low price-earnings ratio." "There is no place for earnings to grow except into stock prices," said Greenspan, who served as Fed chairman from August 1987 to January 2006. Another valuation metric, known as the Fed model because it was derived from a July 1997 report from the central bank, shows U.S. equities are close to the cheapest level ever relative to debt. The technique compares the earnings yield for stocks with Treasury rates. Fed Model Idiocy The Fed Model has been discredited so many times and in so many places, that Matthews and Keene should both know better than bring it up. For a discussion, please see Why Is Bad Advice So Common? The general idea that stocks are "cheap" offers more further ground for intelligent debate, but I strongly disagree and said so recently in Misty Water-Colored Memories, Dirt-Cheap Stocks, and Patient Opportunism Finally, history shows Greenspan to be one of the biggest contrarian indicators in history. Greenspan is a Contrary Indicator After warning about irrational exuberance in 1996, Greenspan embraced the "productivity miracle" and "dotcom revolution" in 1999. Mid-summer of 2000 Greenspan fell in love with his own analysis and was worried about inflation risks. Shortly thereafter the Greenspan Fed embarked on an incredible campaign slashing interest rates to 1% in panic over deflation. Greenspan is now trumping up the idea that credit conditions are like 1998. I talked about this in No Greenspan, Conditions are NOT Like 1998. On May 21,2006 Greenspan said housing prices won't fall nationally. That prompted me to write Greenspan Predicts Housing Bust. History shows Greenspan was worried about Y2K problems (slashing interest rates and adding fuel to the dotcom bubble). Y2K went off without even minor glitches. In 2001 Greenspan pleaded with Congress to adopt Bush's $1.35 trillion tax cut. Greenspan's rationale was the government would run huge $5.6 trillion surpluses over the subsequent decade after the cuts. It's right here in the Testimony of Chairman Alan Greenspan Before the Committee on the Budget, U.S. Senate January 25, 2001. In 2007 Greenspan was worried about inflation. How did that work out? Greenspan on the Daily Show Towards the end of that Interview with Jon Stewart Greenspan admits he and the Fed did not know what they were doing and blamed it on "human nature". Indeed! And that is why the Fed is always chasing its tail, and why Greenspan is wrong again today. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Bank of Spain Confirms Foreigners Dump Spanish Bonds; Spanish Banks Foolishly Load Up Posted: 01 May 2012 10:26 AM PDT Anyone with a clue is dumping Spanish bonds, and the investment community in Germany, France, and Italy is doing just that, as Spanish banks foolishly lever up on risk. Via Google Translate, please consider Bank of Spain confirmed that foreign capital flees Spanish bonds The weight of foreign capital in the total of Spanish government debt has declined considerably in the first three months of the year, rising from 50.48% at end-2011 to 37.54% last March. At the same time, the Spanish bank increases its exposure to domestic bonds to record highs of more than 170 billion euros. 62 Billion Euro Leakage in Last 3 Months In the last three months the international portfolio in bonds and letters of the State has suffered a leak of nearly 62 billion euros from 281.439 billion euros down to 219.601 billion euros at March 31. Spanish banks increased their exposure to a record of 170.611 million euros, 29.16% of the total compared to 16.93% representing the end of December. Specifically, the weight of the debt portfolio of the state of Spanish banks has six consecutive months of gains, especially since last November with the purchase of more than 100,000 million. This has been fueled largely soothing the open bar of liquidity held by the European Central Bank (ECB), which granted a billion euros of credit to a 1% interest that has helped Spanish banks invest in bonds. LTRO "Helped" Spanish Banks? Notice that absurd reference to "help" in the last paragraph above. There was "help" alright, help by ECB president Mario Draghi to allow German, French, and Italian banks to dump Spanish debt hand over fist to fools in Spain. If one thought bureaucrats could think, one might think this was Super Mario's plan from the beginning. Certified Crackpot Plan Who should pay for the idiocy of loading up on Spanish debt once it implodes? The answer of course is the banks and the bondholders. But No! Harvard Economics professor Martin Feldstein has hatched a certified crackpot plan to force risk onto taxpayers. For details, please see Ludicrous Proposal by Harvard Economics Professor to Force Taxpayers to Buy Spanish Bonds; Mish's Five-Point Alternative Proposal Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I'm Swapping Some Gold for Silver Posted: 01 May 2012 01:36 AM PDT Roughly one year ago (April 27, 2011 to be precise) I wrote Taking Silver Profits - Swapping Silver for Gold I have held physical silver and gold investments continuously for 5 years, and on and off before that. Today I cashed out of silver, trading it for an equal dollar value of gold. For the sake of full disclosure, my physical precious metals holdings are now entirely at GoldMoney and I have an affiliate relationship with them. As a result of that relationship, I will likely be back in silver soon, but in small amounts, and hopefully at decreasing prices. If silver crashes, I will consider switching a considerable percentage of my gold for an equal dollar value of silver. Given the unstable nature of parabolic and hyperbolic spikes, I believe the price of silver is highly likely to revisit the low $20's at some point.I see no point in chasing silver higher here. Moreover, except for pure speculation, I see little reason to even hold silver in this spike. Both gold and silver seem susceptible to a pullback, but especially silver because of the unstable nature of its advance. For now, I will take my chances with gold. Silver never got to the low 20's. Perhaps it does and perhaps it doesn't. Since gold was roughly $1500 and silver roughly $46 at the time I made the swap, It's fair to say I am happy with the trade. I did about 1/3 of what I would like to do. Bear in mind this trade is not a recommendation. Indeed, I think I am early. If so, and if silver makes an excursion to the low $20's (perhaps even the mid-20's) I am likely to swap a lot more. If not, and silver blasts higher, I am back in. As noted above: For the sake of full disclosure, my physical precious metals holdings are now entirely at GoldMoney and I have an affiliate relationship with them. If anyone wants information about GoldMoney or investing in physical gold and silver in general, please Email Mish Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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