luni, 6 ianuarie 2014

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Saxo Bank Outrageous Predictions for 2014 Steen Jakobsen - My Comments

Posted: 06 Jan 2014 04:12 PM PST

Saxo Bank's Outrageous Predictions for 2014 came out last month, but given that Steen Jakobsen, Chief Economist for Saxo Bank will be speaking at Wine Country Conference II on May 1-2, a review of Saxo Bank's predictions is in order.

  1. EU wealth tax heralds return of Soviet-style economy: In 2014, deflation and a lack of growth will create panic among policymakers, leading the EU Commission to table a working group that will focus on different wealth taxes for anyone with savings in excess of USD or EUR 100,000. The initiative will be in the name of removing inequality and will see the richest 1 percent pay a "fairer" share to ease society's burden. The obvious trade is to buy hard assets and sell inflated intangible assets. We would buy the SPDR Gold Shares ETF (GLD:arcx), looking for it to go as high as 180, and sell an equal-weighted basket of Hermes International (HRMS:xpar), LVMH (MC:xpar) and Sotheby's (BID:xnys), expecting the basket to go from index 100 to 50.
  2. Anti-EU alliance will become the largest group in parliament: Following the May elections, a pan-European, anti-EU alliance, whose members will include the UK Independence Party, euro-currency sceptic Alternative for Germany, the National Front in France and Party for Freedom in the Netherlands, will become the largest group in parliament with a majority of more than 275 seats. Sweeping the traditional political groups out of power, the new European Parliament chooses an anti-EU chairman and the European heads of state and government fail to pick a president of the EC, sending Europe back into political and economic turmoil. One trade would be to long German Bunds versus short Spanish Bonos – looking for a 300-basis-point spread again.
  3. Tech's 'Fat Five' wake up to a nasty hangover in 2014: We like technology stocks in general as they are the main driver of the necessary productivity growth the economy needs to create long-term increases in wealth per capita. However, a small group of technology stocks trade at a huge premium of about 700 percent above market valuation, almost defying the "Newtonian laws" of financial markets. These stocks are what we call the "Fat Five" of the technology sector – Amazon, Netflix, Twitter, Pandora Media and Yelp. These stocks have very inflated valuations based on a skewed valuation premium on growth that has evolved in the aftermath of the financial crisis. Investors have trouble finding good growth scenarios, so when some suddenly drop by the neighbourhood, they get bid up to levels that present very poor risk/reward ratios. It is like a new bubble within an old bubble.  To trade this, we would create a synthetic equal-weighted index of the Fat Five, starting at 100 on the last trading day of 2013. Ou Outrageous Prediction is that this index will go to 50 during 2014. 
  4. Desperate BoJ to delete government debt after USDJPY goes below 80: In 2014, the global recovery runs out of gas, sending risk assets down and forcing investors back into the yen. USDJPY goes below 80 in a déjà vu of 2011, forcing a desperate Bank of Japan (BoJ) to delete its government debt securities in a final bid to escape the deflation trap the country has been in for the past two decades. As nobody knows the outcome of this accounting manoeuvre inside the government sector, the decision will see a nerve-wracking journey into complete uncertainty and potentially a disaster with unknown side effects. Sounds crazy right? Well, these days, everything is possible in the name of a crisis. In the inner circles of central banks, a neat and untested trick in which one simply deletes its holdings of a government's debt is beginning to gain traction. For Japan, it would mean that about 15 percent of government debt would just disappear. It's a simple accounting trick that effectively equates to "now you see it, now you don't".
  5. US deflation: coming to a town near you: Indicators may suggest that the US economy is stronger, but the Federal Open Market Committee (FOMC) remains hesitant and with good reason. The fragility of the housing market has been underlined by the modest increase in yields in mid-2013. Te trade for this would be to go long on 10-year US government bonds, which we see at 1.5 percent in 2014.
  6. Quantitative easing goes all-in on mortgages: A quick glance and you would think that the US economy is about to pick up speed, but this is merely an illusion fuelled by the Federal Open Market Committee's (FOMC) third round of quantitative easing, which amounts to USD 85 billion per month. These purchases have pushed interest expenses down and sent risky assets to the moon, hence creating an artificial sense of improvement in the economy. Grave challenges remain, however, with private sector deleveraging ongoing, a housing market that struggles whenever rates rise, continuous declines in public sector spending and weak private sector employment; all of which the FOMC is keenly aware. Housing, in particular, is on life support and the FOMC will therefore go all-in on mortgages in 2014. This will transform QE3 to a 100 percent mortgage bond purchase programme and increase – forget talk of tapering – the scope of the programme to more than USD 100bn per month. Renewed weakness in the housing market will send the Vanguard REIT ETF down substantially, touching USD 30, the lowest level since 2009.
  7. Brent crude drops to USD 80/barrel as producers fail to respond: With non-Opec supply expected to rise by more than 1.5 million barrels per day and the potential for another two million arising as disruptions in Libya and sanctions against Iran ease, the global market will become awash with oil. Hedge funds will react to the altered dynamics by building a major short position in the market for the first time in years. This will help to drive Brent crude oil down to USD 80/barrel, especially as almost all producers, which are in desperate need of high oil prices, will only react slowly.
  8. Germany in recession: The German economy has outperformed the rest of the euro area in the four years following the global recession, but this outperformance will end in 2014 and consensus, which expects growth of 1.7 percent, will be deeply disappointed.
  9. CAC 40 drops 40% on French malaise: The quantitative easing-driven equity bubble spills into 2014, but then equities hit a wall and tumble sharply on the realisation that the only driver for the market is the greater fool theory. Meanwhile, the malaise in France only deepens under the mismanagement of the François Hollande government as the president and his team fail to come up with answers for the country's lack of competitiveness or to provide any spark for growth. Housing prices, which never really corrected after the crisis, finally make like their Dutch counterparts did in 2012 and execute a swan dive, pummelling consumption and confidence. The CAC 40 Index falls by more than 40 percent from its 2013 highs by the end of the year as investors head for the exits.  
  10. 'Fragile Five' to fall 25% against the USD: The normalisation of global rates, which is expected to be started by tapering of quantitative easing in the US, will lead to higher marginal costs of capital from rising interest rates. This will leave countries with expanding current account deficits exposed to a deteriorating risk appetite on the part of global investors, which could ultimately force a move lower in their currencies, especially against the US dollar. We have put five countries into this category − Brazil, India, South Africa, Indonesia and Turkey. The "Fragile Five" have seen dramatic growth over the past decade, which has attracted billions of dollars in foreign direct investment (FDI). But as the flow of cheap and easy money begins to dry out, these countries will find themselves exposed as their current account deficits climb.

Please take a look at the above link which has more information as well as related videos for most of the predictions.

My Comments

The only one I find outrageous is #4: A strongly strengthening Yen.

In regards to #1,  I rather doubt an EU imposed wealth-tax is on the horizon because Germany would nix the idea. Selective countries, especially France, could try it though.

Nonetheless, I like the way Saxo Bank chose to play that theme, buying GLD with a possible upside to 180 which would put the price of gold at about $1800 an ounce.

All of the rest of Saxo's "outrageous" calls are possible, if not likely. I certainly expect emerging markets and their respective currencies to tumble in conjunction with a China slowdown.

I expect a recession in Germany. Italy and France are powder kegs of eurosceptic politics.

In my reflections on 2013, I called for "Peak Merkel" (see Reflections on 2013; What's Important, What's Not? What's Ahead?)

I appreciate the fact that Saxo Bank put trading suggestions on most of its predictions. That's not easy to do.

Steen Jakobsen is not afraid to speak his mind about trading ideas and back them up with sound logic that many would say is "unconventional thinking".

I am very pleased that he is speaking at this year's conference.

Wine Country Conference II

The second annual Wine Country Conference will be held May 1st & 2nd, 2014.

We have an exciting lineup of speakers for this year's conference.

  • John Hussman: Founder of Hussman Funds, Director of the John P. Hussman Foundation which is dedicated to providing life-changing assistance through medical research
  • Steen Jakobsen: Chief Economist of Saxo Bank
  • Stephanie Pomboy: Founder of MacroMavens macroeconomic research
  • David Stockman: Ronald Reagan's budget director, best-selling author, former Managing Director of The Blackstone Group 
  • Mebane Faber: Co-founder and the Chief Investment Officer of Cambria Investment Management
  • Jim Bruce: Producer, Director, and Writer of Money For Nothing: Inside the Federal Reserve 
  • Chris Martenson: Reknown speaker and founder of Peak Prosperity
  • Mike "Mish" Shedlock: Investment advisor for Sitka Pacific and Founder of Mish's Global Economic Trend Analysis

In addition, we expect confirmation from a number of other highly respected fund managers and speakers. This year's event is two days and will include additional "break-out" groups.

For speaker bios, please check out Wine Country Conference Speakers.

This Year's Cause: Autism

$100,000 of the money raised last year came from a generous matching grant from the John P. Hussman Foundation.

Some of us in the industry who have done well are making an effort to give something back. John Hussman is at the very top of that list.

One of John's kids has severe autism. This year, all net proceeds will go to support autism programs.

Conference Details

For further details about the 2014 conference, please see Wine Country Conference May 1st & 2nd, 2014

Nothing Like It!

This event is not just another "come and hear someone talk" kind of thing. Attendees and their significant others can expect an educational, fun, and relaxed time.

Last conference, we arranged wine tours. They were a big hit. We will do so again. One of the wine estates we visited had a Bocce Ball court. On a couple of miracle shots, I won both games I played.

Stay an extra day and golf or travel. I did. The conference hotel is a fun place in and of itself.

Unlike many other conferences, you will have easy access to speakers.

Want to chat with me, Steen, John, or anyone else at the conference? You will have an easy chance.

Not only do we have an excellent lineup of speakers, you will have an opportunity to meet with them, have intimate discussions on important investment topics, with a lot of fun on the side, including wine tours and great wine.

There's nothing like it in the investment business. And your money goes to a great cause! What can be better?

Register Now for Discount

We extended our $200 "early bird" discount through January 10, for those who register early. There will be no further extensions. Please Register Now!



Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Gold Flash Crash - Manipulation or Something Else?

Posted: 06 Jan 2014 10:58 AM PST

Around 10:14 AM Eastern, gold plunged in a 10-minute window on heavy volume. Price quickly recovered amid speculation as to precisely what happened.
 
MarketWatch reports Gold market 'flash crash' explanations vary from 'fat finger' to 'price manipulation'
Gold futures suffered a sudden, brief drop in prices early Monday on the Comex division of the New York Mercantile Exchange, with market watchers blaming the move on everything from a "fat finger" to trader liquidation to price manipulation.

According to Nanex, a trade of about 4,200 contracts sent February gold  GCG4 -0.07% tumbling by $30 an ounce on heavy volume at around 10:14 a.m. Eastern and triggered a 10-second trading halt. Prices fell from about $1,245 to around $1,215 an ounce in just moments. The crash came about 14 minutes after the release of U.S. factory orders and ISM services index data.

Phil Flynn, a senior analyst at Price Futures Group, at first said the drop looked like it was due to a "fat finger," then added there was speculation over a broker liquidating positions.

Mark O'Byrne, executive director at GoldCore, said the "flash crash today had the hallmarks of price manipulation."  Still, "as ever, it is nearly impossible to tell and could have been a fat finger trade or a large fund or bank liquidating a gold position."

Meanwhile, Ross Norman, chief executive officer at Sharps Pixley, said that the move "looks to be shorts defending their substantial positions."  But "some of us have doubts, which makes gold a steal at these prices," he said. "In fact, [it's] the cheapest insurance in town against economic difficulties."

Now the real question is whether the U.S. Commodity Futures Trading Commission and exchange "will investigate and try to actually enforce its regulations," said Brien Lundin, editor of Gold Newsletter.

"Apparently there was no investigation into the mid-April episode where gold contracts were dumped simultaneously to push the price through sell stops. Either position limits were ignored by the exchange in this instance, or there was collusion involved — either of which should have been investigated and exposed," he said.

"I'm afraid that today's spike downward is further evidence that the current regulatory regime isn't working," said Lundin.

Flash Crash Chart



Heavy Volume Surge

Note the heavy volume surge right at 10:14. Barchart shows close to 25,000 contracts traded in a 10 minute window.

One-Way Manipulation Highly Unlikely

In general, traders scream "manipulation" every time trades go against them. Perhaps some of them are. But traders never complain when trades spike heavily in their favor. Perhaps some of those are manipulation as well.

I assure you that manipulation is not a one way street. That said, manipulation in any direction is not a welcome thing.

In general, manipulations occur at illiquid times, such as the middle of the night when trading is thin. Someone wanting to force the price of gold lower (or higher) would likely try at that time. Thus, I tend to discount direct manipulation.

Main Lesson

Whether fat-finger, manipulation, or computer initiated, those with stops near $1215 had them taken out (regardless of why the flash happened).

It's increasingly difficult to trade with stops when this kind of action routinely happens. That's the main lesson here, and no one commentated on it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Damn Cool Pics

Damn Cool Pics


Facts about Sex Life

Posted: 06 Jan 2014 11:13 AM PST

Interesting facts.


















Gold - Visualized in Bullion Bars [Infographic]

Posted: 06 Jan 2014 10:51 AM PST

There's surprisingly little Gold in the world & this infographic shows all the Gold ever mined. In this Gold infographic everything is calculated with Gold price at $2000/oz. When Gold reaches $3110/oz, 1 oz of Gold & a $100 bill will have equal value in weight and it won't matter if you have 1oz of $100 bills or 1oz of Gold. Gold is usually measured in Troy Ounces. A Troy Ounce is about 1.09 regular Ounces.

Click on Image to Enlarge.


Via demonocracy.info

Colorado Marijuana Shops Top $1 Million In Sales on the First Day

Posted: 06 Jan 2014 10:43 AM PST


















Strange Christmas Gift

Posted: 06 Jan 2014 10:38 AM PST

Gross and pretty at the same time.
















Pregnant Belly Cake Prank

Posted: 06 Jan 2014 10:30 AM PST

I feel sorry for this woman who makes these custom pregnant belly cakes. But this is funny as hell.




























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Must see: The best photos of 2013

The White House Monday, January 6, 2014
 

Must see: The best photos of 2013

The White House Photography Office picked out some of the best photos from the past year to give you an inside look at the presidency -- and some of the best moments from 2013.

Here's what you can expect:

  • President Obama singing Happy Birthday to First Lady Michelle Obama
  • Lots of Sunny and Bo
  • Visiting South Africa to honor Nelson Mandela
  • Some very adorable kids with the President

You're going to want to see this one.

Click here to check out our best photos from 2013.

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