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 DECEMBER 2012: GLOBAL MACRO TIPPING POINT - (Subscription Plan III)
FISCAL CLIFF: US Capitulates on "RISK FREE"
As the world's Reserve Currency the US has enjoyed what is referred to as "Exorbitant Privilege". The US has been able to 'print' money but not suffer the consequences of the associated inflation and currency debasement that comes with such irresponsibility. This is because the 'exorbitant privilege' effectively allows the US to export its inflation. This inflation returns initially as higher import costs, but eventually as hyperinflation, as the world slowly abandons the US dollar and its reserve currency status. This 'exorbitant privilege' continues to work until something which was well understood prior to the US going off the gold standard no longer works. That is a concept referred to as the "Triffin Paradox".
The US Council on Foreign Relations aptly describes why Triffin's dilemma becomes unsustainable: "To supply the world's risk-free asset, the center country must run a current account deficit and in doing so become ever more indebted to foreigners, until the risk-free asset that it issues ceases to be risk free. Precisely because the world is happy to have a dependable asset to hold as a store of value, it will buy so much of that asset that its issuer will become unsustainably burdened."
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 NOVEMBER 2012: MONTHLY MARKET COMMENTARY (Subscription Plan II)
THE P/E COMPRESSION GAME: An Old Game with a Different Twist to Misprice Risk
We are manipulating markets metrics in such a fashion as to intentionally Misprice, Misrepresent & Hide RISK. Prior PE reference boundary conditions which reflected risk have decoupled. Never has the game of forward operating earnings (versus historically trailing earnings) been more inappropriate than presently. Forward PE's can only be of value in rapid revenue and profit growth eras. This is not what we have presently. It is the wrong tool for the wrong job! Unless you are a sell side analyst, then it is exactly the right too for the difficult selling job you have. We have an era of Peak earnings growth RATES, slowing profit growth RATES and Peak PEs which are reflective of rapidly contracting PE's. We have a secular bear market in REAL terms but PE's are not contracting at a sufficient enough rate to reflect this. Though PEs in nominal terms net out inflation, they don't reflect the underlying downward trend in real terms. MORE>> |
MARKET ANALYTICS & TECHNO-FUNDAMENTAL ANALYSIS |
 DECEMBER 2012: MARKET ANALYTICS & TECHNICAL ANALYSIS - (Subscription Plan IV)
It is an explosive 'cocktail' when the present levels of uncertainty and complacency coexist. The drama and political intrigue of the Fiscal Cliff is temporarily distracting investors from the magnitude of the global economic slowdown underway. Europe is entering a serious recession, the US is at stall speed, corporate revenues and margins are under attack, and analysts are steadily reducing earnings. Peak earnings have likely been achieved for this economic cycle and the ammunition of QE∞ at the disposal of the Central Bankers, no longer yields the same response. The market is setting itself up for an "Oh Sh#7T Moment", likely before the Q1 quadruple witch.
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 NOVEMBER 2012: TRIGGER$ (Subscription - Plan V)
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MOST CRITICAL TIPPING POINT ARTICLES TODAY |
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GROWTH - New Era of Slow Growth & Plummeting Real GDP per Capita
The Scariest Chart At The Dealbook Conference 12-12-12 BI
At the Dealbook conference, a panel just wrapped up hosted by NYT econ reporter Annie Lowrey, along with Jared Bernstein, Glenn Hubbard, and the economist Robert Gordon.
Gordon presented the scariest chart at the conference from his paper: Is US Economic Growth Over?
He basically sees the end of huge growth trends, and six huge headwinds that could drag down future growth. From the NBER:
The analysis links periods of slow and rapid growth to the timing of the three industrial revolutions (IR’s), that is,
- IR #1 (steam, railroads) from 1750 to 1830;
- IR #2 (electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, petroleum) from 1870 to 1900; and
- IR #3 (computers, the web, mobile phones) from 1960 to present.
It provides evidence that IR #2 was more important than the others and was largely responsible for 80 years of relatively rapid productivity growth between 1890 and 1972. Once the spin-off inventions from IR #2 (airplanes, air conditioning, interstate highways) had run their course, productivity growth during 1972-96 was much slower than before. In contrast, IR #3 created only a short-lived growth revival between 1996 and 2004. Many of the original and spin-off inventions of IR #2 could happen only once – urbanization, transportation speed, the freedom of females from the drudgery of carrying tons of water per year, and the role of central heating and air conditioning in achieving a year-round constant temperature.
Even if innovation were to continue into the future at the rate of the two decades before 2007, the U.S. faces six headwinds that are in the process of dragging long-term growth to half or less of the 1.9 percent annual rate experienced between 1860 and 2007. These include
- Demography,
- Education,
- Inequality,
- Globalization,
- Energy/environment, and the
- Overhang of consumer and government debt.
A provocative “exercise in subtraction” suggests that future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades.
Below, the key chart showing the possible end of growth is here:

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12-17-12 |
CYCLE
GROWTH |
25
25 - Global Output Gap |
FOOD STAMPS - Now 14 Percent of US Grocery Sales
The Fed on Food Stamps 12-14-12 Global Macro Monitor via Ritholtz

Wow! The food stamp program is now equivalent to 14 percent of all U.S. grocery store sales.
Though the Fed indirectly finances the food stamp program with its purchase of treasury securities — $45 billion per month starting in January — we wouldn’t be surprised someday that the central bank actually begins to print food stamps. This wouldn’t pack the potential punch of creating “high powered” bank reserves, which can be multiplied in a healthy financial system through credit creation, however. But at least the “printed money food stamps” would lead to direct demand creation, rather than, as most of it does now, sit on deposit at the Fed in the form of excess bank reserves.
Seriously. Monetary policy has almost become this absurd.
What if the Fed’s policies actually contribute to unemployment? Such as repressing and changing the relative cost of capital. This makes it easier for companies to finance machinery which either enhances labor productivity, reducing the need for more workers, or less costly to replace workers with robots. Clearly, some of this is currently taking place.
The Fed’s policy of repressing government borrowing costs and indirect deficit financing reduces the government’s incentive to implement the necessary structural reforms to put the budget on a sustainable path. This would reduce uncertainty and maybe give the business sector more confidence to hire and spend their cash hoard.
We’re starting to think that the business sector behaves according to the Ricardian equivalence model. Consumers? We are not so sure. Great thesis for a Ph.D. dissertation, by the way.
In other words, the probability the Fed has the wrong, or, at the very least, flawed model of the economy (think Apple maps instead of Google maps) is much larger than is priced, in our opinion. This wouldn’t be the first time. No problem now, but if the Fed loses cred with such a ballooned balance sheet, the demand for money could become more unstable or collapse.
It would, at first, feel nice as equities would shoot to the moon. Beyond the short-term, however, we would be in a heap of trouble, with a capital T, right here in River City! Big trouble.
Just got back from the grocery store. Inflation cometh!
P.S. Negative real interest rates are immoral. |
12-17-12 |
CATALYST
DI
FOOD |
US ECONOMY |
RISK - Increasing Margin Debt
Margin Debt Continues To Climb 12-13-12 Zero Hedge
The NYSE released October margin debt data and to nobody's surprise total margin debt rests at $317 billion, the highest since April 2011 ($320 billion), leaving inquiring minds to ask just how much purchasing is being done on margin (Free Credit less Total Margin Debt)? The answer is $43.9 billion, the highest since June of 2011 ($45.9 billion). The level of investor net worth has only been postive 4 times since September 2009, the same month Bernanke claimed the recession was "technically" over, lagging 3 months behind ZH's number 1 fan Dennis Kneale. When the Fiscal Cliff goes unresolved and headline reading algo's rip orders off a neverending stream of rehashed articles, margin calls will accelerate heavily and usually stable assets like Gold and Silver are likely to experience volatility as investors computer programs liquidate in a mad-faced fashion. Rogue traders with unauthorized postions, off book loses, and fat fingers beware.
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12-17-12 |
RISK |
ANALYTICS |
PRIVATE EQUITY DEALS - Leveraging up to Less than 30% Equity from 42%
Debt Loads Climb in Buyout Deals 12-16-12 WSJ
Private-equity firms are using almost as much debt to fund acquisitions as they did before the financial crisis, as return-hungry investors rush to buy bonds and loans backing those takeovers.
The rise in borrowed money, or leverage, heralds the possibility of juicy returns for buyout groups. Ominously, the surge also brings back memories of the last credit binge around six years ago, which saddled dozens of companies with huge levels of debt. Some companies laden with debt by private-equity firms in the mid 2000s foundered during the recession.
Since the beginning of 2008, private-equity firms have paid an average of 42% of the cost of large buyouts with their own money, also known as "equity," while borrowing the rest. In the past six months, the percentage has fallen to 33%, according to Thomson Reuters, close to the 31% average in 2006 and the 30% average in 2007.
About one-third of large leveraged buyouts since the end of June were purchased with a cash component of 30% or less, compared with none in the first half, according to Thomson Reuters.
Other measures also suggest that debt loads are hovering around precrisis levels. The average debt put on companies acquired in leveraged-buyout deals from July to December amounted to 5.5 times the companies' annual earnings (defined as earnings before interest, taxes, depreciation and amortization). That is higher than any two consecutive quarters since the beginning of 2008, according to S&P Capital IQ LCD. The average deal leverage was 5.4 times earnings in 2006 and 6.2 times earnings in 2007.
For private-equity funds, the shift toward higher debt financings is good news because it gives them the opportunity to boost returns. But for the companies and the investors providing the debt, more leverage can mean more risk. In a study of 40 highly leveraged buyouts it rated between 2006 and 2008, Moody's Investors Service found that 26% defaulted in 2009, compared with 17% of other comparable companies that year. |
12-17-12 |
FUNDA-MENTALS |
ANALYTICS |
MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - Dec 16th - Dec 22nd, 2012 |
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EU BANKING CRISIS |
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SOVEREIGN DEBT CRISIS [Euope Crisis Tracker] |
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RISK REVERSAL |
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CHINA BUBBLE |
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JAPAN - DEBT DEFLATION |
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BOND BUBBLE |
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CHRONIC UNEMPLOYMENT |
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GEO-POLITICAL EVENT |
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MACRO News Items of Importance - This Week |
GLOBAL MACRO REPORTS & ANALYSIS |
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US ECONOMIC REPORTS & ANALYSIS |
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CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES |
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Market Analytics |
TECHNICALS & MARKET ANALYTICS |
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COMMODITY CORNER - HARD ASSETS |
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THESIS Themes |
FINANCIAL REPRESSION |
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CORPORATOCRACY - CRONY CAPITALSIM |
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GLOBAL FINANCIAL IMBALANCE |
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SOCIAL UNREST |
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CENTRAL PLANNING |
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STATISM |
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CURRENCY WARS |
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STANDARD OF LIVING |
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GENERAL INTEREST |
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