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)

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NOVEMBER 2012: TRIGGER$ (Subscription - Plan V)

TRIGGER$ publications combine both Technical Analysis and Fundamental Analysis together offering unique perspectives on the Global Markets. Every month “Gordon T Long Market Research & Analytics” publishes three reports totalling more then 380 pages of detailed Technical Analysis and in depth Fundamentals. If you find our publications TOO detailed, we recommend you consider TRIGGER$ which edited by GoldenPhi offers a ‘distilled’ version in a readable format for use in your daily due diligence. Read and understand what the professionals are reading without having to be a Professional Analyst or Technician.

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2 WEEK FREE TRIAL Our Inter-Issue Updates and Alerts are Included with a Monthly Subscription to Triggers. Between issue publication receive updates on Technical Analysis, Economic Analysis and anything note worthy for your trading and investing.

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	PART I - Understanding FINANCIAL REPRESSION
	PART II - FINANCIAL REPRESSION in Europe
	PART III - FINANCIAL REPRESSION in the US & ASIA
	PART IV - Preparations for FINANCIAL REPRESSION

Password: macro

GROWTH - New Era of Slow Growth & Plummeting Real GDP per Capita

The Scariest Chart At The Dealbook Conference 12-12-12 BI

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.

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.

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.