It's only half past the point of no return
The tip of the iceberg
The sun before the burn
The thunder before the lightning
The breath before the phrase
Have you ever felt this way?
The tip of the iceberg
The sun before the burn
The thunder before the lightning
The breath before the phrase
Have you ever felt this way?
"Glitter In The Air" by P!nk
Must See Video:
My daughter was tapping away on her cell phone, while I was watching the news, when she overheard some talking head use the phrase "negative growth," she asked, "like, what does negative growth mean?" Out of the mouths of babes! I had to laugh because it really is a ridiculous term dreamed up by political economists to put a positive spin on bad news. I had never given much thought to the term until then. "It means," I said, "economic contraction and recession." "Well, why don't they just say that," she asked? "Because governments do not like their citizens thinking that the economy is shrinking, it reflects poorly on the politicians."
The news program I was watching at the time was discussing Europe's new found austerity measures, and our Treasury Secretary, Timmy Geithner's, admonishment that they were all moving too fast and they should continue to spend what they do not have. This is huge news (not spending what you don't have, but austerity). As the G-20 get set to meet this weekend the world's leaders are at odds over whether to continue printing, borrowing, and spending what they do not have, or to implement some austerity measures in order to get their run-away deficits under control. The Europeans have decided to walk ever so gently into austerity before Mr. Market forces them there, while the Americans have decided to go kicking and screaming.
In order for the Europeans to bring their economies in line with EU guidelines specifying deficits be no larger than 3% of GDP, they are all about to experience "negative growth." Britain's new coalition government has just announced a new budget package that through spending cuts and tax increases will be worth $188 billion a year by 2015-16.
Last week President Obama sent a letter warning the G-20 that a premature withdrawal of government support could derail the global economic recovery. Meanwhile, German Chancellor Merkel hit back by saying that, "Growth cannot come at the expense of high deficits, but that growth must be generated in a sustainable fashion." This is shaping up to be the most contentious G-20 summit in its short history. At the height of the economic collapse in 2008 the G-20 were all in agreement, "Throw money at it." But, now with uneven recoveries around the globe the leaders are clearly at odds with each other.
"It's only half past the point of no return." I believe we are at a pivotal point in economic history, where the overextended developed countries are faced with the unappetizing task of shrinking their economies, while counting on the emerging markets middle class to take over as the globes growth engine. Bernanke at the Fed, Geithner at the Treasury, and Obama at the White House, all believe that our economy is much too weak to survive any form of austerity, and that the government can keep us from ever experiencing a long recession. Considering how poorly the massive government stimulus is doing to revive our economy, is it any wonder that the Europeans are taking a different tack? This week we saw the dollar weaken versus the Euro, the Chinese announce some Yuan flexibility, and gold strengthen. Home sales in the US were abysmal, and we're probably looking at another two years before home prices bottom (even with 30 year mortgages at 4.7%). In the near term deflation continues to be the biggest risk. The government is doing everything in their power to keep you and the world spending, they make it increasingly painful to keep money in cash at 0%. But history has proven again, and again that when the government is forcing you to do something you should probably run the opposite way. So if the government is trying to force you out of savings, save even more!
Europe is Contracting, with a capital C. The speed of change is breathtaking. With Europe contracting and the US severely overextended, it is hard to envision our economy not slipping back into recession, or at the very least minimal growth. Stay defensive, and stay liquid, there will be some interesting opportunities in the future, but you need to survive until then. We're in the early innings of this game, survival is the key. "It's only half past the point of oblivion."
Investment Considerations:
Where do we stand?
US Equities -- Neutral, but moving towards Bearish
Int'l Equities -- Bearish for EAFE and Neutral for emerging markets
US REITs -- Bullish but weakening
Int'l REITs -- Bearish
Gold -- Bullish, not overbought and still strong
Commodities -- Bearish
US Fixed Income -- Bullish
Int'l Fixed Income -- Bearish, but emerging market debt stabilizing
Cash Equivalents -- Still at 31.5%. Our 5% in Chinese Yuan getting a little lift.
That Glitter In The Air May Just Be Gold
I haven't written about gold in quite some time. I am a huge fan of gold, that investment that is dug out of the ground at great expense, cleaned up, and then put back into the ground (safes) at additional expense. It earns nothing, pays no dividends, and can't be valued...what's not to love! Golds appeal is that it is the World's only real money, it is not beholden to any government. It is insurance against government folly, and that is exactly why it has been in such strong demand over the last several years.
News came out this week that the Saudis have secretly doubled their gold reserves. Secretly, because you don't tell everyone you are looking to buy 150 tonnes of gold. ATMs in Dubai now dispense gold, citizens in Europe and the emerging markets clamor for gold, emerging market central banks like China, India, Russia, and the Philippines are all buying gold. Large hedge fund managers are buying gold. What do they have in common? They all have various levels of distrust in the developed markets central banks to get it right.
Whose selling? Watch this video:
Obama's Right Hand Man Resigns as Head of Congressional Budget Office:
When you look at this chart based on Congressional Budget Office data is it any surprise that Peter Orszag resigned (other than he needs to make some serious $$ to support his illegitimate child and new bride). No one in his right mind would want to be associated with this fiasco for very long. When it comes to taxes we are essentially screwed. The chart below shows that the average American household will see a $2,000 tax increase by 2015, which will grow to more than $12,000 by 2050. These numbers factor in inflation and income growth, in other words these are real tax increases.
Geeky Economist Humor:
An economist, a chemist and a physicist are marooned on a desert island. Their only food is a can of beans, but they have no can opener.
What are they to do?
The physicist says: "Let's try and focus the tropical sun onto the lid--it might melt a hole."
"No," says the chemist. "We should first pour saltwater on the lid--maybe that will rust it."
The economist arrogantly interrupts: "You're both wasting time with all of these complicated ideas. Let's just assume a can opener."
Why We Love Sports--The World's Reaction to US win!
Be careful out there,
Chris Wiles
This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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