Saturday, March 31, 2012

Marc Faber : Real Estate Market has not been effected positively from money printing

Marc Faber : I don’t think we are on a permanent plateau of printing but understand. If you start to print it has the biggest impact, then you print more, it has a lesser impact unless you increase the rate of money printing very significantly. And, the third money printing has even less impact and the problem is like the Fed, they printed money because they wanted to lift the housing market but the housing market is the only asset that didn’t go up substantially. We have bottomed out in many markets. I can see that but across the board real estate has not been effected positively from money printing. But what hasn’t been affected positively from money printing is the price of silver, is the price of gold, and of equities that have more than doubled from the lows in 2009. - in Chris Martenson interview

Fantastic op-ed: These four numbers will bankrupt America

Consider the following numbers: 2.2, 62.8, 454, 5.9. Drawing a blank? Not to worry. They don't mean much on their own.
Now consider them in context:

1) 2.2 percent is the average interest rate on the U.S. Treasury's marketable and non-marketable debt (February data).

2) 62.8 months is the average maturity of the Treasury's marketable debt (fourth quarter 2011).

3) $454 billion is the interest expense on publicly held debt in fiscal 2011, which ended Sept. 30.

4) $5.9 trillion is the amount of debt coming due in the next five years.

For the moment, Nos. 1 and 2 are helping No. 3 and creating a big problem for No. 4. Unless Treasury does something about No. 2, Nos. 1 and 3 will become liabilities while No. 4 has the potential to provoke a crisis.

In plain English, the Treasury's reliance on short-term financing serves a dual purpose, neither of which is beneficial in the long run. First, it helps conceal the depth of the nation's structural imbalances: the difference between what it spends and what it collects in taxes. Second, it puts the U.S. in the precarious position of having to roll over 71 percent of its privately held marketable debt in the next five years -- probably at higher interest rates.

First Among Equals

And that's a problem. The U.S. is more dependent on short- term funding than many of Europe's highly indebted countries, including Greece, Spain and Portugal, according to Lawrence Goodman, president of the Center for Financial Stability, a non- partisan New York think tank focusing on financial markets.

The U.S. may have had a lot more debt in relation to the size of its economy following World War II, but the structure was much more favorable, with 41 percent maturing in less than five years, 31 percent in five-to-10 years and 21 percent in 10 years or more, according to CFS data. Today, only 10 percent of the public debt matures outside of a decade.

Based on the current structure, a one percentage-point increase in the average interest rate will add $88 billion to the Treasury's interest payments this year alone, Goodman says. If market interest rates were to return to more normal levels, well, you do the math.

Some economists have cited the Treasury's ability to borrow all it wants at 2 percent as an argument for more fiscal stimulus. Why not, as long as it's cheap?

Goodman says the size of the deficit (8.2 percent of gross domestic product) or the debt (67.7 percent of GDP) is only part of the problem. The bigger threat is rollover risk: "the same thing that got countries from Portugal to Argentina to Greece into trouble," he says. "It's the repayment of principal that often provides the catalyst for a market event or a crisis."

The U.S. is unlikely to go from all-you-want-at-2-percent to basket-case overnight. That said, policy makers would be wise to view recent market volatility as a taste of things to come.

Talking to Goodman, I was reminded of the Treasury's standard sales pitch before quarterly refunding operations during periods of rising yields. Some undersecretary for domestic finance would be dispatched to tell us that Treasury expected to have no trouble selling its debt.

I had an equally standard response: At what price?

That seems particularly relevant today. The Federal Reserve purchased 61 percent of the net Treasury issuance last year, according to the bank's quarterly flow-of-funds report. That's masking the decline in demand from everyone else, including banks, mutual funds, corporations and individuals, Goodman says.

Of course, Fed Chairman Ben Bernanke might look at the same numbers and see them as a sign of success. His stated goal in buying bonds is to lower Treasury yields and push investors into riskier assets.

Free to Borrow

Then there's the distortion in the relative value of stocks versus bonds to worry about. Using the 10-year cyclically adjusted price-earnings ratio and the inverse of the 10-year Treasury yield, Goodman says the relationship hasn't been this out of whack since 1962.

The Treasury isn't unaware of the rollover risk. At the same time, it's trying to accommodate the increased demand for "high-quality liquid assets," such as Treasury bills, as required under new international capital-and-liquidity standards, says Lou Crandall, the chief economist at Wrightson ICAP in Jersey City, New Jersey.

In fact, when Treasury bills carry a negative yield -- when investors are paying the government to hold their money for three, six or 12 months -- borrowing "more is better," Crandall says.

Still, the dangers are very real and were highlighted by Bernanke himself last week in the second of four lectures to students at George Washington University. Explaining why the decline in house prices had a greater impact than the drop in equity prices less than a decade earlier, Bernanke talked about "vulnerabilities" in the financial system. Too much debt was one; a reliance on short-term funding was another.

I doubt he had the Treasury in mind when he was explaining how the subprime debacle morphed into a global financial crisis, but the U.S. government would be wise to heed his advice. Currently its demand on the credit markets for annual interest and principal payments is equivalent to 25 percent of GDP, Goodman says, 10 percentage points higher than the norm. That's real money. And with the federal budget deficit projected to top $1 trillion for the fourth year running, the funding pressure is bound to increase.

So the next time you hear someone say the Treasury can borrow all it wants at 2 percent, tell him, that's true -- until it can't.

Billionaire Hugo Salinas Price – World May Go Down in Flames

from King World News:

Today multi-billionaire Hugo Salinas Price told King World News a complete catastrophe is unfolding in Europe. He also called Fed Chairman Bernanke “a vampire” and urged people to hold gold and silver because they will be the last things standing. But first, Salinas Price warned about the serious dangers we are facing: “I think that unless we see legislation, somewhere, that is rational and recognizes that gold and silver are really different forms of money, and that this whole scheme of paper is unworkable, then the world is going to go down in flames. The only thing that would last will be people’s savings of gold and silver.”

Hugo Salinas Price continues: Read More @

The End of the 30-year Bond Bull Market?

Is the great 30-year bull mar­ket in bonds com­ing to an end? Yes, per­haps — or maybe not: It depends on whom you ask and how flex­i­ble your tim­ing is.

While many peo­ple think of bonds as con­ser­v­a­tive hold­ings, they have pro­duced stel­lar returns for decades, thanks to the tam­ing of infla­tion and other fac­tors. A bas­ket of stocks would have returned a mere 19% from the start of 2000 through 2011, for exam­ple, while a bas­ket of bonds would have returned about 113% through a com­bi­na­tion of ris­ing prices and inter­est earnings.

But many experts say eco­nomic recov­ery could now reverse the process by dri­ving inter­est rates higher, caus­ing bond prices to fall. Yield on the 10-year U.S. Trea­sury rose to around 2.25% in March, after hov­er­ing around 2% for four months. "I think bonds are less attrac­tive than they have been for a long time," says Scott Richard, Whar­ton prac­tice pro­fes­sor of finance.

But ris­ing rates and falling prices are not nec­es­sar­ily com­ing so soon, accord­ing to Whar­ton finance pro­fes­sor Franklin Allen, who notes that short-term rates in Japan have stayed extra­or­di­nar­ily low for many years. Though the odds favor a rise in rates, strong demand for high-quality bonds, par­tic­u­larly U.S. Trea­suries, could per­sist for some time, he says, keep­ing prices high and yields low. "I think [Trea­suries] are still very much a safe haven, and that's why inter­est rates are so low, even though there are many things to worry about." He adds that there is a chance they will stay low "for a very long time."

How­ever, accord­ing to Whar­ton finance pro­fes­sor Krista Schwarz, "It's vir­tu­ally impos­si­ble to fore­cast future yields. One can talk about risks to the upside and risks to the down­side, but both risks always exist."

From Bull to Bear

Clearly, the U.S. econ­omy is gain­ing steam, though slowly. Typ­i­cally, that causes inter­est rates to rise, which dri­ves bond prices down — turn­ing a bull mar­ket into a bear. But the econ­omy has had false starts in the past. Signs were good early in 2011, but progress stalled amid the Euro­pean debt cri­sis and the tsunami and earth­quake in Japan. Most experts agree that eco­nomic signs are even stronger this year, but many warn that progress could be derailed by gov­ern­ment debt prob­lems in the U.S. and Europe, ris­ing oil prices and rip­ple effects from a slow­down in China and other emerg­ing mar­kets. In the U.S., the trou­bled hous­ing mar­ket con­tin­ues to dampen recovery. (more)

Is The Chinese Stock Market About To Crash?

"The eternal optimists would have us all believe that China will awaken from its slumbers amid a blaze of new, debt-fuelled spending initiatives and so buy up all the goods we find so hard to sell at home (without offering a substantial concession in price)" is how Sean Corrigan begins his assault on the non-reality that is China's 'save-the-world' protagonists. It is worth noting, however, that those who actually invest in the place seem to be too busy selling their equities to pay much attention to the Panglossians and Polyannas. With a 10% slump in the past 12 sessions in the main indices (retracing a major fib interval of the 2012 rally), there seems little enthusiasm there for clinging on in the hope that the PBOC will bail anyone out - and the wedge is closing on something big in the chart. Plain vanilla economics might well be correct in telling the bulls that they may rely on a Zhou Xiaochuan Put to spare them too much future pain, but the law of the political jungle, red in flag, tooth, and claw, may well dictate otherwise. As we write, it seems beyond dispute to say that the Chinese hierarchy is battling it out behind closed doors to determine the long term future of the regime and, by implication, the direction of the entire nation. In such momentous times, we would perhaps be foolish to think that the routine application of short?term countercyclical policy will bear overmuch weight in their counsels. Simply out, there is too much political infighting for any large-scale action to be taken as "Having moved against the state-capitalist left of old man Jiang and his Chongqing bruisers, surely the last thing Hu & Co. would want in their final months in office would be to unleash another oligarch?enriching orgy of speculation of the kind such a mass stimulus would be almost bound to foment."

Anecdotal evidence continues to belie the highly suspect official statistics upon which so many blind macromancers routinely base their case. Growth in Shanghai port traffic has slowed to a virtual crawl – under 4% YOY – as have rail freight ton?miles ? a sub?5% increase in the first two months which is less than half the trend rate from before the crisis – while electricity use for the first two months (unseasonably cold ones full of residential heating demand, at that) was only 6.7% above the like period in 2011, the smallest increment (excluding the Crash itself) in a decade. (more)

Ranting Andy: The Cartel Will Be Completely DESTROYED

Popular writer and pundit ‘Ranting Andy’ Hoffman from Miles Frankiln precious metals is back to talk to SGTreport. In Part 1 of this must-hear interview/rant with Andy we talk about all things silver & gold – the only shelter from the coming financial tsunami. And don’t miss Part 2: Andy and I discuss the FIXED and fake markets, which includes the precious metals market as well as the DOW propaganda average.

Part 1:
The Outlook For REAL Money Only Gets Stronger

Part 2:

Moody's May Downgrade 17 Banks, Securities Firms

Moody's warned on Thursday it may cut the credit ratings of 17 global and 114 European financial institutions in another sign that the impact of the euro zone government debt crisis is spreading throughout the global financial system.

The U.S. rating agency said its action on financial institutions from 16 European nations reflected the impact of the debt crisis and deteriorating creditworthiness of its governments.

It cited more fragile funding conditions, increased regulatory burdens and a tougher economic environment for its review of banks and securities firms with global reach.

Moody's [MCO 42.10 0.58 (+1.4%) ] salvo follows rounds of downgrades in European sovereign ratings as the euro zone's struggle to keep its weakest link Greece afloat has been driving up borrowing costs and straining finances of other nations.

Last Monday, Moody's cut the ratings of six European nations including Italy, Spain and Portugal and warned it could strip France, Britain and Austria of their top-level AAA grade. (more)

This Stock is up 4,000% from its Lows -- and it's not finished yet

I'm a big fan of Las Vegas. I try to visit at least once a year to try my luck at the tables (I leave the club-hopping to the socialites).
I'm also an advocate of gaming stocks. In fact, I spent over a year writing a regular monthly feature for Casino Player Magazine called the "The Gaming Investor." That column enabled me to follow every bend and twist in this fascinating industry. This was back in 2007, when casino resort owners, slot vendors, and racetrack operators were filled with promise.
Unfortunately, the gaming sector was obliterated by the recession [1] of 2008 and 2009. After years of stellar earnings [2] and scorching stock gains, investors fled when consumer spending went cold and business conventions stayed closer to home.
Las Vegas is a poster child for the excesses of the real estate [3] bubble. Land that was bid up to astronomical levels now sits vacant, strewn with half-finished projects that were abandoned when funding dried up. Overcapacity from the construction boom has made life difficult, even for experienced operators.
Just look at Las Vegas Sands (NYSE: LVS [4]), which owns the glitzy Venetian and Palazzo mega-resorts and is also the world's largest casino operator by market [5] volume [6]. The shares [7] ran up to the exorbitant price of $148 in October 2007 amid unbridled optimism. But they plummeted 99% over the next 18 months. By March 2009, you could pick up shares for about the price of a cup of coffee -- $1.38 per share.
Clearly, the market overcorrected to the downside. The stock has since clawed its way back to $57. Bargain hunters who invested just $1,380 to scoop up 1,000 shares at the bottom are now sitting on a cool $57,000.
One of the quickest ways to gauge the health of a resort is revenues per available room, a metric that reflects both occupancy and pricing. If the resort is full (and not marked down just to fill beds), then demand is healthy.
Keep in mind, those hotel visitors don't just sit in their rooms. They will book show tickets, reserve time at the spa, have a few meals and spend some time rolling the dice.
Looking at the latest numbers from the quarter ended Dec. 30, 2011, Las Vegas Sands' Venetian and Palazzo properties reported revenue that increased 9.3% percent to $339.5 million, compared with $310.6 million in the fourth quarter of 2010. In its earnings report, the company cited a bump up in meeting and convention business and a 13% increase in revenue per available room, which hit $174. That's down from $244 at the end of 2007 before the bottom fell out of the market, but it's a substantial improvement from $149 at the beginning of 2011.
But forget Vegas, THIS is where the growth is...
That's all nice and everything, but the real reason I like this stock has nothing to do with the Las Vegas properties. In fact, Sin City only accounts for about 10% of the company's profits. Most of it comes from Macau, a vibrant gaming enclave and tourist destination a few miles from Hong Kong in the South China Sea.
For years, Macau was referred to as the Las Vegas of China. But that's not even a fair comparison any more -- Macau's gaming revenue overtook Las Vegas in 2006.

Macau is the only venue in town (gaming on the mainland is restricted). So the region draws heavily from a population of 1.3 billion people that live within a short three-hour flight.

Las Vegas Sands' Venetian Macao resort has been a hit with both high-rollers and everyday players since it opened. Even in the first three months of 2009, when Macau's total visitor count dropped almost 10%, the Venetian Macau saw a 14% increase (6 million visitors). This glamorous resort, which anchors the famed Cotai Strip, almost prints cash.

Las Vegas Sands has two other properties nearby, the premium Four Seasons Resort and the Sands Macau (the first American resort to crack this market). The newest addition, slated to open in April, is the Sands Cotai Central -- a 5,800 room resort with every amenity imaginable to coax Macau's day-trippers into spending more time.

But wait, there's more...
Remarkably, though, Las Vegas Sands' flagship property isn't located in China or the United States. It's the Marina Bay Sands in Singapore, where the company holds one of just two coveted casino licenses. This resort pumped out a colossal $426 million in EBITDA [8] last quarter, with an unheard-of margin [9] of 52.9% (many resorts would be happy with 30%).
All in all, the company posted fourth-quarter 2011 revenue of $2.5 billion, the highest in its history. I'd say the tables have turned for the better in the gaming world, particularly for Las Vegas Sands.
Risks to Consider: Las Vegas Sands depends heavily on Chinese visitors to Macau, and an economic downturn could lead to quieter tables and slots. An ongoing federal corruption probe could also be a distraction. There are allegations that senior company officials greased a few palms to expedite condo sales. But the company flatly denies any wrongdoing. And in any case, the probe isn't really as serious as it sounds. According to Morningstar, similar infractions have typically resulted in nothing more than slap-on-the-wrist fines.
Action to Take --> Las Vegas Sands has a strong foothold in three of the world's top gaming markets. Best-in-class property margins indicate the company is generating more cash from its resorts than rivals.
I like the focus on Macau's mass-market gamblers. This segment is more consistent and more profitable than VIP play, as well as more exposed to rising discretionary income [10] among China's middle class. And with a new property about to open, profits are projected to climb 40% or more annually over the next five years, which makes the shares attractively valued at just 18 times earnings.
This is a volatile stock best suited to aggressive investors who can catch it on a pullback, but I still think it's headed in the right direction, regardless of any swings it may experience.

Precious Metals – Silver, Gold, Gold Miner Stocks On The Rise?

The past couple months investors have been focusing on the equities market. And rightly so with stocks running higher and higher. Unfortunately most money managers and hedge funds are under performing or negative for the first quarter simply because of the way prices have advanced. New money has not been able to get involved unless some serious trading rules have been bent/broken (buying into an overbought market and chasing prices higher). This type of market is when aggressive/novice traders make a killing cause they cannot do anything wrong, but 9 times out of 10 that money is given back once the market starts trading sideways or reverses.

While everyone is currently focusing on stocks, its important to research areas of the market which are out of favor. The sector I like at the moment is precious metals. Gold and silver have been under pressure for several months falling out of the spot light which they once held for so long. After reviewing the charts it looks as though gold, silver and gold miner stocks are set to move higher for a few weeks or longer.

Below are the charts of gold and silver charts. Each candle stick is 4 hours allowing us to look back 1-2 months while still being able to see all the intraday price action (pivot highs, pivot lows, volume spikes and price patterns).

The 4 hour chart is one time frame most traders overlook but from my experience I find it to be the best one for spotting day trades, momentum trades and swing trades which pack a powerful and quick punch.

As you can see below with the annotated charts gold, silver and gold miner stocks are setting up for higher prices over the next 2-3 weeks. That being said we may see a couple days of weakness first before they start moving up again.

4 Hour Momentum Chart of Gold:

4 Hour Momentum Chart of Silver:

Daily Chart of Gold Miner Stocks:

Gold miner stocks have been under performing precious metals for over a year already. Looking at the daily chart we are starting to see signs that gold miner stocks could move up sharply at the trade down at support, oversold and with price/volume action signaling a possible bottom.

Daily Chart of US Dollar Index:

The US Dollar index has formed a possible large Head & Shoulders pattern meaning the dollar could fall sharply any day. The size of this chart pattern indicates that if the dollar breaks down below its support neckline the we should expect the dollar to fall for 2-3 weeks before finding support.
Keep in mind that a falling dollar typically means higher stock and commodity prices. If this senario plays out then we should see the market top late April which falls inline with the saying “Sell In May and Go Away”.

Precious Metals Conclusion:

Looking forward 2-3 weeks precious metals seem to be setting up for higher prices as we go into earning season and May. Overall the market is close to a top so it could be a bumpy ride as the market works on forming a top in April.

Chris Vermeulen

Where Are We in the Boom/Bust Liquidity Cycle?

Where Are We in the Boom/Bust Liq­uid­ity Cycle?

By Thomas Fahey, Asso­ciate Direc­tor of Macro Strate­gies, Loomis Sayles

March 2012

In an often cyn­i­cal world, stan­dard finan­cial and macro­eco­nomic quan­ti­ta­tive mod­els give peo­ple the benefit of the doubt. Fun­da­men­tal eco­nomic the­ory assumes the best of us, sup­pos­ing that human beings are per­fectly ratio­nal, know all the facts of a given sit­u­a­tion, under­stand the risks, and opti­mize our behav­ior and port­fo­lios accord­ingly. Real­ity, of course, is quite dif­fer­ent. While a sig­nificant por­tion of indi­vid­ual and mar­ket behav­ior can be mod­eled rea­son­ably well, the human emo­tions that drive cycles of fear and greed are not pre­dictable and can often defy his­tor­i­cal prece­dent. As a result, quan­ti­ta­tive mod­els some­times fail to antic­i­pate major macro­eco­nomic turn­ing points. The ongo­ing debt cri­sis in Europe is the most recent exam­ple of an extreme event shat­ter­ing his­tor­i­cal norms.

Once an extreme event occurs, stan­dard mod­els offer lim­ited insight as to how the ensu­ing cri­sis could play out and how it should be man­aged, which is why pol­icy responses can seem dis­jointed. The lat­est pol­icy responses to the Euro­pean cri­sis have been no excep­tion. To under­stand and respond to a cri­sis like the one in Europe, per­haps we need to con­sider some new mod­els that include the “human fac­tor.” Eco­nomic his­to­rian Charles Kindle­berger can offer some insight. In his book Manias, Pan­ics, and Crashes, Kindle­berger explores the anatomy of a typ­i­cal finan­cial cri­sis and pro­vides a frame­work that con­sid­ers the impact of the pow­er­ful human dynam­ics of fear and greed. Kindleberger’s descrip­tive process of the boom and bust liq­uid­ity cycle can help shed light on the cur­rent Euro­pean sov­er­eign debt saga, and per­haps illu­mi­nate whether we have in fact turned the cor­ner on this finan­cial crisis.


Kindle­berger ana­lyzed hun­dreds of finan­cial crises dat­ing back cen­turies and found them to share a com­mon sequence of events, one that fol­lowed mon­e­tary the­o­rist Hyman Minsky’s model of the insta­bil­ity of a credit sys­tem. Fun­da­men­tally, the more sta­ble and pros­per­ous an eco­nomic struc­ture appears, the more lever­age and spec­u­la­tive financ­ing will build within the sys­tem, even­tu­ally mak­ing it highly vul­ner­a­ble to a sur­pris­ing, extreme col­lapse. Kindle­berger pro­vided the qual­i­ta­tive (as opposed to quan­ti­ta­tive!) descrip­tion of the Min­sky Model, shown below, which is a use­ful snap­shot of the liq­uid­ity cycle. It can be applied to Europe and any poten­tial boom/bust can­di­date, includ­ing Chi­nese real estate, com­mod­ity prices, or investors’ recent love affair with emerg­ing mar­kets. Kindle­berger famously dubbed this sequence a “hardy peren­nial,” prob­a­bly because the gal­va­niz­ing human con­di­tions of fear and greed are more often than not prone to over­shoot fun­da­men­tal val­ues com­pared to the behav­ior of a ratio­nal indi­vid­ual, which exists only in macro­eco­nomic theory.


The boom typ­i­cally starts with a “dis­place­ment,” a macro­eco­nomic shock (for exam­ple a new tech­nol­ogy, dereg­u­la­tion of an indus­try), that cre­ates new profit oppor­tu­ni­ties. For Europe, dis­place­ment came in the form of the Eco­nomic and Mon­e­tary Union (EMU) in 1999, which united par­tic­i­pat­ing coun­tries under a sin­gle mon­e­tary pol­icy and cur­rency, the euro. By estab­lish­ing one inter­est rate for EU mem­ber states, EMU enabled all par­tic­i­pat­ing sov­er­eigns to trade as if they pos­sessed Germany’s supe­rior cred­it­wor­thi­ness, regard­less of their fiscal con­di­tion. The oblig­ing mar­ket responded by lend­ing to EU coun­tries indiscriminately. (more)