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Posted by Brent Woyat, OceanForest Investment
on Friday, 02 November 2012 11:46
Posted by Brent Woyat, OceanForest Investment
on Friday, 02 November 2012 11:46
Posted by Josef Schacter via The Energy Report.
on Friday, 02 November 2012 08:01
(Ed Note: This is an excerpt from Josef Schacter's 15 page Energy Report)
The risk on trade of the last three months, as the central bankers announced another round of quantitative easing, now appears to have ended as worries about the US “fiscal cliff” and the ongoing debt crisis in Europe once more impacts investors. The “risk off” trade has returned. Bond prices are on the rise again, and the long US Treasury Bond would signal another round of significant “risk on” focus with a rise above 149. On November 6th the US has one of the most seminal elections in its history. Both candidates for the top job have evaded the issue of how they would cut the trillion dollar annual budget deficit and bring the overall government debt burden under control. It should be a hard fought and very tight race. The winner may in fact be a loser, as they are forced by the markets and the “fiscal cliff “cuts that take affect on January 15th, 2013, to tell the American people that the government has been living a lifestyle that can no longer be afforded and that tax increases and significant cuts to popular spending programs and entitlements would need to occur. If the winner does not take charge and make the tough choices quickly, nearly 5% of GDP will be removed (in an economy barely growing at 2%) as spending cuts and taxes rise. Another recession in the US would unfold quickly and, would in short order, drag down the world with it.
We continue to watch for “at the margin problems” in the world economy that would highlight an upcoming synchronized slowdown and problematic period. These are some of the recent events that are weakening the underpinnings of the current positive consensus view and may indicate that many parts of the world will face a pronounced slowdown and possible recession in 2013.
Markets still have big downside risk – be careful! Hold large cash reserves. Be ready to buy during upcoming tax loss selling season into mid-December - Josef
About Josef Schacter
Josef is one of Michael Campbell's favorite analysts. He writes research reports for:
Maison Placements Canada Inc.
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Posted by Mohamed A. El-Erian - Pimco
on Thursday, 01 November 2012 08:49
Four observations seem warranted based on available information - and they range from the certain to the highly uncertain.
First, the greatest impact is in individual sectors where we may see distinct winners and losers.
Posted by Mark Leibovit & Dennis Gartman
on Wednesday, 31 October 2012 10:17
"Watch then as gold trades toward $1,700 and toward 1,300 (euros), for we fear that under there shall be severe stop losses that shall be touched off…sufficient to send gold perhaps to $1,625-$1,635 and toward 1,245-1,255 (eruos)/oz".
NEW YORK (Commodity Online): Investor and newsletter writer Dennis Gartman suspects that a large number of sell stops in gold are likely building below $1,700 and 1,300 euros per ounce.
Stops are pre-placed orders to buy or sell when certain chart points are hit, often used by traders to exit trades that are going against them.
Gartman describes himself as currently holding a “core” position in gold rather than being aggressively long. He looks for central banks to remain buyers during periods of weakness but not to chase the market higher.
Global gold prices are higher in trading early on Wednesday. Some bargain hunters have stepped in to buy the dip, and some short covering is also seen. The major storm shut down most of the U.S. eastern seaboard, including New York City, that had traders all over the world waiting for the New York markets to reopen.
At 1:16 EST or 10:16 PST December gold last traded up $12.80 at $1724.9 an ounce on the Comex division of the New York Mercantile Exchange. December Comex silver last traded up $0.54 at $32.35 an ounce.
PRECIOUS METALS (Spot prices):
The overall strategy here is to be looking for a significant long entry trading entry point sometime between now or just after the election based on seasonal studies.
Gold is up today 14.10 at 1723.10.
Silver is up .59 today at 32.34.
Platinum is up 21.00 at 1567.00.
Palladium is up 11.00 at 605.00.
Should weakness resume (gold under 1697.20 and silver under 31.44) into early November, theoretical retracement levels in gold are now 1676 and 1642 with 31.27, 30.05, 29.63, 28.96 and 28.50 outstanding in silver.
That said, we are long CEF, GDX and GDXJ here anyway.
If you don't own the precious metals, anytime is a good time to buy them. The expression goes: 'Don't wait to buy gold - buy gold and wait'!
Do you subscribe to the Leibovit VR Gold Letter? I hope so. Here is the link:
www.vrgoldletter.com The October 26 edition has been sent to subscribers this morning. New subscribers receive a 50% discount during the first month.
The TSX is up 66.27 at 12,443.72 or +0.54% and the TSX Venture is up 7.51 at 1,210.43 or +0.58%. The Canadian Dollar (using FXC) is down .23 at 99.43or -0.23%, trading as high as 102.96 on September 14. The U.S. Dollar Index is up .006 at 79.937. Its recent low was posted on September 14th at 78.601. I've been of the view that we're going to see a new low in the Dollar Index, following the October correction or after the Presidential Election.
Canada's economy slipped into reverse in August, the first decline in six months, led lower by the manufacturing and energy sectors, Statistics Canada said Wednesday. Gross domestic product contracted by 0.1% during the month, following a 0.2% gain in July. Economists had expected the economy to match that growth in August. August marked the first monthly decline since February, and lends credence to the view that higher interest rates are a long way off. Canada's economic growth remains on track for the year despite unexpectedly weak gross domestic product data for August, Finance Minister Jim Flaherty said Wednesday. The Bank of Canada, in its quarterly Monetary Policy Report released last week, was still predicting growth of 2.2% for all of 2012. The central bank's outlook for next year is 2.3% and 2.4% in 2014.
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Posted by The Economist & Mike Shedlock
on Tuesday, 30 October 2012 03:27
On US Treasuries: "Don't tell me China will sell their US treasuries. If they sell their treasuries, the renminbi goes higher and higher and higher. And their companies that export go bust."
That is something I have been saying for years. Indeed, the Fed and the US Treasury would be pleased to have China dump treasuries.
On Chinese GDP: "We have a roadmap from the 1920's. The UK played the role of the US and the US played the role of China. With the leverage of the creditor cycle, UK GPP peak to trough fell 8%. One year, in America, in real terms, GDP fell 23%. That's the leverage. Now am I sitting here with video cameras saying the Chinese economy will contract 23%? Of course I'm not. But if we have a coffee later I might say something different."
That last sentence above generated tremendous laughter at the conference .
Negative 23% is excessively negative, but we are in the same general camp. China is going to surprise way to the downside. China will not economically pass the US as The Economist expects.
For further discussion, please see The Dating Game: Michael Pettis Challenges The Economist to a Bet on China.
There was an interesting comment on gold at the end. Hendry had been long gold and short the S&P in a paired trade since 2006. That trade worked exceptionally well through 2008. He still likes gold but not as enthusiastically as he did, and he does not like the miners.
Regarding miners, I disagree.
via Mike "Mish" Shedlock - http://globaleconomicanalysis.blogspot.com who says "The interview is well worth a play in entirety, covering Gold, Hyperinflation, Treasuries, Stocks, Japan, China, and Real Assets. It's the best interview I have seen lately".
Ed Note: You have to enter your email address to play, but I doubt it has to be accurate as there was no verification process.
Click HERE for the entire interview
The Pollyannas are wrong again...
THE SMALL uptick in China's 'flash' PMI estimate for October – from 47.9 to 49.1 – has sparked the usual explosion of uncritical hopefulness, writes Sean Corrigan for theCobden Centre, on the part of those who thought there never could be a slowdown under the aegis of the all-powerful Chinese Communist Party to begin with, that this finally marks a bottom in that country's economic cycle.
In giving vent to such optimism, the Sinomaniacs conveniently overlooked the fact that much of the improvement was down to the fact that it was the price indices, rather than those relating to output or employment, which struggled back above the expansion/contraction threshold of 50 – a circumstance which might just temper their extend-and-pretend expectations of an ever-imminent monetary relaxation, were they to reflect on it for a moment between jubilations.
Worse still, the Pollyannas appear to have forgotten that the PMI simply gauges whether things are generally better or worse than they were last month – and that in a non-quantitative manner, to boot. The unequivocal answer is worse (if marginally so, this time) for the twelfth consecutive month and for the fifteenth out of the last sixteen occasions. Thus, it may be true that the rate of decline seems to have slowed – how enduringly, only time will tell – but the fact of that ongoing decline itself remains, even after so many uninterrupted months of economic deterioration.
China bulls and the other assorted, 'next quarter' blue-skyers may have either venal or psychological reasons to puff this one reading up as a sign of a coming (and oft-postponed) dawn, but the test of an analyst who knows his stuff – and who is not afraid to be honest with you – is whether he makes this simple, but crucial, distinction in his commentary.
Of course, such an outpouring of positive sentiment will be very much to the taste of those in Beijing who have managed the seemingly miraculous feat of going into the Party Congress to the glowing accompaniment of an official GDP series which has been accelerating all year, quickening from a 6.1% annualized pace in the first quarter to 8.2% in the second and a resounding 9.1% in the third.
The fact that those same quarters have seen rail freight traffic slow from 3.7% YOY to 0.8% and on to a contraction of 5.8%; or have witnessed Shanghai port container throughput reverse from an expansion of 3.5% YOY to a shrinkage of 1.2% is, apparently, not to be invested with any significance.
Nor is the fact that while industrial production is officially up 10% YTD, those same industries have managed to consume smaller and smaller marginal increments of electrical power along the way; sliding, month by month, from a 4.1% YOY gain in March to a 3.2% one in June and on to a paltry 0.9% increase in September (which slender, overall uptick was comprised of an actual fall in heavy industrial usage).
In much the same manner, apparent consumption of refined oil products was up only 3.4% YTD, with diesel barely ahead at +1.1%. Again, not much evidence of a robust economy, there.
As the slowdown progresses, everywhere but in the reports of the authorities and the minds of their cheerleaders, profits have collapsed in their turn. So far this year, the chemical industry has seen earnings decline 18.1%; cement makers returned 53% less than in 2011; flat glass makers swung to a loss equivalent to around one-third of last year's reported profits. Miners – whether ferrous or non-ferrous – saw income slip by around 5%, while that accruing to smelters/processors in the first group slumped by no less than 81%, flattering the performance of companies in the second category, even though they themselves booked 30% less.
The other side to this has been a surge in the debts companies owe to one another. As Caixin reported, the China Iron & Steel Association said that, at the end of July, the amount of net receivables and net payables of the 81 steel companies it monitored were up 17.8% and 10.6% respectively from the same month the previous year.
In even worse straits, the 90 enterprises monitored by the China National Coal Association reported an increase of 48.7% in net receivables from 2011, while the China Machinery Industry Federation said those for its members were up 16.9% YOY to a monster CNY 2.5 trillion. No wonder Caterpillar announced it was 'ramping down' production in the country.
To see these trends in a little more detail, let us examine those cosseted children of the latest economic cycle, the SOEs. These reported 9-month revenues of CNY 31 trillion which represented a relatively anemic 9.5% gain from the like period in 2011 when sales had stormed ahead by almost a quarter from 2010. Costs were up 11.1% and hence profits fell a sharp 11.4% to CNY1.6 tln.
That represented a nominal ROE of 5.1% overall, split as to 5.5% for the centrally-controlled firms and a bare 2.9% for their local peers – which latter therefore made a big fat zero in real terms after accounting for the concurrent rise in consumer prices.
Even that does not tell the full horror of the troubles afflicting them, for the simultaneous rise in the tally of accounts receivable amounted to 1/3 of those ostensible 'profits' (the overall stock of receivables now stretches to 1.7 times annualized earnings), while inventories swelled by an amount equivalent to the whole of reported income. Days' sales of inventory rose from 83 to 94.4, while days of receivables climbed to 31.8 from 28.8, putting their combined drain on working capital up to a whopping 126 days-equivalent!
So, here we have a bleak vista of mounting credit, declining margins, unpaid bills, underemployed capacity – even the rare earth market has swung so far from dearth to glut that plant is now being mothballed! – and there also remains precious little hope for making non-operating gains by diverting preferentially-granted credit into a bubbling property market. A clear indicator of this stress is that credit (deferred payment) is rising much faster than money (immediate payment).
This is an ugly constellation indeed, especially since it is giving rise to official concerns about the state of local government finances. Faced with slowing – even falling – tax revenues, these latter are squeezing already pincered companies by demanding advance payment of taxes, as well as by organizing sweeps whose aim is the mass-levying of 'fines' for alleged regulatory violations (presumably something of a shock after all these years of turning a blind eye in the pursuit of growth at all costs). These are also, of course, the very same local authorities who are nursing the sickliest of the SOEs and they are the same institutions who will supposedly be riding to the rescue by showering trillions of Yuan on even more infrastructure and real estate developments of dubious commercial worth.
According to a report issued by the Development Research Centre of the State Council, the final months of this year will be critical to the pretense of providing 'stimulus' via this medium as something of the order of two-fifths of all local government debts fall due by the end of this year, with another 10% or so scheduled to mature by the close of 2013.
Having all but tripled in the last six years, something in excess of CNY11 trillion is now owed by such entities – largely through the conduits offered by the infamous 'financing vehicles' – leaving Wei Jianing, deputy director of the Macroeconomy Department at the DRCSC, to fret that: "There are worries over whether local governments could pay off the principal and interests when the repayment hike comes."
Presumably Mr Wei will be taking little comfort from the happenstance of a nugatory uptick in the Purchasing Managers' Index!
Far across the Senkaku Islands, Japanese money supply has been decelerating from its recent impressive lick, while small business confidence has plummeted below even the post-Fukushima trough. Meanwhile, the nation's exports languish at levels first seen in 2004, thanks to the toxic mix of the fallout from the territorial spat with the Chinese and the general Asian weakness – also evident this week in Singapore (IP -2.5% YOY), Thailand (manufacturing output off 13.7% YOY to rest where it was in 2007), and the Philippines (exports off 9% YOY to stand no higher than in 2005).
All this sufficed to bring about a record trade deficit of close to Y1 trillion in Japan itself last month, at which point it was threatening to swallow the large monthly investment income component whole and, hence, to restrict the growth of the capital pool on which the country so heavily relies.
Nothing daunted, after two decades of bluebottle-against-a-windowpane policy-making, the country is again to be dosed with the same old, ineffective, patent medicine as the BoJ prepares to increase its version of QE by a cool Y10 trillion ($125 billion), some of which will help fund the already over-indebted government's imminent Y700 billion fiscal injection.
You would think they would long since have learned the futility of what they are about; the fact that this has eluded them for all these years should worry us greatly about our own masters' willingness to draw the correct lessons on that grim tomorrow when their own programs are undeniably seen to have failed.
Can we not admit it is folly always to resort to the crude economics of a Krugman – the macroeconomic equivalent of the château generalship of the Somme – and to whine that we have only failed because we have not thrown enough money or lives into the fray?
In Europe meanwhile, the gaudy circus of summitry has again rolled through town to little effect. Greece seems to be back to playing brinkmanship with the Troika. 'Two more Years of Foot-dragging' was the headline in one German newspaper as it was rumored that our inveterate Hellenic hand-out seekers were about to pouch another €20 billion, together with extended payment terms and a reduced coupon on their Pelion upon Ossa of existing loans. Talk about creating financial zombies!!!
Draghi bearded the lions in their den when he dissembled before the Bundestag, giving them his earnest that he would never exceed his mandate; that it was simply inconceivable that his unlimited bond purchases could be construed as monetizing state debt, or that it could in any way turn out to be inflationary.
No-one asked the obvious question that if all this was true, and if the OMTs were to exert such a subtle influence on the economy, why he felt compelled to ride roughshod over the (adopted) traditions of the institution he heads in order to implement them.
Among the few dissenting voices was that of the president of the German Savings Bank Association, Georg Fahrenschon, who declared that: "Private savings should not be further penalized. The ECB should not direct itself to minimizing the outlays of the debtor countries, but to ensuring monetary stability, today, tomorrow, and the day after that"
At the same press conference, however, he revealed the schizophrenia which Draghi's actions have induced. German savers prefer to hold their wealth in the form of savings accounts – out of distrust and uncertainty – yet half of them see a house as the best guarantee for their old age and a third of them intend to buy one now.
If the former impulse gives way only a little in favor of the latter, that double-digit rate of increase in the local money supply will soon deliver the thrifty German burgers, almost the last of their breed, into that vortex of balance sheet ruination which is widely seen (if less openly articulated) as the real key to solving Europe's otherwise intractable debt crisis.
Before then, however, it would seem that the country might be in for more testing times than has been the case to date. Certainly the decline in the IfO index this past six months – registered despite a rising stock market and a diminution of the sense of crisis in the Zone – is of a magnitude which has typically accompanied significant downturns in activity. With monetary creation running so hot in Germany, it would be unusual, to say the least, for revenues and profits to fall sufficiently far to trigger a serious setback – which is essentially what the IfO index is telling us is expected to occur – but nevertheless this does bear close attention.
Finally, there are one or two hints that the US is starting to sputter. Certainly, the rapid decline in core (ex-defense and aircraft) capital goods numbers tells us so. At -10% YOY, orders are now falling at the sorts of rates experienced in both the Tech bust and the GFC itself. In the past three months, nominal levels have come to rest where they were in the late 1990s while, in real terms, the series has not been this depressed since it was first compiled in the current form, two decades ago.
Those, like us, who have tended to regard the States as the best of a bad bunch, will have to hope this is nothing more than a little pre-election caution and that it will be accordingly reversed in a month or two's time.
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