Hello ACF Mike, I had to ‘waste’ some time and respond to your posting, because (a) I want to be challenged so that I may repent, or (b) gain more confidence and put on bigger trades if I sense no particular need to repent.
<<SI is a bad habit. A time waster with no payoff>>
On BBR, as you know, we share ideas, challenge logic, confront wrongs, allocate wealth, bet the markets, and for the sake of my portfolio health, I am willing to waste all the time all the SI-ers have in aggregate, just as your DARPA was willing to leverage the wisdom of the market place via the establishment of a betting website focused on geopolitics and troubles.
As to this … <<we will see one more leg to the Great Bull Market, followed at the end of the decade by something very nasty. I am happy to go on the record now that we have seen the low for the 2000-2002 correction … Gold will inevitably lose its luster as the masses rediscover tech>> … I believe you will be proven damagingly wrong.
There is no momentum to the hoped for economic recovery that should underpin a healthy and sustainable financial market recovery, and there cannot be any time soon.
At least one of the three factors, (a) capital investment boost, (b) housing expansion, and/or (c) consumer spending increase, should lead a healthy and ‘normal’ economic recovery.
Capacity expansion is in perfect health, elsewhere in our globalized world, especially in my neighborhood and on the sub-continent; therefore none is necessary in yours. What had happened to Hong Kong is happening elsewhere, and Hong Kong has been transformed into the penultimate service economy. The ultimate service economies are those of Bahamas, Monaco, and Las Vegas. I discussed some observations of capacity expansions here Message 19168362 .
Housing expansion should ordinarily start with a housing decline, helped along with declining interest rate, and amplified with pent-up demand. Since housing never declined, and interest rate was at a historical low, now already tending to rise, housing expansion would be superfluous and illogical. Ramsey Su siliconinvestor.com , an occasional BBR-thread contributor, can speak more eloquently than I on the subject should he choose to ‘waste’ some time. No, I am fairly sure Ramsey does not dwell in a hovel of a Beijing basement.
Consumer spending, of the sort where folks buy things they do not need with money they do not have, is mostly in our past, especially given the lack of savings, rising unemployment, and increasing interest rate. The Japanese may continue to do their very large contribution as I expect, until, like a man struck down by a heart attack, they stop.
So, as you can reason out if so inclined, the heated imaginings of the crowds will end in tears, which will melt into the fizz and foam of busted bubbles. Maestro Greensputin and Professor BurnAndKaput’s reputations will be washed down the gurgler by the debt cleansing that is yet to be, meaning in our future, perhaps it will be the same demographically enhanced debacle you are predicting, but maybe not.
Conceivably the debt cleansing expected by me will be augmented by the demographic debacle anticipated by you, or we can compromise, and work on a scenario where the global debt cleansing merges into a planet-wide demographic debacle: pervasive debt-induced asset deflation, all-encompassing abracadabra-augmented employment stagnation, Greensputin encouraged serial-bubbling, and BurnAndKaput engendered hyper-inflation, wrapped in poorly coordinated and incompetent multi-jurisdictional official interventions, served up by political nincompoops of varied-philosophies, sequenced for maximum destructive effects.
Of one thing we can be certain, it will be a show full of drama, consisting of many heart-wrenching tragedies, made up of plenty of stories of high humor, comprised of much that seems now incredible, result in many must-read books for the endless days at the beach, all fuel for learning and power for education.
In the meantime, SI-threads will have to do, while we debate, observe, adjust our plans, and navigate the market-scape.
Now, let me ask if you know anything about “Market Access” referred to in Fleckenstein’s note. What is it, how it works, what will it do, and whether I should be concerned. Just in case I should, I will likely continue to hold an unseemly amount of gold-pegged assets that should do well if gold fingers USD 3,000. One just never knows these days, with so many incredible events happening with such frequency. I am waiting for some incoming e-mails that may clear up the issue while I sit in Chengdu, but if you know anything about the issue, I appreciate the help. If OTOH you are at all curious about the issue, hang around when I get the e-mail answers.
Bill Fleckenstein:
Regarding the ongoing debacle in the bond market, I had been canvassing my best sources there to try to figure out where the "dead bodies" are (the firms that have been blown up by the move-in rates). Thus far, I'd been unsuccessful in learning anything useful until I was able to track down a friend who just retired. He was a knowledgeable bond-market trader who'd been at his post for the better part of 30 years, and is on record for having predicted this wipeout. In answer to my query, he sent me an interesting email (realize that this is one man's opinion, and not fact) that I would like to share with readers, in uncut, uncensored form:
He begins:
Dead bodies are hiding behind the Mark to Market. The curve has killed all the wise guys as the two- to 10-year spread went out 70 in the last few weeks. Fannie Mae and Freddie Mac are staggering nightmares, and I think the Fed is buying their paper on the open market. You see what Lehman Brothers did, bought Neuberger to "lower profile in bonds" where they can't make any money. Look at Merrill's earnings 57% from proprietary trading, meaning carry trade! Look at the footings of LEH, MWD, JPM. They are staggering. They all are on one side of the trade. Institutions can't get out now because Wall Street is not bidding, and what is coming down the road is the most violent bond market you will ever see.
I got out because they did not need smart salesmen. The SEC has changed the rules. There is a new trading system called Market Access. Gives bond prices transparency, and every idea I gave out had to be put in competition. It is over for bonds. Bill Gross has nowhere to sell his bonds because Wall Street is now going to be his enemy. He has to put his stuff on Market Access, and Wall Street is going to front-run it all. I will add more later, but rates are going up a ton. I see 6% 10-year notes by December. There is no money for the Treasury. They have worn out the welcome this time. But dead bodies? Not for a while. The Fed and Treasury will cover it up as long as possible. LTCM is going to look like a hiccup.
The key is liquidity. There is none, which is why I am shocked the dopes at Treasury did not offer $30 billion in 30-year bonds. They have no clue. Bond management is now a race among the mediocre. Indexing and consultants have forced even the smart guys to capitulate and buy stuff that makes them gag. It is going to evolve into a lemming mentality. And the moves are going to be enormous. Look, the long bond contract fell what, 18 points in a month? That is real money. But you still have an economy that is not borrowing, and you can't make people borrow. Going to get wild. If we don't have a depression caused by enormous debt defaults, the other side is gold at $3,000 an ounce.
Chugs, Jay |
