Richard Russell

Which is why I've recommended gold coins. In a funny way, once you buy some coins you are stuck with them. It's so much trouble to buy the coins, that once you buy them and take physical delivery, you tend to sit with them. It's even more trouble to sell the coins so again -- you sit with them. Over time, those who bought the coins and have sat with them -- have done best in the gold bull market. They never traded in and out of the bull market, and they necessarily stayed with the great primary bull trend in gold. In other words, by "doing nothing" they did well.

I'm glad to be able to say "they" applies to me.

Another outstanding piece by PIMCO. Shocker.

Koyo Ozeki | January 2009

Outlook for Global Finance: The Evolving Crisis and Japan’s Experience

Soros a tendance à mélanger ses opinions politiques et ses prévisions...

NEW YORK (Reuters) - Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.

Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.

He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.

"We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."

http://www.reuters.com/article/email/idUSTRE51K0A920090221

C'est la pire crise depuis des décennies, plus rien ne sera pareil, etc... tout le monde le sait. De là à comparer avec la chute de l'URSS... il reste quand même 80% de l'économie mondiale qui est productive. D'accord il y a encore de nombreux dominos qui vont tomber, par exemple on entend beaucoup parler des filiales des banques ouest-européennes en Europe de l'est (en général les choses arrivent avant que les journaux en parlent). Malgré ça il ne faut pas sous-estimer le pouvoir de relance de dépenses publiques (mondiales) astronomiques, qui plus est financées par la planche à billet (ce qui aura ses conséquences mais c'est un problème pour 2011-2012). Il manque encore un dernier ingrédient qui est la restructuration des bilans des ménages US (seulement 75 milliards, il en faudrait dans les 500). Cela faisait partie du plan de Bernanke en... 2007, mais apparement la pillule à du mal à passer:

http://www.youtube.com/watch?v=zp-Jw-5Kx8k

Frankel: Is $800 Billion Too Big or Too Small? Yes.

http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2009/02/13/is-800-billion-too-big-or-too-small-yes/

Kasriel: The Great Depression – Just the Facts, Ma’am

As always the great Paul Kasriel has very interesting insights (emphasis is mine):

(...) the hurdles that today’s economy has to jump over to enter a recovery would appear to be much lower than the hurdles that were erected between 1930 and 1932.
In addition, the federal government is about to embark on a massive fiscal stimulus program. Will the Fed monetize much of the new debt issued to fund this program? We do not know yet. But if recent history is any guide, the answer is yes. Chart 7 shows that the growth in bank reserves in 2008 was almost 149% – an unprecedented increase. If the federal government embarks on a large spending spree and the Fed “prints” the money to fund the spending, then the pace of real economic activity is bound to increase. How long it will take for higher prices to begin to erode real activity is another question. But never underestimate the initial positive impact on aggregate demand of that powerful combination of increased federal government spending/tax cuts and a central bank running the monetary printing press at a high speed.

The economic data are likely to be abysmal through the first half of this year. The popular media will reinforce the gloom of the data. The same pundits who did not see this downturn coming will not see the recovery coming either. My advice to you is to keep your eye on the index of Leading Economic Indicators. If history is any guide, the LEI will signal a recovery well ahead of the pundits.

I plan on developing an enhanced version of the LEI for my Master's dissertation for a reason.

Hussman: market internals have gotten a bit better

We've observed a small favorable divergence between the major indices and overall market breadth in recent weeks, as investors have begun to pick the wheat from the chaff. There is no assurance that this process will continue, (...) however, it's a good sign to observe investors being more discriminating about investment quality, because it allows investment returns on the basis of stock selection, without relying on sustained gains in the overall market.

Barron's Magazine

http://hussmanfunds.com/wmc/wmc090209.htm

January Senior Loan Officer Survey Includes Many Positive Aspects

A summary of the Survey from Asha Bangalore:

January Senior Loan Officer Survey Includes Many Positive Aspects
Asha G. Bangalore, Northern Trust Global Economic Research
February 2, 2009
The Senior Loan Officer survey of January 2009 contains many noteworthy aspects that bear good tidings. There were fewer bank officers reporting they had tightened loan underwriting standards for commercial and industrial loans for both small and large firms in January compared with December (see charts 1 and 2). The fact that some bank officers have eased mortgage underwriting standards is notable but the levels still exceed the peak reported in 2001 (see charts 1 and 2). In the case of both large and small firms, the demand for loans was weaker in January compared with December. Although the history of these data is short, in 2001, the demand for loans turned around only after the recession had reached its last leg, where as the peak for the number of banks reporting tightening standards peaked slightly ahead.

This is one of the first indicators to point towards a recovery.

Citigroup: Ward of the State

Citigroup: Ward of the State

I've heard many times a recommendation to "buy what the government is supporting." But I suggest investors take an alternate but similar approach. In the bond market, buy what the government is supporting to maintain liquidity, not what the government is supporting to avoid insolvency. There is now, or may be in the near future, strong government support of several bond sectors that would be money good anyway, but are trading cheap because of poor liquidity. Student Loan-backed bonds, municipal bonds, GSE-backed mortgages, etc. Why are people buying Citigroup bonds at around 6% yield with so much uncertainty surrounding it?

Citigroup is clearly a declining situation. It may well be that with government support, Citi survives and eventually becomes a thriving company again. But its also distinctly possible that in a break-up, bond holders are left with something less than full government support. Buyer beware.

The Alternative Universe Newswire

The Alternative Universe Newswire

Thursday, January 29, 2009 at 9:21 AM Posted by Macro Man

There is a theory in particle physics, known as the many-worlds hypothesis, which posits that there are an inifinite number of universes, with a new one created whenever a particle's qunatum wave function "collapses." Readers of Philip Pullman's His Dark Materials trilogy will be familiar with one "practical" interpretation of the hypothesis, wherein similar but slightly different universes overlap each other.

Macro Man can confirm that this is in fact the case, as he possesses a rather unique newswire that feeds in from one of the alternative universes. He usually keeps it under wraps in the bottom of a drawer, but sometimes feels compelled to have a look at it when real-world news headlines leave him scratching his head. He finds that the alternative universe newswire sometimes offers a fresh, more truthful perspective on events than his everyday sources of news.

Recently, he's taken to looking at the alternative newswire with depressing frequency. Consider the following real-world headlines that have crossed his screen recently, and compare them with the alternative-universe newsfeed:

Our world newsfeed(OWN): Russia, China blame woes on capitalism

Alternative world newswire (AWN): Wen, Putin admit Martingale forex strategies "misguided".

In gambling, a Martingale strategy is one in which one's stake is doubled after every losing bet until he finally wins (or loses all his money.) If one possesses infinite wealth, this strategy will deliver a profit of the original stake when one finally wins; in the real world, however, its practitioners usually bust before finally winning.

In markets, the term refers to adding to a losing trade to "improve your average". Unsurprisingly, market punters usually achieve similar results to roulette players in using the strategy.

And in macroeconomics, it has come to mean an endless cycle of buying foreign exchange reserves to maintain an artificially weak exchange rate, regardless of the negative externalities of such a policy. To be sure, the US is culpable for a great deal of the current global economic stress, but this does not absolve either China or Russia for pursuing their own misguided policies which have generated a collosal misallocation of resources.

That the ongoing travails of the rouble has impaired the kleptocrats' financial standing in some small degree provides at least one small rainbow in an otherwise never-ending torrent of doom and gloom.


OWN: Brown says UK was right to sell gold in 1999, says UK bought euros by selling gold

AWN: Brown admits selling XAU/EUR below 300 was "collossally stupid"

The high print in XAU/EUR in 1999 was 270. It is now 632. Macro Man isn't sure what is worse: that Gordon Brown is too stupid to understand that that is a bad trade, or that he thinks that YOU are too stupid to understand that that is a bad trade.
OWN: "We foresaw economic downturn," Trichet says.

AWN: Trichet reveals ECB forecast model (pictured, below.)
OWN: Brown defends economic record, blames global crisis for downturn

AWN: Brown admits that UK is buggered

OK, maybe it's not fair to pick on Gordon twice. But the gold headline above was literally unbelievable, and the graphic below (which amde the rounds yesterday) is too good not to share.