Wednesday, January 29, 2014

Some morning market news

I would have thought that Turkey pulling a Volcker with their interest rates last night would have destroyed gold. I mean, it's proof that EMs will do anything, including crippling their own economies, just to protect their current account balances.

Isn't this doubly bad for gold? Knowing your currency is protected reduces demand for gold as wealth protection, and knowing your country will collapse its own economy to protect its currency is bad for EM wealth generation. Turks just lost a good reason to own gold last night.

I guess when you look at the nuance, it's not a big deal: Turkey isn't that big a gold consumer, China hopefully won't have to Volcker its economy (though it's hopping onto the path of interest rate liberalization, which is meant to make rates rise), and India can fix things just by electing a new government that aren't morons. But the market doesn't ever care about nuance, does it?

So instead, gold is back up to $1266 on Turkey's confirmation of the end of the secular EM bull market. Go figger. I guess if gold can still go up on utterly horrible news like this, that's an indication of an underlying bullish trend for gold, fundamentals be damned, eh?

Anyway, here's some morning reading:

Investment News - equities market the best in our lifetime, says Liz-Ann Sonders. She's where Rosenberg ripped off his new bullish thesis:
Some of the driving forces she identified include the fact that U.S. businesses “are sitting on a huge hoard of cash, which is at a level not seen since World War II,” she said. “We know the capital is there, but we haven't had the animal spirits to put it back to work yet. But this is the year we'll probably see increase in [capital expenditure] spending.”
And for those of you who are still freaking out over PE ratios:
In terms of equity market valuations, Ms. Sonders said she is not worried about the fact that forward price-earnings ratios are around the historic median level.

“Bull markets rarely stop at the median P/E,” she said.

In making her point, Ms. Sonders used a slide showing that the average trailing P/E of every bull market since the 1950s was 18.7, which compares to the current level of 16.6.

“We know that profit margins are at or near all-time highs,” she said. “But unless you're rolling over into a crash, it has not been historically a problem for the market coming off all-time highs in profit margins.”
In fact, from a feedback systems perspective, moving back into median PE territory is a condition coincident with future growth. Put as simply as possible, median PE is the equilibrium point where the earnings-growth machine operates at maximum efficiency.

Bonddad - the housing slowdown has already begun. Again it's a YoY slowdown, so I'd ask him to think about whether 2013 is a fair comparison year. I don't know anything about US mortgage rates, but UST10Y was about 80 BP or 30% lower in January 2013 versus this month, and housing prices hadn't spent much time recovering yet, so of course you'd expect housing demand to slow down this year in comparison to last year. In fact, here's the chart:

Do you still think a YoY comparison is fair? - no proof that gold miners are returning to hedging, say SocGen and GFMS. Now can the Lamestream Media please quit beating that dead horse?
At end-September, the outstanding global hedge book stood at 2.94 million ounces or 92 tonnes, the lowest volume since the Société Générale and Thomson Reuters GFMS quarterly series began in 2002 and nowhere near the height of gold miner hedging in the Nineties.
So quit trying to scare people with threats of future hedging, guys. Til the data across the industry begins to show otherwise, it's not actually happening.

FT beyond brics - prospects improving for easing in India gold restrictions. Still, as noted it may depend on Indian CAD, which may still take a long-term nosedive in a secular EM bear market. Nevertheless, the Congress Party realizes that it has to compete with the BJP on the topic of gold, and that's a good thing for the first half of this year, I think.

Bloomberg - gold flows east as bars recast for Chinese. This news story, once the property of the goldbug brigade, has now made it into the Lamestream Media. Still bearish gold, bro? Even better, the goldbugs have been sitting this out:
Billionaire John Paulson, the biggest SPDR holder, told clients in November he personally won’t invest more money into his gold fund because it’s not clear when inflation will quicken. The hedge-fund manager, who held his SPDR position in the third quarter after cutting holdings by 53 percent in the previous three months, lost 63 percent last year as of October in his PFR Gold Fund, a person familiar with the matter said.
Paulson's staying out of gold, and it's because he's still sticking to his utterly incorrect "money-printing hyperinflation Zimbabwe wharrgarbl" thesis. If he instead was looking at the gold supply/demand balance as a function of growth in demand for EM wealth protection in the face of long-term dwindling of mine supply, he'd be whistling a different tune, wouldn't he bro?

BI - rich people scientifically proven to be fucking assholes. Here comes the science:
“As a person’s levels of wealth increase, their feelings of compassion and empathy go down, and their feelings of entitlement, of deservingness, and their ideology of self-interest increases,” he said in a Tedx Talk in Marin County, Calif.

One study involved two players who don't know each other, a rigged game of Monopoly and a bowl of pretzels.

The setup: The two strangers are told to play a regular game — except the rules are slightly different than usual. One player starts with twice as much money than the other and an extra dice to roll.

In every case, the players recognized that the game was rigged, but as time went on, the “rich” player became more rude and obnoxious. That person spoke and moved louder, and even ate more snacks than the other participant. When the “rich” spoke about why they won, they would focus on their own strategy.

“They became far less attuned to different features of the situation, including that flip of a coin that had randomly gotten them into that privileged position in the first place,” Piff said.

In another experiment, he looked at different levels of generosity. Piff gave a variety of volunteer participants $10 and told them they could keep it or share part of it.

It turns out those who had lower salaries (less than $25,000) gave 44 percent more to the stranger than those who made more than $150,000.

Piff also studied footage of a crosswalk in California to determine that 50 percent of people in the most expensive cars would not stop for pedestrians, while those with the cheapest cars stopped every time.
Now, the difference in politeness across socioeconomic strata might just be because when you're poor, you hang around more poor people; and when you piss off poor people, they are much more likely to kick your fucking face in. Thus, poor people tend to be politer to each other, just as a matter of self-preservation.

Whereas rich people have more to lose by getting into fights, and they tend to govern themselves and form expectations of others' behaviour under the childish mistaken belief that acting "civilized" is good. So they have less fear of getting their fucking faces kicked in, and so they have less motivation to be kind to others.

Yes, on the subject of ethics, I'm a hardcore pragmatist. Some people say that makes me a psychopath. But if I really was a psychopath, maybe it'd be smarter for you to not piss me off by calling me a psychopath.

1 comment:

  1. It is all the coke that they do that makes them assholes...I have heard about this study before and there are very few really rich people that give back.

    I watched a great documentary call I Am last week on Netflix, worth watching