Markets Hinting QE3.

Markets including inflation sensitive gold has been rising since last month. Chairman Ben S. Bernanke will speak in Jackson Hole, Wyoming, on Aug 31 and there are expectations that some kind of stimulus package will be announced. For some perspective we have added a chart below showing correlation between SPX index and XAU (gold). There was a strong negative correlation between SPX and gold during 2008/2009 as gold is considered a safe haven during market turmoil. But the correlation became positive after 2008/2009 as FED increased it assets exponentially (represented by Green line).The recent surge in Gold and SPX suggests investors are anticipating another round of stimulus.

Dutch Fin Min: Greek Bondholders May Have To Shoulder Bigger Burden

AMSTERDAM -(Dow Jones)- Dutch Finance Minister Jan Kees de Jager said Tuesday the private sector may have to shoulder a bigger burden to make Greece's debt load sustainable.
De Jager, who made his remarks in an interview on Dutch television, said private creditors may have to take a bigger write-down on their holdings of Greek government debt than the 50% haircut agreed in October. He also said they may have to accept a lower coupon, or interest payment, on the new bonds that Athens plans to offer in exchange for the haircut.
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Eight Questions: Nick Lardy, ‘Sustaining China’s Economic Growth’.

Nicholas Lardy published his first book on China’s economy in 1978, when the country’s market-driven makeover was still in its infancy. A little more than three decades later, with some worried that the China thrill-ride may finally be coming to an end, Mr. Lardy steps with a new book, “Sustaining China’s Economic Growth after the Global Financial Crisis,” that takes a detailed look at the causes and remedies of the imbalances in the world’s second largest economy.

China Real Time Report caught up with Mr. Lardy, currently a senior fellow at the Peterson Institute of International Economics, to get his thoughts on where China’s economy is heading and what it means for the U.S. Edited excerpts below:

How would you rate China’s response to the global financial crisis?

The success of China’s stimulus is reflected in the numbers: China’s growth rate ticked down only slightly in 2009 to 9.2 percent while the rest of the world suffered its sharpest decline in output in 60 years.READ MORE

S&P 500 at 1300.

We think market is ready to take on 1292 and possibly 1300 as soon as tomorrow.Technically we are in a overbought zone,but better then expected job report tomorrow can take market to 1300 level.We are waiting patiently and will short the market at 1300 levels.

Japan Got ‘Bargain’ in Debt Splurge, Economist Says.

The government of Japan owes creditors something like a quadrillion yen, and public debt has ballooned over the past two decades to 200% of gross domestic product.

Horrible policy, right?

Actually, Japan got a “tremendous bargain,” contends Nomura Research Institute economist Richard Koo in a new paper.

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Investor Sentiment: Are These the Makings of a Sustainable Rally?

                               www.thetechnicaltake.com

We start the new year like we ended the old year: with a mixed sentiment picture.  The Rydex market timer is extremely bullish, and this is a bear signal.  The “dumb money” indicator is neutral and company insiders are as well.  Overall, my interpretation is bearish.  Sustainable price moves usually start when there are too many bears, and it is short covering that is the fuel that sparks a price rise.  After the short covering subsides, sustainable price moves are typically heralded by having too many bulls willing to chase prices higher.  Neither of these extreme conditions are currently present, and it is difficult to see the market embark on a sustainable price move in their absence.  Lower prices would bring out more bears and this would be a precursor to a tradeble, sustainable rally.  Higher prices should be supported by increasing number of bulls, and this would be a signal that a sustainablerally, that everyone so desperately wants, is unfolding.  As stated above, I am betting that we will see lower prices before higher as there are few bears (i.e., no short covering) and as the time for the bulls to have taken the reigns of this market have long since past.  

                                   

Bridgewater Takes Grim View of 2012.

Bridgewater Associates has made big money for investors in recent years by staying bearish on much of the global economy. As the new year rings in, the hedge fund firm has no plans to change that gloomy view.

Robert Prince, co-chief investment officer at Bridgewater, and his managers at the world's biggest hedge fund firm are preparing for at least a decade of slow growth and high unemployment for the big developed economies. Mr. Prince describes those economies—the U.S. and Europe, in particular—as "zombies" and says they will remain that way until they work through their mountains of debt.

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I Now Have 2 Million Reasons to Be Bullish on Gold.

If there’s been one overriding theme I’ve stressed from when I turned bullish on gold at just over $300 in the spring of 2003, it’s that the financial industry and most of those who report about it and the markets hate gold. I said it’s foolhardy to expect there ever to be a universally bullish view for gold, and that we should appreciate that there will always be forces whose desire is for gold’s price to be suppressed, lower than where it would be in a free market. Ironically, those who support such price suppression are the ones who call people like me and the good people at GATA tin-foil hat wearers, fanatics, or worse.
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New Asian Union Means The Fall Of The Dollar.

One of the most frustrating issues to haunt the halls of alternative economic analysis is the threat of misrepresentative terminology.  For instance, when the U.S. government decided to back the private Federal Reserve in lowering the interest rates on lending windows to European banks last month, they did not call this a bailout, even though that’s exactly what it was.  They did not call it quantitative easing, or fiat printing, or a hyperinflationary landmine; rarely does bureaucracy ever apply honest terminology to their subversive activities.  False terminology is the bane of every objective analyst, because in order for them to educate and awaken those who are unaware of the truth, they must first battle through the daunting muck of the general public’s horrifically improper perceptions and vocabulary.  

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China and India Really Are Cheap Labor in Manufacturing.

Everybody has heard the reason manufacturing goes to China and services jobs are offshore outsourced to India is cheap labor. Well, there appears to be more than a grain of truth to this claim. The BLS maintains an international labor comparison statistics site. Manufacturing labor costs in China and India are 4% of the United States for 2009.
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French CEO About Ratings Agencies: ‘We Have To Shoot All These Guys’.

“We have to shoot all these guys that come to give us lessons,” he said. “I believe that’s the real combat of our society. We, the actors in the real economy, must regroup so that we won’t be eaten up by these guys.”
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Von Greyerz - Gold Will Trade $3,000 - $5,000 in 2012.

This is just an early indication of what will happen in the next few years.  People will have no money, people will be hungry, and therefore they will fight to get money, they will fight to get food.  Sadly, we will have, in most countries, in European as well as the US, we will have serious social unrest.  How far that will go is impossible to tell, but I am concerned.
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Are Commodities Topping Out?

Commodities have been on a tear for years as investors bet on permanent growth of developing economies and dwindling supplies. A global recession could change the picture, at least temporarily.

The past several years have seen a growing backlash against "paper" investments as more and more investors consider hard assets to be a safe haven against the implications of central bank money printing. But as the global economy visibly slows, this question arises in many minds: Are commodities, which have been on a tear since the March 2009 bottom, finally topping out?
Read More.

US Stresses Importance Of Hormuz

-- More oil passed through Strait of Hormuz in 2011 than previous years, US officials say

-- Blocking the Strait, as Iran has threatened, could cause "substantial increases" in energy costs

-- Strait is "world's most important oil chokepoint," US officials say 

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Dollar Still King Of Reserve Currencies - IMF COFER Data.

--Dollar stays on top with 61.7% of total allocated reserves
--Euro holdings edge lower as debt crisis bites
--Active Q3 reflects Japan, Switzerland currency moves 
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Insatiable US Debt and Other Jokes.

We've heard that before.In 1999 there was an insatiable demand for stocks.Remember,there were 70 million baby boomers preparing for retirement.What choice did they have?They had to buy stocks,right?Wrong....stocks went down in January 2000.In real terms,they're considerably lower now ----depending on how you adjust for inflation.Then,in 2005,remember the insatiable demand for housing?More immigrants.More families getting richer.Everyone wanted to get on the housing 'escalator 'befoe it was to late

Read more: Insatiable US Debt and Other Jokes http://dailyreckoning.com/insatiable-us-debt-and-other-jokes/#ixzz1i2QBq9aO

Greece Getting Worse-Doctors to strike over reforms

Doctors at Greece’s main social security fund, IKA, are to go on strike from Monday until Thursday next week and have called on private doctors to do the same in response to changes in the way insured patients are treated.
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US warships cross Hormuz despite Iran threats

Two American warships have crossed through the Strait of Hormuz without incident despite Iranian threats to close the strategic oil route, the US Navy said Thursday.

The aircraft carrier USS John C. Stennis and the guided-missile cruiser USS Mobile Bay "conducted a pre-planned, routine transit through the Strait of Hormuz" on Tuesday, said Fifth Fleet spokeswoman Lieutenant Rebecca Rebarich.

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Greece Getting Worse.

All categories of state revenues headed south in the first 11 months of the year, with the biggest problem regarding revenues from income tax, followed by value-added tax and customs.
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Soros Sees Gold Prices on Brink of Bear Market

Gold is poised to complete its 11th consecutive annual gain, the longest winning streak in at least nine decades, on the brink of a bear market.
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A Pickup for Housing in 2012?

Residential investment made a small positive contribution to GDP in 2011, for the first time since 2005. And construction employment turned slightly positive in 2011.
Now the question is what will happen in 2012? I think some pickup is likely, but I'm not as optimistic as some other people ...
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Gold: This is What an Ex-Momentum Trade Looks Like.

Momentum is mystical, no one can truly explain where it comes from, why it manifests itself the way it does, or why it seems to come and go so suddenly - capriciously, the jilted trader who bought at the top would say.

But there is nothing quite so ephemeral or tantalizingly mysterious about the aftermath of momentum.  It's brutal-acting and horrid-looking, it's lower highs and lower lows, it feels like give-up and the thwarted snapback rallies on the way get more and more feeble during this hope deflation process.

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Hedge Funds See Rebirth for U.S. Housing.

--Funds buying up shares of homebuilders, hardware stores
--Head of New York Fed says home prices "no longer appear overvalued."
--Builders see demand coming from young people not yet in housing market 
Read More.

The rise of the Speculative Culture.

We’ve come a long way since the days when futures exchanges were marketplaces for negotiating formal contracts between sellers and buyers of commodities, haven’t we? Wheat Farmer A wants to lock in a price for his crop next fall while flour mill B wants to ensure it has a supply of wheat and also lock in a price. Presto, there’s the Chicago Board of Trade, and later the Butter and Egg Board, which became the Chicago Mercantile Exchange. Simple, efficient.

Nowadays, futures exchanges like the combined CBOT-CME entity—CME Group Inc.—trade so much more than commodities. And their sophistication in the form of high-speed electronic trading has far exceeded the old open-outcry trading pits. Better price discovery, more transparency, less inefficiency. Everyone should be happy.

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The Endgame: Japan Makes Another Move.

                                   www.testosteronepit.com

                                                               

It’s a doozie. On December 24, the cabinet approved a draft budget for fiscal 2012 whose headline numbers were horrid enough: ¥90.3 trillion ($1.173 trillion) in outlays, ¥42.3 trillion in tax revenues, and a deficit of ¥48 trillion. 49% of the outlays are to be covered by issuing bonds, a record even for Japan. But it gets worse. Accounting shenanigans gloss over the fiasco by removing two items from the general budget: the reconstruction budget of ¥3.8 trillion and pension payments of ¥2.6 trillion. When they’re included, the deficit jumps to ¥54.4 trillion.

Fiscal 2012 Draft Budget	trillion
General budget	¥  90.3
Reconstruction budget, left out of general budget	¥    3.8
Pension payments left out of general budget	¥    2.6
Total budget	¥  96.7
Estimated tax revenue	¥  42.3
Deficit to be funded by borrowing	¥ -54.4
Percent of budget to be funded by borrowing	56.2%

The Japanese government will have to borrow 56.2% of every yen it spends in 2012. But it gets even worse! Japan regularly passes “supplementary budgets” during the year—four of them in 2011, the last one on December 1 for ¥2 trillion. So there may be a few in 2012 as well, which could push borrowing requirements toward a dizzying 60% of outlays.

Despite the near-zero interest rate policy the Bank of Japan has been pursuing for years, interest expense on the debt—at 230% of GDP by far the highest in the developed world—will eat up ¥21.9 trillion in 2012, a stunning 51.8% of tax revenues! If yields on 10-year JGBs were to rise from 1% to 2%.... Better not think that way. Keeping yields near zero is simply a matter of survival.

Funding these deficits and rolling over the gargantuan debt has been made possible by the institutional setup and cohesive psychology of Japan Inc.: 95% of JGBs are held within Japan. Individuals directly or indirectly hold over 50%. Government-owned or controlled institutions hold over 40%. Among them: the Government Pension Investment Fund, the government-owned Post Bank, financial institutions the government can lean on, and the BoJ. Foreigners hold 5% for decorative purposes.

But two of the strengths of the Japanese economy that have supported the absurd deficit levels—a high savings rate and a large trade surplus—have collapsed. The savings rate is in the low single digits, and the trade surplus has turned into a ¥2.2 trillion ($29 billion) trade deficit in 2011 through November.

2011 Trade Balance in billion ¥

In November, imports grew 11.4% over a year ago, in part due to liquefied natural gas imports—up 21%. Since the Fukushima disaster, utilities have shut down reactor after reactor for scheduled maintenance but have not restarted them. Of the 54 reactors, only six are operating (one was shut down December 26, three more will be shut down in January). To make up for the shortage, utilities have revved up natural gas plants—though reductions in power consumption have also been implemented.

Exports dropped 4.5% from a year ago. Exports to China, Japan’s largest export market, declined 7.7% while imports grew 6.6%. Japan used to have a trade surplus with China. No more. The pace of offshoring is picking up, particularly in the auto and tech industries. While a weaker yen could slow down that trend, it would also drive up the cost of imports, including fossil fuels and raw materials—posing additional strains on the struggling economy.

The strategy for keeping it all glued together for a few more years? An increase in the unpopular consumption tax from the current 5% to 10%. Prime Minister Yoshihiko Noda proposed it in November. The opposition howled. Noda’s approval rating has dropped from 63% to 44.6% in the four months he has been in office (for the whole debacle of weak governments and revolving-door prime ministers, read.... Japan Inc. Plays By Its Own Rules). In pushing the consumption tax, he might run into a buzz saw. And if it passes, it will constrain consumption even further.

"Japan's budget-making processes and its reliance on public debt have reached their limits," Finance Minister Jun Azumi told a news conference on December 24, the winning understatement of the year. And what solutions did he propose? Well, pass the consumption tax “and somehow reverse the falling birthrates."

Reverse the falling birthrates? If that ever happened—doubtful in the current social climate—it would unleash a new wave of government expenditures (schools, healthcare, etc.) for two or three decades before it would generate a boom in productive and tax-paying members of society. But keeping the system glued together for that long would require a miracle. And for a finance minister to count on a miracle seems a bit silly.

Life goes on. A convoy of 20 supercars was speeding down the Chūgoku Expressway, entered a left-hand bend at 90–100 mph, though the posted speed limit was 50 mph. The highway was wet. And the rest was very expensive....

Taking a Chance on the Larry Portfolio.

There are so many competing philosophies in the world of investing that most people learn to tune out any conversations on the topic.This turns out to be a pretty good instinct. After all, people consistently brag about their winning bets without disclosing their losers. They also tend to obsess over whatever’s happened in the markets most recently, assuming things will be that way forever.

But the one thing that we all ought to be able to agree on is this: The point of any long-term portfolio for the vast majority of investors is to earn whatever return you need to meet your goals while taking the least amount of risk.Read More.

BRIC Decade Ends as Growth Peaked: Goldman.

 Goldman Sachs Group Inc. (GS), which coined the term BRIC, says the best is over for the largest emerging markets.
Read More.

The Best Market Sources for 2012.

Each morning I follow roughly the same routine as I get up to speed with the overnight events in Asia/Europe and prepare for the day ahead
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Two-Year Bund/Treasury Yield Gap A Euro Negative.

This is not good news for euro bulls. The 2-year German bund now yields less than 2-year Treasurys, partly reflecting market bets that the ECB will lower its key policy rate further in 2012.
Read More.

U.S. Navy won't tolerate 'disruption' through Strait of Hormuz.

 The U.S. Navy said Iran's threat to block the strategically and economically important Strait of Hormuz is unacceptable."The free flow of goods and services through the Strait of Hormuz is vital to regional and global prosperity," Navy 5th Fleet in Bahrain spokeswoman Cmdr. Amy Derrick Frost told reporters on Wednesday."Anyone who threatens to disrupt freedom of navigation in an international strait is clearly outside the community of nations; any disruption will not be tolerated."
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Japan, India Agree To Set Up $15-Billion Swap Line.

-The swap line is five times the countries' previous arrangement

-It can help buttress the two economies against euro-zone debt crisis

-The swap line could help the Indian central bank support the weak rupee 

Read More

Morgan Stanley May Eliminate 580 NYC Jobs.

Morgan Stanley, the bank whose shares have declined 44 percent this year, said in a filing today that 580 of the 1,600 job cuts announced earlier this month may come from New York City.Read More

Overpriced PSLV Is a Negative Portent for Silver’s Price.

Where are the Sprott Physical Silver Trust’s customers yachts?

This investment vehicle, U.S. stock symbol PSLV, is basically a closed-end fund. Its current asset value is $650 million.  PSLV owns physical silver and earns a large guaranteed income for Sprott vehicles that charge somewhere near 1% yearly simply to hold the silver.  Anybody who thinks this at its core is a good deal for investors is mistaken.  Shares in the trust trade actively, with small bid-ask spreads that appeal to day traders.  The Trust is cleverly structured so that long-term gains are taxed at preferential rates in the U.S. under current law, as opposed to “commodity” tax rates that apply to gains in such vehicles as SLV, GLD and CEF.Read more.

2012 Outlook for Gold – Positive Fundamentals Remain and Crucial Diversification.

• Introduction – Gold in 2011
• Money Creating Central Banks May Push Gold to New Nominal Record in 2012 
• Central Banks Will Continue To Be Net Buyers of Gold
• China Foreign Exchange Diversification Should Support Demand
• PIIGS Lesson: Iceland Shows How Gold Protects From FX Crises
• Currency Wars and Competitive Currency Devaluations
• Falling Confidence in Paper Assets, Bank Deposits May Prompt Physical Deliveries
• Gold Remains A Historically and Academically Proven Safe Haven
• Conclusion – Gold in 2012 read more

What if Gold and Silver break down hard?

Equity markets are threading water today. The market is trading up in this post Christmas session. We have been receiving many emails regarding the precious metals lately. It feels definitely there are many out there getting rather nervous. At one point this fall, every investor saw gold printing 2K before year end. Well, things have changed. Irrespective if central banks or others are pushing the metals prices lower, there are many investors geared heavily, all waiting for the move higher. Pundits all agree, gold (and silver) must move higher, especially with Europe on the brink of a collapse. We have been rather cautious on those “crowded” trades.Read more

German Ifo + Spanish Auction + Housing Starts x Light Volume = Face Ripper .

Getty Images

The Dow is up 250 points, the S&P is up 2.2%, and the Nasdaq is ripping 2.3% higher out of the opening gate.

Bank of America is back safely above $5 a share, up 3% to $5.15 at last check.

The euro is back safely above $1.30, up 0.9% to $1.3124 at last check.

The reasons: A decent German Ifo sentiment reading, a successful Spanish bill auction, better-than-expected housing starts, and wafer-thin volume.Read More.

Too Pig to Fail.

Euro Zone Breakup: The Day After.

By Vincent Cignarella

Everett

You are asleep, tucked snugly in bed in New York. It is 2:00 a.m. on Monday morning. Suddenly the phone rings, and it’s the office cell phone. You are shocked out of bed. Your heart is racing.

When that phone rings at that time of the morning, it cannot be a good thing.

The FX manager on the other end of the line is screaming, “Greece has left the euro, the rest of the periphery is teetering, the markets are panicked. Get into the office. Now!”

A bit dramatic. An impossible scenario, most market participants still think. But that’s not stopping numerous banks, brokers and clearing houses from preparing contingency plans for such an event. They are thinking about how to trade the old legacy currencies, figuring out ways to make settlements in drachma rather than euros, etc.Read More.

ISDA menbers to discuss possible Euro Breakup.

• ISDA memo invites members only to Dec. 21 webcast
• Discussion will focus on scenario-planning for euro-zone exit
• Industry protocol is one way to switch currency terms in contracts 

Guest Post:Do We Get a Year-End Rally Or Not? Santa Dukes It Out With Mr. VIX .

Market cheerleaders see a rally coming; Mr. VIX is issuing a sell signal. Looks like the next few days will be a grudge match between Santa and Mr. VIX.

Everybody wants a Santa rally in stocks: Wall Street, the financial media cheerleaders, mutal fund managers, politicos, pump-and-dumpers, retail investors, gamblers, grifters and even Mrs. Santa all want a year-end stock market rally.

Santa's willing, but he's going to have to get past Mr. VIX.

The VIX volatility index is a remarkably accurate indicator of market highs and lows. You can see how well extremes in the VIX line up with highs and lows in the S&P 500 in the charts below.

I've marked the "Highs/Sells" in red lines and the "Lows/Buys" in black lines.

And the Downgrades continue.

Following the EU Summit on 9-10 December, Fitch has concluded that a ‘comprehensive solution’ to the eurozone crisis is technically and politically beyond reach…read more.

Saxo lists its 'outrageous' forecasts for 2012 .

Every year, Saxo Bank takes a look into its crystal ball, a slightly clouded one perhaps, and comes up with a list of 10 outrageous predictions for the following year.

This one is no exception. And some of its outrageous predictions have indeed come true in the past.

Although the Danish online investment bank does admit these events are unlikely to take place, it feels they are still far more likely to happen than the market appreciates.

"Our Outrageous Predictions have been prepared in the spirit of encouraging investors to think outside the box and prepare for world-altering events," said Steen Jakobsen, chief economist at Saxo Bank. "Should some of the predictions come to pass, it would make 2012 a year of tremendous change."

1. Stock of Apple Inc (APPL) halves in value from the 2011 high as it struggles to maintain 55% market share given multiple competitors.

2. The bank suggests the EU Treaty changes are insufficient to prevent the debt crisis returning with a vengeance by mid-year--hardly unpredictable--but this prompts EU politicians to call an extended bank holiday, closing all exchanges and banks for a week, to cope with the hefty losses on the stock markets.

Media & Gartman Attacks on Gold are Bullish.

This summer, when we got up to $1,900, gold was overcooked and sentiment was bullish.  All of the front page stories were about the reasons to own gold.  The usual suspects were bulling it like (Dennis) Gartman, to give one example.  Now Gartman is calling it a bear market in gold and that is a good contrarian indicator.  This is the time when you want to put some money to work, particularly in the metals.read more

Death of Gold Bull Market Seen by Gartman.

Gold, in the 11th year of its longest winning streak in at least nine decades, is poised to enter a bear market, according to Dennis Gartman, who correctly predicted the slump in commodities in 2008.read more.

As Gold Rebounds Over $1600, Some Thoughts On Why The Liquidation Snapback Is Here.

Yesterday when gold was trading in the $1570 we suggested that based on the very volatile shifts in the funding environment for gold, whereby the gold lease rate had moved from record negative to borderline flat, the plunge in the yellow metal is likely coming to an end.
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Einhorn Replaces Credit Swaps With Shorts When Betting on Sovereign Debt.

By replacing the swaps with short sales, Einhorn maintained his ability to profit from a sell-off in government bonds while avoiding potential pitfalls that he identified in a July 7 investor letter. Greenlight wrote that regulators were seeking to prevent a triggering of credit default swaps tied to sovereign debt, in part because the payouts could devastate European banks that had agreed to provide the insurance.
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Be careful......China Bulls.......

As Chinese apartments go,so goes china. read more