Jim Rogers: ‘Abolish’ the Incompetent Federal Reserve – MoneyNews 11-29-13

Salient to Investors:

Jim Rogers said:

  • Fed policy is incompetent and the Federal Reserve should be eliminated. The world has survived just fine without central banks for most of its history,
  • America has had 3 central banks – the first two disappeared – and this one will self-destruct because it keeps making mistake after mistake and printing money.
  • Stocks could go on for a while but will crash someday because of the artificial sea of liquidity.

Alan Greenspan said the equity premium is still way below normal so to say that the market is bubbly is overstating it.

Read the full article at http://www.moneynews.com/StreetTalk/Jim-Rogers-abolish-Federal-Reserve-incompetent/2013/11/29/id/539206

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Xi Jinping Overreaches in the East China Sea – Bloomberg 11-28-13

Salient to Investors:

William Pesek writes:

  • China’s declaration of a vast air defense identification zone belies all the talk of its peaceful, magnanimous rise as a world power. A tiny accident or miscalculation in the skies above the disputed islands could easily spiral out of control, dragging Washington into a clash that would shake the global economy.
  • Xi may be especially willing to risk a confrontation with Japan in order to distract opponents of his proposed reforms, as well as ordinary Chinese who are growing restless over pollution, income inequality and official corruption.
  • Abe is an unapologetic revisionist who remains intent on whitewashing Japan’s WWII aggression, including the government’s role in keeping military sex slaves; flexing Japan’s muscles in Asia; and perhaps revising its pacifist constitution.
  • In addition to Japan and Korea, China’s air zone is sure to worry Brunei, Indonesia, Malaysia, the Philippines and Taiwan, all of which are embroiled in territorial disputes with Beijing.
  • China took a big hit abroad for its initial $100,000 aid offering to the typhoon-devastated Philippines, so its inflammatory new policy will only further alienate neighbors in a region it’s seeking to woo away from the US.

Read the full article at http://www.bloomberg.com/news/2013-11-28/xi-jinping-overreaches-in-the-east-china-sea.html

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Pimco’s El-Erian: Fed Taper Would Take ‘Safety Net’ From Risk Assets – MoneyNews 11-27-13

Salient to Investors:

Mohamed El-Erian at Pimco said:

  • The Fed’s determination to taper puts more risk in risk assets, such as stocks.
  • The safety margin built into risk assets is much less now.
  • The Fed is wary of upsetting financial markets, as it sees financial market strength as a key to boosting the economy. The Fed cannot get to its economic objectives without going through the asset markets, so it feels obliged to continue to support the asset markets, not as an end in itself, but as a means to an end.
  • The Fed’s October minutes cited modest growth now but faster growth ahead – the same position it has taken virtually every time since the 2008-09 financial crisis.
  • It is very difficult to predict when tapering will begin, especially with a FOMC that is all over the place, but it will absolutely begin over the next 12 months.
  • Buy bonds at the short end of the yield curve and sell at the long end.

Sam Coffin at UBS Securities said it sounds like the Fed is moving closer to tapering and wants to signal it will stay easy after the tapering has begun.

Read the full article at http://www.moneynews.com/Economy/El-Erian-Fed-risk-taper/2013/11/21/id/537920

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Former Reagan Budget Head David Stockman: Fed Has Created Gargantuan Global Bubble – MoneyNews 11-27-13

Salient to Investors:

David Stockman said:

  • QE is brewing asset bubbles around the world, exporting its lunatic policy worldwide
  • Central banks all over the world have been massively expanding their balance sheets, and as a result of that there are bubbles in everything in the world, asset values are exaggerated everywhere.
  • It is only a matter of time before the central banks lose control, and a panic sets in when people realize that these values are massively overstated.
  • Foreign central banks are easing for either good reasons of defending their own trade and their exchange rate, or because they’re replicating the Fed’s erroneous policies.
  • The Russell 2000 small-stock index is trading at 75 times reported trailing earnings, which makes no sense.

Mark Hulbert at Hulbert Financial Digest said the P/E based on 12-month trailing earnings of the S&P 500 is 19.1 is not indicative of a bubble, at least not one like 1999 which had a P/E of 29.7 in December 1999.

Read the full article at http://www.moneynews.com/StreetTalk/David-Stockman-Federal-Reserve-global-bubble/2013/11/27/id/538987

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Drop in Durables Orders Points to Slow Investment: Economy – Bloomberg 11-27-13

Salient to Investors:

Ryan Sweet at Moody’s Analytics said conditions for stronger growth are falling into place for early 2014, and housing will kick in and spur faster growth.

Michelle Girard at RBS Securities expects the shopping season to be OK as employment growth of around 200,000 jobs a month and income growth supports a 2 percent consumer spending pace.

Read the full article at http://www.bloomberg.com/news/2013-11-27/orders-for-u-s-durable-goods-drop-as-shutdown-hurts-confidence.html

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Former Fed Chief Greenspan Sees No Bubble in Dow 16,000 – Bloomberg 11-27-13

Salient to Investors:

Alan Greenspan said:

  • The US economy will grow closer to 2 percent in 2014 as it is restrained by a degree of uncertainty that is reducing investment, below the median economist estimate of 2.6 percent.
  • The US stock market is not in a bubble.
  • The economy is held back in part by some of the largest banks not operating efficiently and are using the scarce savings of the society, which is critical for economic growth.
  • Stock prices generally rise 7 percent a year for the long-term, and we have had no growth in stock prices for years.
  • Janet Yellen is very good but the Fed is going to have to stop expanding and move interest rates higher eventually, creating major political problems for it as it always has.

Read the full article at  http://www.bloomberg.com/news/2013-11-27/former-fed-chairman-greenspan-sees-no-bubble-as-dow-tops-16-000.html

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In One Powerful Paragraph, Richard Koo Explains How The Fed Is Causing Bubbles – Business Insider 11-27-13

Salient to Investors:

Richard Koo at Nomura said:

  • Mini-bubbles can occur during a balance sheet recession, like this one. Not yet seeing a big bubble, but concerned about mini bubbles.
  • In a monetary policy-driven market, money created by an accommodative central bank typically spreads throughout the economy and lifts markets. During a balance sheet recession, the private sector is a net saver, so only the financial sector is flooded with funds that are generated by private sector saving and deleveraging.
  • Cheaper money does not work when nobody wants to take on debt.
  • The US private sector is still more inclined to save than take on debt, so monetary policy is impotent to stimulate the economy.
  • In the absence of the desire to spend or invest in real things, the Fed’s cheap money can and will create financial bubbles.

Read the full article at http://www.businessinsider.com/richard-koo-on-bubbles-in-a-balance-sheet-recession-2013-11?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29

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Slump-Watchers Dump Yield Curve for 1970s Tool: Cutting Research – Bloomberg 11-26-13

Salient to Investors:

Ellen Zentner at Morgan Stanley said:

  • The Fed’s near-zero interest rate and QE is holding down US bond rates, meaning the US Treasury yield curve would struggle to invert, crimping its effectiveness as an indicator of business cycles.
  • Yield curve inversion signals investors are betting on weaker economic growth – recessions have followed 6 of the 8 times that has happened since 1960, and no US recession in the period was not preceded by an inverted curve.
  • The upturn in the Duncan Leading Indicator since Q2, 2009 confirmed the end of the last recession and its subsequent gain over the past 17 quarters indicates the risk of an economic slump in 2014 remains low. The DLI looks at components that react to cyclical demand, such as household spending, and compares them with economic growth. Since 1970, the DLI has indicated imminent downturns by an average of four quarters. A 1985 FRB of San Francisco study found it a more reliable indicator of business cycle peaks than other tools.

Paul Mortimer-Lee at BNP Paribas said:

  • Arguments that QE can choke consumption could apply to any easing of monetary policy and the Fed’s 3 rounds of asset buying have added 1.5 percent to US consumption.
  • QE cannot both stimulate and deters excess investment
  • Market distortions are often needed to help the economy
  • QE may have had a limited effect on activity, but it has helped to fend off deflation.

Ralph Solveen and Bernd Weidensteiner at Commerzbank said Japan’s stagnation does not provide a template for the euro area because prices fell in Japan not because of a weak economy but because their level stayed elevated during the preceding boom and needed to be corrected, whereas there was no such jump in prices in the euro area, where inflation is likely to grow at an annual rate of 1 percent, excepting peripheral economies like Greece and Spain, where a price correction is now under way.

Bank of America said Ukraine, Turkey and South Africa are the emerging markets most vulnerable to Fed tapering, while China and South Korea should be the most resilient. Ukraine and Turkey suffer from high external debt and a lack of reserves, while South Africa is weakened by its current account deficit. South Korea benefits from low inflation volatility and a strong fiscal position, and China has a current account surplus and large currency reserves.

Bank of America said a 1% shock to US growth would have the most durable impact on Mexico but provide a pickup for South Korea, add 0.2 percent to expansion in Turkey and India, and a modest and short-term effect on China.

Anja K. Leist at the University of Luxembourg, Philipp Hessel at the London School of Economics and Mauricio Avendano at Harvard School of Public Health found that men aged 45 to 49 and women aged 25 to 44 in 11 European countries who suffered through an economic slump showed worse cognitive functions 25 years later.

Read the full article at http://www.bloomberg.com/news/2013-11-27/slump-watchers-dump-yield-curve-for-1970s-tool-cutting-research.html

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Why Spending a Thousand Bucks Can Make You Feel Like a Million – Bloomberg 11-26-13

Salient to Investors:

New marketing research shows how we shop has as much to do with our mental state as with our material needs. People spend because they are sad or are feeling guilty or insecure.

Martin Lindstrom says there is a direct correlation between lack of self-esteem and the brands you buy – the less self-esteem, the more brands bought.

JoAndrea Hoegg at University of British Columbia and the Journal of Consumer Psychology said shoppers who find their usual size too small don’t buy the offending clothes, but buy other items without sizes that make them feel attractive.

Paco Underhill at Envirosell advises never to shop tired or hungry.

Scott Rick at University of Michigan studies have long shown that sadness can make you looser with the purse strings but that is not all bad, because going to the mall boosts the moods of sad shoppers by giving them a feeling of control.

Read the full article at http://www.bloomberg.com/news/2013-11-26/why-spending-a-thousand-bucks-can-make-you-feel-like-a-million.html

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