More Free Money – OR ELSE!
That's the rally cry from new IMF chief (appointed under mysterious circumstances) Lagarde gives in Berlin this morning as she warns the world faces descent into the 1930s without – among other things – greater resources being devoted to various bailout mechanisms – the EFSF, the ESM, and of course, the IMF.
As we turn the page on a turbulent year, a year in which so much of what could go wrong did go wrong, many look to the future with trepidation and foreboding. They worry about uncertain economic prospects, dwindling job opportunities, and rising inequality. About what kind of future awaits their children.
Indeed, in the economic outlook that the IMF will release tomorrow, we will lower growth forecasts for most parts of the world. Even these lower forecasts assume a constructive policy path that is by no means assured.
In too many places, uncertainty is holding back demand and the willingness to lend. A legacy of high public and private debt is hurting economic prospects. The global financial system remains fragile.
In an interconnected world like ours, these forces are feeding each other across borders. Capital flows to emerging markets have already dropped off, and growth is expected to slow even in the most vibrant parts of the world economy. Low-income countries are especially vulnerable.
This speech was, of course, delivered in German. I believe the translators at CNBC quoted Ms. Lagarde as saying "BUYBUYBUY!" I know, you were too busy focusing on the warning that the IFM will lower growth forecasts for most of the World. I believe CNBC translates that part of her speach as "record oil demand projected." It seems that if I want to get behind this market rally, I will have to give up both reading AND thinking for the New Year.
I understand the pain felt in those European countries that need to adjust, and the difficulty of sharing the burden in a way that is socially fair. But I also understand the feelings in countries that have been thrifty, asked to help those who could have managed their economies more prudently.
But what we must all understand is that this is a defining moment. It is not about saving any one country or region. It is about saving the world from a downward economic spiral. It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand.
The longer we wait, the worse it will get. The only solution is to move forward together. Our collective economic future depends on it.
This, I believe, was translated by CNBC as Lagarde saying Netflix was a bargain at $100 a share and CMG would hit $400 after earnings. Well, I guess if you want to participate in this Wonderland Market – you should get used to believing 6 impossible things before breakfast every day.
Speaking of impossible things – Iran said this morning that they will "definitely" close the Strait of Hormuz if the EU Embargo (now officially scheduled for July) disrutpts exports. That sent oil flying from the lows of $97.50 last night all the way back to $99.50 (and we caught part of that ride in Member Chat this morning!) but now back to $99 as people remember they might have heard this threat 20 or 30 times before in the past month.
If you are going to threaten to disrupt global fuel supplies, you have to carry out your threats sometimes – like CHK, who run the US Natural Gas Cartel and have cut of 500,0000 cubic feet a day (8%) of their production and are threatening to cut off 500,000 more – sending natural gas prices flying up over 20% overnight – from $2.25 to $2.50 (/NG) – now THAT's how you run a ruthless cartel and put the squeeze on American Consumers!
Speaking of market manipulation – Goldman Sachs put out a note today telling it's clients to get short 10-year Treasuries as yields below 2% will be difficult to sustain (currently 2.05%) – gee ya think? It's not the fact of the note I find odd but the timing as they are VERY late to the party (we've been short TLT from the low $120s) and I'm pretty sure the Fed is going to support $117 (now $116.55) into the auctions so this is really about GS chasing more money out of TBills and into their market top so they can make that exit most expiditiously.
Like any good magician, the Wizards of Wall Street are happy to show you what's in one hand – as it distracts you from seeing what they are doing with the other. Goldman needs a big payday as they have reportedly invested $3.5Bn of their client's money in SHLD 4 years ago at about $100 per share according to the WSJ.
It's going to be another exciting week and tomorrow we get Obama's State of the Union Address and an FOMC Rate Decision on Wednesday along with their more "open" language – what a time for this experiment! I'm still thinking that without MORE FREE MONEY, we're doomed – hopefully I'm wrong this time but, until then, just imagine we're all walking around in the dark and I just said "I THINK there's a cliff just ahead." You don't have to believe me and, if I'm right – you'll be doning the rest of us a favor by confirming it.
Good luck!
