Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
“I’m sitting on cash,” Felix Zulauf said when he was asked in an interview where he was putting his money. With decades of asset management experience under his belt, he’d founded Zulauf Asset Management in Switzerland in 1990. But now he was worried—and has turned negative on just about everything.
In Europe, growth would be weak. In the US, “everyone” was expecting decent growth, but he saw the possibility of a “great disappointment.” Developing nations wouldn’t grow as fast as in recent years. The Chinese were taking their money out of the country. “They have antennas for problems at home,” he said. The markets were expecting the world economy to recover, but he suspected that neither the economy nor corporate earnings would develop as hoped. Once the distance between “wish” and “reality” became apparent, “it could cause a crash.”
Timeframe? This year. Optimism might hang in there for a while; the second quarter would be more problematic. Over time, downdrafts in some markets could reach 20% to 30%. Despite the incessant insistence by Eurozone politicians that the worst was over, he didn’t see “any normalization.” The structural problems were still there, they’ve only been hidden, “drowned temporarily in an ocean of new liquidity.”
“Look at the economic data,” he said. “There is no visible improvement.” As if to document his claim, the Eurozone Purchasing Managers Index was released. It dropped again after three months of upticks that had spawned gobs of hope that “the worst was over.” Business activity has now declined for a year and a half. New orders, a precursor for future activity, fell for the 19th month in a row. While Germany was barely in positive territory, France’s PMI crashed to a low not seen since March 2009 and was on a similar trajectory as in 2008—when it was heading into the trough of the financial crisis!
Sure, the financial markets calmed down, but only because the ECB pulled the “emergency brake” by declaring that it would finance bankrupt states so that the euro would survive. It was a signal for the banks to buy sovereign debt. Borrowing from the ECB at 1%, buying Spanish or Italian debt with yields above 5%, while the ECB took all the risks—”a great business for the banks,” he said. As a consequence, the banks were once again loaded up with sovereign debt. “The problems weren’t solved but kicked down the road,” he said.
Politicians would muddle through. Government debt would continue to rise. But next time something breaks, the pressure would come from citizens, he said. Standards of living have been deteriorating. Many people have lost their jobs. Real wages have declined. “We’ve sent millions into poverty!” People were discontent. And it was conceivable that “someday, they could go on the street and attack these policies.”
But, but, but... hasn’t Chancellor Angela Merkel emphasized that the euro would be important for peace in Europe? “The euro doesn’t create peace,” he said, “but discontent.”
Countries were devaluing their currencies to gain an advantage. This “race to the bottom” could escalate to where governments would impose limits on free trade. The devaluation of the yen would hit other countries. In Germany, it would pressure automakers, machine-tool makers, and others. By midyear, he said, “Europe will reach a point when it can no longer live with this euro.”
It would have to be devalued. France’s President François Hollande was already agitating for it. “And he has to because the French economy is in a catastrophic condition. It’s no longer competitive. France is becoming the second Spain.”
But didn’t the ECB emphasize that the exchange rate was irrelevant for monetary policy? And wasn’t the Bundesbank resisting devaluation?
“The policies of the Bundesbank are unfortunately dead,” he said, and its representatives were only “allowed to bark, not bite.” Monetary policy at the ECB was made by Draghi, “an Italian.” He’d push for the “lira-ization of the euro,” he said, “not because he likes it, but because he has no choice.” It was the only way to keep the euro glued together. “Mrs. Merkel knows that too, but she cannot tell the truth; otherwise citizens would notice what’s going on.”
Given this dreary scenario, what could investors do? Long-term, equities were a good choice, he said, but this wasn’t the moment to buy.
Gold? That it was down from its peak a year and half ago was “normal,” he said. Currently, gold funds were forced to liquidate, which could cause sudden drops, but it also signified “the end of a movement.” He expected the correction to end by this spring. “Long-term, the uptrend is intact,” he said.
Bonds? They had a great run for 30 years but were now “totally overvalued”—in part due to central banks that had bought $10 trillion in debt “with freshly printed money” over the past five years. Debt markets were completely distorted, but central banks would be able to hold the bubble together for “a while longer.” So he admitted, “Last summer, I sold all long-term debt.”
But where the heck was he putting his money now? That’s when he made his sobering remark, “I’m sitting on cash.”
The Fed is growing deposits far faster than banks can deploy them, or than the economy can use them. It is growing them far faster than anybody wants or needs. And now there are “hundreds of billions of dollars of potential fuel unused,” as Bloomberg pointed out. A potential for big problems. Read.... The Fed Is Blowing A Dangerous Bank Deposit Bubble. Reported by Zero Hedge 6 days ago.
“I’m sitting on cash,” Felix Zulauf said when he was asked in an interview where he was putting his money. With decades of asset management experience under his belt, he’d founded Zulauf Asset Management in Switzerland in 1990. But now he was worried—and has turned negative on just about everything.
In Europe, growth would be weak. In the US, “everyone” was expecting decent growth, but he saw the possibility of a “great disappointment.” Developing nations wouldn’t grow as fast as in recent years. The Chinese were taking their money out of the country. “They have antennas for problems at home,” he said. The markets were expecting the world economy to recover, but he suspected that neither the economy nor corporate earnings would develop as hoped. Once the distance between “wish” and “reality” became apparent, “it could cause a crash.”
Timeframe? This year. Optimism might hang in there for a while; the second quarter would be more problematic. Over time, downdrafts in some markets could reach 20% to 30%. Despite the incessant insistence by Eurozone politicians that the worst was over, he didn’t see “any normalization.” The structural problems were still there, they’ve only been hidden, “drowned temporarily in an ocean of new liquidity.”
“Look at the economic data,” he said. “There is no visible improvement.” As if to document his claim, the Eurozone Purchasing Managers Index was released. It dropped again after three months of upticks that had spawned gobs of hope that “the worst was over.” Business activity has now declined for a year and a half. New orders, a precursor for future activity, fell for the 19th month in a row. While Germany was barely in positive territory, France’s PMI crashed to a low not seen since March 2009 and was on a similar trajectory as in 2008—when it was heading into the trough of the financial crisis!
Sure, the financial markets calmed down, but only because the ECB pulled the “emergency brake” by declaring that it would finance bankrupt states so that the euro would survive. It was a signal for the banks to buy sovereign debt. Borrowing from the ECB at 1%, buying Spanish or Italian debt with yields above 5%, while the ECB took all the risks—”a great business for the banks,” he said. As a consequence, the banks were once again loaded up with sovereign debt. “The problems weren’t solved but kicked down the road,” he said.
Politicians would muddle through. Government debt would continue to rise. But next time something breaks, the pressure would come from citizens, he said. Standards of living have been deteriorating. Many people have lost their jobs. Real wages have declined. “We’ve sent millions into poverty!” People were discontent. And it was conceivable that “someday, they could go on the street and attack these policies.”
But, but, but... hasn’t Chancellor Angela Merkel emphasized that the euro would be important for peace in Europe? “The euro doesn’t create peace,” he said, “but discontent.”
Countries were devaluing their currencies to gain an advantage. This “race to the bottom” could escalate to where governments would impose limits on free trade. The devaluation of the yen would hit other countries. In Germany, it would pressure automakers, machine-tool makers, and others. By midyear, he said, “Europe will reach a point when it can no longer live with this euro.”
It would have to be devalued. France’s President François Hollande was already agitating for it. “And he has to because the French economy is in a catastrophic condition. It’s no longer competitive. France is becoming the second Spain.”
But didn’t the ECB emphasize that the exchange rate was irrelevant for monetary policy? And wasn’t the Bundesbank resisting devaluation?
“The policies of the Bundesbank are unfortunately dead,” he said, and its representatives were only “allowed to bark, not bite.” Monetary policy at the ECB was made by Draghi, “an Italian.” He’d push for the “lira-ization of the euro,” he said, “not because he likes it, but because he has no choice.” It was the only way to keep the euro glued together. “Mrs. Merkel knows that too, but she cannot tell the truth; otherwise citizens would notice what’s going on.”
Given this dreary scenario, what could investors do? Long-term, equities were a good choice, he said, but this wasn’t the moment to buy.
Gold? That it was down from its peak a year and half ago was “normal,” he said. Currently, gold funds were forced to liquidate, which could cause sudden drops, but it also signified “the end of a movement.” He expected the correction to end by this spring. “Long-term, the uptrend is intact,” he said.
Bonds? They had a great run for 30 years but were now “totally overvalued”—in part due to central banks that had bought $10 trillion in debt “with freshly printed money” over the past five years. Debt markets were completely distorted, but central banks would be able to hold the bubble together for “a while longer.” So he admitted, “Last summer, I sold all long-term debt.”
But where the heck was he putting his money now? That’s when he made his sobering remark, “I’m sitting on cash.”
The Fed is growing deposits far faster than banks can deploy them, or than the economy can use them. It is growing them far faster than anybody wants or needs. And now there are “hundreds of billions of dollars of potential fuel unused,” as Bloomberg pointed out. A potential for big problems. Read.... The Fed Is Blowing A Dangerous Bank Deposit Bubble. Reported by Zero Hedge 6 days ago.
DNA Specialty will be present at the Big Bike Europe show in Essen, Germany in May. Despite being a California-based business, DNA has enjoyed quite serious sales in Europe, too, and with the 20th AMD Championship being also held at the BBE, they could not miss it for the world. European custom builders and customers will get the chance to see DNA's latest aftermarket laced and billet wheels, as well as their line of trike-related s...
Reported by autoevolution 5 days ago.
For a moment there it was all solved. Everything was in full bull mode (apart from the EURUSD). Then, the 'buy first, ask questions later' crowd saw the headlines and the covering began. Of course, bulls will point to the fact that stocks closed unchanged and not down and sovereign spreads ended unchanged and not wider but the truth is that the *Italian stock market dropped 4% from pre-poll headlines*, Italian and Spanish bonds cracked over 30bps wider and the EUR dropped 160 pips. Finding support at 5%, Spanish yields pushed higher and ended back above 360bps spread to Bunds. *Europe's VIX pushed back above 21.5%* but it is EURJPY's retracement of all the overnight gains that is probably hurting global risk the most for now...
And yay verily there was much rejoicing that Italy managed to sell a few billion euros worth of its sovereign debt to its banking system (albeit at the highest accepted yield since October 2012). However, the rejoicing was hardly effusive as bonds and stocks gained only marginally, buoyed by catch-up from yesterday's US equity markets. Swiss 2Y rates remain at zero and EUR-USD basis swaps came back a little but overall this bounce is nothing to celebrate with Italian 10Y spreads still 47bps wider on the week and Spain 23bps wider. Italian stocks outperformed credit, now down 2.6% on the week as Europe's VIX followed US down but remains above Monday's close at 22%. EURUSD ran up to test the 1.3130 stops and faded back to its comfort zone around 1.3100. As a reminder, *European bank spreads are holding at their widest in 3 months and point to notably weaker prices in European financial stocks* (were of course they allowed to trade in a free non-short-sale-banned market).
