Sprott: Is it all just a Ponzi Scheme?

Thursday, December 31st, 2009

Eric Sprott, CEO, and David Franklin, Managing Director, Sprott Asset Management discuss the U.S. Government debt program in their latest instalment of Market Commentary, “Is it just a Ponzi Scheme?.”

Sprott believes the market will overwhelm the Fed’s money printing program, striking at the credibility of the dollar, and this will send the S&P500 below its March 9, 2009 low.

Via Bloomberg:

• The Standard & Poor’s 500 Index will collapse below its March lows as an expected rebound in economic growth fails to materialize, according to hedge fund manager Eric Sprott.
• The Toronto-based money manager, whose Sprott Hedge Fund returned about 496 percent in the past nine years as the S&P 500 lost 32 percent in Canadian dollar terms, said the index’s 66 percent rally since March 9 reflects investors misinterpreting economic data. He’s predicting the gauge will fall 40 percent to below 676.53, the 12-year low reached on March 9.
• “We’re in a bear market that will last 15 or 20 years, and we’ve had nine of them,” Sprott, chief executive officer of Sprott Asset Management LP, which oversees C$4.3 billion ($4.09 billion), said in an interview Dec. 18.
• Sprott said the Federal Reserve has kept bond yields and interest rates artificially low through its program to buy agency debt and mortgage-backed securities. The central bank expects the securities purchase program to finish by the end of March. Expiration of the program would reduce demand for fixed- income securities, forcing up bond yields and interest rates and hurting economic growth, Sprott said. (seeing how that plays out in 2010 will definitely be one of the most interesting development’s of the year)

You can dowload the whole letter, “Is it just a Ponzi Scheme?,” here.

Tags: Bear Market, Bond Yields, Canada, Chief Executive Officer, David Franklin, Debt Program, Dollar Terms, Economic Data, Eric Sprott, Government Debt, Income Securities, Instalment, Lows, Market Commentary, Money Manager, Money Printing, Mortgage Backed Securities, Ponzi Scheme, Printing Program, Sprott Asset Management, Sprott Hedge
Posted in Markets | 4 Comments »

Rosenberg: “Oh sure, the recession is over”

Thursday, July 2nd, 2009

David Rosenberg, Chief Economist at Gluskin Sheff discusses today’s ‘detonating’ jobs figure. We got a good laugh from the sarcasm that leads this note.

Rosenberg, one of the most highly respected market economists, is considered by many to be an ultra-bear. However, we found it notable that upon his departure from Merrill Lynch, where he was the Chief North American Economist, Rosenberg said the transition to a buy-side firm, would be an interesting change of pace for him, where the focus tends to be longer term.

“The sell-side firm desperately needs a bull market and the buy-side firm really just has to be on the right side of the trade,” he said.

Generally, Rosenberg believes that investors would be far better off from a risk reward standpoint owning fixed income securities (farther down in the article).

Here is today’s summary, but you can subscribe to his daily notes including the one below in order to see the complete note.

“OH SURE, THE RECESSION IS OVER”

Summary by David Rosenberg, July 2, 2009

Today’s employment report had deflation thumbprints all over it. And you don’t have to take my word for it – have a read of San Francisco Fed President Janet Yellen’s speech on June 30th when she dared to utter the “D” word. And that was before today’s payroll release which contained disturbing signs of weakness on many fronts.

The headline came in at -467k compared with -350k consensus and the back revisions were negligible (+8k). At no time in the 1990 or 2001 recessions did we ever come close to seeing such a detonating jobs figure, not even at the depths of those downturns, and yet we have a whole industry of ‘green shoot’ advocates today telling us that the recovery has already arrived. As always, the devil was in the details. In almost every industry, job losses were deeper in June than they were in May. The diffusion index fell to 28.6 from 31, which means that nearly three-quarters of the corporate sector is still in the process of shedding jobs. The Household Survey showed a 374k job decline, and all centered in full-time jobs. In fact, we have lost a record 9 million full-time jobs this cycle, more than triple what is normal in the context of a post-WWII recession, with over 2 million pushed onto part-time work (and the number of people now working part-time because they have no other choice due to the weak economy has more than doubled).

This in turn has take the total hours worked in the private sector down to a new record low of 33 hours from 33.1 hours in May – in fact, what this means is that if companies had kept hours worked at May’s levels, then to achieve the same labour input that they achieved would have required a 800,000 job slice! Just to put the entire labour market picture into a certain perspective.

When we say that deflation has gripped the labour market, we are not exaggerating. Average weekly earnings – the proxy for wage-based income – fell 0.3% in June and have been flat or down in three of the past four months. During this interval, they have deflated at a 1.6% annual rate – versus a +1.8% trend a year ago and +5.2% two years ago.

Here, courtesy of Zero Hedge are Rosie’s Rules to Remember, which he issued upon his departure from Merrill:

Rosie’s rules to remember:

1) In order for an economic forecast to be relevant, it must be combined with a market call.

2) Never be a slave to the data – they are no substitute for astute observation of the big picture.

3) The consensus rarely gets it right and almost always errs on the side of optimism – except at the bottom.

4) Fall in love with your partner, not your forecast.

5) No two cycles are ever the same.

6) Never hide behind your model.

7) Always seek out corroborating evidence.

8) Have respect for what the markets are telling you.

9) Be constantly aware with your forecast horizon – many clients live in the short run.

10) Of all the market forecasters, Mr. Bond gets it right most often.

11) Highlight the risks to your forecasts.

12) Get the US consumer right and everything else will take care of itself.

13) Expansions are more fun than recessions (straight from Bob Farrell’s quiver!).

And here in his note from May (a very good read in its entirety, and still highly relevant and timely - again, courtesy of Zero Hedge), is where Rosenberg urges fixed income securities:

Our preference is to stick with fixed-income securities

Be careful about jumping into the stock market with both feet after this monumental rally. Consider whether or not it would be more appropriate to take advantage of the run-up to reduce equity exposure. Our preference is to stick with fixed-income securities, which we believe will work much better from a total return standpoint, as they did for years after the economy hit bottom back in the early 1930s. When we are finally coming out of this epic credit collapse and asset deflation, we should expect that the trauma exerted on household balance sheets will have triggered a long wave of attitudinal shifts toward consumer discretionary spending, homeownership and credit. The markets have a long way to go in terms of discounting that prospect.

Tags: American Economist, Change Of Pace, Chief Economist, Corporate Sector, David Rosenberg, Diffusion Index, Employment Report, Fed President, Fixed Income, Household Survey, Income Securities, Industry Job, Janet Yellen, Market Economists, Merrill Lynch, Payroll Release, Recession, Recessions, Risk Reward, Sarcasm, Sheff, Three Quarters
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Treasury Bills - Is This The Low?

Tuesday, January 13th, 2009

This post is a guest contribution by Bennet Sedacca*, President of Atlantic Advisors Asset Management

In the chart below, please note the very simple channel in long bond futures going back to the beginning of the bull market. Prices seem to top every 5 years and, right on schedule, they’ve topped again.

Click here or on the chart below for a larger image.

The usual correction is in the 18-25% range if it revisits the lower end of the channel. From the top, at roughly 142, a 25% move would be to 106 or so, which is still a whopping 4.4%. I think is far too low considering a) what actually now sits in the Treasury and b) the sheer amount of global supply that is forthcoming. Even in a slow economy, I think foreigners will need to be sellers. I am finishing up my Mortgage Backed Securities program today and heading to more cash.

One more thing. The secular bull market in stocks, in my opinion, ran from 1974 to 2000. Twenty-six years. The bull market in bonds looks like it ran from 1982-2008, also twenty-six years and exactly the length of time I have been at this. With the “blow-off” move we just had, my guess is that the top is in, perhaps for a very long time … like a decade.

Using a Fibonacci analysis leads us to targets that are … well, nauseating and could be a 50% retracement of the whole move. So buyers of long bonds beware. And if you want to refinance, and can actually find a good program, I wouldn’t hesitate. That goes for individuals and corporations alike. Why the Treasury is BUYING bonds at these levels instead of selling long Treasuries is beyond me.

Click here or on the chart below for a larger image.

* President of Atlantic Advisors Asset Management, Bennet Sedacca brings with him more than 26 years of securities industry experience. From 1981 to 1997 he worked for several major investment banks, specializing in high-grade fixed-income securities marketing, trading and portfolio management. In 1997 he formed Sedacca Capital Management focusing on portfolio management for high-net worth individuals and small to mid-sized institutions.

Tags: Asset Management, Bond Futures, Buying Bonds, Fibonacci Analysis, Fixed Income, Foreigners, Global Supply, Income Securities, Industry Experience, Investment Banks, Length Of Time, Mortgage Backed Securities, Portfolio Management, Retracement, Secular Bull Market, Securities Industry, Slow Economy, Treasuries, Treasury Bills, Treasury Bonds
Posted in Bonds, Economy, Markets | No Comments »