bloomberg: Bill Gross, manager of the world’s biggest bond fund, said investors are increasingly at risk as global financial markets run out of energy and time.
“The countdown begins when investable assets pose too much risk for too little return,” Gross wrote in his monthly investment outlook posted on Newport Beach, California-based Pacific Investment Management Co.’s website today.
The record monetary stimulus of the Federal Reserve, triggering near-zero interest rates, has crippled savers and prior business models that were based on a positive real return, he said. Real growth of the economy has suffered in the process as net interest margins at banks fall, insurance companies struggle to make returns and pension funds are increasingly underfunded.
Investors should position for eventual inflation as the “end stage of a supernova credit explosion” is likely to produce more inflation than growth by holding Treasury Inflation Protected Securities, Gross wrote. “Get used to slower real growth; QE and zero-based interest rates have negative consequences. Move money to currencies and asset markets in countries with less debt and less hyperbolic credit systems” such as Australia, Brazil, Mexico and Canada….
On multiple fronts there appears to have been a resumption of hostilities in the global currency wars. A subtle indication of this is the recently released report, Gold, the Renminbi and the Multi-Currency Reserve System, which I believe is highly significant for two reasons: First, it demonstrates that major global actors are now keenly aware and frightened of the possibility of a major breakdown in international monetary relations. Second, it suggests that these same actors are trying to contain the growing demand for gold as an alternative reserve asset and pre-empt an uncontrolled gold remonetization. These efforts will fail. A collapse of the current, unstable global monetary equilibrium is inevitable. Recent events indicate that the countdown has begun.
Breaking the Cease-Fire
Curiously, in the second half of 2011 and through most of 2012, notwithstanding the escalating euro-crisis, US ratings downgrade, Japan’s protracted nuclear disaster and sharply divergent global growth rates, there was surprisingly little volatility in foreign exchange markets. EUR/USD traded mostly in the historically narrow range of 1.40-1.25. USD/JPY was in a range of from 76-82. The Chinese renminbi held between 6.4 and 6.2. GBP/USD moved within 1.54-162. The Swiss franc was also steady at around 1.20 versus the euro, although this was the result of an explicit Swiss policy of capping the franc at that level.
In retrospect, it appears that this period was characterised by a general ‘cease-fire’ in the global currency wars ignited by the global financial crisis of 2008. Rather than attempt directly to devalue currencies to stimulate exports at trading partners’ expense, the focus during this period was primarily on measures to support domestic demand….
You are in great danger if you don’t own gold.
“A year ago, the mood in Europe was horrible and nobody could see how on earth stocks could go up,” says Gloom, Boom & Doom author and money-manager Marc Faber, who urged CNBC anchor Maria Bartiromo to buy gold earlier this week.
“Now since May 2012, less than a year ago, Portugal, Spain, Italy, France, are up between 30 and 40% and Greece has doubled…!”
Factory-gate prices across France and Italy fell in December from November, new data showed today.
House prices in the year to October fell 2.5% across the 17-nation Eurozone, with Spain’s home-price drop accelerating to 15.2%.
“For the first time in four years,” Faber continued Wednesday, pointing to the US stock market, “since the lows in March 2009, I love this market. Because the higher it goes the more likely we will have a nice crash, a big time crash.
“You are in great danger if you don’t own any gold,” Faber had earlier told Bartiromo.
BIS warns banks to be vigilant on high asset prices … A top international finance official is warning banks to be cautious about the prices of investments that have gone up sharply because of current low interest rates. Jaime Caruana, the general manager of the Bank for International Settlements, says the low interest rates in effect now may have made it difficult to assess the true value of those investments. – Malaya Business
Dominant Social Theme: We central bankers have to stay on top of these pesky bubbles.
Free-Market Analysis: Actually, it is NOT surprising that BIS officials have begun to warn about a bubble; it is perhaps a bit surprising that they would choose to speak about it now. Maybe they are trying to get “ahead of the curve.”
As we’ve pointed out often in the past (as part of what we’d like to think is an educative function), central banking is all about bubbles. And in the current environment, with Western bankers furiously printing money, it is impossible for financial bubbles NOT to form.
Central banking is, in fact, the process of printing money … these days, paper money. And the printing of such money is inflationary. The definition of money printing is “inflation.” You’re inflating an asset. Those who work for the BIS surely realize this. Here’s more from the article:
It may be time to unwind.
The minutes of the Federal Reserve’s last FOMC meeting revealed that some Fed members want to tighten monetary policy sooner than expected.
Some fear that a premature move by the Fed could wreak havoc on the bond markets.
But, others think it would do more good than bad for the economy.
In a report published earlier this month, J.P. Morgan Funds’ Dr. David Kelly and David M. Lebovitz argue that the Fed’s loose monetary policy is now doing more bad than good.
KWN: The long, cyclical bullish advance in global stock markets has now made investors and fund managers around the world dangerously over-confident in terms of sentiment. We have just seen bullish sentiment break to fresh one and a half year highs this week as stocks continued to surge. The following is an extremely important piece because it shows the risks associated with the ever-increasing bullish enthusiasm.
Here is the latest Investors Intelligence report along with the all-important sentiment chart: “The rally continued last week with the S&P 500 and DJ Industrials reaching their best levels since 2007, while the smaller-stock averages set more all-time record highs….
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