It really is a banner day for analysts taking extremes.
You have Goldman
calling a generational buying opportunity in stocks.
You have Citi
calling for a new industrial revolution.
You have Albert
Edwards calling for the return of "the ice age."
There's not a ton new here.
He thinks the market is totally rigged, and is a bubble, and that he can't really offer any insight because things are so rigged (his cop out explanation for why his bearish prognostications have not come to pass). He still just likes gold and high-quality non-financial corporate debt.
He says Bernanke and Draghi are running roughshod over democracy and the rule of law, effectively destroying the pillars of Western Civilization.
He concludes:
I will continue to use the Dow/Gold charts to
continue to guide me going forward. The USD price of an ounce of gold
and the Dow will, I believe, converge at/around 1, at some point over the next 2
years or so. I have extremely high conviction on this. What I am not sure on is
whether we converge at 7000+/-, or at 14000+/-. Because I do believe that even
Bernanke and Draghi cannot do as they wish and that there are some limits to the
recklessness of policymakers, I still lean towards a deflationary resolution
at/about 7000 in the next year or two. Pretty vague, I know, buts it‟s
the best I can do right now, and what is clear is that, in the world I fear
ahead, gold is a winner either way – remember, gold is a great (monetary)
inflation hedge, and in a deflationary credit collapse gold works as a store of
value/wealth as it carries zero credit risk.
As a „credit‟ guy at heart I see more likelihood in a deflationary credit (i.e., a „real‟) collapse rather than a real economy inflationary (nominal) collapse. Either way however, what is clear is that if Bernanke and Draghi are allowed to continue on their current policy path for much longer, then whatever the final outcome will be, it will likely leave a deep scar on us for decades. Which on a ten-year time frame may not be such a bad thing as it should kill off monetarism and usher in a new era of monetary and fiscal prudence? In the near term, LTRO2 at month-end is the next clear focus for markets, more so than Greece. If LTRO2 is USD1trn or more, the market will take that as a signal to load on more leverage, more risk and more ‘carry’. If LTRO2 is in the order of USD250bn to USD500bn, Risk Off will be the order of the day as markets will start to fear that central bankers are having to reign back-in their current policies, and that as a result we face another period where central bankers and policymakers fall back behind the curve. LTRO1 clearly took policymakers from behind to ahead of the curve, but this is an extremely fluid situation, where doing nothing is, in reality, the same as going backwards. As the skew of expectations is to a large LTRO2, a LTRO2 take-up in between these ranges is likely to be viewed with neutrality/mild disappointment.
As a „credit‟ guy at heart I see more likelihood in a deflationary credit (i.e., a „real‟) collapse rather than a real economy inflationary (nominal) collapse. Either way however, what is clear is that if Bernanke and Draghi are allowed to continue on their current policy path for much longer, then whatever the final outcome will be, it will likely leave a deep scar on us for decades. Which on a ten-year time frame may not be such a bad thing as it should kill off monetarism and usher in a new era of monetary and fiscal prudence? In the near term, LTRO2 at month-end is the next clear focus for markets, more so than Greece. If LTRO2 is USD1trn or more, the market will take that as a signal to load on more leverage, more risk and more ‘carry’. If LTRO2 is in the order of USD250bn to USD500bn, Risk Off will be the order of the day as markets will start to fear that central bankers are having to reign back-in their current policies, and that as a result we face another period where central bankers and policymakers fall back behind the curve. LTRO1 clearly took policymakers from behind to ahead of the curve, but this is an extremely fluid situation, where doing nothing is, in reality, the same as going backwards. As the skew of expectations is to a large LTRO2, a LTRO2 take-up in between these ranges is likely to be viewed with neutrality/mild disappointment.
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