Over My Shoulder | Mauldin Economics

Over My Shoulder

Lakshman Achuthan: Grand Experiments That Are Too Big to Fail

January 28, 2016

My friend Lakshman Achuthan, who heads the Economic Cycle Research Institute and is one of the smartest guys in the room, has just written a short op-ed type piece that I think neatly summarizes the predicament the central banks of the world find themselves in. They think they can somehow create growth through monetary policy, and it's just not working. Take the time to read this – maybe twice – and then think about it.

Download - Grand_Experiments_That_Are_Too_Big_to_Fail.pdf

Skenderbeg: Put into Perspective, January 2016

January 22, 2016

Okay, I have to confess that I have been reading the Skënderbeg report for a long time. I have met both Bruno and Miranda at various conferences, and yes they look as young as their photos (which are at the end of the attached PDF.) They run a fund of hedge funds. The first few pages are an analysis of the state of the hedge fund industry, then they get to the meat of the matter. They provide charts and graphs of all things bearish. You should probably remove sharp objects from your immediate vicinity. Further, they will probably offend at least half of my readers with their somewhat biased view of American foreign policy. But I find the overall work enlightening and entertaining, and some of the charts are downright fascinating. I would appreciate your feedback as to whether you think this is too much over the top or you like this type of letter.

Download - 2016-01_Put_into_perspective.pdf

David Zervos: The Excess Selling Glut

January 18, 2016

David Zervos hits on a few good points about the current credit crisis and why it’s different from 2008. One minor quibble: in some energy-sector-intensive states, energy employment can be 3-7% of the total, and a collapse in oil prices will affect that region more than the US as a whole. Further, since we are now producing so much of our own oil and gas, a drop in the price hurts a significant part of the business complex and reduces total profits; so ironically, we don’t feel the effect of the “reverse oil tax” or the drop in the price of energy as much as we used to.

Download - 160118_Zervos.pdf

Art Cashin: Repent! Repent! The World Is Ending A Week From Thursday

January 13, 2016

(No PDF attached)

My friend, veteran trader, and blogger over at Real Money, Doug Kass, has been beating his bear market drum for some time – although in today's note he gets moderately short-term bullish. I find this whole internal debate interesting, especially for his chart on the disparity between the VIX and credit risk.

He references a "sell everything" call from RBS – I reprint it below as copied from my friend Art Cashin's morning piece. I note that it is unusual for a major investment bank to issue such a radically bearish call. Short-term market bottom, as Doug speculates?

Repent! Repent! The World Is Ending A Week From Thursday At 2:15 In The Afternoon – Well, it was not quite that drastic, but RBS has put out a stark and very downbeat "sell everything!" note that is causing a great deal of buzz on Wall Street.

Here's how Reuters described it:

The Royal Bank of Scotland has recommended its clients prepare for a “cataclysmic year,” as major stock markets could drop by a fifth and Brent oil could hit $16 a barrel.

"Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small," said the bank’s credit team in a note sent to clients, quoted by the Telegraph.

According to RBS analysts, the markets are showing the same stress alerts as seen before the 2008 crisis.

Andrew Roberts, the bank’s credit chief, says that “China has set off a major correction and it is going to snowball.” China “has very high debt levels (as a percentage of GDP) given they are still emerging” and crucially they have accumulated this debt incredibly fast, he said.

He predicts European and Wall Street markets to drop from 10 to 20 percent this year. London’s FTSE100 was predicted to plummet even lower.

“London is vulnerable to a negative shock. All these people who are ‘long’ oil and mining companies thinking that the dividends are safe are going to discover that they’re not at all safe,” said Roberts.

“We are moving in a short-term $26 target and once reached down to $16. Our forecasts are for this to occur through 2016, but the risk is it occurs in Q1 as global oil demand drops off according to IEA forecasts and the world runs out of ships to store it in,” he said.

This follows a bearish outlook for this year from Roberts’ team, issued late last year.

At the time Roberts said there are “a number of bad headwinds affecting the world right now, which will worsen in 2016.”