Jeff Gundlach: The Decline and Fall of the Roman Empire

On February 14, Jeff Gundlach hosted a webcast with clients. The title of his presentation: "The Decline and Fall of the Roman Empire." Not surprisingly, Gundlach drew parallels between the U.S. and Ancient Rome. Like the U.S., he noted that Rome had an insufficient tax system and a huge military budget. Like Rome, the U.S. faces "persistence of a destitute underclass," as reflected by the excruciatingly slow job recovery. Gundlach's talk included commentary on the year-to-date performance of markets as well as his outlook for the rest of the year. As usual, Gundlach's presentation has all of the most important financial and economic charts you need to understand the world.
Click Here To See Jeff Gundlach's Presentation >
(source: Business Insider)

Tipping Point

Bill Gross, who runs the world's biggest bond mutual fund at Pacific Investment Management Co., talks about the U.S. debt ceiling compromise passed by Congress and signed into law by President Obama, the outlook for U.S. tax policy and the state of the economy. Gross, speaking with Carol Massar on Bloomberg Television's "Street Smart," also discusses Federal Reserve policy and Pimco's investment strategy in the current climate.

The Recovery Was Artificial

by Joe Weisenthal

Goldman's top economist Jan Hatzius says there's a 25-30% chance of a double dip, though the most likely outcome is a sluggish, gradual recovery.

The recovery has been artificial -- stimulus spending and inventory restocking -- and thus there's no reason to see a return to robust growth.

He's particularly concerned about the expiry of the Bush tax cuts, he sees the unemployment rate going back to 10%, and he sees QEII beginning sometime in the next few months.

The biggest risk: There hasn't been enough healing to create end final demand.

Another big risk: Policy mistakes (e.g. the full expiration of the tax cuts).

As for Japan parallels, he notes that the US financial system is significantly better than Japan's was at the beginning of its lost period, however the US is already at the zero-bound of nominal interest rates (like Japan), and there's a large output gap.

Here's the video, from CNBC:

Eric Sprott Speaks Out About Physical Gold

Here is a transcript of Eric Sprott’s interview with Maria Bartiromo, on CNBC.

I haven’t bought in and I’ve been wrong since March ‘09. I still have a deep deep concern about the leverage in the banking system, a view which I’ve expressed over the last decade. I look at the inability of the government who are spending vast amounts of money to generate much growth in GDP.

In fact, there’s been some excellent work done on how the marginal value of a dollar spent by government is now negative. I can give you the example of running a $1.5-trillion deficit last year, and GDP goes up $200-billion, so we’re not getting much bang for our buck, but we still owe the buck at the end of the year, as we will at the end of this year, so I very much worry about that.

I also worry about what’s going on in China. The Chinese government has asked the banks to cool down the lending. The latest data in March shows that lending’s gone from 300-billion in the month, to $100-billion. I just look at $200-billion less each month, that’s $2.4-trillion less per year if it was to stay that way, and it obviously has to have an effect on their economy, as the lending of $2-trillion did, positively, last year.

When you look at China in 2009, they had a $4-trillion economy; they lent $2-trillion to people, they had a $600-billion stimulus, should generate some GDP growth. I’m not even convinced that 10% growth, which would be maybe $400-billion is a very good response to all the measures that we’re taking.

Re: Sprott Physical Gold Trust (PHYS)

Toronto is the capital for mine financing in the world, and in fact some people think, for resource financing in the world, and we’ve been a big part of it. Our view was that we wanted to could come up with a better vehicle than the SPDR Gold Trust (GLD). We think that we have a much better vehicle than the SPDR Gold Trust (GLD) for THREE main reasons:

1) You can actually get physical gold with your Sprott Physical Gold Trust (PHYS) units. You can’t with the SPDR Gold Trust (GLD)

2) the Tax rate on capital gains on our vehicle (PHYS) is 15%, in SPDR Gold Trust its 28% because the IRS considers it a collectible, and therefore taxes it differently.

3) The counterparty to owners is the Royal Canadian Mint, where we store the gold, and I would assure all your listeners that every bar is there. Its not a leveraged financial institution, its part of the government of Canada, and the risk of that institution not having the gold is remote.

Why Gold? Why gold now after the run its had …
Its been the investment of the decade, hands down, not withstanding central bank selling in it all decade long. I would say that gold looks better today than its ever looked. We have sovereign risk on the economic map today, that we didn’t have on the economic map before, and as I look at the problems in Greece, and I see people taking $4- or $8-billion out of the banks because they’re worried about the government, so they’re taking their money out of the banks, and maybe it’ll move to the other PIG countries, where do those people put those currencies? I think we can see that lots of people are putting it into gold, including some of the smartest investors in the world today.

Do you like other mining related commodities?
We love Silver, obviously as an offshoot to gold; Silver will act better than gold. There’s not as much silver inventory in the world as there is gold inventory. I’ve not been as big a proponent of the cyclical-based metals, copper (has doubled or tripled off the bottom), nickel, zinc, (some have tripled or quadrupled off the bottom), but I haven’t been there, because I worry that the economy, that the financial crisis that we went through, that we are supposedly out of, that we’re probably not out of it.

We’ve moved things from the private company space to the public company (sector) space, you know with the government taking over Fannie, the Freddies, and the AIGs, the Europeans bailing out the banks, the British bailing out their banks, and now the focus goes back to the government; so we’ll just see how long people will continue to buy their sovereign debt. If they stop buying their sovereign debt, then the reason we’re owning gold will just become more apparent.

How should a portfolio be positioned (or rather, how are you positioned)?

We run hedge funds, so you can be long and short at the same time, and as long as your longs are doing better than your shorts you’re okay. How deeply should you be involved in precious metals. I’m only going to give you my own experience:

We are 40% long precious metals, and we’re another 35% long precious metals stocks. We’re 20% long in Oil and Gas, and the rest miscellaneous. So, we’re essentially all in. We probably have the most levered position to those products that you could possibly imagine.

What’s the catalyst to move stocks lower?; I know you’re looking for this market to crack.

I think if a problem of slowing in China happens – you know the market in China peaked out in August last year, hasn’t gone anywhere. Their market doesn’t look like its buying into the Chinese experience as much as we’re buying into the Chinese market experience.

(from CNBC.com, April 16, 2010)

Irwin Kellner: It's beginning to look a lot like a "W"

After logging the fastest rate of growth in two years last quarter, the economy appears to be losing steam during the current period.

This is no big surprise; the consensus of forecasters surveyed weekly by MarketWatch has long been expecting slower growth during the fourth quarter.

Their latest projections call for a growth rate of 2.5% -- a percentage point slower than the government's preliminary take on the previous quarter. (See Economic Calendar.)

There's plenty of evidence that our panel may be right -- if not a tad optimistic. For one thing, total consumer spending -- the biggest single chunk of the economy -- fell in September for the first time in four months and by the biggest percentage since December 2008.

In October, retail sales excluding autos grew 60% slower than they did during the previous month, while preliminary reports for November show that consumer sentiment unexpectedly fell.

If you look closely you can see why consumers are pulling in their horns.

For one thing, personal incomes are barely growing as businesses have trimmed hours worked and cut wages and salaries. For another, employment continues to fall as the jobless rate edges ever closer to the postwar record of 10.8% set in November 1982.

The duration of unemployment as a percent of the labor force is the highest in at least a quarter of a century. More people are being forced to work part-time and/or beneath their skill level while the job openings rate is the lowest in recent memory.

This will continue as long as business can rely on increased productivity and outsourcing to take care of its needs.

Kellner's Forecasts

See economic calendar

date	report	forecast	previous
Nov. 23	Existing-home sales	5.55 million	5.57 million
Nov. 24	GDP revision	3.2%	3.5%
Nov. 24	Consumer confidence	45.0	47.7
Nov. 25	Jobless claims	510,000	505,000
Nov. 25	Durable goods orders	0.5%	1.4%
Nov. 25	Durables ex-transportation	0.4%	1.2%
Nov. 25	Personal income	0.0%	0.0%
Nov. 25	Consumer spending	0.3%	-0.5%
Nov. 25	New home sales	395,000	402,000
Nov. 25	Consumer sentiment	63.0	66.0

/conga/story/misc/kellners-forecast.html 42853

Consumer spending is also being suppressed by the $13 trillion in wealth people have lost because of the decline in prices of homes and stocks, along with their high debt loads and depleted savings accounts.

Industrial production barely budged in October compared with a 0.7% gain in September. New-home construction took a header in October, while prices of new and existing homes continue to tumble.

Home prices have a lot further to fall because supplies figure to keep rising. A record 14% of homeowners with a mortgage were either behind on payments or in foreclosure at the start of last month. This is the ninth straight quarter that this figure set a record.

Services are not immune, either. The ISM's measure of the economy's service sector fell unexpectedly in October after rising for a number of months.

In addition, many firms are worried over the rising cost of health care and energy not to mention talk of higher taxes. Washington is not focusing on creating jobs the way it should. ( See Nov. 10 column.) And states and local governments are raising taxes and cutting spending as they struggle to balance their budgets.

If all this were not enough there's the Catch-22 facing policymakers when it comes to economic policy.

Washington's budget deficit has exploded while the Federal Reserve has injected gobs of liquidity into the markets.

If these policies are reversed too quickly, they run the risk of pushing the economy back into recession. If they are not reversed quickly enough, interest rates will soar -- pushing the economy back into recession.

Holiday fear? You betcha.

(from MarketWatch.com, November 24, 2009)