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It was another busy week of earnings announcements. Disappointing earnings announcements.Even though they’re about 5 per cent off of their highs, stocks continue to be remarkably resilient.
Meanwhile, markets face tremendous amounts of political uncertainty with elections, a U.S. fiscal cliff, and even a Japanese fiscal cliff fast approaching.
This week we heard from the very best: SocGen’s Dylan Grice, Goldman’s Huw Pill, JP Morgan’s Hajime Kitano, and Morgan Stanley’s Gerard Minack just to name a few.
Hedge fund giants Seth Klarman and Hugh Hendry also chimed in.
'A harrowing BBC report suggests Greece is Balkanising once more. We are reminded that its civil war only ended in 1949 and that harsh austerity is reopening deep social wounds. Yet Spain''s civil war ended only a few years earlier, and a generation ago it was a fascist military dictatorship. Couldn''t it go the same way if subject to the same stress?'
'There is no rationale for owning a gold mining equity. It is as close as you get to insanity,' he said.
The reasons, he explained, is the risk premium goes up when the gold prices go up, ore precarious societies across the world are more envious of your gold assets, and there is no valuation argument against the risk of confiscation, he said.
'Can't fight, won't fight the Fed - If there as a 'favourite currency' amongst the investors I spoke with in North America, it was the Mexican peso. And the favourite theme was 'where can I get yield?' This is a continuation of the 'don't fight the Fed/ECB' view of life.'
BAML: Japan Has Its Own Fiscal Cliff, And People Are Actually Talking About A Risk Of Imminent Technical Default
'There are a lot of interests or inquiries regarding foreign bond buying by the BOJ, but I have not heard one inquiry about Japan being on the brink of default. We're not talking about 3yrs, 5yrs or 10yrs from now, this could technically happen as early as December. Of course no one believes that Japanese politicians would actually allow the country to default, but just as the fiscal cliff in the U.S. is a reality, the political stalemate in Japan makes this unthinkable possibility a bit of a reality.'
- Never be a slave to the data -- they are no substitute for astute observation of the big picture.
- The consensus rarely gets it right and almost always errs on the side of optimism -- except at the bottom.
- Fall in love with your partner, not your forecast.
'Finally, we must the morality of Fed programs that trick people (as if they were Pavlov's dogs) into behaviours that are adverse to their own long-term best interest. What kind of government entity cajoles' savers to spend, when years of and overspending have left the consumer in terrible shape? What kind of entity tricks its citizens into paying higher and higher prices to buy stocks? What kind of entity drives the return on retirees' savings to Zero for seven years (2008-2015 and counting) in order to rescue poorly managed banks? Not the kind that should play this large a role in the economy.'
'GDP is probably zero, maybe plus one, maybe negative one. This number is not consistent with the Chinese economy. By far the most reliable indicator of Chinese economic activity is the production of electricity and in the third quarter the average monthly increase in electricity production was 2.1 per cent. And because electricity historically outpaces the growth of GDP, this means China couldn't have been growing much faster than zero.'
ZERVOS: I'm Not Worried About Earnings, Europe, Or The Cliff — I Am Worried About The Impact Of November 6
'But what if this little risk-off move is about the future of monetary policy implementation? What if the market is sniffing a possible change in the Fed policy reaction function? I do worry about policy mistakes at the Fed under a new Board that 'gets religion' on inflation risks. That scares me. '
MORGAN STANLEY'S GERARD MINACK: Here's The Chart That Shows Why Stocks Are Suddenly In A Bunch Of Trouble
'Equities have re-rated to levels where they appear increasingly vulnerable to bad news. We expect bad news: a significant shortfall in earnings versus current forecasts in both the US and Europe. Moreover, we think equity markets -- and risk assets generally -- are now too complacent about the risks around US fiscal policy and potential political backsliding in Europe.'
'What scares me, though, is the fiscal cliff -- not so much in terms of everything else that everyone may be talking about, but the change in tax rates for dividends and capital gains.
I, for one, am much more scared of that than most people seem to be. Maybe I'm just a worrywart, but I can't imagine that this market can overcome the kind of adjustment in tax rates that is coming on January 1 if nothing is done.'
'I think we'll get Obama again,' answered Shiller. 'There's a good chance we'll get Romney. I think he will probably be OK. He did fine as governor of Massachusetts. But I think his austerity program might turn the U.S. into another Europe. And that's not what we want.'
GOLDMAN'S PILL: It Will Be 18 Months Before We Can 'Begin To Even Think' About An End To The Euro Crisis
'There will remain risks. I think those risks -- or perhaps the extreme tail risks -- have been contained by the ECB's actions, but I think there are certainly threats of greater volatility or some disturbances.
I think this phase will continue probably for another year. Likely longer -- almost certainly for 18 months, and it will only be at that sort of horizon that we can really begin to even think about coming through the crisis.'
BONUS: STEVE WYNN: A Very Well-Connected Source Told Me Something Very Bullish Is In Store For China
'And this source made the point that there was a point that there was a thinking in Beijing that they have to privatize and liberalize some of the institutions in that country. And that meant that some of the state-owned businesses, and you know the list as well as I do, Tom, were going to be..they were going to release their control of those enterprises. And either privatize or allow them to go public or do other things.'
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