One other point of note about the statistics as reported in the zerohedge link. The credit spread between BBB and BB bonds has blown out to over 300 basis points. To me this indicates that the underlying economy is in much worse shape than is being acknowledged by the Fed, Obama and the media. I would also argue that the stock market is not discounting this degree of economic deterioration, which means the risk of a big stock market "accident" is still very high. To put this credit spread widening in perspective, at the height of the credit/housing bubble, single-B rated credits were trading tighter than 300 bps to Treasuries. In other words, the "handicapping" of financial risk in our system has more than doubled over the last month.
The implications of this massive repricing of credit risk points to a developing liquidity crisis in our financial system, similar to 2008, and reflects the overall dismal economic condition of the real economy. I'm sure you won't hear this from the Teleprompter that sits in the White House and pretends to lead the country, but those two facts are what the big-money odds makers of the U.S. financial casino are telling us.
As this situation further develops, you can be sure that a lot of the "hot" money that has left the high yield market and that is mispricing the stock market will continue to flow into the precious metals and mining stocks. Recently the idea that gold is in some kind of investment "bubble" has been promoted all over the imbecilic media, including a widely circulated report from the Einsteins at Wells Fargo that reads more like some kind flamboyant yellow journalism from the National Enquirer in that is was very poorly researched - if any bona fide statistical research was done at all - and its premise and assertions lacked any basis in fact. Need I remind any Wells Fargo employee/analyst that the bank's balance sheet is connected to one of the greatest bubbles of all time and Wells Fargo would have been liquidated in 2008 had it not been for the generosity of Tim Geithner, on behalf of the U.S. Taxpayers...
So I wanted to link a must-read commentary from John Embry, one of the investing patriarchs of the current precious metals bull market. Specifically, I wanted to highlight his comment about the nascent transition globally that is occurring from a fiat currency based system to the restoration of a gold-backed currency system (which has been the currency basis for 90% of the last 5,000 years):
The unfortunate result of these machinations will be the destruction of the existing debt, the end of this experiment with pure fiat currency and the implementation of an entirely new monetary system. Assets that will see investors through this traumatic transition will be gold and silver just as they have done in every previous example of fiat currency destruction.
The very fact that the average citizen has little or no understanding of this phenomenon virtually ensures its outcome. Those who do hold the precious metals and other hard assets instead of paper instruments of wealth will be the beneficiaries of the what will likely be the greatest transfer of wealth in history.The bold emphasis is mine. I want to highlight that because it is either extreme stupidity or motivated deceit on the part of the bubble-promoters to label and define an investment bubble when the primary ingredient of dumb public money is so notably absent from the market. Here's Embry's piece: LINK
The next two weeks are usually among the slowest trading days of the year besides the year-end holiday period. I will try to post daily but most of my attention will focused on managing our fund and watching/playing a lot tennis.