BREMMER: There Was Only One Election That Mattered In 2012

Godzilla City

Ian Bremmer, President of the Eurasia Group and renowned geopolitical risk analyst, argues that there was only one election in 2012 that really mattered.

His Reuters article is aptly named, ‘In a year of big elections, Japan’s was Godzilla.’ 

Here’s how Bremmer characterizes the results of other major elections from the past year:

  • China: largely the same as it was
  • USA: Status quo preserved – GOP House, Democratic Senate, Obama presidency
  • Russia: Putin goes from Prime Minister to President, retains control.

In his opinion, these seemingly important events “were largely red herrings.”

By contrast, he argues that the Japanese election signifies a major policy shift on at least two major fronts. We’ve commented on Shinzo Abe’s commitment to defeat deflation and repair the Japanese economy through monetary easing and stimulus.

But the second shift, Japanese nationalism, has a much broader global impact. China’s aggressive attempts to claim the Diaoyu/Senkaku Islands have helped trigger this surge in Japanese nationalism, which Shinzo Abe reflects when he says that “The Senkaku Islands are inherently Japanese territory.”

Japan’s nativist turn was affirmed not only through the election of Shinzo Abe, but more importantly by the ascent of the Restoration Party, which wants to “remilitarize, rip up the U.S.-brokered Japanese constitution and install a federalized system.”    

As the conflict with China continues to adversely affect Japanese exports, the island nation could turn to different, albeit less geographically convenient, trading partners.

Bremmer suggests that Japan ought to “engage with other countries that are concerned about China’s rise” and strengthen its ties with the U.S. Bremmer feels this separation from to approve of this Japanese turn away from China, recognizing that any prolonged confrontation between the two would end in disaster for Japan.

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Wall Street Tells Clients To Sell Treasuries, But Its Own Holdings Are At A Record High

If one reads sellside research (especially that of Bank of America or Goldman), if one listens to comedy-finance fusion TV channels, or if one reads newspapers, one can’t help but be left with the impression that everyone and their grandmother is now dumping Treasuries and buying stocks.

Why? Because this is a key part of Bernanke’s latest masterplan (which is the same as all his previous “masterplans,” which have failed so far about four times previously) to force what little retail investing capital is left out there out of the safety of bonds (return of capital), and into stocks (return on capital).

The catalyst? This time, for real, central planners will generate enough (controlled) inflation to create losses for anyone holding long duration paper (such as the Fed of course, whose DV01 is the biggest in the history of the world at over $2 billion, but we digress).

So, just to test whether or not this was indeed the case, we decided to go to the source data for what the smartest money of all is doing: the 20 or so (RIP 21st PD MF Global) primary dealers.

After all, if anyone is dumping Treasuries over fears of an imminent surge in yields, and rotating into stocks, it would be them, right? Well, the result is charted below: we present it without commentary.

Primary Dealer Treasury holdings

OK, a little commentary.

Yes, the black line just hit an all time high, confirming that while everyone else may be selling, the Dealers, the smartest people: those who not only get an advance notice from the Fed itself, but provide feedback on what it should do, are not only not selling, they have never owned more Treasuries than they do now…

Do what they say, or do what they do?

Source: NYFed

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13 European Housing Markets Sure Look Like Bubbles

soap bubble

Could Sweden or Finland be the scene of the next European financial crisis? It is actually far likelier than most people realize. While the world has been laser-focused on the woes of the heavily-indebted PIIGS nations for the last couple of years, property markets in Northern and Western European countries have been bubbling up to dizzying new heights in a repeat performance of the very property bubbles that caused the global financial crisis in the first place.

Check Out Europe’s Housing Bubble Country-by-Country >

Nordic and Western European countries such as Norway and Switzerland have attracted strong investment inflows due to their perceived economic safe-haven statuses, serving to further inflate these countries’ preexisting property bubbles that had expanded from the mid-1990s until 2008.

With their overheated economies and ballooning property bubbles, today’s safe-haven European countries may very well be tomorrow’s Greeces and Italys.

I’ve named this massive multi-country housing bubble “The Post-2009 Northern and Western European Housing Bubble.”

(The Post-2009 Northern and Western European Housing Bubble is a part of the overall Post-2009 Global Housing Bubble or “Housing Bubble 2.0″ that I’ve identified.)

UK and London Housing Bubble

UK housing prices have nearly quadrupled from the mid-1990s to 2008, briefly fell 20% in 2009 and have since rebounded enough to keep property prices firmly in the stratosphere.

UK property prices are very overvalued, currently valued at 128% of their historic price-to-income ratio and 140% of their historic price-to-rent ratio. [1] In a pattern similar to France, the UK housing bubble (since 2008) has been primarily driven by price gains in the capital city of London.

Prime London housing prices rose a hearty 11.4% in the 12 months to October 2011 [2], up 40% from their post-credit crunch low [3], while most other investment markets fell in a very volatile year.

Like Paris, the city of London has such a strong level of international “brand recognition” and a perceived safe-haven status that wealthy foreign investors are clamoring to buy property in prime areas such as central London.

“London property is the ‘Swiss bank account’ of the 21st century,” says Robin Hardy, an analyst at London investment firm Peel Hunt. Rich people in places like Egypt, Syria and southern Europe are rushing to get their money away from the turmoil, and for want of a better alternative, they are plunking it down in the “millionaire’s playground” of central London. [4]

The nouveau riche of China, India and other emerging markets are also keen on diversifying their wealth into prime Western property markets such as London, Vancouver and Manhattan, while one hedge-fund manager said that London property was a “laundromat for Russian money.”

An entire generation is locked out of the city’s broken and outrageously-bubbled housing markets as the average Londoner would need to triple their salary to £87,000 to buy an average price property. [5]

The prime London property bubble is highly vulnerable to the popping of the precariously-teetering China and emerging markets bubbles as well as job losses and decreasing bonuses for City of London financial workers. [6]

UK and London Housing Bubble Articles List

French and Paris Housing Bubble

After zooming 120% from 2000 to 2008 and briefly dipping 5.6% in 2009, French property prices have continued their inexorable march higher since late 2009. French property prices are highly overvalued, currently valued at 135% of their historic price-to-income ratio and 150% of their historic price-to-rent ratio. [1]

Though property prices are strongly rising throughout France, the French housing bubble is largely driven by the Paris region, where prices have jumped 18% in 2010 and approximately 10% in 2011, up more than 40% since 2005. Some posh districts in Paris have risen at a 27% rate in 2011. [2]

France’s housing bubble was goosed by a 2009 law that was meant to stimulate the housing market by creating a significant tax incentive for buyers. Mortgage rates that plunged from 6.5% in late 2008 to 3.5% in 2011 were another major catalyst for soaring property prices, causing fixed-rate mortgage lending to increase by 73% by early 2011. [3]

The French property market now has the dubious distinction of being the most overvalued in Europe and the third most overvalued market in the world, behind only Hong Kong and Australia [4], which have property bubbles of their own.

The Paris-based OECD warned that “there is a risk that a prolonged period of easy finance could result in a price bubble,” which may endanger French banks [5], while Hervé Boulhol, the OECD’s France economist, warned against treating French real estate as a safe-haven and that the property market’s powerful rise without a corresponding rise in income “may signal a bubble phenomenon, as a bubble is a disconnection with fundamentals.” [6]

Moody’s also issued a warning that the French property market was overheating and that the least cautious lenders could face steep losses in a more price severe drop. [7]

By October 2012, the French property boom showed signs of an abrupt slowdown, with new mortgage loans dropping 45.8% (yoy) and a 30 to 40% decrease in home sales in Paris and Ile-de-France. [8]

French Housing Bubble Articles List

German Housing Bubble

While Germany was fortunate and sensible enough to have avoided engaging in the 2000s housing bubble folly with the rest of the world, Germans certainly seem eager to make up for lost time.

The European Central Bank’s ultra-low key interest rate, while appropriate for the ailing PIIGS nations, is too low for faster-growing Germany resulting in negative real interest rates and fears of inflation.

As is common in countries with negative real interest rates, German investors are pulling money out of low-yielding bank accounts and investments and plowing it into all types of real estate, causing prices to boom for the first time in a very long while.

Property prices in Munich and Hamburg rose by more than 10% in 2011 [1] , while obscure fields and forests in northeastern Germany’s Uckermark region have soared by as much as 20 to 30 percent. [2]

In September 2012, George Soros said “You have a serious danger of a housing bubble developing in Berlin. It has a lot to do with the flight of capital and negative real interest rates.” [3]

It is too early to determine if Germany is in the midst of a property bubble, but it is certainly a situation that warrants monitoring, especially if there is a temporary improvement in global economic growth and sentiment.

German Housing Bubble Articles List

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Trader Wall Street Computer Screen Bloomberg Terminal Staring Intently Focus

Despite the lack of a fiscal cliff deal, stocks are holding up remarkably well.  Meanwhile, we got a ton of great economic data.

First the scoreboard:

Dow: 13,311, +59.7, +0.4 percent
S&P 500: 1,443, +7.8, +0.5 percent
NASDAQ: 3,050, +6.0, +0.2 percent

And now the top stories:

  • Q3 GDP was revised way up to 3.1 percent, which was much higher than the 2.8 percent economists were looking for.  Personal consumption was up 1.6 percent, versus the expectation fro 1.4 percent.
  • Weekly initial jobless claims came in line with expectations, climbing to 361k.  This was a tad higher than the 360k expected.
  • The closely followed Philly Fed Business Outlook Survey crushed expectations, surging to 8.1 from last month’s reading of -10.7.  Economists were only expecting a reading of -3.0.  This is a welcome development following  a slew of disappointing regional manufacturing surveys in recent weeks.  The idea that fiscal cliff uncertainty is stopping business activity appears to be reversing.
  • Existing home sales jumped 5.9 percent to 5.04 million in November.  This to was higher than the expectations, which were at 4.90 million. “Momentum continues to build in the housing market from growing jobs and a bursting out of household formation,” said NAR chief economist Lawrence Yun. “With lower rental vacancy rates and rising rents, combined with still historically favorable affordability conditions, more people are buying homes.”
  • Gold prices got slammed again today, falling below $1,650 per ounce.  Commodities guru Jim Rogers thinks prices could fall even further from here.  With U.S. economic data coming out bullish, there’s growing speculation that the Federal Reserve will be able to tighten monetary policy sooner than later.  Currently, the Fed expects to keep monetary policy easy through 2015.
  • Meanwhile, shares of Herbalife got pummeled again today as hedge fund giant Bill Ackman presented a devastating 342-slide presentation slamming the company. “This is a pyramid scheme,” said Ackman.
  • Don’t Miss: Wall Street’s Biggest Geniuses Reveal Their Favorite Charts Of 2012 >

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FINANCIAL ADVISOR INSIGHTS: Advisors Are Getting Flooded With Questions About Gun Stocks

FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.

Advisors Are Getting Flooded With Questions About Gun Stocks In Aftermath Of Newtown Shooting (The Wall Street Journal)

Gun stocks like Smith & Wesson’s and outdoor goods retailers like Cabela’s that also sell guns, got crushed in the immediate aftermath of the Sandy Hook massacre. Amid the outcry and the Obama administration’s plan to change gun policies, advisors expect clients will want to sell gun stocks but that it might be difficult to clear portfolios. Others however warn that this uproar about guns will die down in six months.

The Four Big Investment Themes Of 2012 (The Reformed Broker)

Investment advisor Joshua Brown says there were four major themes for investors this year. The first was the Apple obsession, but the stock’s recent downward trajectory has left investors in unfamiliar terrain. The second and the biggest winning trade was in homebuilder stocks. The third big theme was investors piling into bond funds.  And the fourth big theme was the inflows out of active funds, and into passive funds like Vanguard.

Wall Street’s Biggest Geniuses Reveal Their Favorite Charts Of 2012 (Business Insider)

As we wrap up 2012, Business Insider’s Matthew Boesler reached out to some of our favorite analysts, economists and traders to get their favorite charts of 2012. Of the 70 charts he curated Boesler said John Stolzfus and Matthew Naidorf’s gold chart was his favorite. Here is their explanation:

“Uncertainty, financial crisis, currency debasement, accommodative monetary policies, and central bank additions to gold reserves undoubtedly wheaten investors’ appetite for the ‘safe haven’ and ‘storehouse of value’ attributes of the metal. We believe, however, that ultimately it was the accessibility and liquidity provided by the ETF structure that facilitated the momentum and scope of gold’s performance. Our chart illustrates the rise of gold eight years before and eight years after the launch of SPDR Gold Shares (GLD).”

gold chart

If You’re Investing In Alcohol, Long Bourbon, Short Beer (Citi)

Per capita beer consumption has been falling and bourbon sales have surged in comparison, according to Citi’s Vivien Azer. Meanwhile, spirits also give alcohol drinkers more “buzz for their buck”.

“While we like the pockets of growth that remain in the U.S. beer category, overall we continue to believe that the U.S. spirits segment offers a more attractive return profile for investors, given the less impressive trends that we expect to continue to see for the U.S. beer category, generally. As such, our favorite name within our alcoholic beverage coverage remains Brown-Forman, where we have an $80 target price, which represents 28% ETR from current levels.”

A Baker’s Dozen – 13 Investment Themes for 2013 (Credit Suisse)

Credit Suisse analysts expect 2013, to be “disappointingly similar to 2012” but identify 13 investment themes for next year. These include healthcare reform, U.S. housing, shale revolution, and, automation.

In housing, homebuilders and building product companies will benefit from the improvement in home sales and prices. Among banks Wells Fargo will likely be the biggest beneficiary, and, mortgage REITs and insurers will also be key winners. The biggest risks to housing are  “elimination of the mortgage interest deduction and/or significantly higher FHA down payment requirements”.

Here’s How Index Funds Can Save Your Retirement (Marketwatch)

Paul Merriman, founder of Merriman LLC writes that moving money out of individual stocks and active funds, into index (passive) funds can help people retire earlier. 

Index funds add money to savings and help avoid stupid decisions. Merriman highlights ten ways in which index funds can help savings, these include reducing turnover since they rarely replace stocks and bonds, saving on taxes, and reduced risk through diversification. 

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CHART: The Exploding Cost Of Natural Disasters

Natural disasters are some of the most unpleasant risks that investors must consider due to unpredictability.

But one thing is for sure: the cost of natural disasters is getting a lot more expensive.

“Insured losses from natural disasters have risen eight-fold in economic terms since the 1980’s,” write analysts from Deutsche Bank.

They reviewed the data of the reinsurers — the companies that insure the insurance companies — and created the chart below.natural disaster reinsurance

“Losses can fluctuate wildly from year to year,” they note.

“Freak weather events are occurring more often than can be explained by natural variability alone,” they write.  “Rising urbanisation, which increases the concentration of wealth and people, exacerbates the impact of such events.”

SEE ALSO: Deutsche Bank: 13 Outlier Events For 2013 >

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Herbalife Is Getting Slammed Again (HLF)

Pershing Square Capital’s Bill Ackman is gave a devastating 342-slide presentation on why he’s shorting Herbalife.

“This a pyramid scheme,” said Ackman repeatedly to Andrew Ross Sorkin on CNBC.

Meanwhile, the stock is getting slammed, down 5 percent today.  This follows yesterday’s massive sell-off.

Check out the intraday chart from Bloomberg.


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THE MONEYGAME 70: The 70 Most Important Charts of 2012

Monk reading

There’s no better way to understand the world than charts.

Business Insider reached out to its favorite analysts, economists, and traders to get their favorite charts of 2012.

The responses we received vary dramatically, and the insights are revealing.

Responses cover all of the big stories of the year: the Treasury rally, the year in stocks, Europe, the changing nature of global energy, and the era of the central banker.

We’d like to express our huge things to all of the people who contributed to this feature.

Byron Wien, Blackstone Group

Matt King, Citi

Doug Kass, Seabreeze Partners Management

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CHART OF THE DAY: How Treasuries Fell In Only 3 Of The Last 33 Years

“Since 1980, the Treasury market has posted a calendar year negative total return on three occasions,” writes Matthew Hornbach, Morgan Stanley’s top interest rate strategist. “Only three. In over thirty years.”

This chart of Treasury security returns from Hornbach is a bit tough to look at.  Fortunately, it comes with a table.

treasury returns

Hornbach offers some additional commentary on the last time returns were negative:

The 2009 episode is worth investigating further because the next year of negative returns in the Treasury market is likely to occur while monetary policy remains accommodative. In February 2009, the President signed into law the large fiscal stimulus package known as the American Recovery and Reinvestment Act of 2009. In March, the Fed added to their unconventional easing program by agreeing to purchase $300bn in Treasuries, $750bn in agency MBS and $100bn in agency debentures. Easier monetary policy combined with easier fiscal policy took Treasury yields off their lowest levels in decades by pumping up growth and inflation expectations. The result was the worst calendar year for Treasury returns since 1980.

The Fed intends to keep monetary policy loose through 2015.  Given this, Hornbach doesn’t expect tight monetary policy to contribute to the next year of negative Treasury returns.

The 2009 episode suggests that, without tighter monetary policy, higher growth and inflation expectations must contribute to negative total returns for nominal Treasuries. Whether rising inflation expectations played a part in each year of negative returns is difficult to say, given that TIPS began trading in 1997. We can only say for sure that dramatic rises in market-based inflation expectations were a part of the 1999 and 2009 negative total return episodes. Still, it seems reasonable to assume that inflation expectations also rose in 1994 along with growth expectations.

Then some believe that tighter monetary policy could come sooner than later.

SEE ALSO: MORGAN STANLEY PRESENTS: 17 Big Surprises That Could Rock Markets In 2013 >

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