JS Global Macro Notes

[darkhorse]

ZNGA blows up:

www.reuters.com/article/2012/07/25/net-us-zynga-earnings-idUSBRE86O1NV20120725

Stick a fork in the social investing fad -- it's done.

ZNGA's massive earnings miss bodes ill for Facebook (FB), and justifies the extreme skepticism surrounding this whole space. TRIP was another social media darling that blew up this week. Off-the-charts cynicism may not have been cynical enough.

It's not really news that social media (from an investing perspective) is dead. But the psychological implications moving forward are intriguing.

From a bigger picture perspective, the way the social media bubble has played out is an in-your-face example of outsiders getting screwed by insiders.

FB, ZNGA, GRPN and others were huge successes for tech founders, early stage investors, and everyone else who got a chunk pre-IPO, then flipped it to the public in a greater fool transaction.

For those "investing" post-IPO -- and can you really call it investing? it was actually gambling -- the carnival barker suckerdom nature of the whole exercise has now been writ large.

I wonder what the broader implications are in terms of further souring the masses on public equity markets. The majority of baby boomers haven't saved enough to even justify equity involvement in the first place; gen X and whatever the generation after them is called (generation whine? I just made that up but it fits) have good reason to think the stock market is a criminally rigged crapshoot.

Odds are increasing that it all goes to hell, with lower and lower participation going forward... except for the wild card that is the Fed, and the possibility that the powers that be pull out all the stops -- possibly even buying equities outright -- if things get bad enough.

I don't know how things are going to play out -- our job is to game scenarios and then act on inflection points, not make hard predictions about the future -- but my spidey sense says this shit is going to get really, REALLY bad.

Paradoxically, that doesn't necessarily mean lower stock prices. All the pundits who predict a return to S&P 600 or whatever underestimate the potential reaction of the Fed if we head down that path... I could more easily see the Dow 20,000 scenario in which things have gotten so bad that the inflation-adjusted real value of public companies has actually declined, even as paper prices have skyrocketed in nominal terms.

It's a great time to be a trader, and roughly speaking one of the worst times ever to be a scared and desperate sheep.

 

[darkhorse]

Gold improved its fortunes this week, but popping on hopes of Fed action - via leaked Hilsenrath piece no less - seems pretty weak beer. Too obvious, and too much risk QE3 is either reined in, held off, or lands with a thud.

We have been somewhere been neutral and bearish on PMs for months, and remain so.

Not interested in shorting, but would need significantly stronger confirmation that inflation / deflation tug of war developments are playing out in gold's favor to get bullish.

There are better trades out there right now -- lots of them -- and no reason to fear "missing the move." When gold gets its mojo back, the signs will be apparent, and there will be opportunity to hop on the train.

 

[darkhorse]

<iframe width="420" height="315" src="http://www.youtube.com/embed/8zEQhhaJsU4" frameborder="0" allowfullscreen></iframe>

Bronte Capital sells 18-month MSFT position, even flips net short. Extended rationale:

http://brontecapital.blogspot.com/2012/07/changing-my-mind-on-microsoft.html

#lolballmer

 

[darkhorse]

S&P futures ripping (up 1% premarket) on the following comments from ECB's Draghi:

Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough... To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate.

No actual plan? No credible action? No Germany buy-in? Just straight up jawboning?

This is a new high in bullshit, even for this nonsense market.

Rumors and hopes and vapors of stimulus, QE3, LTRO Redux etc etc are all this market has.

They are enough to create mini-rips in the short run, but eventually this is all going to be unmitigated disaster.

When I think about how stupid and deliberately obtuse so many bulls are, I'm reminded of Lily Tomlin's old observation: "No matter how cynical you are, you just can't keep up."

It's all good though -- like playing poker with the drunken whale at the poker table. He'll hit rivers here and there, and may go on a rush, but eventually he gives you all his chips.

 

[Ghost of Cutten]

Quote from darkhorse:

gen X and whatever the generation after them is called (generation whine? I just made that up but it fits) have good reason to think the stock market is a criminally rigged crapshoot.

Since 2000 at the peak of the bubble, a diversified passively indexed stocks/bond portfolio with say 10% of gold, and annual rebalancing, has performed reasonably with acceptable volatility. Given that robust performance during the worst stocks period since the 1930s, and given that Jack Bogle, Harry Browne, and others had explained all this back in the 70s and every decade since, and have the results to back it up, then Gen X and Y should be massively pro-investing. There is absolutely nothing that happened in the last 12 years that has not happened countless times before in the markets, none of it should have come as a surprise, as shown by the fact that sensible diversified investment portfolios handled the swings quite acceptably.

The only possible reason to be anti-investing is if reality, facts, and data are completely ignored in favour of emotional narratives plucked from thin air with no empirical support whatsoever. Or if someone is so moronic that they think going 100% long the S&P at >20 times boom-era PE is a conservative 'diversified' investment strategy.

The only people with a legit ax to grind are those under 25. But they have a nicely valued stock market to invest in for the next 40 years, they will almost certainly get good 40 year returns if they follow sound investment policy. This should compensate for their somewhat diminished employment prospects for the next 3-5 years.

If an able-bodied person with no mental illnesses can't retire comfortably after a lifetime spent in the richest country in the world, they are quite frankly an idiot and deserve everything they have coming.

 

[darkhorse]

Quote from Ghost of Cutten:


The only possible reason not to be is if reality, facts, and data are completely ignored in favour of emotional narratives plucked from thin air with no empirical support whatsoever. Or if someone is so moronic that they think going 100% long the S&P at >20 times boom-era PE is a conservative 'diversified' investment strategy.

...

If an able-bodied person with no mental illnesses can't retire comfortably after a lifetime spent in the richest country in the world, they are quite frankly an idiot and deserve everything they have coming.

According to recent NYT piece, 75% of retiring boomers approaching retirement age have less than 30K in savings. By said definition there are lots of idiots out there...

Quote from Ghost of Cutten:

There is absolutely nothing that happened in the last 12 years that has not happened countless times before in the markets, none of it should have come as a surprise, as shown by the fact that sensible diversified investment portfolios handled the swings quite acceptably.

Also re the above, from someone who is engaged in and understands market history and monetary policy history, maybe so.

But from the perspective of just about everyone else, it's been an absolutely insane roller coaster ride -- not to mention that the entire long-only community got killed in 2008, or that the country collectively lost its ass in the housing bubble and bust.

I'm not sure bloodless interpretations of market performance are worth much in hindsight, when trying to extrapolate observations as to how the masses should have behaved, or will behave in future.

If people were generally rational, sensible and unemotional in aggregate, we would have a very different market than the one that exists.

 

[Ghost of Cutten]

Quote from darkhorse:

According to recent NYT piece, 75% of retiring boomers approaching retirement have less than 30K in savings. By said definition there are lots of idiots out there...

Yep I agree there are lots of idiots. Will idiots take responsibility for their own idiocy? Usually they don't. They will blame someone else. But who cares? Unless a bunch of broke oldsters find a way to pillage their descendants via the political system, then they are the ones who will primarily suffer from their own poor decisions. Eventually the younger people will get sick of their whining and will start cutting their entitlements.

 

[darkhorse]

Quote from Ghost of Cutten:

Yep I agree there are lots of idiots. Will idiots take responsibility for their own idiocy? Usually they don't. They will blame someone else. But who cares? Unless a bunch of broke oldsters find a way to pillage their descendants via the political system, then they are the ones who will primarily suffer from their own poor decisions.

There are macro implications when the broke idiots (and those who aren't idiots, but just didn't get any lucky breaks in life or otherwise fell on hard times) are tens of millions strong and have power at the voting booth...

 

[Ghost of Cutten]

Quote from darkhorse:



No actual plan? No credible action? No Germany buy-in? Just straight up jawboning?

This is a new high in bullshit, even for this nonsense market.

Agree 100%. Hilarious that markets go up so much just because someone says something - no actual plan of action, just mere words (exactly the same as those parroted for the last 3 years in Europe). This is partly why I am not short the stock market or the €/$ rate, I'm happy to just wait on the sidelines and wait for bargains if and when it all ends in tears.

I do sometimes wonder where this seemingly infinite pool of 'dumb money' comes from. Don't they eventually lose their shirts? Or does wealth generation in the real economy keep refuelling the spigot, bringing a fresh generation of suckers to the table.

 

[Ghost of Cutten]

Quote from darkhorse:

There are macro implications when the broke idiots (and those who aren't idiots, but just didn't get any lucky breaks in life or otherwise fell on hard times) are tens of millions strong and have power at the voting booth...

Well, the hard times people I agree with, but they suffer in any system. The USA does have a welfare state and is a charitable society overall, so they are not totally screwed. And its not the hard times people who are bitching and moaning - it's the spoiled, whiny, over-privileged boomers and especially the Republican boomers (the ones who say you should take responsibility for your own actions - then bitch when they retire poor due to their own actions).

However, what can they do at the voting booth? Romney is their last shot, and he is anti-redistribution. Obama is not going to pick the pockets of the working young to boost a bunch of GOP geriatrics. They don't have any constituency, because their vested self interests are at odds with the greater good of society. Probably some tax increases and/or inflation are inevitable in the long run, but that can easily be achieved by reducing military spending and rolling back the Bush tax cuts, making billionaires pay the same rate as plumbers etc. IMO they are just going to have to suck it up and keep whining.

If you look at Sweden from the 1970s to present day, they had an economically unsustainable approach, but it took a blow up in the early 90s (after 20 years of idiotic policy) for them to get the guts to reform and get back on track with more pro-market positions and sensible government spending, they overrode the vested interests for the greater good of society. The USA has not yet hit its puke point, because the suffering has not been great enough to force change. It is quite incredible that here in 2012, they still haven't learned the lesson (Europe too) of the 2008 crisis. But that's humans for you - most of them, at least on a group level, do not learn from the first mistake. It takes years, even a decade or two of whacking them over the head with a hammer of mistakes, before they start to realise where the pain is coming from, let alone how to deal with it. See Japan, or 1930s Western democracies. So, IMO it will take further pain before they wake up and realise hard decisions need to be taken sooner to result in a better long-run outcome. Boomer pensioner tears, just like billionaire Republican tears, are just going to have to flow, sucks to be them I guess.