The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Compared to historical norms, Nasdaq market capitalization is significantly above median levels relative to GDP.

The Nasdaq’s median percentage of GDP has averaged 61.8%; its now over 100%. As the chart below shows, the big aberrational periods have been due Fed bubble inflation: first in 1998-2000; then more recently in 2006-07.

The present Zero Interest Rate policy (ZIRP) is helping to inflate a 3rd market bubble:

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Chart courtesy of Ron Griess of The Chart Store.

Phil Gramm, the former Republican Senator from Texas who co-wrote the act that undid Glass-Steagall, has our DQotD:

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“I’ve never seen any evidence to substantiate any claim that this current financial crisis had anything to do with Gramm-Leach-Bliley. In fact, you couldn’t have had the assisted takeovers you had. More institutions would have failed.”

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Your dumb Quote of the Day is sponsored by Cognitive Dissonance, a Nasdaq Company . . .

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Sources:
Wall Street Faces ‘Live Ammo’ as Congress Aims to Unravel Banks
Alison Vekshin and Robert Schmidt
Bloomberg, November 12 2009
http://www.bloomberg.com/apps/news?pid=20601109&sid=az7AcisnxsCA&pos=11

As long as I am here in Europe, I might as well give you some flavor of what has become known as Recession Porn: The most dire forecasts expecting the most egregious outcomes.

Today’s “Crisis Porn” comes to us via Société Générale by way of the UK’s Telegraph, and its Pretty grim:

“In a report entitled “Worst-case debt scenario”, the bank’s asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.

Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of “deleveraging”, for years.

“As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse,” said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.

Under the French bank’s “Bear Case” scenario, the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.

Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade.

Note that the report is a “worst case scenario.” That’s your recession porn for the day . . .

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Source:
Société Générale tells clients how to prepare for ‘global collapse’
Ambrose Evans-Pritchard
Telegraph, 6:12PM GMT 18 Nov 2009
http://www.telegraph.co.uk/finance/economics/6599281/Societe-Generale-tells-clients-how-to-prepare-for-global-collapse.html

Why aren’t we listening more to this font of common sense and logic?

“A proposal to give banking regulators authority to block accounting standards is “a terrible idea,” Paul A. Volcker, a former chairman of the Federal Reserve Board, said Monday.

Mr. Volcker has been an outspoken critic of “mark to market” accounting that forced banks to take large write-downs in asset values, a position cited by banks earlier this year when they persuaded members of the House Financial Services Committee to demand changes in that rule.

But in an interview Monday, two days before a House committee vote on a proposal that would grant bank regulators the power to sidestep accounting standards, Mr. Volcker said he believed that accounting rules had to be set by an independent agency. He voiced concern that rising political pressures on both sides of the Atlantic were endangering that independence.”

The Financial Services Committee is to vote on amendments to a bill to establish a council of bank regulators as a systemic risk regulator, able to take action if bank activities threaten financial stability. . .

Mr. Volcker was the founding chairman of the International Accounting Standards Committee Foundation, which oversees the International Accounting Standards Board, and has long been a supporter of independent rule-setting. He has been campaigning for a single set of international accounting standards, but he said on Monday that he feared that effort was being undermined.”

Its quite likely that this power will be exercised in the next crisis, removing yet more transparency and data for investors; Worse still, the accounting exemptions will create a new class of zombie banks.

The amendment is strongly supported by the banks. In addition to removing Mark-to-Market accounting, it allows a systemic regulators “to order the Securities and Exchange Commission, which now oversees the Financial Accounting Standards Board, to suspend or change any accounting rule that the council thinks is a threat to financial stability.”

Here’s the most insane quote I’ve seen in a long time:

“The amendment has been endorsed by the American Bankers Association, which says the S.E.C.’s focus, on helping investors, is too narrow. The amendment has been strongly opposed by groups including the Chamber of Commerce and groups representing investors.” (emphasis added)

If this passes, there will be no end to the shenanigans banks can play in the next crisis. As we have sen, many financials insitutions have taken egregious advantage of the crisis they created.

This new reg will be a license to pillage . . .

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Source:
Volcker Criticizes Accounting Proposal
FLOYD NORRIS
NYT, November 17, 2009
http://www.nytimes.com/2009/11/17/business/economy/17volcker.html

(Reuters) New York: Having inoculated its employees with H1N1 vaccine dosages usurped from pregnant women and children, Goldman Sachs has increased its vigilance against the contagious virus by banning employee contact with spare change.

An internal memo outlines steps staff should take to avoid becoming ill, starting with the eradication of the potentially infected currency that may have lodged itself under the seats of their automobiles. The hazardous materials are being collected and sent to Small Business for disposal.

The memo also advised employees to “resist the urge to open your own car door ; let your driver do it.”

-Richard Ambrose

Interesting stuff:

• China’s Blunt Talk for Obama (WSJ)

• China Faces Asset-Bubble Risk, PBOC Adviser Fan Says (Bloomberg)

• China vs United States by the Numbers (NYT)

• Riding on China’s coat-tails (Business Spectator)

• Hong Kong to U.S: Please Don’t Blow our Bubbles (Real Time Economics)

• The Tokyo Hot List: 20 people to watch (Tokyo)

here’s another cool interactive map, via the Detroit News:

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click for ginormous graphic

This is one of the things I will be discussing at the Berlin Conference:

Comparing the 1982 Bull Market with the 2009 Rally

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Sources: Gluskin Sheff, S&P, Bloomberg

Those who believe the rally in gold is sending the wrong message on inflation might take comfort from the fact that the price of the yellow metal relative to that of the 30-year Treasury bond is approaching a 30-year high.

Perhaps not coincidentally, the earlier run-up marked the peak of hysteria about inflation — and a multi-decade top in gold.

Of course, there may be other reasons why precious metals (and other commodities, for that matter) are rallying, including safe haven buying and the torrent of cheap money flowing into a wide range of speculative asset classes.

Still, it seems like the gold bulls may be getting a bit ahead of themselves.

I’m off to give my presentation, but before I go, here is a quick chart on Single Family Housing Starts, which disappointed:

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New Privately Owned Housing Units Started (NSA)

click for bigger chart

Source: Census Bureau

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Thanks, RM!