Dr. Doom vs. The Investment Biker

Roubini versus Rogers. Let's recap the match to date. First, Nouriel Roubini gets in the ring by himself and starts shadow boxing. He warns that a "wall of liquidity" and "the mother of all carry trades" (via the dollar) are sparking asset bubbles and could lead to another financial crisis.

Next, for some reason Jim Rogers decides to step into the ring, takes offense that Roubini is swinging, throws a quick jab that lands squarely on Mr. Roubini's feelings. More specifically, Rogers said that "Mr. Roubini hasn't done his homework." Rogers claims that there is no bubble in gold, equities, or commodities. Instead, Rogers asserts that they've all simply had a very good year. He then goes on to say that gold could reach $2,000 per ounce in the next decade.

Not to be outdone, Roubini throws a powerful hook intended to knock out Jim's gold fillings. He states that Jim's claim that gold will reach $2,000 is "utter nonsense."

And that brings us to the end of round three. Ultimately, these two publicity hounds both win from this spat given all of the...well...publicity. If their publicists are worth their salt, Rogers will next come out and claim that Roubini's accent is fake. Roubini then fires back that the only bike Jim could ride is a senior scooter. Someone leaks a sex tape...

Let's ignore the personal jabs for a moment and look at the content of what they're both saying. They both make some valid points. Equity markets and many commodities have indeed had very good years so far. Are they cheap? Not many. Are they in bubble territory today? There are a handful of asset classes in select countries that I would argue are in a bubble, but for the most part, most assets are simply overvalued. Jim is right that we don't have bubbles (for the most part) yet, but Roubini is right in warning that the excess liquidity and dollar carry trade will ultimately create bubbles and another financial crisis. See how easy that was.

As for gold, I have more sympathy for Rogers. I'd be curious to know what Roubini has been saying about gold since it bottomed near $260 per ounce in 2001. I may be wrong, but I doubt that he ever expected it to reach $1,080, a four-fold increase in 8 years. Rogers stated that he expected gold to double to $2,000 in the next decade. 7% per year for 10 years will get you there. Whether it happens or not, it strikes me as somewhat naive to call that "utter nonsense," particularly in light of the currency debasement and massive deficits we're experiencing. Actually, when I put it that way, $2,000 gold in the next decade seems practically assured unless Washington suddenly finds religion when it comes to fiscal restraint (no sign of it today with the extension of the ridiculous home-buying credit).

Bottom line: Whether or not we're yet in bubble territory and regardless of whether gold reaches $2,000 in the next decade, this little spat is probably pushing the speaking fees for Rogers and Roubini squarely into bubble territory.


Disclosure: Aspera Financial, LLC has been and remains overweight gold and gold equities.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Chart Of The Day: VIX

The VIX index (a measure of implied volatility) put in an amazing performance on Friday, rocketing 24% higher on the session. The index had been trending lower since peaking just north of 80 in late December of last year. On October 21st, it reached its lowest level since September of 2008. Not coincidentally, that was also the day of the stock market's most recent peak. The volatility of volatility was pretty dramatic in October.

Disclosure: Things had become a little too calm for our liking. We initiated a long volatility position on October 19th to increase our hedge position.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

FDIC: The Lady Doth Protest Too Much

Investment rule: The more they tell us not to worry, the more there is to worry about.





link to video

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Qin Xiao and Chinese Bubbles

This quote comes from a Financial Times story entitled, "Top China banker warns on asset bubbles." What I most appreciate is that I can't imagine a top U.S. banker saying this. From the article:

China needs an “urgent” tightening of monetary policy to prevent the huge stimulus measures introduced this year from inflating stock and property bubbles, one of the country’s leading bankers has warned.

Qin Xiao – chairman of China Merchants Bank, the country’s sixth-biggest – says in Thursday’s Financial Times that the government should not be afraid of a “moderate slowdown” in the economy.

“Monetary policy must not neglect asset-price movements,” he writes. “Therefore it is urgent that China shifts from a loose monetary policy stance to a neutral one.”

Of course, this doesn't mean that the authorities will be immediately changing policy (though they should). However, if they continue their loose monetary policy, their stock and real estate bubbles will get out of hand. The higher they run, the harder they'll fall. It'll be interesting to see how the authorities walk the fine line between encouraging employment growth and asset bubbles and intentionally (and responsibly) slowing economic activity. Regardless, the fact that a private sector leader can so freely, frankly, and intelligently speak his mind is refreshing, even if it's coming from half-way around the world.


Disclosure: We recently sold our China equity exposure.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Video: The Button

I like to think of the cast as follows:

• Mr. Mathison is Goldman Sachs
• "Someone somewhere in the world..." is the American taxpayer
• The button is Congress
• The million dollars is the bailout

The Button - watch more funny videos

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Chart Of The Day: Dow Breaks Through...7500?

My clients often hear me harp about inflation and the importance of looking at returns and performance on a real basis (taking out the impact of inflation). Today's Chart Of The Day comes compliments of the folks at Zero Hedge. While everyone was celebrating yesterday's close above 10,000 for the 12th time (by my rough count) in the last decade, let's not lose sight of the fact that the Dow is down 25% over the last 10 years when adjusted for the value of the dollar.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

A Saudi Oil Subsidy?

Saudi Arabia is proposing that the developed world compensate the kingdom for any global warming-related decline in the demand for crude oil. You have to love the thinking: We expect to be paid a lot of money for our oil one way or another. Either demand outstrips supply and prices stay high, or demand falls short and you make up the difference. Heads I win. I said heads I win.

Maybe we should just subsidize everyone anytime demand for their product falls. Perhaps we should have been paying off the buggy whip manufacturers these past 100 years since they were unfairly disadvantaged by the automobile firms. Should we all compensate Canada if we ever stop building houses out of lumber? Or bail out the French if people stop drinking wine? Or compensate the U.S. if... Bad example. The only thing we're good at manufacturing these days are loans and dollar bills.

Of course, the Saudis can't really be serious. They'd still be a fourth world backwater sand lot if it weren't for oil. They've had decades to put that wealth to work in diversifying their economy rather than paying off all of their princes. I think their latest census showed one out of every three people was a prince. The other two either worked for a prince or were a king.

The Saudis know that this proposal will never fly, but this is how you negotiate. You never come to the table with what you reasonably expect. If I want a new set of golf clubs, I don't ask my wife for a new set of golf clubs. I tell my wife that we should sell the house and buy a newer more expensive home right on the golf course. Voila. I get a new set of golf clubs.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Elephant Cheeks

This speaks for itself.

Many people attempt to be analysts or economists, yet they speak without having real experience, and they fail to see that they are really nothing more than a fly on the ass of a big elephant. They do not realize they are even sitting on an elephant and worse still, they do not understand what is an elephant.

Martin Armstrong

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Frankly Stupid

Courtesy of Calculated Risk:


“I don’t think it’s a bad thing that the bad loans occurred. It was an effort to keep prices from falling too fast. That’s a policy.”

Barney Frank, chairman of the House Financial Services Committee on recent FHA lending.


I wonder if, as the words came out of his mouth, Mr. Frank thought, "I can't believe I'm saying this." So, bad loans are fine so long as they're made in an attempt to manipulate the market for the benefit of the U.S. taxpayer...who will be saddled with repaying those debts once they blow up. Apparently, we shouldn't concern ourselves with the wisdom of government action so long as they mean well.

Here are some other policies.

• Barney Frank, Congress, and the FHA do not know the "right" level for home prices, so they should stop trying to manipulate the housing market.
  
• Do unto others before they wise up and vote you out of office.
• Don't rob Peter to loan the money to Paul for a new home. Paul is broke. He needs to move back in with Mom and rebuild his savings.
• Speak softly and...actually just stop speaking.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Who Is Worse? Cramer or a $500 Per Hour Psychic?

I seldom struggle for words. Fortunately, this video clip from Jim Cramer's TheStreet.con (not a typo) speaks for itself. At least we now have a better idea where Jim's investment ideas come from.

There are many potential anecdotal signals of an impending secular bull market. One would be for CNBC to be taken off the air. Another would be for Cramer and TheStreet.con to simply disappear. My crystal ball tells me this will eventually happen. That prediction was free.

link to video

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.