Friday, November 23, 2012

Black Friday: A Look At The American Consumer

It's become a tradition here to put up a quick video glimpse of Black Friday, a microcosm of the former engine of global growth; the insatiable American consumer. For those that live outside the United States, Black Friday is the day after Thanksgiving when stores offer a limited amount of goods on sale.

Americans line up for hours, sometimes days in advance to purchase more consumer goods that they do not need. Then when they breach the store walls they turn into true animals, sometimes fighting for these goods.

It is a sad display every year for the people that make up the country that has for decades been the consumer of the world, borrowing every possible dollar to continue spending once their savings and incomes were depleted.

When the American consumer hit the spending wall in 2008, the government stepped in and has done its best to fill the void with trillions in annual deficits. That will soon end as well, and then the true hangover will begin. Fortunately for America, when its over they will be able to keep their cars, TV's, phones, ipads, and homes all purchased on credit with no possible way to ever pay off the debt. It will be the American creditors, first those that lent to consumers and now those that foolishly lend to the government that will take the worst of the losses.

Thursday, November 22, 2012

The Day The World Ended: World War III Simulation

The guys over at Future Money Trends have put together another entertaining video describing a possible chain of events should Israel attack Iran. While I do not factor in war as a reason to own precious metals or energy (they will perform very well without war), it remains as another black swan type event that would probably send both markets surging higher.

This video essentially takes every possible bad event that could occur should Israel attack Iran (other than perhaps a terrorist type attack on US soil) and puts them together; creating what would be a worst possible scenario. It is important to review the possible chain of events in your mind to understand that one or more (but probably not all) of these events could occur.

Wednesday, November 21, 2012

Tracking Each Data Point Leading To Japan's Black Swan Event

Over the past week we have had both a visual and audio analysis presented from Kyle Bass on what is coming for Japan in the years ahead. He laid out a full buffet of triggers that would ignite the black swan event in their bond market.

The truth is, as John Mauldin discussed beautifully in his book Endgame, the trigger is not one single event but a long chain of events that lead up to that moment. He compared it to pieces of sand that are dropped into a pile and begin to form a mini mountain. At some point you know that sand will have sort of an avalanche type effect and change shape. Some would look at the final piece piece of sand as the reason for the avalanche, but others would look at the entire structure and see that it was due to happen at any moment.

This is the state of affairs in Japan as we move forward week by week. After Bass finished describing the details of Japan in his most recent interview he was focused on emphasizing that he would not be naive enough to think he could call the exact time Japan would have its moment.

However, he sees the pile of sand in its entirety and understands that it is very vulnerable for an avalanche event. With that we can look at the moment recent piece that hit this morning; Bloomberg reports that Japan's exports have reached a three year low, and after two quarters of growth Japan is back in recession.

The following excellent chart shows just how far Japan has fallen from global dominance in 1986 when their share of US imports (blue) peaked at 30%. At that point China (grey) was just a sliver on the chart. China now holds 27% of the total. How the world has changed over the past 26 years.

Tuesday, November 20, 2012

Kyle Bass Interview: Darden School Of Business

For his most recent letter and recent interview see:

Kyle Bass: The Global Economy, Japan, & The Reason He Is Buying Mortgages

Tuesday Fun

Since it's a holiday week, we can have a few laughs at the world around us. Click for larger images of each:

General Patraeus Explaining His Departure:

The Next Election:

The Honesty Of The Mainstream Media:

The Fiscal Cliff:

Sunday, November 18, 2012

Kyle Bass: The Global Economy, Japan, & Why He's Buying Mortgages

I'm going to do my best not to "gush like a little girl" over the person who I personally hold in the highest regard over all other financial market participants due to both his track record and ridiculous understanding of the global economy.

In brief, because I have told this story in depth a few times before, Kyle Bass was one of the handful of investors that made massive bets against subprime mortgages through Credit Default Swaps (CDS) back in 2006 - 2008. He then sold out of his position in 2008 and re-invested the profits into gold and bets against Greece government bonds. This was two years before Greece was in any headlines, just as he placed bets years before any headlines emerged on subprime mortgages.

Today he has the same trade on with a massive bet against Japan. Just as with his subprime mortgage and Greece bets he continuously is called "crazy" as the mainstream feels that betting against Japanese debt and currency (a losing trade for two decades) is the absolute wrong move.

Before you read or watch any financial article or show for the rest of the month, I would highly recommend reading this letter in full. If Japan rolls over in 2013, it will be looked back on as perhaps the most prescient letter in history; the equivalent of having the blue print for why you should have bet against subprime mortgages and Greece before they blew up. Bass feels that based on the way Japan is currently priced in the market compared to the risks the country faces, it could be the greatest opportunity in modern financial history. Click "View In Full Screen" on the bottom right to enlarge.

Kyle Bass

As a bonus you can hear his most recent, and rare, interview with CNBC discussing some of the same topics provided in his in depth letter.