Tuesday, September 29, 2015

Carl Icahn's Video: Danger Ahead

Video Released September 29, 2015

Tyler Durden at Zero Hedge summarizes Icahn's comments as follows:

Low rates and asset bubbles: Fed policy in the wake of the dot com collapse helped fuel the housing bubble and given what we know about how monetary policy is affecting the financial cycle (i.e. creating larger and larger booms and busts) we might fairly say that the Fed has become the bubble blower extraordinaire. See the price tag attached to Picasso’s Women of Algiers (Version O) for proof of this.

Herding behavior: The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost.

Financial engineering: Icahn is supposedly concerned about the myopia displayed by corporate management teams who are of course issuing massive amounts of debt to fund EPS-inflating buybacks as well as M&A. We have of course been warning about debt fueled buybacks all year and make no mistake, there’s something a bit ironic about Carl Icahn criticizing companies for short-term thinking and buybacks as he hasn’t exactly been quiet about his opinion with regard to Apple’s buyback program (he does add that healthy companies with lots of cash should repurchases shares).

Fake earnings: Companies are being deceptive about their bottom lines.

Ineffective leadership: Congress has demonstrated a remarkable inability to do what it was elected to do (i.e. legislate). To fix this we need someone in The White House who can help break intractable legislative stalemates.

Corporate taxes are too high: Inversions are costing the US jobs.

Read more here.

Friday, September 18, 2015

Marc Faber: "I believe we are going to see QE4"

Bloomberg Interview with Marc Faber:
September 17, 2015

“I know exactly what they [the Fed] will do today. They will either leave rates where they are, or increase a quarter of a percent. I think they will probably do nothing… Number two, I think the damage has already happened. People simply don’t remember that Greenspan deliberately created the Nasdaq bubble. Then the bubble burst, then deliberately – and this is written in statements – created the housing bubble in the US, built on credit. The credit bubble in the US burst and produced essentially the greatest recession crisis since the Great Depression of the ‘30s. But people say, ‘Mr. Bernanke saved the system in 2008, 2009.’ And yes, indeed. They cut interest rates to zero in December 2008, so in three months time we will have the anniversary of almost seven years of almost zero interest rates. What I’m saying is that this has created a lot of distortions in the system, and I believe we’re going to pay for it…

“One of the problems with these artificial low interest rates is the following. We all know that one of the problems is the size of governments in the Western world. They have become larger and larger within the economic system. This was enabled essentially by very low interest rates, because the governments could borrow more and more money. In the US, for the last 10-15 years, the interest payments on the government debt have not gone up, although the government debt is up three times. Because the government pays less and less on its outstanding bonds and paper, treasuries, they essentially didn’t suffer from it…

“I think precious metals are relatively attractive. I believe we are going to see QE4. I like gold, I like platinum, I like silver. I think even if they increase rates a little bit here, it’s not going to be a trend. What would really be surprising for investors if the Fed said, ‘We are going to go from one quarter of a percent to 1.5% in, say, 12-18 months time. And we’re going to stick to this policy.’ But that they will not do. They will say, ‘We will increase a quarter of a point or nothing. We are data dependent.’ Based on the US, there is an argument where rates could go somewhat higher. Based on international economic developments… there’s no way to increase rates at the present time…”