The latest poll of Morgan Stanley’s top clients from across the world says it all.

Chief economist Joachim Fels tells us that not a single investor at the bank’s Florence forum thought the world economy would rebound with any strength later this year.

Just a quarter expect a return to trend growth. Some 57pc think there will be no escape from the “twilight” conditions afflicting the western world, and 20pc expect an full-blown global recession. That is a remarkably bearish set of views. Yet the same investors are overwhelmingly bullish on stocks and property.

This schizophrenic exuberance seems entirely based on the assumption that QE and central bank largesse will keep the game going, flooding asset markets with liquidity. Indeed, 80pc think the ECB will cut rates again, and half think it will have to swallow its pride and join the QE club in the end. >> Read More

One of the primary focuses of “Out of the Box” is on where you might get hurt and, more importantly, seriously hurt. “Preservation of Capital,” the first ten rules of my thinking, has reached epic seriousness in a world with interest rates at unsustainable lows and underlying economic fundamentals that cannot support today’s yields. The irrational game goes on based upon one thing and one thing only which is the creation of capital by all of the world’s central banks. The money must go somewhere and so it does but the disconnect between the equity markets and bond yields from the real world is frightening.
 
“Begot of nothing but vain fantasy.”
 
                   -William Shakespeare
 
Nowhere on the planet is it scarier than in Europe. Made-up numbers, un-counted liabilities, four years of inaccurate projections from the ECB and the IMF and securitizations parked at the European Central Bank that have all of the credit worthiness of an empanada restaurant in Lisbon. Money flows in, yields go down, the amount of debt increases and few pay any attention to the entire equation which states that what must be paid is the interest rate times the amount of debt as the Draghi bravado overcomes everything. Scant mention these days of the total amount of debt accumulated by the sovereigns as the 3.00% debt limit has become the most elastic of road signs or a trivialized fairy tale by many accounts. >> Read More

Forget everything you learned about markets, economics and finance. Perhaps Newton, Galileo, Copernicus, Darwin, Freud, Einstein, and other noted figures were wrong.

Central banks run today’s world. Major ones matter most. Money printing madness controls everything. Love doesn’t make the world go round. Liquidity-driven markets reflect the power of bankers to do it.

They’re more powerful than standing armies. They can levitate markets. They can enrich themselves at the same time.

They can do it while economies crater. The power of massive liquidity infusions combined with market manipulation generates huge profits.

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What can’t go on forever, won’t. What’s going on now defies reason. Disconnect barely explains it. US equity markets hit record highs. So did Germany’s DAX. Japan’s Nikkei reached a five and a half year high.

One recent headline read “Central banks pop champagne corks as stock markets soar.” Another said “Which European Market Will Hit a Record High Next?”

Turkey’s BIST-100 topped 91,000 for the first time. Switzerland’s SMI has a ways to go. It’s headed in the right direction. Sweden’s OMX Stockholm 30 and the OMX Nordic are closer.

London’s FTSE 100 looks poised for a record high. It could do so in weeks. Who said defying gravity’s impossible? Markets are doing it with ease.

Record valuations bear no relation to economic reality. Today’s disconnect is unprecedented. Paul Craig Roberts expects an eventual triple bubble explosion.

On the one hand, he says “rich elites are stealing everything for themselves.” At the same time, he cites “three of the biggest bubbles in history.”

“The bond market, stock market and the US dollar” are levitating. (S)omething is going to go. This is possibly one of the riskiest years in Western civilization.”

Combined with police state enforcement and imperial wars, it’s menacing. >> Read More

On 21st Feb’2013 -We had Written this :

http://www.anirudhsethireport.com/gold-spot-major-support-1525-1510-big-decline-upto-1300-1224-1123-on-card-in-coming-months/

Gold, down 17 percent since January, is poised to lose 20 percent in a year as inflation fails to accelerate and with the worst risks to the global economy waning, Credit Suisse Group AG said.

Gold will trade at $1,100 an ounce in a year and below $1,000 in five years, according to Ric Deverell, head of commodities research at the bank. Lower prices are unlikely to lure more central-bank buying, said Deverell, who worked at the Reserve Bank of Australia for 10 years before joining Credit Suisse in 2010.

Gold prices are down about 12.5% since the start of April. But global central banks have been increasing their reserves of the yellow metal.

A new report from the World Gold Council shows that central banks bout 109 tonnes of gold in the first quarter.

This was the seventh straight quarter in which they purchased over 100 tonnes of gold.

Central banks held 31,735.4 tonnes of gold as of May 2013. This was up from 31,694.8 tonnes as of April 2013.

Gold entered a bear market during that quarter.  In the current quarter, gold has gone from $1,603 on April 1 to below $1,400 today.

According to the WGC, Russia and South Korea were among the biggest buyers of gold. >> Read More

The eurozone financial crisis is not over, according to a majority of clients surveyed by ratings agency Fitch.

Fitch asked European fund managers (with €8.6trn of assets between them) whether the current buoyant financial markets reflected the reality of the situation.

It found that 41% reckoned the worst of the crisis is over due to strong support from the ECB and policy makers.

The remainder were split between:

• 29% who feel that this is a short-lived period of market calm;

• 30% who said markets are irrationally exuberant, ignoring the weak economic outlook for Europe.

That suggests the recent market rally could unwind, as Fitch warned:

If the latter is not validated by economic stabilisation and progress towards banking union, the danger is that market volatility will return with a vengeance over the summer, as it did in 2012 and 2011.

Fitch also found that only 9% of respondents ranked inflation as a high risk, versus 29% who regarded deflation as a major concern risk. Fears that loose, unconventional monetary policy from the world’s central banks would send prices spiraling have eased…

On Friday, USD/BRL traded at its highest level since January 28 near 2.0296, just shy of 2.03.It has opened lower this week, trading near 2.0150 currently. Note that the central bank (BCB) last intervened via swap auctions on March 27 to limit currency weakness, when BRL was trading just below 2.03 (at a high that day near 2.0279). Before that, BCB intervened on January 28 and drove the pair lower from a high around 2.0366 down to a low of 1.9945 that day. Our point is simply that BCB may come in this week to help stabilize the real if weakness continues. However, predictability is not their strong point and so we don’t have strong conviction on this. Brazil reports March retail sales Wednesday, and is expected to show some modest improvement. Support for USD/BRL likely near 2.00, resistance near 2.03 and then 2.05.

The Indonesian central bank holds a policy meeting Tuesday, with no change in policy expected. BI is one of the few central banks not in easing mode, as rates have remained at 5.75% since February 2012. Inflation has eased a bit but remains too elevated to consider cutting rates now. CPI rose 5.6% y/y in April, above the 3.5-5.5% target for the second straight month. GDP growth remains robust at 6.1% y/y in Q1, slightly slower than 6.2% y/y in Q4 but still fairly strong. USD/IDR remains in the 9600-9900 trading range that has held since Q4 2012. With little export overlap with Japan, Indonesia is not as vulnerable the weak yen as Korea, Taiwan, and others in EM, and so relatively high yield on IDR could help it hold up well in the current trading environment. >> Read More

Rajeev Malik- senior economist at CLSA, Singapore.

One macro issue in India that deserves renewed attention is the preference for the wholesale price index (WPI) over the consumer price index (CPI) for tracking inflation. Indeed, the WPI is given much greater importance than the CPI by the Reserve Bank of India (RBI) for calibrating its monetary policy. This is a serious policy faux pas.

India’s use of WPI inflation for monetary policy is in contrast to the reliance on CPI inflation by central banks and governments in other countries. This idiosyncrasy causes a bizarre contradiction: policy makers, businesses and their lobby groups, and the business media are celebrating the significant decline in inflation, relying on WPI inflation. This contrasts with retail inflation, which better represents the inflationary pressures experienced by households, being off the charts.

It’ll come as a rude shock to many that India’s retail inflation is the sixth highest in a ranking of 100 countries. This is both embarrassing and worrying. Indeed, India is the only country where policy makers and most investors have been celebrating the “collapse” in inflation, even though consumer inflation remains worryingly high.

There is no consistent pattern of the differential between inflation measured by the WPI and the CPI- industrial workers (CPI-IW). The latter was the main measure of retail inflation before the launch of a new improved CPI time series (let us label it CPI-new) in 2011. In the seven years to 2005-06, WPI inflation averaged 4.8 per cent annually versus 3.9 per cent for CPI-IW. However, from 2006-07 to 2012-13, CPI-IW inflation averaged 9.1 per cent annually, higher than seven per cent for WPI inflation. In the last two or three years, both CPI-IW and WPI inflation have come off their respective peaks. However, they moved in opposite directions in 2012-13: WPI inflation eased to 7.3 per cent, but CPI-IW rose 10.4 per cent (actual CPI-new rose 10.2 per cent). >> Read More

As G-7 leaders gather in London this weekend, investors will be looking for clues on how the world community plans to address the on-going sovereign debt crisis, sluggish economic growth, and exchange rates—the usual issues that have topped the agenda of G-7 and G-20 meetings in the last two years.

Two policies are on the table.

The first policy, supported by Germany and France, is to stick with austerity, which imposes fiscal discipline on heavily indebted countries—deflating the asset bubbles that preceded the financial crisis.

The problem with this policy is that it is depressing economic growth, and requires a great deal of financing from the IMF. >> Read More