Juggling Dynamite

You have to chuckle at the consensus of financial commentators. The same crowd who confidently and incorrectly predicted rising inflation, rising commodities, falling US Treasury bonds and a falling US dollar are now busily morphing their forecasts on all these things in real time with the price of oil. Very helpful (not).

The latest round has several previous bulls now talking about the prospects of oil at $10-$20 a barrel. As shown in my partner Cory’s chart below, $10-$20 is a possibility driven by the mean reversion of crazy leverage that has been directed into the energy (and other commodities) sector over the past decade.  But we have been making that, previously, wildly contrarian, observation since global demand peaked and turned down in 2011.

Moreover, there is a similarly strong probability of knock down effects to other highly levered asset classes such as equities and corporate debt, as commodities deflate. Of course, almost none of the now capitulating inflation bulls are forecasting downturns in these other assets.  Yet.  Investment sales needs to keep selling its bread and butter products after all…

Davidowitz & Associates Chairman Howard Davidowitz discussed his outlook for Wal-Mart and other North American retailers this morning on Bloomberg. The same Wal-Mart that this morning halved its fiscal year 2016 sales growth forecast to 1 and 2% from the 2 to 4% they had estimated in October, citing the strong U$ as cutting their profits). Here is a direct video link.

The other guest is Citi Research North America Economics Head William Lee (another quintessential academic turned sell side economist, who worked at the Fed and then parlayed that into a revolving door to a sweet Wall Street gig at Citi– the same Citi that has sequentially bankrupted itself and has been bailed out by taxpayers, and thus lives to give us all confident financial advice!). In a previous segment, Davidowitz offered a much deserved dig to Lee and his ilk when he pointed out that over the past 6 years, the policies recommended by “pin-headed professors” “have doubled the debt and doubled poverty”. But other than that, of course, they are brilliant minds!! For a giggle, you can see the first clip here.

Germany’s rejection of the Greek extension plan this morning, is an opportunity for Greece to truly restructure. In order to find a way out of the endless web of debt now entrapping the world, pragmatists must start with a simple admission that much of the debt that has been advanced the past decade can never be repaid, and that write-offs and a severing of credit lines are the first steps to meaningful recovery.

Hans-Werner Sinn, president of the Munich-based Ifo Institute for Economic Research, said Greece’s creditors needed to “face the truth” and realize the country is bankrupt and needs to undergo a devaluation in order to regain competitiveness.

“Going to the drachma is the only possibility I believe, because then the economy will be revitalized rather quickly,” Sinn, president of the Munich-based Ifo Institute for Economic Research, told CNBC Thursday.

“We have to accept that as creditors and face the truth and reduce the burden to the Greek people,” he added. Here is a direct video link.