Saturday, December 31, 2011

Double-D Trouble Ahead?

My last comment of 2011 so I decided to spice things up a little. Tonight, some of you horned up Wall Street banksters may end up at a bar right next to a pretty lady sporting bodacious tatas. Don't be caught off guard, be prepared to woo her with your impressive market knowledge. Below, some conversational tidbits to help guide you.

Start the conversation smoothly. You are nervous, intimidated by her beauty, style and impressive assets. Relax, just approach her nonchalantly, say hello and wish her a happy New Year. If you get a good vibe, offer her a drink, keeping in mind the importance of drinking right on New Year's Eve. Keep the conversation light, no discussion on differential accumulation and threat of war. That will just scare her off.

Brief recap of 2011. After introducing yourself, tell her you work in capital markets at a large bank with tentacles across the globe. If she asks you how 2011 went, tell her straight out, markets went nowhere but it was a volatile year which impacted your trading operations and those of your hedge fund clients, many of which are still on the ropes.

Tell her you're tired of Europe, tired of being vilified by Occupy Wall Street (OWS), tired of all the talk on inequality, and tired of pesky bloggers who expose inconvenient truths, like secret Fed loans, profiting from money for nothing and risk for free, and dangers of machine readable news.

If she asks you which asset classes performed best in 2011, be ready to respond by memorizing the chart below (h/t, Business Insider, click on image to enlarge):

If she doesn't believe you bonds and bunds performed best, stay alert, focus your attention away from her buns and explain why bonds are the most misunderstood asset class (important tip: don't get carried away explaining duration and convexity, you'll turn her off).

If she asks you why commodities, Japanese and emerging market equities got slammed, explain that it was a year of Risk On/ Risk Off and that the riskiest asset classes, those most leveraged to Europe and global growth, were the ones that got clobbered the most.

Looking forward to 2012. You do not want to spend too much time on 2011. It wasn't a particularly good year and you want to put it all behind you.

You want to remain positive, more optimistic, focusing on good news. Forget Europe, they are going to muddle through, but the real growth story in 2012 is going to be good old USA. Read the comments from Blackrock's Bob Doll below:

Q: OK, let's talk about the U.S. What's your view of economic growth here?

A: One thing is for sure: we are not heading into a recession. The recent numbers are encouraging, but we can't get carried away. If the economy grows from 2.5 percent to 3 percent or a little higher, we can't expect the next stop to be 4 percent.

Consumers are spending, but not a lot. Employers are hiring, but not a lot. There are constraints and headwinds that prevent us from having the typical bounce-back recovery that you'd like to see after a recession. What's important for the U.S. is to maintain respectable growth. Our economy is not yet strong enough to withstand any financial contagion that spreads from Europe.

Q: And what about the big drag on the economy: housing. Is there a turnaround on the horizon?

A: My view is that we are probably in a long-term bottoming process in real estate. According to the Case-Shiller index, the cataclysmic decline in home prices has long ended and prices bottomed out in May 2009. But we've continued to bounce along. Banks are unwilling to make mortgage loans and many loans are higher in value than the homes. All that's kept the real estate recovery very slow.

New construction is taking place at just half the pace of population growth. At some point those things will have to balance out.

Q: Globally, China and India seem to be slowing down. Does that worry you, given that a lot of corporate growth seems to have come from overseas lately?

A: You're right; corporate profits don't equate to U.S. growth anymore. U.S. consumption only accounts for 28 percent of the S&P 500 profits. Only 55 percent of the largest companies' revenue comes from the U.S.

Even with continued slowing, China and India will count for about half of global GDP growth in 2012. So those are critical economies. If the authorities can beat runaway inflation in those countries, and Europe doesn't fall off a cliff, their economies will have a soft landing. And that's important.

If she tells you she saw a recent segment 60 Minutes reporting on bank foreclosures and high home vacancy levels and remains skeptical that housing is recovering, tell her that top hedge funds, including Caxton Associates, SAC Capital Advisors, Avenue Capital, and Blackstone Group, are betting on a housing recovery.

And when housing recovers, financials do well, and so will risk assets, which is why you're positioned for La Dolce Beta knowing that central banks have just orchestrated another liftoff. You should mention that another bubble is brewing, and that even though you don't know where and when, it's only a matter of time before it shows up again.

Bunga Bunga time! At some point in the conversation, you got to make your move. At the right moment, lean in, brush your arm ever so gently against her bulging bosom, and whisper in her ear: "are those real?" Be prepared, it's make or break time, she might get very offended and slap you.

But if she doesn't and asks you in a flirtatious tone, "what do you think?," you have to be ready to reply. Tell her you read all about the story of the "exploding" French breast implants and you are thoroughly disgusted by how the media sensationalized this story, needlessly scaring many women, all to promote the interests of some vindictive feminist agenda.

Tell her you had enough of double-D controversies, including all the endless talk of deleveraging, deflation, and double-dip recession. Tell her you had enough of short-selling shills on Zero Hedge, barraging us every day with one negative comment after another, warning us of the 'end of the world as we know it'. You know markets may face same headwinds in 2012 (see video below), but you remain cautiously optimistic, knowing centrals banks stand ready to pump up the jam.

At this point, you are ready to erupt! Enough market talk! You mention a recent study from Eli Lilly found that Mexicans and Portuguese are hornier than Canadians and Americans, and even though you're not a Latino lover, you're ready to go. You ask her if she would leave the bar and join you for some after-hour fun elsewhere.

Then, she lays the bomb on you. "Sure hon, but that will cost you $1,000 an hour." Damn, how could it be? Wasn't this just another double-D bimbo? How could a slick bankster like you have misjudged the situation? You had her right where you want her.

Moral of the story. Never judge a book by its cover and if you're a Wall Street bankster looking to score with a hottie tonight, drink moderately, stay alert, and when all else fails, have plenty of cash on hand and buy some protection. When it comes to markets and sex, better to be safe than sorry.

I wish everyone a Happy and Healthy New Year! Bring on 2012!

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