• Tim Knight from...
    10/21/2014 - 18:16
    Want to live near the 0.1% and their problems? May I present to you 258 Middlefield Road, Palo Alto, California, which is located within walking distance from my house and is a mere $1,800,000 (well...

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Why One SEC Commissioner Spoiled The Fed And Treasury's Plan For Money Market Capital Controls: In His Words

Beginning in January of 2010, and continuing into July of this year, we explained how one of the most insidious attempts at capital controls undertaken by the authorities, namely to replace the $1.00 NAV method that money markets have employed since inception, forcing money markets to imposed capital buffers, and most importantly, to enact mandatory gating if and when the time comes for investors to withdraw their money when they so desired, was taking shape. In other words, to institute capital controls when it comes to money market funds. We already explained that the idea to kill money markets is not new, and originated at the Group of 30 many years ago (its members explain its interests vividly enough) , as an attempt to have investors voluntarily shift their capital allocation out of a liquid but very much inert from the fractional reserve banking system $2.7 trillion market into other liquid, but fractional banking levered markets such as stocks and bonds. In essence, this would generate an up to $2.7 trillion incremental demand as those invested in money markets would find it more "appealing" to keep their cash equivalents in the "security" of 150x P/E stocks like Amazon, or in the worst case, Treasury Bills. After all faced with the option of being "gated" or investing their money in other "non capital controlled" markets, one would be an idiot to pick the former. This is precisely what Mary Schapiro hoped would be the case when she put the vote to the SEC, only to find that she couldn't even get a majority to support her own proposal (which as a reminder was supported by two Fed presidents: uber doves Eric Rosengren of Boston and William Dudley of New York, and Treasury Secretary Timothy Geithner) in her own co-opted house. It is also the reason one person decided to vote against Schapiro's proposal - Luis Aguilar. His explanation why he voted against money market fund capital controls is attached.



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Republicans Consider Returning To Gold Standard: Real Or Red Herring?

Stranger than fiction perhaps but the FT is reporting that the gold standard has returned to mainstream US politics for the first time in 30 years with a 'gold commission' set to become part of official Republican party policy. While this could simply be a reach for as many Ron Paul marginal voters as possible (with the view that the GOP would never really go for it); it appears drafts of the party platform from the forthcoming rain-soaked convention call for an audit of the Fed and a commission to look at restoring the link between the dollar and gold. The FT, citing a spokesperson, adds that "There is a growing recognition within the Republican party and in America more generally that we’re not going to be able to print our way to prosperity," but "We’re not going to go from a standing start to the gold standard," although it would provide a chance to educate politicians and the public about the merits of a return to gold. Interestingly, the Republican platform in 1980 referred to "restoration of a dependable monetary standard", while the 1984 platform said that "the gold standard may be a useful mechanism."



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JPM's London Whale May Face Jail Time For Mismarking Billions In CDS

When first the speculation and subsequently the confirmation that in addition to suffering massive losses on its IG-9 position, JPM had engaged in massive, reckless and criminal CDS mismarking with the intent to defraud and to boost the appearance of profit for selfish reasons, we promptly concluded that "Jamie Dimon's "tempest in a teapot" just became a fully-formed, perfect storm which suddenly threatens his very position, and could potentially lead to billions more in losses for his firm." So far, the regulators which are currently on page two of "CDS for Absolutely Corrupt Criminal Morons", are only slowly catching up. And while the stench will eventually lead to Jamie, as what happened in the over the counter, unregulated CDS market has most certainly happened at the tens of trillions in other OTC products traded by JPM, most of which are IR swaps, tying it all back nicely to the Libor scandal of which JPM is also a part, the first person who will certainly experience some major pain as the JPM scapegoating plays out, is none other than the London Whale himself Bruno Iksil, who was loved by all at JPM when he was making money, and is now being hung out to dry, once the bank is in the prosecution's cross hairs.



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China Has Become One Big "Stuffed Channel"

Zero Hedge covered the topic of automotive channel stuffing long before it became a conversation piece, particularly as it pertains to Government Motors, a story which has recently taken precedence after being uncovered at such stalwarts of industry as German BMW and Mercedes, implying the German economic miracle may, too, have been largely fabricated. Another core topic over the years has been the artificial and inventory-stockpiling driven (in other words hollow) "growth" of China's economy, whose masking has been increasingly more difficult courtesy of such telltale signs of a slowdown as declining electricity consumption and off the charts concrete use. It was only logical that the themes would eventually collide and so they have: the New York Times published "China Besieged by Glut of Unsold Goods" in which, as the title implies, it is revealed that China is now nothing more than one big "stuffed channel."



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Equities Plunge Most In A Month As Gold And Treasuries Extend Gains

Volume? Check. Spanish Spreads wider? Check. Maria B Saying "Wall-of-Worry"? Check. Sure enough, all the pieces were there for a sell-off today as the S&P saw its largest drop in a month as volumes have resurged in the last three days (of fading markets) and average trade size has gradually fallen from its peak (at the multi-year highs on Tuesday). Cross-asset-class correlations picked up notably and equities caught down to risk-assets (after yesterday's 'rally'). VIX rose once again - back above 16% - with the biggest 3-day rise in a month. Gold has rallied 1% per day for the last three days (something we haven't seen since OCT11) up near $1675. 10Y Treasury yields have now dropped 5 days in a row (something we haven't seen since APR12), down over 20bps from their highs/200DMA. Oil stumbled on the day, now down 0.3% on the week, even as Silver is up almost 9% on the week (and Gold 3.3%) - even as the USD is down 1.4% on the week (leaking lower still on the day after its gap overnight). Materials underperformed by the most today (which smells like QE-off) and was followed by Energy and Financials. Stocks underperformed (though HYG was modestly bid - we suspect on convergence trades) as stocks caught down to credit once again.



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Guest Post: The Most Important Chart In TheWorld

In a nutshell, charting this ratio demonstrates the 'real' return on stocks adjusted for inflation or currency debasement.  As we all know, the Zimbabwe stock market essentially went up to infinity during their hyperinflation but did anyone get rich from that?  Of course not, the shares were denominated in a currency that was on its way to worthlessness. The key thing with the Dow/Gold chart is that it perfectly mimics the various social moods and massive secular trends that exist in the economy over very long periods of time.  It is just as effective in periods of deflation as in inflation in telling you the true story. In both of the prior two periods (one deflationary and one inflationary) the DOW/GOLD ratio got down to about 1:1.  It has been our contention for many years that we will see that same ratio once again.  That would imply another roughly 75% drop in stocks to gold and Mike Krieger expects that this next leg is beginning now.



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What's Spooking US Financials?

Since just after the open on Tuesday, the major US financials have decided that they will not go Bove-like to the moon and in fact have fallen back quite notably. As European pain has re-emerged, of course, its Margin Stanley that is hurting the most (-5%) but the rest are down 2.5 to 3.5%. It seems once again that the major financials' stocks have got ahead of themselves (both relative to the market and their CDS).



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On Economic Deceivers And Propagandists

The purpose of the list is to expose current partisan debate as corrupt and off-point. Economic policy makers across the political spectrum, including some commonly labeled “extreme” by more centrist politicians, are unwilling to acknowledge that fractionally reserved banking systems are the true source of the past generation’s credit build-up, the economic malaise it necessitated, the growing economic hardship it is creating, and the inescapability from deteriorating economic conditions through conventional policy means. The list challenges American policy makers to publicly identify and make illegal fractional-reserve banking, and further challenges them to lead the world in adopting sound money and credit practices that returns economic power to global economic actors following commercial rather than financial incentives.



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Why In America It Pays To Be An Old, White, Widowed, Native-Born Female; Everyone Else Is Out Of Luck

As the 2012 presidential candidates prepare their closing arguments to America’s middle class, they are courting a group that has endured a lost decade for economic well-being. Since 2000, the middle class has shrunk in size, fallen backward in income and wealth, and shed some—but by no means all—of its characteristic faith in the future. These stark assessments are based on findings from a new nationally representative Pew Research Center "Fewer, Poorer, Gloomier" study and we present the only two charts that matter now.



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Santelli Exposes The Political Fed Behind The Curtain As Romney Makes Bernanke A Target

UPDATE: Added Romney's Bernanke-Busting Clip

With Romney's comments (that QE2 didn't work, that he doesn't back QE3, and that Bernanke should go) somewhat cornering the Fed-Head's decision-making, CNBC's Rick Santelli's comments this morning are even more prescient. The Chicago truth-sayer vociferously noted the increasingly politicized Federal Reserve actions, highlighting Schumer's recent 'demand' that Bernanke do his job. With Bullard this morning noting that muddle-through was not enough to justify the size of QE3 the market seems to be anticipating, it appears any actions by the Fed in the near-term can only be seen as political. The only way to justify any sizable NEW QE is then surely for the market to crash - and with Spain's no-bailout-soon, and Merkel back in the headlines, who knows what's possible. One thing is certain: under Romney the country will need a Fed Chairman. And if it is not Bernanke, despite Glenn Hubbard's promises yesterday, one very likely name will be Hubbard's close friend and co-author: Goldman's Bill Dudley, who now runs the NY Fed. One wonders which choice will be worse for the country (if not for gold longs) - the Chairsatan or Bill Dudley? Of course, look for Obama to retaliate and promise to para-drop dolla dolla billz if elected. Critically, the wizened ex-Gold trader Santelli notes the precious metal knows this and is acting as a barometer of anxiety in this stand-off.



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Perfectly Irrational Market Slides On News Spain Actually Not On Verge Of Default

Within seconds of the non-news headline (via Bloomberg) hitting:

*EU SAYS IT'S NOT EXPECTING SPAIN AID REQUEST 'ANY TIME SOON'

The S&P 500 is crumbling, Oil is plunging, and EUR is selling off



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5 Year TIPS Price At Record Low -1.286%

Think NIRP is only allowed in select European countries. Moments ago the US Treasury sold a whopping for the series $14 billion in TIPS. The yield? A record low -1.286%, courtesy of TIPS being the only US debt instrument allowed to price at a negative yield (but not for long: JPM's new head of the London CIO divison Matt Zames who is also head of the TBAC is working hard at getting negative yields legalized across the board). The first time the Treasury sold TIPS at a negative rate was back in 2010, when it priced $11 billion at -0.55%. The comment back then: "It signals people’s expectation of the Fed being able to create some inflation with the QE program,” said Alex Li, an interest-rate strategist in New York at Deutsche Bank AG, which as a primary dealer is required to bid at Treasury auctions. “With nominal rates so low, in order have high TIPS breakevens you’ve got to have negative real yields on the five-year." It didn't then. It won't now. Of course, if the CPI were actually adjusted to reflect reality, then TIPS would be the best investment imaginable. As it stands right now, it will likely keep losing money until such time as the CTRL and P keys are finally superglued in the on position.



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Guest Post: Venezuela Ramps up China Oil Exports Unsettling Washington

The biggest geostrategic change of the past decade overlooked by Washington policy wonks in their fixation on their self-proclaimed “war on terror” is that Latin America has been throwing off the shackles of the Monroe Doctrine. These ignored developments may well soon refocus Washington’s attention on the Southern Hemisphere, as Venezuela’s President Hugo Chavez reorients his country’s to China. So, where does Washington go from here? If it wants to preserve its increasingly tenuous foothold in a nation with the world’s largest oil reserves, it might begin by engaging in some honest diplomacy.



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The Beginning Of The End For John Paulson?

Because redemption requests are like cockroaches: once one appears, assume many, many more:

  • CITIGROUP'S PRIVATE BANK SAID TO PULL $500M FROM PAULSON FUNDS - BBG
  • CITIGROUP SAID TO REDEEM FROM PAULSON ADVANTAGE, ADVANTAGE PLUS - BBG

Is this the beginning of the end for the former Bear Stearns M&A banker and once infallible hedge fund manager? And to think he could have saved himself all the deep fundamental work telling him Las Vegas real estate is "cheap" and just bought Apple. Hey, everyone else is doing it. And everyone else can't possibly be wrong. As for Paulson, whose GLD holdings, which are not an investment but merely a gold denomination share class, will likely quite soon see a substantial hit as he is forced to unwind GLD holdings as more and more external investors redeem until finally JP is just left running his own and his employees' money.



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