Perhaps even more than exposing the instability of the worldwide economic ponzi system, so far 2011 has been most remarkable for fully demonstrating the fragility of the global energy complex, which in the aftermath of the Fukushima nuclear crisis (and the moratorium on nuclear energy in Germany now, and soon other places), and the MENA revolutions, have raised the question of what happens in a world in which crude is getting ever scarcer, while the one main legacy energy alternative, fission-based nuclear power, just took a giant step back. The topic of limitations in conventional and possibilites in alternative energy has gripped the general public's mind to such an extent that Popular Science magazine has dedicated its entire July edition to answering that very critical question. As PopSci says: "Oil’s amazing efficiency is one reason it remains in such high demand, especially for transportation, and it’s also why finding an alternative will be so difficult. But find one we must. We have already burned our way through most of the world’s easy oil. Now we’re drilling for the hard stuff: unconventional resources such as shale and heavy oil that will be more difficult and expensive to discover, extract, and refine. The environmental costs are also on the rise." So what is the existing line up of future alternatives to the current crude oil-dominated energy paradigm. Below we present the complete list.
The infamous hacker group LulzSec, best known for hacking the website of an FBI affiliate, the Sony network, and even the CIA, has now officially shut down. Their final manifesto, which is reproduced below in its entirety, is summarized as follows: "For the past 50 days we've been disrupting and exposing corporations, governments, often the general population itself, and quite possibly everything in between, just because we could. All to selflessly entertain others - vanity, fame, recognition, all of these things are shadowed by our desire for that which we all love. The raw, uninterrupted, chaotic thrill of entertainment and anarchy. It's what we all crave, even the seemingly lifeless politicians and emotionless, middle-aged self-titled failures...Again, behind the mask, behind the insanity and mayhem, we truly believe in the AntiSec movement. We believe in it so strongly that we brought it back, much to the dismay of those looking for more anarchic lulz. We hope, wish, even beg, that the movement manifests itself into a revolution that can continue on without us. The support we've gathered for it in such a short space of time is truly overwhelming, and not to mention humbling. Please don't stop. Together, united, we can stomp down our common oppressors and imbue ourselves with the power and freedom we deserve. We hope we had a microscopic impact on someone, somewhere. Anywhere." Well, it was fun while it lasted. And so FedWire is safe again. So is, for the time being, the internet.
In the last week of trading, the only variable that mattered was the EURUSD, much more so than at any time in 2011, as the correlation between the FX pair and the SPX hit a near all time high. Which is why it is not surprising that China is now the de facto saviour not so much of Europe (as discussed earlier), but of America's wealthiest, as the only Central Planner mandate continues to be to keep the Russell artificially high for as long as possible while the oligarchy converts paper wealth into hard assets (yes, Comex physical silver just dropped to a new all time low on Friday). And with technicals mattering far more in FX than in stocks, we once again present John Noyce's weekly technical compendium and podcast, as all the major risk indices continue to be at key inflection points. This is particularly true of the GBPUSD, commodities (CRB), the Shanghai Composite (which just closed below the October 2008 primary updtrend, slide 13), Spanish 10 Years, also Irish and Portuguese bonds, the AUDUSD, but most importantly the EURUSD, which is at 2 standard deviations above fair value which is at about 1.15. Should it revert to that level, the S&P would find itself at about 900 if not lower.
One of Zero Hedge's recurring peeves with modern economics (at its basis, the flawed premise behind modern broken capital markets) is that modern economics, as taught by every Ivy League, and other, institution, and implemented by modern acolytes of Keynes and other spin off theories, is nothing but garbage: a sham voodoo science, which attempts to attribute an empirical basis to something which is inherently irrational. It is this irrationality that alternative, and thus non-mainstream, approaches to popular economics attempt to discredit, so far with zero success, as such a coup d'etat would mean an immediate end of the "status quo"TM which is for all intents and purposes the only thing that must be maintained in order for the wealthy to retain their wealth, and get far wealthier in the future (Paulson's 3 page blank check proposal to Congress was nothing but a band aid attempt to fix the cumlination of decades of Keynesian failure). The below attached interview between Max Keiser and Sandeep Jaitly provides a 3 minute, must watch glimpse into the basis of Austrian economics, although not through the lense of von Mises, but of Austrian founder Carl Menger, who founded the Austrian school on one axiom only: "value does not exist outside mankind's consciousness." As Jaitly goes on to say, "all other forms of economics, classical, neoclassical economics, ascribe value to something else other than the human mind." And the punchline, coming from a mathematician: "all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being."
If you are a human being, you should hold your self to certain standards, amongst which include-not lying. When you are the Prime Minister of a country, one would think, as an elected official, you should certainly adhere to the not lying principle. Now, if you are a human being, the prime minister of a country, AND the head of financial ministers for the Euro (2nd largest currency in the World), one would think and hope (keep your fingers crossed) that you would simply never ever lie. Not so for the dis-honourable Prime Minister of Luxembourg, Jean-Claude Juncker as he plainly stated that “when it becomes serious, you have to lie.” The European financial system is a “serious” mess. Greece is insolvent, Portugal and Ireland are not far behind. Spain is also clearly struggling as are certain Italian banks, meanwhile Belgium doesn’t even have a government. Mr.Juncker: here’s an idea–instead of lying, force the banks to accept losses on their bad investments in bonds from the just listed countries. Investors can use all of the information available in the World to make decisions, however when very powerful individuals resort to lying to keep things together you have to be concerned... Can Greece “grow” out of their problems? Acceleration in domestic growth is highly unlikely. The EU/ECB austerity medicine of higher taxes, lower wages and layoffs is guaranteed to reduce spending on everything. By default (pun intended), the only other option for Greece is to “export” its way to growth and prosperity. Now please excuse our ignorance, however we are not aware of (m)any Greek products or services that are of high value, needed all around the World and offered by no one else. Compounding the export challenge, is the inability of Greece to de-value their currency to make their exports cheaper. At the end of the day, it’s a “Heads Greece loses, Tails Greece still loses.” The only difference is how soon the “fan” comes back into play.
China's European Bailout (And TBTF) Bid Hits Overdrive, As Wen Jiabao Is Now In The Market For Hungarian BondsSubmitted by Tyler Durden on 06/25/2011 - 12:47
In continuing its recent pursuit of "white knight on full retard tilt" policies vis-a-vis the endless European bailout, and throwing good money after bad after horrible after totally lost, today Chinese premier Wen Jiabao said that not only would China do everything in its power to preserve the EUR (after all that CNY needs to be cheap against some currency) and "work for expeditious recovery and stable growth" but also unveiled that it is now preparing to go ahead an buy Hungarian bonds. As if owning Greek, Portuguese, Spanish and Irish debt was not enough. It seems China has learned from the best, and either knows something others don't (except for the SHIBOR market of course) or is actively preparing to become Too Biggest To Fail by making sure that should something bad happen to it literally the entire world will follow it into the depths of hell. Which, as Jamie Dimon, Vik Pandit, Lloyd et al have known for the past 3 years, is not a bad strategy. Look for China to keep buying up ever more European debt as it intertwines its fate with that of the rest of the central planning cartel: a development we can only compare to the ever deteriorating Spanish Cajas desire to buy up as many semi-healthy banks as they possibly can to prevent a policy determination to shut them, and their billions of bad debts, down.
With a record 44 million Americans collecting foodstamps, the topic of a systemic and systematic class divides (especially now that Mort Zuckerman picked up on some of the very troubling developments to Marxists everywhere, first caught by Zero Hedge) will only get increasingly pronounced, and of all troubling trends in global finance, is likely the one to be the catalyst (as it always has in world history) for less than peaceful class upheavals. We have written extensively on the topic in the past (here and here), although for those new to this theme, below is a chart from the Guardian which effectively summarizes the snapshot distribution of the world's wealthiest at the end of 2010. As the bottom chart shows, the aftereffects of the financial crisis may be here to stay for 99% of the population... but not for the world's wealthiest 1%.
today's release of the corporate profit data I thought it was important
to remind you of the demise of America at the expense of Wall Street.
America was once a country built on the solid foundation of the hard
work, satisfaction and pride in the building of stuff. We aren't
talking about "namby pamby" stuff - we are talking about real stuff.
We used to produce everything from automobiles to steel to blue jeans;
right here in America. We ran telephone lines, built roadways and
bridges, drilled for oil and constructed buildings. It was the sweat
of the brow and the strain on the back that built America into its
former shining self. A country of opportunity and prosperity with a
solid moral foundation and a strong military to back it up.
It must come as music to every fundamental analyst's ears to learn that, as Goldman's David Kostin puts it in the his latest weekly chartology, "Frustration is clearly evident across the portfolio manager community. The S&P 500 has returned 3.0% YTD compared with 2.7% for the typical large cap core mutual fund and 1% for the average hedge fund." It gets worse: "Investors of all styles are lagging their benchmarks. With just a week to go before mid-year, 78% of the large cap growth mutual funds are lagging the 3.6% return of the Russell 1000 Growth Index by a median of 150 bp. Similarly, 63% of large-cap value mutual funds lag the Russell 1000 Value index. Just under half (49%) of core funds are underperforming the S&P 500." It is stunning how when the levered beta tide goes out, i.e., the only strategy that has been working for everyone, that we learn point blank how asset managers are nothing but levered lemming with access to a repo desk and a 200/20 record net leverage exposure (not to mention a penchant for investing in Chinese fraud companies without any diligence). It gets even worse: "The levered investment community is faring no better than long-only institutions. The typical hedge fund has returned roughly 1% YTD. However, capital is still flowing into absolute return strategies as evidenced by our conversations with pension funds, endowments, and family office representatives attending two recent Goldman Sachs Capital Introduction events in New York and Rome. In contrast, mutual funds have experienced outflows totaling cumulative $6 billion during the past two months." Odd, it seems like only yesterday that Zero Hedge was warning about the combustible effects of mixing 8 weeks of consecutive outflows and a near record margin debt exposure. And lucky for these same leveraged, and long-only critters, the pain has yet to unfold. The 20% drop in the S&P which has to happen for Operation Twist 2 is inevitable and will put many of them out of business. As such we hope Kostin revisits the them of portfolio manager desperation in a few months.
The third part of the series on information theoretic methods of analysis for dynamic systems is taking longer than anticipated. Crunching the numbers is killing me. So I'll take a break from it and look a little farther forward--how we can use the methods I have been describing so far to forensically examine the algorithms used in various high-frequency trading events of the recent past. As seen on Nanex and Zero Hedge, there has recently been a lot of strange, algorithmically driven behaviour in the pricing of natural gas and individual stock prices on very short time frames. In an earlier article I pointed out that the apparent simple chaos we observe in the natural gas price appeared to be an emergent property of at least two duelling algorithms. In this series of articles we will begin analysis of the algorithms involved. Today's discussion will mostly focus on framing the issues that must be addressed in order to study unknown algorithms on the basis of their time-varying outputs. Future articles will present results from the various analyses.
With the resurgence of Greece back to the top of global news, incompetence and labor strikes charts (just like back in 2010 at roughly this time, which is to be expected since 2011 has been following the 2010 script to the dot) there has been far too little focus in the mainstream media on the family whose actions were responsible for Greece's rise to glory and subsequent collapse into default. As Associates Press notes in its report the ruling family, "One family has dominated Greek politics for more than half a century: the Papandreous." For all those who are wondering who the men behind the curtain, or as the case may be, front and center, are, the following expose is for you.
Whereas Paulson has been scrambling recently to put out PR flames now that it has been made clear that the hedge fund skimps on due diligence when it comes to Chinese fraudcaps (and who knows what else now that the ability to reverse engineer the creation of "made to explode" CDOs is taken away), and his latest attempt at mitigating investors is to use cost basis accounting to account for massive investment failures, the sad truth for investors is that just as Zero Hedge predicted, the firm just announced that its has lost $468 million on the Chinese investment in June and $574 million in 2011 (we are unclear if this is only for the Advantage Plus equity exposure or also for the fund's credit position in Sino as well). But not to worry, "net realized losses were C$105 million" claims Paulson. Too bad that fact is completely irrelevant when observing daily and YTD P&L (a loss of over 20% YTD), which Paulson knows all too well is the only metric that is relevant for a hedge fund (unless of course Paulson cares about his tax basis as well for investor pitches, and/or plans on becoming a private equity fund now that his stint as a mutual fund is over). Perhaps Paulson also needs a reminder that some other far more critical concepts to a hedge fund are the high water mark and terminal redemption requests. So what is next for up for Paulson's remaining LPs: maybe they can look forward to letters explaining how the fund's $450 million YTD loss in Bank of America (and we won't even touch Citigroup), is really an unrealized profit of $75 million since inception.
My position has long been that the driver of house price appreciation in Canada over the past decade has been primarily the result of the unprecedented expansion in debt caused by the loosening of CMHC mortgage insurance requirements and the removal of the maximum insurable mortgage ceiling....facilitated by a falling interest rate environment, a new mass perception of the 'investment worthiness' of real estate as an asset class, and the emergence of housing as a form of conspicuous consumption. But if we boiled them all down into one word, it would be this: DEBT! And the pace of debt accumulation is not sustainable... ergo, the pace of house price appreciation is not sustainable. Nor are house prices at current levels relative to underlying fundamentals. Not convinced? Behold!....presented without further commentary...
Is it a coincidence that the government announced the release of crude from the SPR just days after it was disclosed that Dodd-Frank will make trading in OTC spot products illegal? Perhaps. On the other hand if there is indeed a concerted and very politicized effort by the government to encroach and "centrally plan" yet more industries, the implications for precious metals trading could be substantial. FMX Connect summarizes these as follows: "Our two cents are as follows. It does not pay to fight the government right now. Even though Bernanke can’t print more oil it is clear that we are entering into a new phase of a centrally planned economy. To us this smacks of price controls. When you combine it with the Dodd-Frank bill prohibition of OTC gold trading, you might see that we are setting up for something worse. Tin Foil Hat Alert: All gold will trade through exchanges and while we don’t think ownership will be prohibited it may be taxed to death."
Identify the common characteristic of these three statements:
1. The Federal Reserve will never let the stock market decline, i.e. the "Bernanke put"
2. The Chinese government will never let property prices decline
3. The European Central Bank will never let Greece default
The answer of course is moral hazard: a person who is insulated from risk will have an insatiable appetite for risky bets because any gains will be theirs to keep but any losses will be covered by the central bank or government. The global financial authorities’ success in propping up assets (stocks in the U.S., real estate in China, banks in Europe, etc.) over the past three years has strengthened this asymmetric disregard for systemic risk into a dangerously quasi-religious faith that central banks and governments have essentially unlimited power to keep asset prices aloft via printing money, manipulation of markets and financialization of their economies.