There is practical, everyday common sense... and then there is economics. Because when it comes to explaining why a square peg won't fit into a round hole, only an economist will tell you, over and over, that it will eventually happen, one must just tweak the theory a little first, and then reality will promptly follow. And while even economists have enough of a frontal lobe (and realize there is little grant money) to pursue intractable pegs and hole problems, when it comes to the theory at the heart of their beloved Keynesian voodoo religion, namely Quantitative Easing, the answer is always one, and it is very simple: we need more! Yet even economists are not naive enough to not recognize that QE has not worked in any of its 4 previous iterations (logically, as if it had there would be no need for a fifth, open-ended one). Where it gets fun is watching them come up with amusing yet convoluted, involved and outright demented explanations, some even in chart format, why QE keeps on failing. Below, we present just such a graphic explanation which only an economist could love, or care about.
When you are out this evening at your cocktail party, discussing the state of the world, how everyone should be buying GOOG on the dips, how AAPL looks cheap (and the mini-iPad is coming soon), all that cash-on-the-sidelines, and how sentiment is so low; perhaps this handy little global economic scorecard will help bring a sense of reality back to the conversation. Barclays' Julian Callow provides everything you need to know about financial balances and economic performance (but were afraid to look) in one handy table.
The circular rationale for believing that Spain is anything other than a basket case is remarkable. As we pointed out last night, in context the market-based signals that so many are basing their opinion on (including Rajoy, Van Rompuy, and Hollande it seems) are extremely misleading. Fundamentally, as UBS explains, the hope that Spain will request a bailout anytime soon is misplaced as there is no immediate pressure to do so and the government would prefer to negotiate a more favorable MoU. However, two major issues stand in the way of that delayed reality - an insufficient bank recap; and the federal nature of Spanish government creating obstacles to deficit reduction.
- SENATE HOMELAND PANEL TO INVESTIGATE BENGHAZI CONSULATE ATTACK
- SENATE PANEL SEEKS BRIEFING, DOCUMENTS FROM ADMINISTRATION
- SENATE COMMITTEE RELEASES LETTERS TO CLINTON, SPY CHIEF CLAPPER
Shouldn't this have taken place long ago? At least we now know what the watercooler talk for the next 2 weeks will be.
It's the anniversary of the 1987 crash. It's a Friday 'after' another failed EU Summit. The Dow is down 200pts. You are not buying the dip. So enjoy the full Romney vs Obama roast from last night in all its honest truthiness.
We want to 'believe', we really do; but anyone with any sense (and no skin in the game) can see through the data; the eon-like periods of foreclosure and the drastically reduced supply. No matter how 'bullish' homebuilders are, or how much they dream of a future pickup, calling the recovery (as Bob Shiller recently noted) is just a fool's errand. The truth is, for the average citizen, housing is not recovering - the wealth effect is not creating animal spirits - and we do indeed have more to fear than fear itself. The following 79 second clip from Bloomberg TV should perhaps clarify the 'difference' in demand for housing. Primary residence 'buyers' are down remarkably, while 'investors' are up dramatically - now at pre-crisis bubble levels! Perhaps, as we noted here, Och-Ziff's stepping away from the 'flip-that-house' or 'REO-to-Rental' game is as good an indicator of exuberance as any.
Because someone has to generate revenue for Apple.
On a day full of memories (and a market which is down the most in 4 months), we thought (courtesy of Doug Kass) the irreplacable Mark Haines view of the 1987 crash from 2007 (just a few days after what would be the market's absolute top) was worthy of remembrance. What is perhaps most notable in the discussion is Elaine Garzarelli's 'nailed-it' indicator-based call of the top in 1987 and subsequent total 'absolutely bullish' miss in 2007 - as central bank intervention had already removed any 'indicator-based' value from market participants' toolkits and business cycle comprehension. We wonder what Haines would have made of QEtc. and today's exuberant irrationality. Must-watch to 'check' some exuberance at the door.
Is this it? Nobody knows for sure, but just like yesterday's GOOG pogrom sent 165 hedge funds (at least) scrambling for cover (but, but, it is a perfectly efficient market - unpossible), and destroyed their October P&L in a millisecond move, forcing even the CME to lower index margins to avoid margin calls (as we predicted), so today's violent drop in AAPL stock to the furthest below the 100-DMA since June 2011 may test the nerves of all those residents of the hedge fund hotel cAAPLfornia, which at last check was a record 230 longs as of June 30 (and now well higher), many of whom have a cost basis that is now above the current price. Will selling remain cool, calm and collected, or will someone panic ahead of what is sure to be another late day margin call bonanza for the repo desks forcing massively levered beta-chasing hedge funds to dump assets in order to procure the suddenly invaluable margin? Stay tuned and find out.
CNBC is convinced - this is just profit-taking, and think about where we have come from? We prefer to base our positioning on expectations of the future as opposed to extrapolations of the past. If only we could ignore the last two days, Europe would look awesome! Every asset class is indeed up for the week: stocks, EURUSD, sovereign bonds, and corporate and financial credit. However, the last 36 hours or so has seen almost half of the week's gain s chaffed away by them pesky profit-takers (apparently). EURUSD is 100pips off Wednesday's highs; Bloomberg's BE500 (broad equity index) is around 2% off Thursday's highs; IG and Financial credit spreads are around 5-10% riskier from Wednesday's tights; Spain's equity market is 3.5% lower than its peak on Wednesday and Italy down 2.5% from its mid-week highs. Sovereigns have remained relatively resilient - giving back only a few bps of their gains this week (Spain/Italy -40bps on the week). But apart from all that - Europe's doing great apparently. Spot the odd chart out (and which do you trust?)
Whereas some may have welcomed the latest development in the Great French Socialist Revolution chronicles, primarily those 8-16 year olds who would directly benefit from president Francois Hollande's attempt to capture the vote of those still ineligible to actually vote, by promising to do away with homework (because it encourages "inequality" as homework apparently "favors the wealthy"), everyone else saw right through it for the sad attempt at populism it was. Luckily, the impact of this idiotic policy, if it were to actually pass, would not be visible for at least a decade at which point French society would be so dumb (not to mention poor) that few would actually care. However, another proposal being currently contemplated in France may have far more immediate terminal consequences to the life expectancies of those personally experiencing the reincarnation of wholesale of socialism. Because as Bloomberg notes, "Heating a French home could soon require an income tax consultation or even a visit to the doctor under legislation to force conservation in the nation’s $46 billion household energy market." Congratulations Europe: in your ongoing crusade of wealth redistribution (when all this could have been averted if you, and the US, had simply allowed the banks who control your society to collapse), you are about to make heating one's home a privilege for the despised Bourgeoisie, an act which must be monetarily punished, and socially ostracized.