• Marc To Market
    11/22/2014 - 10:16
    Contrary to the death of the dollar chatter, the US currency continues to appreciate.  Here's why there is still punch left in the bowl.  
  • Tim Knight from...
    11/21/2014 - 21:06
    As you can see by this view of the NQ, this massively bullish news has not, as of yet, represented any kind of sea-change in the markets. Before the day was even out (again, in some, not all markets...

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A Shocked France Reacts To The Strauss-Kahn News

A plethora of shocked, shocked, responses, that Strauss-Kahn tried to get away (and off) with it again... Of course, the focus now is on the presidential race which just like that of the US, following the Mike Huckabee announcement, is once again wide open.



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Update: DSK Now In Police Custody; IMF Head Dragged Off A Plane, Arrested Following Hotel Maid Allegations Of Forced Head

If there was any threat that the IMF would launch an SDR alternative to the USD, it is all over now. According to the NYPost, IMF head Dominique Strauss-Khan (no Bob Pisani, it is not a she) was just arrested on board the first class cabin (thank you taxpayers) of a New York-Paris flight as it was about to take off. And here is where the story gets surreal: "Around noon today, a maid at the hotel knocked on the door of Strauss-Khan’s room. After letting the maid in, Strauss-Khan allegedly threw the maid on the room’s bed and forced her to perform oral sex on him, said police sources. Strauss-Khan let the maid leave — and soon afterward, headed off to Kennedy Airport for his flight to Paris." Of course this will not be the first sexual misconduct for the head of the world's global pseudo bail out organization: as a reminder back in 2008 the IMF hired a law firm to investigate whether its chief had an improper relationship with a female employee, Piroska Nagy. Back then he got off. This time he won't (even though he did... in a way), and it appears that the IMF is about to lose its head, meaning the fate of literally unlimited bailout funding is now up in the air. Also, it appears that being head of major bureaucracy does not automatically mean getting head on an ad hoc, and involuntary basis. Lastly, we are stunned it was not Herman Von Rompuy or G-Pap on the receiving end.

Update: Strauss Khan to be taken to Police Service Area 5 at 221 East 123rd Street



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Tim Geithner Responds To Druckenmiller With More Fearmongering And "Assured Destruction"

Not even 24 hours after Stanley Druckenmiller said to ignore all threats by the kleptocratic kartel [sic] of a world collapse should the debt ceiling not be hiked, as if on cue the tax-troubled treasury secretary has released another letter, this time to Michael Bennet, D-Colo, in which he rehashes all the usual threats that Hank Paulson pulled out of his sleeve when he presented his 3 page term sheet demanding congress give him unlimited powers to do anything Goldman, er, he saw fit to preserve the banker status quo. Nothing new in the letter, just more of the same: “A default would inflict catastrophic far-reaching damage on our nation’s economy, significantly reducing growth and increasing unemployment...Even a short-term default could cause irrevocable damage to the economy. A default on Treasury debt could lead to concerns about the solvency of the investment and financial institutions that hold Treasury securities in their portfolios, which could cause a run on money market mutual funds and the broader financial system. A default would call into question the status of Treasury securities as a cornerstone of the financial system, potentially squandering this unique role and the economic benefits that come with it." It is sad that the Treasury has succumbed to another bout of fearmongering because as Zero Hedge has been claiming since late 2009, and as Gross and Druckenmiller have recently reaffirmed, the only threat to the "confidence" of the US is if (or more correctly "when") the legislative bodies of the US succumb to this latest round of completely flawed, irresponsible and wrong mutual assured destruction rhetoric, and once again hike the debt target, this time to a total that is about 115% of US GDP.



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The Complete Overview Of The Setting Economy Of The Land Of The Setting Sun

Increasingly we have come to believe that the real marginal economy over the next several quarters will be neither that of the contracting US, nor that of the rapidly tightening, yet still very much inflationary China, but the (arguably) third largest one: that of Japan. Over the past month we have suggested that in addition to already latent deflationary tendencies, the recent post-earthquake collapse will require a dramatic, and very political intervention in BOJ monetary policies (here and here), in order to avoid a global contraction. Yet as David Koo proposed yesterday, the (infra)structural changes will demand an overhaul so profound that the contraction will be not only severe but likely very extended due to spillover effects into energy commodity demand, thus creating a non-virtuous feedback loop. So for those who are still new to the Japan story, below we present an extended presentation compiled by The Tail Chaser blog which compiles the relevant bits and pieces on the Japanese economy to scare even the most optimistic fan of the land of the setting sun (which certainly is not Dylan Grice who recently suggested that a very possible outcome is a Weimar repeat as the BOJ takes the von Havenstein route to excess debt resolution).



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Druckenmiller Calls Out The Treasury Ponzi Scheme: "It's Not A Free Market, It's Not A Clean Market", Identifies The Real Bond...

We hadn't heard much from legendary investor Stanley Druckenmiller since last August when he decided to shut down his Duquesne Capital hedge fund. Until today. In a must read interview, the man who took on the Bank of England in 1992 and won, says that he join the camp of Bill Gross et al, making it all too clear that all the recent fearmongering about the lack of a debt ceiling hike by the likes of Tim Geithner, Ben Bernanke and, of course, all of Wall Street, is misplaced, and that the real threat to the country is the continuation of the current profligate pathway of endless spending. From the WSJ: "Mr. Druckenmiller had already recognized that the government had
embarked on a long-term march to financial ruin. So he publicly opposed
the hysterical warnings from financial eminences, similar to those we
hear today. He recalls that then-Secretary of the Treasury Robert Rubin
warned that if the political stand-off forced the government to delay a
debt payment, the Treasury bond market would be impaired for 20 years. "Excuse me? Russia had a real
default and two or three years later they had all-time low interest
rates,
" says Mr. Druckenmiller. In the future, he says, "People aren't
going to wonder whether 20 years ago we delayed an interest payment for
six days. They're going to wonder whether we got our house in order." Which begs the question: if interest rates are so low today, is the market not appreciating the current path of "financial ruin"? And here is where Druckenmiller joins the Grosses and the Granthams of the world. Asked if the future is not so bad judging by today's low bond rates he says, "Complete nonsense. It's not a free market. It's not a clean market." The Federal Reserve is doing much of the buying of Treasury bonds lately through its "quantitative easing" (QE) program, he points out. "The market isn't saying anything about the future. It's saying there's a phony buyer of $19 billion of Treasurys a week." Of course, there is another name for this type of arrangement and so far only Bill Gross has used it: Ponzi Scheme.



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Weekly Chartology And The Amazing Levitating Corporate Profit Margins

The core topic of this week's chartology (in addition to all the charts that Goldman sees it fit to print), is the amazing never shrinking corporate margin, which continues to hit new all time highs, despite a "tepid economy" and surging input costs. As Goldman's David Kostin points out, it primarily has to do with the ability of companies to gradually pass on costs to consumer, indicating once again that the primary variable in this economy has nothing to do with the jobs picture, or even wage inflation (a key variable that many have said is necessary for inflation to return), but with the ongoing green light by the administration and big banks to allow a substantial number of Americans to live mortgage free (as disclosed previously up to 900 days in the states of New York and New Jersey, a number which actually is 7 years if one considers the backlog in the judicial system, as we will shortly demonstrate), thus removing the primary use of funds for the American household, and allowing a substantial demand price inelasticity for key consumption products such as gasoline, and iPads. As long as the deadbeat rent component in the economy is in the high double digit billions, it will translate in quarter after quarter of surprise margin beats, and latent price increases which for lack of a better word translate into inflation.



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Goldman Fires The Second Shot Across The QE3 Bow: "Successful Fiscal Consolidation Needs Monetary Policy Help"

Yesterday, when we presented the Bloomberg interview of Princeton economist and former Fed vice chairman Alan Blinder, we speculated that his statement that "more easing is necessary" was the first shot across the QE3 bow. Today, Goldman's Sven Jari Stehn has fired the second one in a paper just released titled: "Fiscal Adjustment without Fed Easing: A Tall Order" in which he basically takes our conclusion from the Blinder interview to the next level. As Blinder said previously, in order to improve the once again deteriorating labor picture, more fiscal stimulus would be necessary. That, however, is impossible, especially in a Congress where everyone is now promising $4 trillion of deficit cuts over the next few years. The only difference is how this cutting will be achieved: republicans want spending cuts, while democrats are demanding tax hikes for the richest. While neither approach will work in the US without the shock of a bond-crash induced austerity, Goldman conducts an thought experiment in which it evaluates the effectiveness of a tax-based and a spending-based fiscal consolidation. While finding that on average spending based deficit reduction is more effective, it only truly works in parallel with assistance from monetary policy: be it an interest rate decrease (impossible due to ZIRP) or further Large Scale Asset Purchase (QE) program. In other words, the only thing that can prevent an economic contraction in the next 2 years of semi-austerity, will be more monetary easing.



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Bull/Bear Weekly Recap: May 9 - May 13, 2011

The week's one stop comprehensive summary of bullish and bearish events.



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Guest Post: The Gold-Silver Ratio – Another Look

The gold-silver ratio (GSR) measures how many ounces of silver one can purchase for an ounce of gold, on a certain date. Reference to the ratio has a long history. One of the first mentions was that upon the death of Alexander the Great, the ratio was 12.5 to 1. During the Roman Empire, the ratio was set at 12. By the late 19th century, the ratio had risen to 15. Interestingly, these historical ratios roughly reflect geologists’ estimates that silver is 17 times more abundant than gold in the earth’s crust. This gives many investors a reason to believe that 17 is the natural balance between these elements, and that eventually the GSR will return to it. Monitoring the GSR is quite popular among gold and silver investors. It seems that whenever it makes a big move, many start drawing conclusions about the direction of the prices of its underlying metals.



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Richard Koo's "The World In Balance Sheet Recession" Revised, And The Japanese Electricity Shortfall Quandary

Some version of the latest Richard Koo presentation has already circulated in some form or another. The only addition to the core section (which as usual can be summarized with two words: "spend more") is Koo's take on recent developments in Japan, one of which focuses on the historical trade balance in Japan, and the second, far more important one, looks at an issue few have discussed: the role of electricity supply in a post-earthquake Japan. As Koo says, "electricity supply is the bottleneck for Japan's GDP recovery." Indeed, we have yet to hear anyone from Wall Street's rainbow and unicorn drinking brigade come up with an explanation for how this will be circumvented, especially over the summer when the Japanese government predicts a nearly 20% shortfall in electrical supply. And if Japan were to go the alternative route, how long before the current supply/demand equilibrium point in oil and nattie moves materially higher? As for the broader economic impact from the earthquake which is a double whammy, as Koo points, Japanese industrial production has now fallen to the level of 1987. And Wall Street "economists" still believe 2011 global GDP will be unchanged?



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Centrist Think Tank Conducts Study, Finds US Default "Could" Push Country Into Recession

And for today's second most surreal piece of news (the first being that Osama was a fan of RedTube and Adult Friend Finder, whose stock tumbled 25% after its IPO on news that such a loyal customer is now dead), we turn to Reuters which brings us news of a "report" by centrist think tank Third Wave, due out on Monday, which finds that "the United States could plunge back into recession if inaction in Washington forced a debt default, according to a new analysis that arrives as the country reaches the legal limits of its borrowing authority....Some 640,000 U.S. jobs would vanish, the housing market's woes would deepen, stocks would fall and lending activity would tighten if the country were unable to pay its bills, according to a report by the centrist think tank Third Way due out on Monday." And yes, first Dow Jones and now Reuters confirms what we have been warning all this week, namely that "the Treasury Department is expected to hit its $14.3 trillion borrowing limit on Monday, making it unable to access the bond markets again. Lawmakers from both parties say they won't approve a further increase in borrowing authority without steps to keep debt under control." Yet back to the topic at hand: which is that someone actually paid money to discover what will happen to America when it filed for bankruptcy. If this was a paper out of the San Fran Fed we understand, but private industry? If there is one margin hike we approve of it is for the CME to hike the margin to 1000% cash in trivial common sense BS.



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Speculative Long EUR Positions Tumble By 38%, Bullish Bets In Dollar And Yen Rise

It was to be expected: as of the just released CFTC Commitment of Traders data, the net exposure of non-commercial EUR longs, arguably a bubble far bigger than gold and silver combined, in terms of volume and participation, tumbled from 99,516 to 61,447 long contracts, or a nearly 40% drop in net short positions in one week. And this is happening even without the CFTC hiking margins. Notably, Yen shorts have now abdicated, and following its drop into steep negative speculative territory, when it hit -52,983 contracts on April 19, it has now moved into the green, adding 32k contracts to a total of 13,054. Lastly, and not at all surprisingly, the gradual contraction in bearish dollar bets continues to abate, and at a just barely negative net position of -4,563, the USD is now back to February 2011 levels. It appears that the great unwind of the USD short trade is almost over, and from this point on it will be just the retails, the momos and the robots.



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ECB Pushes The M.A.D. Button, Asks Court To Bar Greek Swap Disclosure, Threatens With Market Disruptions

Yesterday Eurostat disclosed that in order to hide its debt over the past decade, Greece had entered into not one, not two, but a total of 13 different currency swap contracts with Goldman Sachs, all based on the exchange of assorted currencies against the euro as well as one involving a dollar-CHF swap. This was a topic that was all the rage back in early 2010 when it was unclear just how deep the Greek insolvency runs, and was pushed into the open after Zero Hedge first exposed Titlos PLC, an SPV securitization deal by the National Bank of Greece which not took a shady "off the books" currency swap and then securitized it. Since then this story has died down as it has become all too clear just how insolvent not only Greece but all other European countries are, and it no longer matter to haggle over pennies when entire countries subsist day to day purely due to the generosity of the ECB. Yet while Eurostat disclosed the number of the swaps it did not provide detail into just what was contained within these swaps. Which is why back in December, Bloomberg, which recently won a lawsuit against the Fed and achieved release of top secret bank bailout documents, sued the ECB, asking "the European Union’s General Court in Luxembourg to overturn a decision by the ECB not to disclose two internal documents drafted for the central bank’s six-member executive board in Frankfurt this year. The notes show how Greece used swaps to hide its borrowings, according to a March 3 cover page attached to the papers obtained by Bloomberg News." Yet even now that it is all too clear just what the true fiscal situation of Greece and the periphery is, the ECB is still scrambling to hide its secretive and potentially fraudulent practices. Per Bloomberg: "The European Central Bank asked the European Union’s General Court to dismiss a lawsuit seeking the disclosure of documents showing how Greece used derivatives to hide loans and triggered the region’s sovereign debt crisis." The reason provided: "The ECB has complete discretion to decide what it should
publish in the public interest, according to its defense to a
lawsuit filed by Bloomberg News. Releasing the papers could
damage the commercial interests of the ECB’s counterparties,
hurt the region’s banks and markets, and undermine the economic
policy of Greece and the EU, the central bank said." The reason given is the usual one: "Releasing the papers could
damage the commercial interests of the ECB’s counterparties,
hurt the region’s banks and markets, and undermine the economic
policy of Greece and the EU, the central bank said.
" And so the mutual assured destruction pantomime continues unabated, even though everyone knows by now that nothing of the threatened would ever actually happen.



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Here Are The Refineries And Nuclear Power Plants Threatened If The Morganza Spillway Is [Opened|Shut]

As we reported previously, Obama has found himself on the verge of another environmental scandal now that he has no choice but to redirect the Mississippi river via the Morganza spillway - either lose millions in barrels of daily refined production and potentially the impairment of the Colonial Pipeline, two events which would promptly cause gas prices to soar to new records, or redirect the river via the Spillway, and cause the flooding of millions of acres, and numerous towns and cities, and possibly another New Orelans bases crisis. It seems Obama has picked the lesser of two evils: i.e., protect the oil: "The U.S. Army Corps of Engineers said on Friday it anticipates opening the Morganza Spillway on the western bank of the swollen Mississippi River to divert floodwaters into the Atchafalaya River basin and protect Baton Rouge, Louisiana, New Orleans and refineries from flooding. The Corps of Engineers had been planning next week to open the spillway, about 45 miles (72 km) northwest of Baton Rouge, but could do so as soon as Saturday as high water continues making its way downriver." On the other hand, opening the spillway will also lead to plant impairments: " Opening the spillway will disrupt operations at Alon USA Energy's 80,000-bpd Krotz Springs, Louisiana, refinery. An Alon spokesman said on Friday that the plant was operating normally as crews continued to build a second levee to prevent Atchafalaya River waters from flooding the refinery within 10 to 14 days of the Morganza opening. The new levee will supplement existing levees." And there is more: it appears that not only are refineries in danger, but three nuclear power plants are also in danger of being flooded: Entergy's 1,176-megawatt Waterford nuclear plant in St. Charles Parish, Louisiana; its 978-megawatt River Bend nuclear plant in West Feliciana Parish, Louisiana, and the 1,268-megawatt Grand Gulf nuclear station in Clairborne County, Mississippi."



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Visualizing The Death Of The Citi HFT Rebate Collection Machine

Earlier this week Citi underwent a reverse 10 for 1 stock split to create the perception that the world's worst financial company is not a pennystock. So far it has failed miserably, with Citi stock dropping in nearly a flatline since the event. But the biggest casualty by far are the rebate collecting robots who would ping pong the stock among each other with no intention of ever holding, merely creating the impression of a deep and liquid market (repeat after us: volume is not liquidity, and HFT provides volume not liquidity). With the price increasing tenfold from before, it was expected that broad trading in the name would drop but a substantial margin. Sure enough, Nanex has helped us by preparing the relevant charts indicating the dramatic change in trading and quoting pre and post the change.



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