Archive - Oct 2, 2010
Many are quick (and correct) to blame Keynesianism for the current near pre-collapse state of the entire developed world. After all, the economy of the western world now functions strictly on an auction to auction basis (or, as is better known in layman's terms: "living paycheck to paycheck"): a state in which the US Federal Reserve and the global central banking cartel is responsible for making sure that not one hint of possible bond auction failure trickles down to the broader population. The fact that primary dealers, which are essentially the monetization vehicles of the New York Fed, account for taking down well over half of each auction is not lost on those who wonder what could happen in a world in which Ben Bernanke's organization were to lose its power, authority and market intervention capacity. Yet Keynesianism is merely an offshot of a far older thought experiment: that developed by Otto von Bismarck in the aftermath of the Franco-Prussian war 140 years ago. The "welfare state" regime created by Bismark is one that predates Keynesian economics, and serves as the nexus of today's rancid, nebulous and very much destructive intersection of economics and politics, at whose core, like a black hole which no wealth created through honest labor can escape, resides the "central bank" apparatus of status quo perpetuation. Luckily (for most), the welfare state experiment is ending. And as it departs one last time, it will expose the "depredations" of developed world governments for all to see, without the benefit of the cloak of the insurance provided by "welfare state" premises, which made the wealth transfer of 7 generations acceptable to those who knew they could extract at least something in exchange for the fruits of 140 years worth of labor. In his latest report, Bill Buckler, of the very highly recommended Privateer report, explains why and, more importantly, how this will happen.
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Sure looks that way....
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What Wall Street bears no relationship to any longer is its primary mission in the U.S. economy: to be a fair and efficient allocator of capital to worthy businesses and innovators to propel job growth while also providing a medium for allowing investors to buy or sell stocks and bonds of those businesses at a fair price.
Step Aside ECB: China Becomes Lender Of Last Resort To Failing Greece, In Exchange For Petrobras-Like Shell GameSubmitted by Tyler Durden on 10/02/2010 13:07 -0500
Here is how you kill two birds with one stone, all the while confirming that Europe has been about a step away from a full collapse. Greece, which like Ireland, has been unable to peddle its bonds to anyone now that Bunds spreads are back to all time record levels, has just seen the last white knight of the Keynesian system come to its rescue: China. As Bloomberg reports, the European lender of last resort is no longer the ECB: "China has already bought and holds its Greek bonds,” Wen
said in joint comments with Papandreou today, which were carried
live on state-run ET-1 television. “It commits, very
positively, to buy new bonds to be issued by Greece." Yet herein lies the rub: in exchange for the Chinese last-ditch rescue financing, which by the way is so transparent that everybody, except maybe for the Norwegian wealth fund will see right through it, Greece, in what is an almost identical replica of the Petrobras shell game, will use the money to turn around and buy Chinese ships. "Wen said a $5 billion shipping fund will be set up to
tighten relations between the countries’ two maritime industries
and facilitate the sale of Chinese vessels to Greeks." Truly brilliant what Keynesians will come up with in the last days of a collapsing economic religion.
If I were Ben Bernanke, and I wanted to be King of the World, here's what I would do. Not only is this plausible, it's rather simple. If Ben can't pull this off, he really is a moron.
Spot the two SEC-endorsed differences in the attached chart. And repeat after us: it is all Waddell and Reed's fault.
One of the more important stories this week, in addition to the largely underreported collapse in the US foreclosures market courtesy of the Mortgage Mess, was the drop in Eurozone "excess liquidity" when roughly €225 billion in 3,6 and 12 month liquidity providing ECB credit facilities to Eurozone banks expired and were rolled into a far lower amount of replacement maturities: only 64% of the full amount was retendered, meaning about €80 billion in system liquidity was drained. What this means is that the excess liquidity in the eurozone dropped from an already low €100 billion to a paltry €20 billion. Could this be an indication that European banks have bought their own Kool aid as to their stability? If there is another systemic risk flaring episode, and Ireland is most certainly shaping up to be the next Greece and Portugal, just how will banks proceed to raise much needed liquidity, which has dropped from nearly €400 billion in late Q2 2010 to just above zero, and the lowest since the Lehman bankruptcy.
A very illuminating report out of BNY's Nicholas Colas and Beth Reed describing the front lines of the so-called gold bubble. A must read for everyone who would rather listen to third-hand anecdotes and speculation instead of actually doing their homework. As Beth summarizes: "Bubbles are clearly punctuated – and driven to their final demise – by bad behavior on the part of market participants. My short, but colorful, excursion to the heart of the physical precious metals market revealed no such excess. Is that enough proof to eliminate the possibility of a gold bubble? Of course not. But I think it is enough to characterize recent calls for the demise of the gold/silver rally as very much premature."
In this week's chartology from David Kostin, the Goldman strategist focuses on two key topics most pertinent to his client discussions: (1) The path of the US economy; and (2) whether profit margins will continue to establish new record highs. Kostin summarizes the divergence in views on the record corporate profitability (the micro bullish indicator) as follows: "No common ground exists regarding the outlook for profit margins. Bulls argue that further productivity gains will allow firms to drive margins higher to a succession of new record levels. Supporting evidence is that firms are not hiring (at least not in the US) so unemployment will stay high and the Fed will not raise rates, allowing firms to continue re-financing debt at low interest rates. Bears counter that weak top-line sales growth makes it difficult for firms to boost margins. Price hikes are impossible as the lack of job creation means wage growth is stagnant. A weak US Dollar (viewed by most clients as a secular trend) would help margins but only 30% of aggregate revenues for S&P 500 is sourced abroad and for the median firm the ratio is just 25%. Margins for emerging market operations are often lower than the overall company average." As for the macro picture: forget about it - as the Goldman macro team has noted numerous times, the economy is sliding, and only a last minute intervention from the Fed in precisely one month can help.
Since the Great Ag Boom of 2010 started in May, the white staple has rocketed 38% to over $1/pound, a 15 year high, and only the second time since the Civil War that it has broken the buck. Get used to this story. Demand from Asia is soaring. “Double dippers” beware.