Archive - Nov 20, 2010

JPMorgan Private Bank On The "Quixotic" End To Europe's Latest (Failed) Grand Experiment

One of the more persuasive analyses on the fate of the EMU that we have read recently, comes, oddly enough, from JP Morgan, although not from the firm "proper" but from its somewhat more iconoclastic Private Bank division (which manages portfolios for the ultrawealthy). At the core of the argument, which is far more subtle and nuanced than any report by Ambrose-Evans Pritchard, yet which reaches the same conclusion on the viability of the Eurozone, is the now accepted schism between the core and the periphery, in virtually every aspect of their economies: "how can the European Central Bank simultaneously maintain the “right” monetary policy for inflation-phobic Germany and the weak periphery at the same time?" What many don't know, however, is that this very dichotomy was the reason for the collapse of the first attempt at a monetary union in Europe, the European Exchange Rate Mechanism, which ended with a loud thug back in 1992, "when the UK needed a much weaker monetary policy than Germany, which was overheating in the wake of Unification stimulus." Of course, instead of taking no for an answer, Europe merely upped the ante and layered monetary unification on top of an artificial political and customs union. The current state of affairs is all Europe has to show for it. So what happens next? Just as Dylan Grice suggested on Friday that China may have realized that its inflationary endgame has now entered its "out of control" phase, so too perhaps Europe, now accepts the realization that the same unsuccessful outcome as 1992 is inevitable and the premise of a European Union can finally be shelved. Yet in a world in which, as JPM claims, the need for an artificial European union to preserve the peace ended in 1954, and the far more critical peace-perpetuation mechanism - global corporatocracy - is far more important, perhaps Europe should instead focus on doing all it can to promote the interests of various multinational corporations, whose viability may be far more important to Europe's continued non-wartime status. Or perhaps that is the idea all along - with corporate viability more reliant on a healthy banking sector than anything else, are Europe's taxpayers now expected to pay for the 50+ years of peace and social welfare they have received by rescuing the various banks whose bad investments would not sustain one day without an explicit and implicit sovereign backstop. Is Europe essentially saying that should Europe's banks be impaired, that war will certainly follow? Or if the message is not too clear yet, perhaps it will be made soon enough...

Time-Lapse Video Of Food Stamp Participation Rates During The "New Normal"

With everyone chanting the praises of the "better than abysmal" economy, we decided to post a time lapse video (since cartoons are all that stand an even remote chance of attracting some attention)prepared by John Lohman, of just how the New Normal has been progressing, both since the starts of the great depression in December 2007, and more importantly, since the beginning of the "end" of the recession. The result may surprise you. As John points out: food stamps - the only thing keeping 43 million Americans from going postal." Hopefully the end of extended unemployment benefits coming December 1 won't be that first one additional straw on the camel's back that leads to a full blown fracture.

ilene's picture

As its memory of the unhappy market collapse of 1929 becomes blurred, it may lend at least one ear to the voices of The Street subtly pleading for a return ” to the good old times.” Forgotten, perhaps, by some are the shattering revelations of the Senate Committee’s investigations, forgotten the practices and ethics that The Street followed and defended when its own sway was undisputed in the good old days.

MoneyMcbags's picture

Bernanke Lets His Hair Down

Kind of a drab hum drum day in the market yesterday as no new countries were close to defaulting, no new IPOs of shitty companies were being sold (and yeah Harrah's, Money McBags is looking at you), and no new news on whether Milla Jovovich will be joining her country's burgeoning Femen movement.

Value Expectations's picture

There once was a time when the "learned" believed the sun revolved around the earth, the world was flat, and government spending led to sustainable economic growth. This week's Investment Advisor Ideas focuses on another such misconceived idea, classifying stocks with growth and value designations. While the investment consultant community has firmly adopted the growth vs. value concept, at some point, hopefully in the near future, this classification will go the way of the buggy whip, leaching, and the above silly misconceptions. After all, the classification tends to imply a choice between owning a stock that can grow but doesn't offer much value, versus one that offers a compelling value but doesn't offer much growth. Such a choice is silly - every stock valuation implies a future stream of cash flows to justify its price. If today's price implies a smaller cash stream than a company is capable of generating, it is a value stock. If a stock's price implies greater cash stream than a company is capable of generating, it is a value trap, regardless of how sexy its products are or how strong its future revenue growth appears. It does not get much simpler than that.

Are Expert Networks About To Be Exposed As The Ringleader In The Biggest Insider Trading Bust In History?

Over a year ago, Zero Hedge published an expose in three parts (two of them in the form of direct letters to Andrew Cuomo) discussing the possibility that so-called "expert networks" are nothing less than legalized insider trading rings for the uber-wealthy, operating largely unsupervised, and leaking selective information to preferred clients. For those who may be new to this topic, we suggest catching up on Part 1, Part 2 and Part 3. Subsequently, we also suggested that expert networks would be implicated in the bust of Galleon Partners, the Goldman "Huddle", the collapse of FrontPoint Partners and, most recently, that expert networks may have been directly or indirectly involved in facilitating the record historical P&L of such hedge fund "titans" as SAC Capital. Today, via the Wall Street Journal, we realize that not only have the good folks at the SEC been diligently reading us for the past 13 months, but that we may have been right all along (once again). To wit: "Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation, according to people familiar with the matter. The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say." Good bye expert networks (and many, many hedge funds) - we hardly knew you. 

Guest Post: Currency Wars And The Fed’s Demise

The Federal Reserve has decided to buy US Treasury bills for about US$ 600 billion in all, in monthly installments of about US$ 75 billion over eight months, until June 2011. However, this action will not achieve the desired goal of economic growth, nor will it change the US labour market, this according to most analysts and security traders surveyed by Bloomberg in its quarterly “Global Poll”. In fact, more than half of 1,030 experts who took part in the survey, expressed doubts about the Federal Reserve’s move. For more than 70 per cent of them, the Fed’s second round of quantitative easing (QE2) is largely an attempt to adjust the exchange rate of the US dollar against other currencies. Thus, according to such set of views, the Federal Reserve (de facto but not de jure the US central bank) wants to redress the trading disadvantage US manufacturers have accumulated over the last few decades and cut the US trade deficit.