Archive - Nov 8, 2010

Tyler Durden's picture

Silver Passes $28





Some time ago, we wrote that the best outcome for the US population would be to eliminate the Fed... but the best outcome for holders of gold and silver would be to preserve the current Fed policies in perpetuity. Tonight, all silver longs wish to extend Ben Bernanke their sincerest thanks, as the silver metal passes yet another historical milestone. In the meantime, Asian traders are squeezing the last few remaining margin pennies out of Blythe Masters, whose remaining monthly tenure at JPM can be counted on one hand.

 

Tyler Durden's picture

Morgan Stanley On How Only A "Deux Ex Machina" Can Save The European Periphery, And Why The Fed May Have To Do God's Work Out Of The Machine





Morgan Stanley's Arnaud Mares, who a few months ago made the jarring claim that a European default is all but inevitable (and the only question is what shape it will take), has followed up with the next piece in his Sovereign Subjects series, in which he attempts to quantify the practical inputs that would lead to sovereign default, and, more importantly, to government overthrow. Obviously the two are linked, and as Mares notes "out of 19 cases surveyed, on 18 occasions default was followed by the incumbent government losing elections." Which means that Europe is certainly interested in resolving its unresolvable issues in a way that affords fiscal adjustment in a way that does not almost inevitably lead to some form of government overhaul. The problem is that as the following chart demonstrates, the "fiscal adjustment" option which is the only one that at least gives the possibility of preserving incumbency, and unfortunately, this option is that one that not only impairs only taxpayers and not creditors, but is also prolonged over time and not instantaneous. This is also the option that guarantees a build up of resentment not only toward the ruling politicians, but toward the banking oligarchy, has the potential to result in a far greater, and more violent outburst of "social discontent", and just happens to be the state in which America will be trapped for a long time. Yet back to the core topic at hand: in looking at the only feasible way in which a "fiscal adjustment" could work, Mares approaches the issue from a game theory angle, and finds that only a "Deux Ex Machina" can prevent a systemic collapse. While he refers to the IMF, we believe the Federal Reserve, and its various systemic backup facilities (such as the FX swap line), are a much more appropriate subject to fill these shoes. We believe that since to every quid there is a quo, the Fed will not give Europe an infinite handout for free: the leverage the Fed will use, will be to force the ECB to keep the Euro artificially high, threatening with pulling all support if Europe defects in a world in which its consistency is predicated upon the Fed's ongoing generosity. Which is why in the race to the bottom, an eventual EURUSD parity thesis may have to be revised.

 

derailedcapitalism's picture

Some After-Hours Drama with the JPY, ES to Sell Off





The markets appear to be risk-off this evening as the JPY strengthened materially against the USD despite overall strength in the greenback. Within a few minutes the USD/JPY managed to fall 50 pips from 81.25 to 80.75, the Yen is now flirting with all time lows against the USD. This is extremely dangerous for the perfectly correlated markets, we are now waiting for Bernanke's Plunge Protection Team to step in to fight the fire. A collapse in the AUD/JPY translates into a drop in the ES sell-off. How will the Fed's turn the market to print green by end of day tomorrow?

 

Tyler Durden's picture

Guest Post: "Inside Washington"





By now we all know the essentials of what happened on Election Day - Republicans gained 60+ seats in the House, at least six seats in the Senate, and 9-11 gubernatorial races (depending on recounts). We will leave it to others to analyze the "big picture" and what this election means for the long history of the American Body Politic. But, in the near term, several aspects of the overall results caught our attention for having near-term importance on Capitol Hill.

 

Tyler Durden's picture

Guest Post: Money Is Not A Tangible “Thing”, It Is A Concept





Look around you. Do the people you know want to borrow more, or are they seeking to reduce their debts? The mood has changed since the collapse of the housing bubble, the biggest and the last of these debt fueled asset bubbles. In aggregate, debt is being unwound. There are two options before us: allow the collapse to happen, or the Fed, as the sole issuer of the debt instrument which underpins the entire world debt load, will buy all the debt at face value, before it defaults. This requires the printing of dollars on a continuing and accelerating basis, which inflates away the real monetary value of both the medium of exchange and the store of value. Hyperinflation. The collapse still occurs, it is just delayed a little longer. Circumstances dictate a fundamental change in the arrangement that is causing the problem: a different medium must be assigned the store of value function, to give the dollar something to deflate against. Voila! A third option, one which does not result in collapse.

 

Leo Kolivakis's picture

Demise of Defined Benefit Pensions?





Economist Jack Mintz from the University of Calgary got crowds buzzing at the western regional conference of the Canadian Pension and Benefits Institute, when he predicted that the defined benefit pension plan could make a comeback.

 

Tyler Durden's picture

Dallas Fed Admits "For The Next Eight Months, The Nation’s Central Bank Will Be Monetizing The Federal Debt", Opens Door To Bernanke Impeachment





Time to begin the Chairman impeachment proceedings. It is one thing for blogs like Zero Hedge to argue (rightly) for the past 1.5 years that the Fed's actions in the Treasury space are nothing but direct debt monetizations. After all, one can always argue semantics, as some peers have enjoyed doing in the past. Yet when an actual Federal Reserve Fed President, in this case Dallas Fed's Dick Fisher states it without any trace of hiding the underlying intent, then things get a little serious. To wit: "For the next eight months, the nation’s central bank will be monetizing the federal debt." It gets worse: even though Fisher realizes that what he is doing is unconstitutional, he also admits that the Fed's actions are now is effectively a policy tool: "Here is the message: The Fed is going out of its way to be a good citizen. It is time for the Congress to do the same." In other words, the myth of the Fed's political independence is now destroyed. All pretense has now gone out of the window as the Fed realizes this is the last "all in" bet. If this fails, it is over. Yet maybe someone in power can precipitate this much needed reset. After all it was Ben Bernanke who testified under oath that the "Federal Reserve will not monetize the debt." It is time he is impeached and prosecuted for this lie.

 

Tyler Durden's picture

As Ambac Files For Chapter 11, Fed Is On The Hook With $10MM In Short CDS Exposure





Ambac Financial Group has just filed for Chapter 11, using a filing which is so fresh it even forgot to lock the input forms (see attached). The case is 10-15973 in Southern District of New York. The actual filing is not surprising, as we noted earlier that Ambac was likely going to file imminently. What is also not surprising is that the form 1, erroneously, lists assets of between 0 and $50,000 and liabilities of over $1 billion, even as Exhibit A clarifies assets as $394.5 million and liabilities of $1.6824 billion. Obviously someone was in a rush. Keep in mind this is a stock that Cramer was previously pitching to his very few viewers. Ambac's bankruptcy lawyers are Dewey and LeBoeuf, and Blackstone gets the coveted role of financial advisor. None of the relevant unsecured creditors have been disclosed as most are in DTC form, with BNY listed as custodian. Yet one definitive loser in the Ambac bankruptcy is none other than 'our' own New York Fed. As the Maiden Lane I holdings list as of June 30, when the Fed consumed Bear Stearns most toxic 'assets' and gave Jamie Dimon a clean sheet to buy the clean stripped bank for $10/share, it also adopted a bunch of Ambac CDS. And as of June 30, the Fed held $10 million in ABC CDS. Now that there is a credit event, it will be impossible for the Fed to continue claiming that its rescue portfolios are doing just swimmingly (or so we hope, for BlackRock's sake). Furthermore, the Fed will be forced to payout on the CDS which will likely end up pricing in the settlement auction somewhere very close to zero, implying a near total wipe out on the entire $10 million in short CDS. And lucky Fed: as of March 31, the Fed had actually held a net $50 million in ABC short protection, so in Q2 it covered $40MM worth of short protection. So now all eyes turn to Ambac soulmate MBIA... where the Fed is short $84 million worth of CDS.

 

Tyler Durden's picture

Is GLD Overdue To Buy Two Hundred Tons Of Actual Gold?





One of the completely unmentioned side effects of the recent surge in gold prices, has been the fact that one of the biggest holders of gold, the GLD ETF (presumably physical, even though it is kept in the cellars of HSBC in London, one of the two banks recently charged with a RICO suit for precious metal price manipulation) which as of close today held 1,294 tonnes, has not really bought any gold in over 5 months. The issue is that GLD's gold actual holdings, which feed right into its NAV, have been flat since June, peaking at 1,320.44 tonnes on June 29, and flat-lining and even declining through today. Since then, however, gold spot has risen by 14%. As the chart below shows, GLD tends to reindex its NAV in spurts, buying up gold during specific periods when gold goes up, notably in March of 2009, and between May and June of 2010. As of today, the trust's NAV per GLD in gold is at an all time low of 97.67. The bottom line is that GLD is now long overdue to replenish its actual gold holdings, net of redemptions. Assuming that GLD will increase its holdings in line with prior accumulations, when gold price surged, the ETF may soon be due to buy about 200 tonnes of gold. Should that happen, GLD will further increase its distance to 6th sovereign holder of gold, China, which as of September 2010 held "just" 1,040 tonnes. As to what would happen to the price gold if it is made known that there is a buyer for 200 tonnes of gold, we leave to our readers' imagination.

 

Phoenix Capital Research's picture

Inflation Expectation Tuesday: Obama, Please Earmark $200 in the Budget for “Fed Research” so Bernanke Can Get a StockCharts Account





Growing up, I always assumed that people in a position of power or authority got there based on merit. It never crossed my mind that someone might actually be in charge of something VERY important like, say, the monetary system, and NOT know what he or she was doing.

 

Tyler Durden's picture

Guest Post: The End Of The Statist Quo





Here at Casey Research, we have been rather negative about the economy for many moons. To be otherwise in the face of the decades-long trend toward ever more government – along with its increasingly destructive and expensive meddling in the free markets – would have been foolish. And, so far, we have been right. However, I for one am beginning to see some light at the end of the tunnel. It won’t happen overnight, and maybe not in the next five to ten years, but it increasingly appears to me that the government’s disastrous “problem solving” that has brought us to this place is approaching a limit. Case in point, governments the world over are now engaged in an insane race to the bottom for their currencies – which will only gain speed if the Fed goes ahead with a new round of quantitative easing. Should the Fed persist with this latest madness, countries all over the globe are likely to step up their own interventions – but that may very well lead to the fiat system breaking down completely, to be replaced by something more tangible.

 

Tyler Durden's picture

Your Taxpayer Dollars At Work: San Fran Fed Asks If Structural Unemployment Is On The Rise, Discovers It Isn't





With unemployment stuck at 10% for about a year now, and with the real unemployment rate probably well over 20% if one removes all the BLS gimmicks, by now it is rather clear even to 2 year olds, that the New Abnormal is one where unemployment of 5% is merely a pipe dream, and that the Fed's attempt to revert to an abnormal mean, and blow the biggest bubble ever in the process, will do nothing to fix what is now a new structural baseline unemployment level. And yet, just to prove that the Fed will take taxpayer money and spend it on the most Captain Obvious topics ever, has just released a paper titled "Is Structural Unemployment on the Rise?" Adding insult to monetary injury, paper authors Rob Valetta and Katherine Kuang conclude that not only are worries about a "new normal" misplaced, but that jobs will promptly revert back to old levels. Sure why not - as we showed recently, it will only take the creation of 240,000 jobs a month for about 6 years straight to get back to the old unemployment level. It will also mean that luckily, at some point California will not have to borrow $40 million a day to fund its unemployment insurance payments. Lastly, with one brief paper the San Fran Fed has proven that all is good in the world, and those traitors responsible for 26 weeks of constant equity outflows, just like the 42 million Americans subsisting on food stamps, are complete morons for being "timid" in light of these stunning results. We expect as this paper's findings are broadly disseminated for world peace to finally break out, FX wars to end, consumer confidence to jump by 100%, and gold to drop to its Fed mandated price of $35/ounce.

 

Econophile's picture

Goldman and Bernanke Are Wrong About Inflation





What's the deal with Goldman? First they said QE2 would be bad. That we needed $500b or $1T or even $2-$4T to achieve inflation. Now they are defending it. More confusion. They are both wrong.

 

Chris Pavese's picture

Three Little Birds - Broyhill Letter Q3-2010





“Maybe Ben Bernanke will make the VIX go to zero and we'll all win every day. Maybe not. We do not think this will end well. If anything, the next market crash could be perpetuated by the Fed itself.”

Keith R. McCullough, HedgEye Chief Executive Officer

 
Do NOT follow this link or you will be banned from the site!