Archive - Nov 2010

Silver hits a new all time record: $26.03. It is simply AMAZING what a little RICO lawsuit filed against JPM and HSBC will do. How about a 5% price increase in a day? Also, we can just see the Chairman's explanation for the fact that the S&P is down 30% YTD in silver: "wealth effect...only negative." And you ain't seen nothing yet. The LBMA (but mostly JPM and HSBC) are bracing for a tsunami of margin calls after the close.

When the crisis began in the US in 2007, many commentators called it a “Minsky moment” or even “Minsky crisis”, after the late economist Hyman Minsky who had developed what he called a “financial instability hypothesis” over the years after 1960 and to his death in 1996. Minsky was my PhD dissertation advisor and I had already used his approach to analyze the Saving and Loan crisis. Unlike the typical explanation that invokes Minsky's theories, I recognized that Minsky did not simply provide a “euphoric bubble” approach. Rather he argued that the transformation of the economy and especially its financial system from “robust” toward “fragility” took place over a very long span of time, indeed, over the entire postwar period. The increasingly frequent and severe crises, as well as the growth of fraud as practically normal business practice were a consequence of that transformation. Hence, we should not call this a Minsky moment or crisis but rather a Minsky half-century.

Contrary to conventional wisdom the SocGen duo of Edwards and Grice has not turned bullish (despite Dylan's "call" for a 63 million Nikkei). In the following note, Edwards debunks this recent fallacy. More importantly, Albert provides a geographic locus of where the next bubble pop will come from, which is no surprise as it is the focus of all capital flows - Emerging Markets. As he says: "The simple fact is that if, as I expect, QE2 fails and fiscal tightening sends the fragile western economies back into recession, we will see the unfolding liquidity driven EM and commodity bubble burst just as violently as it did in the second half of 2008." Sorry Albert, with every central bank now all in, and ammo for additional operations now gone, the next blow up with make the H2 2008 implosion seem like a walk in the park. This will be infinitely worse than Japan. Which is why the last ditch to preserve the Ponzi will be unlike what anyone has ever seen before.

The breathless pursuit of stocks has now led to a complete dislocation of all correlation pairs. The ES is about 7 points rich to AUDJPY and the historical correlation with the 2s10s30s butterfly is now a long memory. That said, if anyone wishes to take a non-direction bet on the market, contrary to what Batmanke is telling the entire US population to do, a convergence pair trade in ES and AUDJPY is the only thing that may make sense. In other news, hedge fund analysts are now obsolete, as long-short stock pair trades are now irrelevant: as of today, traditional high beta short names will outperform long positions until the end of the QE regime, some time in the 2020s.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 04/11/10

After putting over $2Tn into our Dead Parrot Economy since the crash and getting no response, Bernanke is upping the ante with another $600Bn round of Quantitative Easing ON TOP OF the ongoing $250-$300Bn round of POMO commitments for a total of about $110Bn per month dumped into the economy... This represents a 10% increase in the money supply over 8 months and, therefore, a planned 10% decrease in the purchasing power of your dollar-denominated assets - a 10% tax on everything you own.

Low supply+ very high demand = higher prices

What the Fed is clearly trying to do is reflate asset values in order to generate a more positive wealth effect on personal spending and pull the cost of debt and equity capital down in order to re-ignite business “animal spirits” and hence corporate investment and hiring. In a balance sheet or deleveraging cycle, success is not always guaranteed even by the most aggressive of monetary policies.

Investors who employ technical analysis tend to monitor stock trading volumes in comparison to its movements in price in order to predict upcoming reversals in trends in attempt to identify attractive entry points and essentially “time the market”. Today, we will identify which actively traded stocks you should buy

PIMCO selling more 126/129 strangles in tyz0 @ 30...10k all day

Today's preemptive currency war salvo comes courtesy of Brazil's finance minister Guido Mantega.

• BRAZIL'S MANTEGA CALLS ON U.S. TO CHANGE ITS POLICY STANCE

Hey Guido, join 99% of America. Worst case you can put your Playboy-posing daughter on prime time TV to tell the idiot American public that the Fed is destroying it.

This is part 3 of the 5 part interview with Warren Buffett's biographer Alice Schroeder. It includes insight into what makes the Oracle of Omaha tick that you will not find anywhere else.

Today's POMO has closed, as the Fed injects $4.8 billion of still legacy QE Lite money in the market. The Submitted to Accepted ratio is at 3.9, well below the average, and thus confirming that today's stock market will likely close about 2%+ higher, as predicted earlier. There is one more POMO remaining under the current QE Lite regime, and then it's off to the races, as the Fed commences buying about $15-20 billion worth of Apple each POMO day. The next POMO schedule will be released at 2 pm on November 10. It will be a doozy.

Book 'em, Danno!

Two weeks ago, the FHFA, using Moody's assumptions and modelling, said that a worst case scenario for Fannie and Freddie could result in total costs to taxpayers of $363 billion, an incremental $220 billion to the $148 billion already spent to keep the nationalized housing branch of the US government. Today, S&P has released a stunner which says that actually fixing the GSEs, and "resolving and relaunching" the bankrupt entities, would actually cost as much as $685 billion, or over another half a trillion in taxpayer costs. And as for the reason why the market is surging, and will be until the US annexes Zimbabwe, now that it is pricing in QE 7, S&P says that according to its estimates, the backlog of shadow inventory is 40 months! Tomorrow: another trillion dollar capital defficiency hole, uncovered somewhere in the ponzi that is the US economy, will cause QE 8 to be priced in. And so on.