Archive - Dec 31, 2010

It's called image riffing...Here is what I just riffed up...

When one spits the truth, there is really nothing to do but sit back and listen. Happy New Years to one and all...

Where 2008 had seen the almost accidental move of investors from stocks to commodities, 2010 saw the almost willful, wide awake version of that. In 2008, investors woke up and noticed, “Wow, we aren’t buying Exxon or Chevron any more to get long in oil; we are actually buying oil.” In 2010, investors just bought oil, knowing that that buying would push prices higher. It seems likely to continue in 2011.

It seems anywhere one looks there days, one reads a refutation of Paul Krugman's tortured "economist" logic. Lately, the NYTer has fallen into the crosshairs of many due to his contention that currently taxes, based on some chart which the Nobelist probably mislabeled again, are at 20th century lows. Of course, cherrypicking data that fits the theory is precisely what economists do. Which is why Krugman may be excused for missing out on a trend so subversive that we have seen it only mentioned by tax attorneys at Weil Gotshal: namely the gradual transition in the definition of taxable income from a "net" to a "gross" tax basis. As Weil's Kimberly Blanchard explains: "Many observers — most prominently Paul Krugman — write in terms of tax rates being at an all-time low and compare today’s rates favorably with those that existed early in the 20th century. Their implication is that tax burdens are lower today and, therefore, there must be room for tax hikes. But we know that taxes are not lower today. How could they possibly be when government revenues are so much larger, even as adjusted for inflation? The increasing size of the national deficit cannot explain the gap, which was already in evidence during the Clinton years. The average individual taxpayer is frustrated and confused because she hears that tax rates are down but somehow she believes (correctly) that her taxes keep going up. What has occurred is that the base has expanded dramatically, leading to taxes far higher than those paid by individuals historically." Expect to hear much more of this in the next two years.

• Commodities Beat Stocks, Bonds, Dollar in 2010 (Bloomberg) - translation: anything that can't be diluted does and will do better than things that can be diluted
• How a mortgage clearinghouse became a villain in the foreclosure mess (WaPo)
• Euro Imbalances Mean 80% Risk Bloc Will See Structural Overhaul, CEBR Says (BusinessWeek)
• Estonia Prepares to Join the Euro Zone (WSJ)
• Simon Johnson: Fresh Crises Loom in Europe and the U.S. (NYT)
• That pesky CRE issue still refuses to go away: Commercial property loans pose new threat (FT)
• Krugman on The New Voodoo and hypocrites (NYT)
• Mises Institute on the Hypocrisy of Krugman (Mises)
• Venezuela to Devalue its "Strong Bolivar" Currency (WSJ)

As the mainstream media finally made a big story out of capital flows after ignoring the topic with impunity for 33 straight weeks (of $90 billion worth of outflows), the question many ask themselves is whether last week's minimal inflow into domestic equity funds is indicative of a shift in risk sentiment, and more specifically whether the outflows in bonds will if not accelerate, then at least remain at their current elevated levels. Probably the best answer to that will come from looking at not only the price action of the most liquid rate instrument, the 10 Year, but the actual net money flows for all UST contracts. While the first can be done with any charting program, the second is slightly more complex and for that we go to Credit Suisse's Carl Lentz and Eric von Nostrand.

With most world markets operating on half mast today, here are the reasons why ES futures, at least for now, are trading in the red.

We now live in a world where governments print worthless pieces of paper to buy other worthless pieces of paper that combined with worthless derivatives, finance assets whose values are totally dependent on all these worthless debt instruments. Thus most of these assets are also worth-less. So the world financial system is a house of cards where each instrument’s false value is artificially supported by another instrument’s false value. The fuse of the world financial market time bomb has been lit. There is no longer a question of IF it will happen but only WHEN and HOW. The world lives in blissful ignorance of this. Stockmarkets remain strong and investors worldwide have piled into government bonds in a perceived flight to safety. -

2010 is going out with a bang as every piece of data beat guesses today including new claims for unemployment, pending home sales, and...