Archive - Feb 2010

God bless brave US-based hosting companies.

http://embeddedart.com/

 

This website has been taken offline due to the sensitive nature of the
events that transpired in Texas this morning and in compliance with a
request from the FBI. If you want to see the original letter, please
see the archived version at thesmokinggun.com: http://www.thesmokinggun.com/archive/years/2010/0218102stack1.html

Regards,

T35 Hosting

 

The chart left is not indicative of the widening in the sovereign credit of some backwater PIIGS country. It shows the rather substantial move higher in 10 year British Gilt yields over the past week. Are the bond vigilantes slowly but surely (and as very much expected) moving from the periphery, where all the low hanging fruit has been picked, to the core, where the acceleration is only just starting? To be sure, the Gilts are easy targets: with QE unaninmously voted out, and increasing budget deficit, there is little to like.

From Austin, Texas crashed pilot Joe Stack's suicide note. "If you’re reading this, you’re no doubt asking yourself, “Why did this have to happen?” The simple truth is that it is complicated and has been coming for a long time. I saw it written once that the definition of insanity is repeating the same process over and over and expecting the outcome to suddenly be different. I am finally ready to stop this insanity. Well, Mr. Big Brother IRS man, let’s try something different; take my pound of flesh and sleep well."

Two weeks ago we warned readers who wanted to get 2009 tax refunds to file their taxes asap. It appears we were prescient. The state budget crisis is about to hit home. Again. Last year California delayed tax refunds due to simply not having any money which to refund. This year, the first states to announce a hold in refund processing for just the same reason are Hawaii and North Carolina. New York State is also considering a comparable action. If you have delayed filing your taxes, it is high time to do so now regardless of where you live as the same "money-saving" approach of halting refunds is likely about to become prevalent now that "everyone is doing it."

Many have wondered just what it was about the past month that has woken up the bond vigilantes from their euro zone slumber, prompting them to suddenly and aggressively punish deficit transgressors. After all, it is not like the massive deficits appeared overnight. Surely had the sovereign bond and CDS widening been more gradual the European authorities would have had no recourse to blame cash and CDS "speculators", whose actions have merely forced the market fundamentals to catch up with reality. Yet due to the sudden move, chaos is rampant, and any minute now 6 scapegoats are expected to be named, in an attempt to deflect anger away from fiscal blunders by various administration officials, whose incompetence is the primary cause for the PIIGS crisis. Morgan Stanley's explanation for the sudden and dramatic move has to do not so much with endogenous fiscal constraints, but more with the ever more prevalent opinion that the giant liquidity pump is coming to an end. Is the market merely pricing in the removal of liquidity and striking at those who will be impacted first when the tide finally starts to recede?

The study of repurchase agreements (or repos) gives us a recent insight into the big players’ view. Repurchase agreements are an important tool of the Federal Reserve that allows them short-term control of money. In the face of this market correction, is there going to be an encore of purchasing agreements that leads to a probable rebound? Up until about early 2008, the correlation had moved up to 0.86 or 0.75 squared. It broke down after that period. This is one reason that we will show the larger, updated version today. I feel that the ascending rate of cumulative repos is simply unsustainable.

David Hawley, an IMF senior advisor, has said that while the fund has previously sent a team to Athens to explore providing technical assistance, it "stands ready to respond positively to requests for future technical assistance." The IMF has so far failed to quantify just how many tens of billions of euros the word "technical" is equivalent to. While this is not precisly news, increasing chatter which includes the words "IMF", "Greece" and "assistance" in the same sentence, can only be preparing the general public for one thing.

RANsquawk 18th February US Morning Briefing - Stocks, Bonds, FX etc.

Yesterday's "no-news" news from the IMF which for some reason drove a jittery gold market down, ended up merely being a buying opportunity, as the IMF press release was simply a recap of previously disclosed information. But in this headline driven market, who cares about the second paragraph. More interestingly, over the past week, Gold has solidly outperformed the dollar, returning nearly 5x more than the DXY. As previously speculated, the new "euro-fleeing" regime is resulting in both dollar strength and increased gold appetite as central bank flows increasingly steer away from fiat exposure.

Dow Jones reporting that Greece is rumored to be going for broke (no pun and everything) and praying it can place a €5 billion 10 year bond issue next week. Surely, the longer the country delays, the greater the concessions that will be demanded as Greece approaches the April/May funding crunch. Yet coming to market too early and experiencing a failed auction would be just the catalyst the bond vigilantes need to go viral. And it is not exactly as if there will be a scarcity of supply in Europe as we pointed out previously: Portugal is expected to sell €1 billion in 5 year bonds next Wednesday, followed by a major auction in the next crisis epicenter, Italy.

The following documentary from Dutch channel Vpro is a must watch for all who still believe there is something else to this market than pure low-volume, math-modelled momentum chasing courtesy of Wall Street's quant community (which is still happily front-running whale orders courtesy of such presumably banned inventions as Flash trading which the SEC bitched about then quickly swept under the rug). With appearances by Paul Wilmott, Mike Osinski, Emanuel Derman and Zero Hedge friend Matt Goldstein, the clip provides a much needed refresh course into the facts behind the biggest risk to the market since the 1987 crash. It is unfortunate that exposes like this, which warns about many of the core issues that Zero Hedge has been discussing for approximately a year, will rarely if ever appear on US television. And while the math and modelling that is involved in "predicting" the market is only as good as the losses suffered by the next quant driven systemic crash (1987, 2007), the greatest danger is the hubris exhibited by the very same math Ph.D. prognosticators who have an infallible belief in their own computerized concoctions... until proven catastrophically wrong: as is noted in the commentary "Making a lot of money is like taking a drug. You feel good, head to toe. When somebody hands you a million dollar check or a five million dollar check you want more. If I am making $5, I should be making $50, because I am a genius. There is no question in your mind that you are genius, and that you are so much better than everybody else." And this insight from Wilmott: "It is clear that a major rethink is desperately required if the world is to avoid a mathematician-led market meltdown. What you are supposed to do if you've got a warning, you are supposed to take your warning and write it in book form. You are supposed to write 300 pages about the dangers of etc, etc. I am a mathematician, and what mathematicians do is take something that is 300 pages and they condense it into one equation. And that to them is beauty."

So what happens when employment and asset prices go down while input prices go up?

The outperformance will continue. A recovering auto industry needs a lot of catalytic converters. 80% of the world’s production comes from Russia and South Africa, dubious sources on the best of days. A free call on political instability. Meet the “poor man’s platinum.”

The question of the day, "Does the Mainstream Media Take the Blogoshpere Seriously as a Credible Distribution Outlet for News and Opinion?" While the answer should be a resounding yes, the reality of the situation is probably "no". The media probably does consider blogs a threat to revenue and eyeballs, though. This is an interesting story presented to me from Aaron Krowne from Implode-a-Meter...

Nothing really new, just the most searing and comprehensive evisceration of the vampire squid's "profitability tactics" to date, packaged in a box of exquisite semantic brilliance that only Matt Taibbi can provide, and comprehensible enough for anyone to understand. Taibbi points out: "the fact that we haven't done much of anything to change the rules and behavior of Wall Street shows that we still don't get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload." It is time to break up the market monopolizing force known as Goldman Sachs.