Archive - Aug 2010
August 29th
Where We Are?
Submitted by Leo Kolivakis on 08/29/2010 13:33 -0500Where are we relative to the average of previous financial crises around the world and will the US benefit from China's "inevitable collapse"?
Guest Post: The Federal Reserve Should Raise Rates and Lower Them Too
Submitted by Tyler Durden on 08/29/2010 12:59 -0500There is much debate over whether the Federal Reserve should tighten or further ease monetary policy. This dichotomous framing overlooks another possibility, which is whether the Fed should change the mix of its stance, tightening in some areas and further easing in others. In particular, there are strong grounds for the Fed to abandon its support of the Treasury bond market and to raise gradually the federal funds rate (to say one per cent), while simultaneously increasing its purchases of mortgage backed securities. If permissible, the Fed should also purchase state government bonds according to a per capita formula. Such a recalibration of policy could have positive effects. Increased purchases of MBS will help the housing market, which remains at the heart of the US economy's problems. Declining house prices continue to inflict financial losses on banks and consumers, and the prospect of further price declines deters buyers and undermines new construction. Increased MBS purchases could help stem this problem by further lowering mortgage rates. That would help households by facilitating more mortgage refinancing, help banks by reducing foreclosures and help the construction industry by making home ownership cheaper.
Guest Post: Bundesbank Executive Attacks Jews, Turks, Africans et al in Xenophobic Seizure
Submitted by Tyler Durden on 08/29/2010 11:46 -0500German Bundesbank executive Thilo Sarrazin has sparked a new uproar by saying that "all Jews share a common gene" and also attacked the Basques in Spain the same way in a newspaper interview. This comes only a few days after Sarrazin came under fire in Germany for using shock talk about the country's Muslim immigrants, Turks, Middle Easterners and Africans when he presented a new book. Sarrazin’s new book, whose title translates as “Germany Eliminates Itself,” sparked a heated debate. A spokesman of the Bundesbank so far only said that the book is Sarrazin's personal opinion, not exactly distancing itself from Sarrazin's xenophobic bouts.
America's Top Military Chief: Debt is Main Threat to U.S. National Security ... Pentagon Must Cut Spending
Submitted by George Washington on 08/29/2010 11:41 -0500The chairman speaks some truth...
A Report From the San Francisco Money Show
Submitted by madhedgefundtrader on 08/29/2010 10:12 -0500There really is no corner of the financial markets that was not well represented by market makers, analysts, technology providers, and investors-- thousands of them. A big splash in hard assets.
China to Globe: “No More Rare Earth”
Submitted by Bruce Krasting on 08/29/2010 07:03 -0500Watch this one.
Confirming "Dumb Money's" Resilience To The Wall Street Siren Song
Submitted by Tyler Durden on 08/29/2010 00:54 -0500When Zero Hedge first admonished our readers in June of 2009 to stay away from markets in light of a general deterioration in market structure, which included a regulator-authorized form of structural frontrunning in the form Flash trading (not to be confused with the imminently following Flash crash), an unprecedented mismatch between stock valuations and economic reality, and Wall Street continued attempts to reflate the ponzi merely for the sake of proving that it can be done, we never expected that retail would take to our warning with the ensuing solemnity. Yet with 16 consecutive outflows from domestic equity mutual funds, shut downs by legendary hedge fund managers such as Druckenmiller and Pellegrini (and many more Tiger derivative blows up to be disclosed soon, once the full extent of the carnage of the flattening of the steepener bandwagon trade is fully appreciated), virtually everyone is asking themselves how did Wall Street not only get it all so wrong, but how on earth is the primary business of the post-facelift Wall Street, which is no longer investment banking, but merely trading (with or without flow-facilitated prop frontrunning) going to sustain the recent record headcount levels (hint: it won't, and many more banks will soon let go thousands of additional staffers as key revenue sources have now disappeared forever), and most importantly, why is this time different? Why did the "dumb money" for the first time ever, not bite on the Wall Street siren song lure of an economic "rebound", but instead has hunkered down, proving that not only is Wall Street nothing more than a pure-play enabler of the ponzi regime's status quo, but that all those who were warning that the economy is far more dire than Wall Street represents, were proven right. These same individuals (and bloggers), first validated in predicting the downward direction of the economy, will see their pessimistic forecasts about stocks validated next. Yet while that happens, all those who still somehow find this a surprising development, are now left proposing hypothesis as to what went wrong. Such as the following piece by the Financial Times.
August 28th
An interesting chart development in the S&P 500
Submitted by naufalsanaullah on 08/28/2010 21:57 -0500If you would like to subscribe to Shadow Capitalism Daily Market Commentary (including full-size versions of the charts included as well as daily trade ideas), please email me at naufalsanaullah@gmail.com to be added to the mailing list.
A Bad Case of Economic Hypochondria?
Submitted by Leo Kolivakis on 08/28/2010 18:52 -0500I think we are all suffering from a bad case of economic hypochondria...
CBO Clears Things Up
Submitted by Bruce Krasting on 08/28/2010 17:47 -0500Not to worry. Everything is fine.
My Run in With the Law
Submitted by madhedgefundtrader on 08/28/2010 11:59 -0500Who knew we financial types were so unpopular on Main Street?
Repositioning Austrian Theory Part Deux
Submitted by PragmaticIdealist on 08/28/2010 10:28 -0500I clarify my critique of Austrian/Libertarian theory and explain how monetary austerity is not necessarily the "right thing to do" going forward.
Chairman Of Joint Chiefs Of Staff Says National Debt Is Biggest Threat To National Security
Submitted by Tyler Durden on 08/28/2010 09:33 -0500Not China, not Russia, not North Korea, not Iran, not terrorists...According to Mike Mullen, the Chairman of the Joint Chiefs of Staff, the "single biggest threat" to American national security is the US national debt, which is either $8.85 trillion (public debt), $13.4 trillion (total national debt), $20 trillion (total debt including GSE debt), or $124 trillion (total debt including unfunded obligations), depending on one's definition of the word "debt." And as Zero Hedge has long been warning, the imminent increase in interest rates (sooner or later), will eventually put the country in an untenable funding position. "Tax payers will be paying around $600 billion in interest on the
national debt by 2012, the chairman told students and local leaders in
Detroit." The Chairman (the real one, not his pale imitation over at Marriner Eccles) politely forgot to add that the successful rolling of nearly $600 billion in debt per month is likely an even greater threat to national security.
Morgan Stanley Finally Folds, Lowers H2 GDP Forecast From 3% To 2%
Submitted by Tyler Durden on 08/28/2010 09:00 -0500The firm that was long the biggest bull on Wall Street, Morgan Stanley, with its initial 5.5% target on 10 Years by the end of 2010, has finally folded: "We are downgrading our outlook for second-half growth to 2-2.5% from 3-3.5% previously. This downgrade from above-trend to below-trend growth has important implications for forecasts of the unemployment rate, inflation and monetary policy." Ostensibly it also has implications on rates, with the firm now actively calling for a flattener, just in time for the 10s30s to start creeping out again. Of course, this being Morgan Stanley, nothing is ever easy, and the firm obstinately refuses to see the plunge in H2 GDP as anything more than just a temporary blip: "we don’t think this slowdown will last beyond H2, much less morph into a downturn. In his Jackson Hole speech, Chairman Bernanke seemed to agree that the current economic weakness does not augur a weaker outlook for 2011. We agree. Among the reasons: Downside risks probably will prompt policy actions, balance sheet repair will be more advanced, and we expect net exports to improve in the second half of 2010 and into 2011. In fact, we see no reason to downgrade 2011 and possible reasons to upgrade, especially if policy turns more stimulative." Ok, Richard Berner, your colleague Jim Caron's rates call already lost a ton of people even more money : we will be sure to remind you of the bolded statement on January 1, 2011.
Weekly Chartology
Submitted by Tyler Durden on 08/28/2010 08:30 -0500Goldman's David Kostin continues to pitch the firm's recent "SIRP" investment strategy, highlighting that while the S&P was down 0.6% in the past week, the recommended trade of buying low operating leverage companies (long








