Archive - 2010

We are in a Cowardly Lion market, whose occasional bursts of bravery are
ultimately overrun by fear that leads to a subsequent decline.

Bank of America just fired the preemptive escalation shot in its duel with Wikileaks. Late on Friday, America's biggest mortgage lender, and the firm that is now getting sued left and right for various mortgage transgressions, announced it is joining MasterCard, Paypal and Visa in ceasing transactions for Wikileaks. While this decision will certainly not improve Operation Anonymous' empathy toward the North Carolina bank, it may just precipitate overt retaliation by Assange, who is now rumored to be in possession of data that could provie harmful to BAC. Which is why this sudden escalation out of left field by the bank strikes as surprisingly odd: BofA's upside is very limited while its downside could be 100% - even if Wikileaks is bluffing, why provoke them. And as expected, Wikileaks has already retaliated: in two sequential tweets it advised its 568,117 (and very rapidly growing) subscribers to pull their money out of Bank of America, and also to close all their accounts with the firm, urging them to put their money "somewhere safer." What is curious is to see whether this sudden escalation, in what has now become synonymous with a quest for preserving the first amendment for a substantial deal of people (and freedom of speech globally), will have a far broader impact than the comparable "Pull Your Money" out of the Big Banks venture that was attempted by Huffington Post over a year ago, with unsatisfactory results. If people suddenly personify Bank of America with a First Amendment threat, arguably the one freedom most cherished in America, which is precisely what Assange is trying to do, all bets for the Countrywide acquirer may soon be off.

With market news quieter than a prisoner's dilemma that actually reaches a Pareto efficient Nash equilibrium, and even quieter than the "Free Bernie Madoff" campaign...

Honey, did you remember to pick up some gold?

The average person underestimates the possibility of a disaster and its effects. They believe since something has never happened before it never will.

After the rather tumultuous events of the past 48 hours, it is time to take a moderate to quite moderate break. Please use this space to hyperventilate, or else breathe normally, at your leisure.

None can foretell the future, and yet the shape of what we face can be shrewdly estimated with enough attention to historical trends; with broad contextual understanding; and with sufficient insight into the character of leaders, their societies, and the structures which define their basis. These estimates will be tempered by the sudden acts of nature, the sudden emergence of true leadership from unexpected quarters, or key breakthroughs in science. Still, we can hazard reliable views on the shape of the world in, say, a decade — in 2020 — if present trends and characters remain, and on a knowledge of certain baseline levels of wealth and capability which presently exist. In 2011, the world will probably remain beset by the lingering of the present crisis of currency levels and economic performance. This is essentially a mass psychological crisis, based around the perceptions which create trust, particularly trust in asset values and institutions. In some respect, historical trends have given populations in modern societies excessive trust in the ability of their institutions to remain operational, untended by their populations. As a result, governments have grown larger and less efficient, and have arrogated to themselves more and more of the resources of societies, thereby inhibiting productivity. At some point, those societies, when beleaguered and impoverished, lose faith in the institutions of governance and leadership succession.

Lately, anywhere we look, there seems to be a pattern emerging: those economic thinkers who actually construct and run their own macro models (not the glorified powerpoint presenter variety) and actually do independent analysis and tracing of the money flow, instead of relying on Wall Street forecasts that have as much credibility as a Moody's home price hockey stick from 2006, almost inevitably end up having a very dire outlook on the economy. One such person is and has pretty much always been Shadowstats' John Williams, whose "shadow" economic recreation puts the BLS data fudging dilettantes to shame. That said any reader of Zero Hedge who has been with us for more than a few weeks, knows all too well our eagerness to ridicule the increasingly more incoherent lies coming out of the US department of truth, so no surprise there. Yet another aspect over which there is much agreement is that no matter how one slices the data, the outcome for the US currency is a very grim one. Which is why Williams over the past several years has become a major fan of the shiny metal. Below we recreate portions of his latest observations on the upcoming currency collapse, courtesy of King World News.

I'm all for capitalism, but Banana Republic level inequality is killing us ...

As we suggested earlier, there would be virtually no trading volume at all today, and any moves would be driven purely by the deltas. And following the close the fireworks would follows. Sure enough, here's the whoosh immediately following the start of the AH session.

It is no secret that Zero Hedge's favorite contemporary painter since what now seems time immemorial is none other than the unbeatably original Geoffrey Raymond. While his art has not made Sotheby's yet, it will eventually: after all who would not rather bet on the upside appreciation of an annotated painting of Dick Fuld, capturing the bipolar euphoria of a just insolvent Lehman Brothers for $30K than a diamond skull by Damien Hurst for a hundred million, with guaranteed downside?  That said, $30K may be a little steep for a population which still has to feel the impact of inflation on its paycheck. Which is why we are delighted to once again offer Zero Hedge readers the chance to get what Raymond calls The Perfect Gift for the Person who has (Almost) Everything... and at a discount. Geoffrey is offering signed and numbered prints of five of his favorite paintings with guaranteed delivery by the 24th.  They are "The Annotated Fuld", "The Annotated Fed", "The American Investor", "Big Lloyd 3 (The Root)" and one of my all-time favorites, "Cramer:  Naked Short".  Taken together, they are an amazing visual document of the American financial meltdown.  All these can be found at www.annotatedpaintings.blogspot.com. After all what better inflation hedge than acquiring a print of the unbridled genius presented below. Considering the subject's most recent Nielsen ratings, it may be archival very, very soon.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 17/12/10

And they have monster computers...........

One of the more peculiar observations we noted in our analysis of the Fed's balance sheet yesterday, was that in the week just ended, reserves held by banks with the Federal Reserve dropped by a very material $64.2 billion even as the Fed ended up buying a net of $4 billion in securities: a $68 billion mismatch between an increase in reserves and Fed asset increases. A quick look at how this mismatch has progressed since the announcement of QE Lite (and QE 2) demonstrates this phenomenon very distinctly: while during the QE Lite phase, net holdings of the Fed were flat, bank reserves, which should have followed suit in fact declined notably, by almost $40 billion. Yet it is during the POMO phase of QE 2 that this difference become glaring. During a period when the Fed added a total of $88 billion (net of MBS paydowns) in securities, reserves increased by only $14 billion. This does not include the cumulative differential since QE Lite. And all this came to a head in the just ended week, when the difference between cumulative asset purchases and reserve changes hit a whopping $138 billion. This is very disturbing for a variety of reasons, the number of which is that, as Jim Bianco points out, banks are rapidly exchange securities with higher reserve requirements for those with lower: the net result is a far slower increase in reserves held with the Fed. It also means that banks ever since QE Lite have been stealthily offloading lower quality fixed income products to the market and replacing these with Treasuries (motivation being unclear but likely having to do with presenting a better capitalized state). If true, this would mean that during the entire orchestrated HY bond rally sine August, those who have been buying are in fact the greatest suckers, and have been buying hundreds of billions worth of lower quality paper from none other than the allegedly smart money banks. Alternatively, what this means, is that instead of opening up capacity for banks to bid up riskier corporates and thus stimulate the economy, banks are forced to gobble up the toxic treasuries, that the Treasury puts upon them each and every week. Should this divergent trend persist, we would be very mindful of obtaining verification of either of these two hypotheses.

The fundamentals behind the gold trade are generally understood on a very superficial level. $3000 gold will have very little to do with inflation. It will have little to do with the economy being "bad"- we have had recessions with collapsing gold prices. In many ways we are talking about something far more menacing. We are talking about capital running for cover. We are talking about unprecedented skepticism towards government. We are talking about the long overdue self-destruction of a system that magnifies the folly of man.