Archive - Feb 2011

Newest Stock World Weekly: "The Fed has no means to fix the problem of joblessness, besides trying to stimulate the economy by flooding it with liquidity, or “printing money,” thereby devaluing the Dollar. Devaluing the Dollar is contrary to the Fed’s mandate for price stability."

After trading in nearly perfect unison and with an R² of about 0.8 for over half a year, in the last week the speculative pattern in the GBP-JPY correlation had a dramatic breakdown. Whether this is due to expectations that the BOE will have to hike rates to deal with 4% inflation, or continuing massive quant deleveraging behind the scenes of residual positions as traditional factors now blow up daily in the faces of quants, is unclear. What is clear is that suddenly one of the more long-lived spec FX correlations has whipsawed to the point where it has left many FX traders nursing critical wounds.

Note the surge in GBP bullish bets, and the plunge in JPY. Those willing to bet that the spec crowd is always one step behind the curve may be well advised to take the other side of the trade. All this and the latest Charts that Matter from Goldman's John Noyce inside...

SEO, meta-tagging, Demand Media, etc. These media trends are scary, and unfortunately only seem to be picking up steam. If allowed to continue unabated, these trends will only put us on a quicker path towards a seemingly inevitable Idiocracy.

Today, appearing on Meet The Press, in addition to Susan Rice, Dick Durbin, Lindsey Graham, Jennifer Granholm, Harold Ford, and Ed Gillespie was CNBC's uber contrarian voice, Rick Santelli. The topic: reigning in government spending, a topic which will be with America until its last bond issuance, sometime in the next 5 years. And while Rick was quite subdued this time around (it seems the CBOT voice only sees red when confronted with the likes of Steve Liesman), he did compare the crisis facing America now to the events from 9/11... "I think this is an issue that needs to be put out into the air and
see--many, many other states, ultimately, might have--not have the same
balance sheet as Wisconsin, but I think, ultimately, collective
bargaining, even from a federal level, these are big issues, and these
costs need to be put under control.  If the country is ever attacked
like it was in 9/11, we all respond with a sense of urgency. What's
going on on balance sheets throughout the country is the same type of
attack." He also noted the critical Illinois muni situation whose alternative is a forced austerity plan (and considering that various Wisconsin politicans received death threats over what is finally being perceived a loss in some entitlement benefits, the outcome of inevitable austerity in America will not be pretty): "Senator Durbin is from my state:  $3.7 billion muni issuance that they need to bring to the market.  They
haven't paid vendors.  You know, it has come to the crossroads where if
we don't start to make the changes that the governor and the congressman
know are going to take time, we will have austerity forced on us, and
that type of austerity is going to be much messier.  There really isn't
much opportunity for debate here.  We do need action." But most importantly is the realization that nobody has any idea what to do, and as an article just penned by the Global and Mail screams, "Wake up, Americans. Your economic dream is a nightmare." Luckily, with everyone's head in the sand, nobody really minds.

Investment banking as an industry runs almost completely contrary to wealth creation since it thrives on fees rather that capital appreciation. Investment banking is about making DEALS (any deals) regardless of whether the deals make sense or benefit both parties (after all, the advisors to the deals, the investment bankers, get paid based on commission and free stock).

Now that Jeff Gundlach is out there making big residual waves (with Barron's as usual just 3-6 months behind the curve), here is, once again for those who missed it the first time around, Gundlach's latest presentation. The next update from Gundlach will be on March 15. We will present it to readers as soon as it hits.

Refuting reports that the two Iranian warships had passed the Suez Canal into the Mediterranean, Suez Canal officials said that the ships are not to sail through until... tomorrow (when international FX markets are open at half volume mast). Previous reports on Iran's Arabic language state television channel Al Alam TV reported that the ships had passed through the Suez Canal (as, of course, had Debka). Although in reality a 24 hour difference will likely not matter much. The key aspect is that Egypt has indicated that it will not bend to international pressure when it comes to "canal neutrality" rules - something that will likely not inspire confidence in Egypt. As for the warships, we doubt anyone will to take a real defensive posture - after all as we pointed out previously both of these are over 30 years old, and any escalation would be purely symbolic to further mobilize middle eastern forces, based on "provocation" rhetoric. Look for some fireworks in FX trading overnight and tomorrow when already subdued volumes exagerate the impact of any potentially troubling news headline.

Would it have mattered if at the beginning of the crisis in Egypt that information on his wealth outside the country were accurately reported? Maybe. I think so.

Stocks ended higher for the third consecutive week as protests throughout the Middle East continue to spread like misinformation during a political campaign or

Will the bond market kill the party in stocks? It's not that simple...

What could possibly be the most important unreported news from the weekend comes out of China, where quietly Internet postings have circulated, calling for disgruntled Chinese to gather on Sunday in public places in 13 major cities to mark the "Jasmine Revolution" spreading through the Middle East. The postings, many of which appeared to have originated on overseas
websites run by exiled Chinese political activists, called for protests
in Beijing, Shanghai, Guangzhou and 10 other major Chinese cities. And while there has been some speculation this latest "social network" protest is nothing more than performance art, the Chinese authorities sure are taking it seriously: "The calls have apparently led the Chinese government to censor
postings containing the word "jasmine" in an attempt to quell any
potential unrest. "We welcome... laid off workers and victims of
forced evictions to participate in demonstrations, shout slogans and
seek freedom, democracy and political reform to end 'one party rule',"
one posting said." Just like surging prices (which however are either forcefully adjusted to not be reflected or eliminated entirely from the data stream) caused virtually all prior Chinese social revolts, will they succeed again? And more improtantly, will China demonstrate to the US that the only way to prevent a 'twitter revolution' is to wrest control of the internet entirely? If so, how many days before Big Brother is actively scouring through every single 100Base TX for daily keywords of choice with HBGary patiently waiting in the corridors to unleash a destructive DDOS at a moment's notice?

A topic which we anticipated last summer, and which has come to shocking and rapid fruition ever since the beginning of the year with the self-immolation of a Tunisian protester, resulting in a tsunami of violent revolutionary uprisings across the developing world, has been the question of whether and to what degree Bernanke's monetary policies are responsible for what is becoming an indirect wave of suppressionary genocide (today alone, between Libya, Yemen and Bahrain over 500 people have been killed). And while Zero Hedge is far less ambivalent about the underlying cause of the surge in anger (in most of the affected countries, the bulk of their population has to spend well over half of its income on food and energy), and when people who already have nothing, see whatever little they have left taken away as well, they see no downside in violent revolution, there are some more moderate views. Below we present one, courtesy of reader Chindit13.

Even as Ben Ali was fleeing his country, his presidential palace continued to be a hoard of all the items he had "borrowed" over the decades. As Al Arabiya reports, "Tunisia's ousted president stashed diamonds, gold and wads of cash in secret spots around his palace in the impoverished country's capital, according to video shown by state television on Saturday." The clip below shows the objects Ali was in too much of a hurry to pick up. Among these: wall safes full of cotton fiat, necklaces and other trinkets. Alas: not a single bar of silver or gold anywhere. It seems the dictator may have lacked in PR skills, but he sure knew what to pick when fleeing the country.

Ever since the Financial system started imploding in July 2007, I’ve heard countless folks talk about liquidity, bull markets, bear markets, the dollar, bailouts, etc. But there’s one thing I’ve heard virtually NO ONE talk about. That is:MORALITY or ETHICS.

The first thing that needs to be said is that IF we have another systemic meltdown like that of Autumn 2008, Gold will likely go down along with everything else. There are simply too many big players (hedge funds, investment banks, etc) with heavy exposure to Gold who would be forced to liquidate their positions during a systemic collapse.