Archive - May 17, 2011
Guest Post: The End Of History
Submitted by Tyler Durden on 05/17/2011 23:54 -0500What we are witnessing is the ideological exhaustion of “Western liberal democracy” and therefore the last gasp of the fraud upon which it rests: the state, even its best form. No longer able to hide behind the Jeffersonian dream of constitutional freedom and order or the Lincolnian myth that the dream could be preserved at the expense of the principle upon which it was founded, the American state’s demise proves that “the final form of human government” has not yet arrived – not because a final form shouldn’t have arrived but because, for those who have had so much fun during historical times, the aftermath won’t be any fun. On the contrary, it will be “a very sad time”
How to Deal With Excessive Risk Concentration?
Submitted by Leo Kolivakis on 05/17/2011 21:06 -0500How important is it for big funds to properly aggregate risk across all investment portfolios? How do you deal with excessive risk concentration in your personal portfolio?
1 Kilo Gold Futures Start Trading On Hong Kong Merc
Submitted by Tyler Durden on 05/17/2011 19:48 -0500
As of 8 pm Eastern, the Comex' monopoly to the precious metals futures is over. As we reported previously, today, at 8 am local time, is when the Hong Kong Mercantile exchange would start trading the inaugural Asian precious metal futures contract: the 32 ounce /1 kilo/ gold futures. In the first 30 minutes of trading it appears to have been a subdued session, with just 22 contracts changing hands in the August 2011-June 2012 frame. How this trading will impact prices: nobody knows (yet). The spot price of gold has barely budged in the past hour. That said, now that PM futures fragmentation is starting, we expect that within 2 years we will have various deranged HFT algos trading tonnes of gold, quote stuffing globally, and otherwise creating one of the most volatile trading environments imaginable. And since we know you are asking: the margin schedule for the HKMerx will be kept and listed by the same LCH.Clearnet that hikes and lowers Irish and Portuguese bond margins by 10% on an almost weekly basis. Let see now how the Comex hikes its gold margins with impunity if it has competition that keeps margins "artificially" low, and provides disgruntled Comex clients with an alternative venue that accepts far less cash collateral to trade.
Meredith Doubles Down: Move Over Munis, Here Comes The "Hidden State Financial Crisis"
Submitted by Tyler Durden on 05/17/2011 19:34 -0500There are those who thought that following the material pushback by every chatterbox on CNBC that the muni situation is actually nice to quite nice, contrary to what Meredith Whitney had prophesied, that the scourge of Citi would slink back into whatever hole it is she crawled out of. And then there is Meredith Whitney, whose occasional appearances on TV have resulted in 25 weeks of consecutive, and material outflow from municipal funds. Undaunted by her critics, she has now doubled down, and shifting away from munis, is now focusing one level higher: on the state financial crisis. Her conclusion, sure to set off a firestorm of angry responses tomorrow when the Op-Ed hits the print version of the WSJ: "Defaults in a variety of forms by states and municipalities are already happening and more are inevitable. Taxpayers have borne the initial brunt of these defaults by paying higher taxes in exchange for lower social services. And state and local government employees are having to renegotiate labor contracts that they once believed were sacrosanct." And sure enough, she refuses to abandon her muni thesis: "Municipal bond holders will experience their own form of contract renegotiation in the form of debt restructurings at the local level. These are just the facts. The sooner we accept them, the sooner we can get state finances back on track, and a real U.S. economic recovery underway." Yes, well, one can argue that the sooner Ms. Whitney accepts that the modus operandi in the developed world is to preserve the status quo no matter the cost, and kick the can down the road indefinitely, the sooner we can all get back to a state of vegetative existence in which nobody questions anything and the world is one swell place until everything blows up.
IMF in transition, European fears rise
Submitted by Jack H Barnes on 05/17/2011 17:30 -0500What happens to Europe when DSK isn't there to rescue them?
Capital Context Update: Credit Knows, You Know
Submitted by CapitalContext on 05/17/2011 17:17 -0500HY credit deteriorated for the fifth day in a row (and 10 of last 12) as breadth was weak in equity and credit. Shifts in equity vol and context-based preferences for IG credit over stocks and HY credit suggest concerns are very warranted as macro data seems to confirm what credit has been hinting at for weeks.
Richard Koo Explains Why An Unwind Of QE2, With Nothing To Replace It, Could Lead To The Biggest Depression Yet
Submitted by Tyler Durden on 05/17/2011 17:09 -0500Over the past several days, quite a few readers have been asking us why we are so confident that QE3 (in some format: it does not and likely will not be in the form of the Large Scale Asset Purchases that defined QE1 and 2 - the Fed could easily disclose that it will henceforth sell Treasury puts, a topic discussed previously, or engage any of the other proposals from Vince Reinhart disclosed in June of 2003) will eventually be implemented by the Fed. Luckily, instead of engaging in a lengthy explanation of the logical, Nomura's Richard Koo comes to our rescue with his latest research piece. While we disagree with Koo on various interpretations of his about monetary theory (namely that the Fed is not in effect "printing" money and thus creating inflation - this is semantics and leads to a paradoxical binary outcome, whereby if there Fed was successful in boosting the economy, the economy would indeed be flooded with the nearly $2 trillion in excess reserves held with reserve banks. And good luck trying to contain this surge by changing the IOER - if the Fed indeed pushed the IOER to the required 5%+ level it would immediately destroy money markets, leading to the same liquidity freeze that marked the post-Lehman days, confirming the "Catch 22" nature of Quantitative Easing that we have observed since its beginning) we do agree with his analysis of what would happen to the economy if either stocks or commodities are in a bubble (and judging by the violent opinions out there, most investors believe that either one or the other has indeed reached bubble territory), should QE2 end cold turkey: "Viewed objectively, the central banks are trying to push up asset prices using quantitative easing and the portfolio rebalancing effect. The resultant rise in asset prices based on this effect represented a potential bubble—or at least a liquidity-driven event—from the start. The question is whether the real economy can keep pace with asset prices formed in those liquidity-driven markets. If it cannot, higher asset prices will be considered a bubble and will collapse at some point. The resulting situation could be much more severe than if quantitative easing had never been implemented to begin with." Bingo.
Protest At JPMorgan Annual Meeting In Ohio Leads To The Handcuffing Of At Least One Person, Eight Arrests
Submitted by Tyler Durden on 05/17/2011 16:02 -0500Some time ago it was primarily the G7 meetings that drew the Molotov cocktails and the anarchists crowds. Now it is the annual meetings of the big banks as increasingly more people realize that it is not the toothless developed countries but the banks backing them that actually pull the strings. The Washington Post reports that "at least one person was handcuffed after a group of about 400 protestors marched up Chase’s property and placed a sign on a raft floating in a pond in the bank’s premises. The sign read: “Foreclosed: Chase sinks our economy. Annual shareholder meetings of large banks routinely draw protesters. However, security this year has been especially tight after Wells Fargo & Co.’s annual meeting on May 4 in San Francisco became a rowdy scene after hundreds protested outside. Inside the meeting, a group of shareholders demanded that the bank immediately stop foreclosures and waive principal for troubled home owners. The shareholders were escorted out of the meeting by police. Eight people were arrested for blocking entrances to the building." Perhaps it is too late for Dimon to use the Blankfein "doing god's work" excuse at this point. Or not. However it is unlikely that any such proclamation will be met with any more success than its first iteration.
CBO Report – “Get used to the potholes!”
Submitted by Bruce Krasting on 05/17/2011 15:56 -0500Just another mess on the horizon.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 17/05/11
Submitted by RANSquawk Video on 05/17/2011 15:50 -0500RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 17/05/11
Libya Strikes Back, Hits NATO Warship
Submitted by Tyler Durden on 05/17/2011 15:38 -0500Apparently even Libya has had enough of the toothless and impotent NATO offense and is hoping for some sort of escalation. Reuters reports: "Libya said on Tuesday its forces had hit a NATO warship while it was shelling areas in the western parts of the rebel-held Libyan city of Misrata. Libyan state television said "our forces fired (at warships) and hit one directly and severely". It gave no further details. It was not immediately possible to verify the report." It remains to be seen if Nicholas "the people's liberator" Sarkozy, busy celebrating the recent developments in New York, will take time from his presidential campaign to urge the "marines in the water" to become "boots on the ground."
It's Official: DTS Discloses Total Debt Hit Ceiling Yesterday; Government Draws On $14.3 Billion From Retirement Funds
Submitted by Tyler Durden on 05/17/2011 15:16 -0500While it won't be a surprise to anyone at this point, seeing it in black on white is about as startling as hearing that one's credit card has been denied. Yesterday, following the settlement of all of last week's auctions, total debt held by the public increased by$51.4 billion, just as we had predicted, bringing the total to $9.717694 trillion. And with the total debt subject to the ceiling maxed out legally by $14.294, Tim Geithner reported a total of $14,293,975 MM, $25 million away from the ceiling. What was the plug? Why "Intragovernment Holdings" of course, which declined by $14.3 billion. As Tim Geithner warned yesterday this is now money held in retirement trust funds, which is now being directly sacrificed in order to keep the ceiling from breach: "I will
be unable to invest fully the portion of the Civil Service Retirement
and Disability Fund (“CSRDF”) not immediately required to pay
beneficiaries. In addition, I am notifying you, as required under 5 U.S.C. §
8438(h)(2), of my determination that, by reason of the statutory debt
limit, I will be unable to invest fully the Government Securities
Investment Fund (“G Fund”) of the Federal Employees’ Retirement System
in interest-bearing securities of the United States." And as expected, once the debt ceiling is raised, the accrued shortfall will be filled, meaning upon a debt ceiling hike, which will come some time in July, total debt will explode higher, surging by about $300 billion in a few days.
Guest Post: Greece - Is The Shotgun Wedding Still On?
Submitted by Tyler Durden on 05/17/2011 14:45 -0500Last week I used the analogy of a shotgun wedding to describe how the bailout was being forced upon the Greek people. Maybe, after the events of this weekend, I wasn’t being harsh enough in my choice of analogy. As I continue to digest the news and various opinions, I still reach the same conclusion. Default or restructuring is the most logical outcome and should occur sooner than later. I believe that the image of the IMF has been tainted and it will make it more difficult for the Greek people to accept a deal from them, unless the terms are incredibly favorable. I’ve also listed several of the arguments most commonly used to encourage Greece to delay restructuring, and point out the flaws in each of them.









