Archive - May 2011

Inflationists are typically ignorant of the fact that the complex, multi-stage, labour-divided, task-specific, dynamic whole which is a modern economy intimately relies on much more spending than is captured in the flawed totem of GDP. They are further unaware that much of that spending is highly discretionary—that the bulk of it, in fact, represents gross capital formation via saving—if we define saving as making an outlay not to consume what is acquired finally and exhaustively today, but with the aim of giving rise to a greater income tomorrow, most routinely done by adding value in the course of a productive/entrepreneurial process...The key feature of this dense, reticular system of mutually-beneficial interaction is that it in no way relies upon any centralised control function—indeed, for all the weasel words of the rag-bag of anti-market intellectuals, from Krugman and Kaletsky to Stiglitz and Soros, every time the attempt has been made to impose one, the result has been to unleash at least three of the four horsemen of the Apocalypse upon the unfortunate victims of the Planners...To the extent that, in their primitive adherence to the toilet-flush hydraulics of their facile, consumer- demand model of the economy, the Bernankes of this world adulterate that money and deliberately contribute to its inconstancy, they— more than Robert Oppenheimer, even— are the modern- day Shivas, the Shatterers of Worlds before whom we should tremble.

Financial terrorists at very very large...

And so the badly thought out experiment to supply Libyan rebels with a central bank, to be used to fund an "alternative" fuel industry comes to a prompt and fiery end. Reuters reports that "Libyan government forces destroyed four fuel storage tanks and set several others ablaze in rebel-held Misrata, dealing a blow to the port city's ability to withstand a government siege, rebels said on Saturday." Not surprisingly this fits in perfectly with the assumption first postulated by Zero Hedge that Gaddafi will destroy his entire oil infrastructure before letting it fall into "enemy" hands. This likely marks the end of the Libyan rebellion and will force NATO to launch a land offensive or suffer a crushing blow to its already shaky reputation as globocop, especially now that the US is in theory at least, out of the air campaign against Gaddafi. Which means that the boots on the ground are soon coming. Alas, it will not be the marines in the Kearsarge. As the below naval update map indicates, the Kearsarge has been relieved and now has left the theater of operations, however replaced with LHD 5 Bataan.

Is there value in hitting a brick wall? What about in losing money?

Following last week's crude drubbing brought about by correlations gone wild, following the 5 sequential margin hike-inspired collapse in silver, many are wondering if the silver correction is over, or if the crash is just starting. Here is Soc Gen joining in a very schizophrenic Goldman (a month ago: sell; yesterday: buy) telling clients the coast may be clear now that all the weakest hands have been purged (following SLV 88% share turnover on Thursday any latent mania elements have been exorcised).

The correlation between the Euro and Spanish credit risk shows that Spain is a domino too big to fail. It is difficult to conceive of a situation where policymakers would say goodbye to their own jobs by permitting a default. These are fundamentals that matter. It is doubtful that policy can actually stave off default, because liquidity provision is the limits of their arsenal. However, liquidity policy can extend kicking the can down the road for a time. The bottom line is cost of funding. Once it reaches a threshold level, there is just too much pain and default becomes the politically acceptable option. We are nowhere near funding costs that in Spanish government bonds. If fact, the relative pricing of synthetic and cash makes for a compelling trade.

In the name of Allah the merciful the forgiver,

[This is the] Will of a poor man to his god in the highest, Osama bin Mohammad bin Ladin,

Thanks be to Allah, and peace and prayers over the messenger of
Allah, his family and all his companions. We implore his justice and
guidance and call on him for assistance from our evil and ill deeds. He
whom Allah guides, none can lead astray and he whom Allah leads astray,
has no guide. And I testify that there is no god be he alone, ascribe no
partners to him and I testify that Mohammad is his slave and messenger.
We beg him in the highest to accept us in martyrdom along with the
righteous of his worshipers and to perish us as Muslims.

Allah had commanded us that in case death approached to leave a will
for both parents, relatives and all Muslims […] and whatever saddens
them, saddens me and Allah attests to what I am saying.

Walk down history lane ...

They've FIXED the economy, alright ... in favor of the top .1%

Once again Goldman confirms that shooting for the moon, when it comes to an artificial, self-sustainable "virtuous growth" cycle in a centally planned economy is an exercise in futility. As long expected, the gradual roll down in growth forecasts begins, and all of Wall Street's lemmings will rush next week to undercut each other, all the while blaming cold weather, hot weather, and any weather for not being able to see this. Fore one previous example (and there are dozens) of Zero Hedge indicating Goldman's overoptimistic forecast read here.

It looks like there are more people living right next door to the U.S. Fed in the ivory tower, and just as detached from reality, when it comes to the crude and gasoline markets.

Spin, evade, steal...

Well, nobody is leaving the eurozone (as expected), but EU is merely ratcheting up the rhetoric one notch seeing full well what happens to countries that continue to endorse unlimited banker bail outs. And it is likely that the war of words will simply continue escalating until such time as the Greek restructuring becomes inevitable, which will likely happen not sooner than a year from now due to Greek bailout liquidity availability and nobody will push the country to do the inevitable until there is even one spare euro in the coffers for fears of what will happen to Deutsche Bank and the European financial domino. So for those wondering what happened at last night's secret finance minister meeting, one one hand, as Dow Jones reports, Greece "asked its euro-zone partners to ease the country's deficit targets as it struggles to comply with strict austerity terms set under last year's financial bailout agreement, a senior euro-zone government official said Saturday. The senior official said Greece acknowledged that it is unlikely to be able to return to the bond market next year and might need to tap the European Financial Stability Facility, the EU's new bailout fund, for funding. A German proposal to possibly extend the maturities of Greek debt falling due in 2012 also was discussed, this person said. Athens has a long-term borrowing requirement of EUR27 billion in 2012. "Greece has asked for the deficit targets to be eased, specifically to push the budget deficit target of 3% of GDP in 2014 forward by at least two years."" Alas, as expected the latest panhandling attempt by Greece was met with abject failure: "No decisions were taken, according to the Commission's statement. Greece's request for easier terms didn't win the assent of Germany and other participants in Friday's meeting, according to a senior European official." In other words, the country is on autopilot, and possibly worse. Per Bloomberg: "European Union officials may require Greece to provide collateral for aid as policy makers struggle to prevent the euro area’s first sovereign debt restructuring, said a person with direct knowledge of the situation."In other words, for the first time since Weimar, a country may soon be forced to collateralize superpriority debt issuance to foreign creditors: an exercise not really seen in international politics since the Weimar war reparations... and at least Germany had its own currency back then. Summary: the EU just told Greece to prepare for Debtor in Possession loan issuance. Basically should Greece default, and it will, the Parthenon will go to Germany, Santorini will go to Luxembourg, Piraeos will likely end up in IMF hands, and the Chinese will own the rest. Welcome to sovereign debt restructurings for the 21st century.

Comprehensive summary of this week's key bullish and bearish events

Another QE? Not in 2011. So what does that mean?