Archive - Jul 20, 2011

The EU accounts for roughly $400 billion of China’s exports, making it China’s single largest export market. So if Europe collapses, China’s economy takes a BIG hit. Remember, China is a centrally controlled economy, NOT a dynamic open market economy. Put another way, the entire China “economic miracle” is based on the current system continuing to operate in some form (China can continue to export, rip off intellectual property that is developed elsewhere, throw its weight around, etc).

I looked at Brown & Brown about a year ago (May 2010), here are my thoughts which are still relevant today:

A must watch profile of the man at the heart of the "The Big Short" and one of the first to come up with the subprime trade.

Time for the hourly update on the Congressional soap. The Hill reports that "Congressional Democratic leaders are headed back to the White House on Wednesday for more talks on raising the debt ceiling. White House press secretary Jay Carney announced House and Senate Democratic would meet with Obama at the White House at 2:50 p.m. Obama called Senate Majority Leader Harry Reid (D-Nev.), Senate GOP Leader Mitch McConnell (Ky.), Speaker John Boehner (R-Ohio) and House Minority Leader Nancy Pelosi (D-Calif.) on Tuesday night." It adds that after the release of a new proposal Tuesday by the bipartisan Senate Gang of Six, Obama told reporters it was time for leaders to "talk turkey" and work to reach a deal. And while there has been a recent increase in voices against the $3.7 trillion "plan", the fate of the McConnell fall back plan, which as expected is the most likely to pass as it is completely toothless, is also looking shaky:"House Democratic leaders are attacking Senate Minority Leader Mitch McConnell’s (R-Ky.) debt-ceiling fallback plan, characterizing it as a political ruse intended to scapegoat Democrats and taint them at the polls. “I’m not a fan of the McConnell proposal,” Rep. Chris Van Hollen (Md.), the senior Democrat on the House Budget Committee, said Tuesday during a press briefing in the Capitol. “It’s designed to protect mostly Republican members of Congress from taking responsibility for votes that they’ve already made." How this plan makes sense in light of Obama's earlier statement that the House would not compromise a debt ceiling plan based on one time increases to the limit, without a long-term debt ceiling extension is unclear, nor is it clear how any of these plans which are simply window dressing will pass muster from the rating agencies, where even Fitch earlier announced any plan would have to be comprehensive for no downgrade of the US to occur. Translated: the CRAs need more stuffing for the Christmas stockings.

The negative trend in Bank of America's financial results over the past several quarters is deeply troubling and, as we have long predicted, may suggest an approaching Dodd-Frank restructuring is in the cards.

In the past two weeks, one of the curious development the monetary aggregates, in addition to a spike in the Adjusted Monetary Base (discussed previously here), was the $88.7 billion surge in the M2 for the week ended July 4, the third largest jump in the broadest tracked monetary aggregate in history. Some have speculated that this number may be indicative that the money multiplier has once again started working as bank reserves after 2 long years, finally start making their way into the broader market. Unfortunately as Stone McCarthy explains this is not the case at all (sorry Fed: QE is still a failure) but merely has to do with the repeal of Regulation Q (explained here) which has resulted in a surge in small tie deposits inclusive of money market deposit accounts, which have jumped by $110 billion in the past two weeks, coupled with an accelerating shift of dollar deposits back to banks domiciled in the US. In other words: regulation explains the entire move. There is, however, a kicker, and it goes to another indicator of "economic growth" - the leading economic index, which is actually driven by M2. This means that the fake surge in the M2, will result in an all too real jump in the LEI, which in turn will push the market higher as vacuum tubes interpret the data as positive for the economy as opposed to merely driven by a regulatory forced shift of money from Pile A to Pile B. Expect stocks to surge once the next LEI reading is announced as a result.

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge

There's regular debt honestly incurred - which people shouldn't be deadbeats on. We should be responsible and repay our debts! Tut then there's "odious" debt ... a different animal altogether

Bloomberg has just released some additinal details from the proposed plan based on a document it has received:

• GANG OF SIX SETS TOP PERSONAL TAX RATE BETWEEN 23% AND 29%
• PLAN LOWERS CORPORATE TAX RATE TO MAXIMUM OF 29% MINIMUM OF 20%
• SENATORS' PLAN URGES 'REFORM' OF MORTGAGE, CHARITY TAX BREAKS

We will bring you more if we get the full document.

In the past few minutes both gold and silver have seen a dramatic rally of buying on seemingly no news. The reason for this rally are remarks from a Bloomberg TV interview with FX Concepts' John Taylor, who just predicted that Gold will extend its rally to $1,900 by October, or in three months, coupled with a rally in the Assuie and Loonie as the EU debt crisis eases. But not for long: this record price will be promptly followed by a plunge down to $1,100 following liquidations as the latest and greatest recession grips the world, which he believes will be worse than the 2008 one due to the US running out of "gimmicks" to avert a slowdown. He believes the EU will slow as well, and the euro will drop to $1.15, and may hit parity next year (not a new call for Taylor).

As was announced before, Sprott's PHYS fund (which previously had not disclosed terms of its offering) has just priced 19 million units at $14.00/unit for a total raise of $266 million, all of which will go to removing another 5 tonnes of physical gold out of the broader lendable circulation.

Signers come and signers go, but the practices of banks and their servicers remain the same.

Has housing bottomed? Here is the sure-fire way to tell: Stories titled "Has housing bottomed? Here's how to tell" have vanished for lack of interest. The absence of stories about the bottom in housing will mark the final nadir, because the real bottom can only be reached when everyone has abandoned housing as a pathway to easy money. Only when the public and investor class alike have completely lost interest in real estate as a "sure-fire" investment can the real trough be reached. This destruction of long-held habits and beliefs takes a long time. The closest analogy might be the stock market in the last secular Bear market. Stocks topped out in 1966, though the economy lumbered on until 1969 before faltering. Stocks then meandered for 13 years of stagflation, losing 66% of their inflation adjusted value in 1966 by 1982. People gave up on stocks. I call this loss of faith "when belief in the system fades:" note how household participation in stocks topped out in 1969, three years after the peak in the market. Participants clung to their belief in stocks for about four years after 1969, at which point participation cratered as they finally abandoned their faith in a "permanent Bull market."

It ended in a shoot-out? What is this, the Wild Wild West???

Up, down, up, down. The daily volatility in the 30 year is now openly inducing nausea in the $60 trillion bond market. But at least the Fed is clearly instituting price stability for 98 years running.