Archive - Jul 2011

Well this was unexpected: the rating agencies, for years and years patsies of their highest paying clients, have suddenly found their conscience, if not religion, and adamantly refuse to bend long-standing rules which qualify the proposed Greek MLEC/CDO type rescue as an event of default. Per Bloomberg: "The rating companies have signaled the plan would trigger because it is being done to avoid default, so couldn’t be considered voluntary, and because investors would be worse off than by holding the new securities." The ECB is so confused by this intransigence and unwillingness to bend to the will of the criminal cartel that earlier today the ECB's Novotny was complaining to Austrian TV about this unexpected demonstration of independence: "Debt rating agencies are being much tougher on potential private-sector contributions to Greece's debt woes than in past bailouts, European Central Bank Governing Council member Ewald Nowotny said on Monday. "We are conducting a very difficult conversation with the ratings agencies," he said."This is what we have to try to find: a way that on the one hand certainly involves banks without having this lead to a default as a consequence," he added. "I also must say it strikes me that the ratings agencies are being much stricter and more aggressive in this European matter than they were, for example, in similar cases in South America. I think this is something we will have to think over." As a result of all this sudden uncertainty, Bloomberg now speculates that the ECB will have no choice than to flip flop on its own adamant position of isolating defaulted collateral, and accept Greek bonds even in an event of default: “The ECB cannot remove liquidity from the big Greek banks,” said Dimitris Drakopoulos, an economist at Nomura. “This discussion is a waste of time. The ECB is going to back down in the end -- what can they do?” he added."

Even though most of us come to Zero Hedge to learn, laugh, share and even rant, ultimately many of us are all alone as we cope with our awakening. While Tyler & Company do an excellent job deconstructing the insanity, rarely is our day to day emotional and psychological battering discussed. I offer the following occasional series as a small step in that direction.

Our forefathers fought and sacrificed their lives, their fortunes and their comfort so we could be free ... but aren't things arguably as bad as under merry old King George?

Leave it to Goldman to explain why the surge in crude prices is actually a good thing. Enter the good old ("recycled" some may say tongue in cheekly) recycled petrodollar thesis. The logic, in brief, is as follows: Petroleum exporters are the primary beneficiaries of rising oil prices and, assuming they don't use the bulk of the funds to buy their citizens' endless love (a big if in recent months), use this "savings" flow to purchase various assets from developed capital markets. To quantify, Goldman suggests that that the $70/barrel rise in crude over the past 2 years "has caused petrodollar saving flows to rise from roughly $10bn to $70bn per month, thus adding roughly $700bn of asset demand to global capital markets." Which is supremely ironic: those who claim that the IEA's action is comparable to a QE are 100% dead wrong. It is actions which raise the price of oil that have an implied QE effect, whereby the abovementioned $700 billion in recycled capital is only possible due to the surge in crude. As prices drop, whether it is due to idiotic, politically-driven actions like that by the IEA, or otherwise, the recyclability of petrodollars plunges, and far less "savings" end up being reinvested in US asset. What would be further ironic is if the administration realizes this paradox, and in order to save the market (which it will have to very soon in the absence of ongoing flow monetization by the Fed), it send the price of WTI well over $100 to generate bond buying interest in the short-term. That said, based on some of the stupidity we have recently seen out of the White House, such an outcome would not surprise us in the least.

The easy part was the bounce. The hard part was knowing that the SP500 was going to gain nearly 5.5% in one week.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 04/07/11

There are more than 1 million college-educated "ants" in China making an average $286 a month. While China seems to have an over-supply of college grads, the United States, on the other hand, is not producing enough college-educated workers, at least according to a new study released by Georgetown University.

Increasing numbers of economists, market participants and some members of the US policy establishment have come to a greater appreciation of the role of globalization on US economic performance. They view globalization and the US policy response to it as the cause of the US asset price bubbles and hence the balance sheet nature of this “recession”. This perspective also implies that counter-cyclical fiscal and monetary policies do not address the cause of the under-performance of the US economy and hence are not solutions.

Now that formal newsflow has officially replaced the Onion's funny pages, it is only fitting that the reality of politics and finance be reduced to a board game. Enter Grant Williams, to whom the last days of the Ponzi unwind are nothing more or less than a game of KerPlunk!: "When playing KerPlunk!, the early straws are easy to pull out without causing any dislocation amongst the marbles. Consequently, there is a period when players spin the tube with abandon and yank straws from the bottom of the pile with the kind of carefree attitude one normally only sees on the face of a Fed Chairman about to be interviewed by CNBC, but as it goes on, almost imperceptibly, the game changes and tension begins to creep into the face of each and every player. The shift normally happens when one stray marble drops as a straw is pulled out without the requisite attention being paid to the ramifications of doing so. The sound of that one marble hitting the plastic floor of the tube is normally enough to concentrate the minds of the players for a minute or two, but pretty soon, as a few more straws get pulled out without further consequences, players relax again. It’s about this time that the game changes completely. Without any warning, the remaining tangle of straws suddenly looks precarious and finding a straw to pull out safely requires extreme focus...Each of the straws is virtually guaranteed to dislodge some marbles when pulled out – no matter how much care is taken – and while there are still a few straws which will cause minimal problems, certain straws, when pulled out, will cause a small avalanche. By this stage in the game it is abundantly clear to all the players that the point of no-return has been reached and in no time at all - and indeed at any moment - all the marbles will end up tumbling down; the cacophony of noise created by the echo in the plastic tube jarring to one and all."

Enjoy this great graphic summary of the American Budget on the Day of Liberty. Try finding the little Dot to the left on the Chart. Greece is not a black swan event, the US will be One. Presented without comments.

While the overall market may have taken a sharp move higher in the last
days of the quarter on what has been a vicious short covering rally, the bulk of hedge funds continue to underperform either the general
market or their respective benchmarks. And while funds will shower
their LPs with promises of outperformance, in some very prominent cases
performing outright fraud and fabricating trades, one of the better
indications of the performance of the levered beta chasers is the activity in the real
estate market in Greenwich, CT. It is there, that courtesy of Prudential's Mark Prunier, we find that sales of homes in the ultra-luxury $10+ million bracket are not doing that hot. In fact they are doing outright horrendous - the current inventory backlog in the most expensive real estate segment in this hedge fund playground is the biggest since 2004: at last check (June 2) there were 52 homes in this bracket, of which only 5 had been sold in 2011, and 1 was pending closing. And while it is difficult to correlate real estate sales and general net worth of Greenwich's hedge fund-based residents, it appears that there isn't much appetite for local housing purchases. On the other hand, that there is such an inventory glut also shows that nobody is too desperate to cut prices to sell at any cost. Following this trend over the next several months will likely provide additional clues into how hedge funds truly measure their own relative strength as we enter the second half of the year.

Independence Day is not about blind nationalism, it is not about statism, it is not about collectivist subservience to a pervasive bureaucracy; it is about the rebirth of the individual in the face of overwhelming despotism, and the creation of a country whose fundamental focus was the nurturance of such individualism above the desires of government. Beyond the often irrational fears of the “majority”. A philosophy of decentralization that was meant to supercede elitist addictions to power and dominance. The 4th of July is a marker, an oasis in the annals of history, when the true potential of humanity could be glimpsed, even if only for a moment. Ever since, men have longed for another opening in the veil. We have allowed ourselves to be manipulated, conned, conditioned, and enslaved. We have abandoned our self sufficiency, and become utterly dependent upon political and economic systems we no longer have any real influence over. America has lost itself, and the darkness grows ever more heavy. For those who have awakened to this reality, I can say only this; you are not the first. Others have come before you. Others have fought back. Others have been victorious.

The 5th Greek bailout tranche has not been delivered yet, under the very, very strict condition that the country adhere to the terms of its pillaging by European banks, and already Greece, which has proven beyond a reasonable doubt that a country that refuses to do work, and conducts full day strikes on a whim actually does not grow, has just fallen behind a critical monthly Troica benchmark. From Dow Jones: "Greece is at risk of missing a key budget target in June, European Union experts said in a report, a sign of the uphill struggle the country faces as it tries to get its deficit reduction plans back on track. The report, prepared by European Commission budget experts with input from European Central Bank officials and published over the weekend, says that Greece could miss its June target for its primary budget balance, a measure of the government deficit that excludes interest payments on outstanding debt." And here is why the last thing anyone in Europe cares about is actual Greek growth: "Government revenue faces "significant" shortfalls that have only partially been offset by lower spending and delayed payments, the report says. "As a result, the quarterly performance criterion on the primary balance could be missed already in June." June. As in before the disbursement of cash contingent on the primary balance being met...

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

Market Recaps to help improve your Trading and Global knowledge

Following up on saving the world and some 4th of July thoughts on Greek and American nationalism...