Archive - Aug 7, 2011

This isn’t the time to hope.  This is the time to take some action to protect yourself and your money.

Just like in 2008 we’re going to see a full-scale market Crash. Only this time it will also involve countries defaulting on their debt, bank holidays, civil unrest, and more. In simple terms, it’s going to be 2008 on steroids.

It is still not too late to submit one's thoughts of what the US downgrade means for various asset classes and for the economy, and world, in general. Here is one of the few worth reading, courtesy of QBAMCO's Paul Brodsky and Lee Quaintance. Their conclusion: "the downgrade is effectively a currency downgrade, which seems very reasonable, overdue and, in real terms, insufficient. We would argue that in real terms, US Treasury obligations are non investment-grade. We think Treasury obligations today and always will be money-good, but principal and interest will be repaid with bad money."

Geithner was on NBC and when discussing the massively overdue S&P downgrade of US debt, shared the following pearl of wisdom: "S&P decision to cut U.S. credit rating shows stunning lack of knowledge about basic U.S. fiscal budget math." Listen to Tim: when it comes to stunning lacks of knowledge about things, Tim is the absolute expert, although in his case it is mostly the US tax code. He added that S&P made a "terrible judgment" and reached the wrong conclusion. He is right. The cut should have been at least several more notches. But there is time... Lastly, and most expectedly, he added that the S&P decision changed nothing on the safety of Treasuries and that China remains a strong investor in the US. Perhaps. We shall see after the TIC statement from October is released, which will detail August transactions. Alas, by then the world will have other issues to deal with.

...Not too happy to start based on the early bid/ask.

The first prints are in: ES down 31, DJIA down 274, and gold, natural, welcomes our new centrally planned overlords by hitting an all time high of $1692.

A few more minutes until ES futures open fully. In the meantime enjoy the indicative bid/offer.

Statement two out of three. Next up: the G7, which will also reiterrate its forecfullanguage that nobody needs to sell anything, anywhere.

You won't find this kind of hard hitting investigative roasting anywhere else folks...

For an early look at the risk aversion gripping the market look no further than the USDCHF and the USDJPY, the first of which just took out 0.75, and the second now almost at BOJ intervention levels. Ironically, since the math Ph.D.s have still not recalibrated their models, it is very likely that the collapse in the dollar will lead to an explosion in ES courtesy of the inverse correlation, which will once and for all confirm that global capital markets and now nothing but a robotic circus.

Below is the full text of the joint French-German statement attempting to prevent another European market collapse. Next up are comparable statements from the ECB and from theG7. We expect many more before the night is out.

Following a flood of demands for the head of Tim Geithner on a silver platter, the head of America's one-ply paper issuance and tax evasion department, has just told the White House he is doing the wrong thing (of course) and not going anywhere. "Treasury Secretary Timothy F. Geithner, a central figure in the U.S. government’s bailouts of Wall Street banks and efforts to raise the debt limit, told President Barack Obama that he intends to remain in his job, according to a Treasury Department spokeswoman. “Secretary Geithner has let the president know that he plans to stay on in his position at Treasury,” Jenni LeCompte, assistant secretary for public affairs, said in a statement today in Washington. “He looks forward to the important work ahead on the challenges facing our great country.” Translation: goodbye foreseeable future. The only good thing is when the house of cards collapses (pretty soon at the going rate) Tiny Tim will be at the very top, and serve as the focal point of all accrued (if somewhat sharp, stainless steely and quite stabby) public "admiration."

The hard thing about China is to truly comprehend what is really happening on the growth front. Are the statistics real? But most importantly, is this sustainable? Is China a lemon or a long-term high performer? On the one hand, China has this amazing track record of very high growth for the last 30 years. Betting against it appears foolish. On the other hand, China is still, for the most part, a command economy which after a while, you would think, would stop allocating resources efficiently.

Just out from Bloomberg: Finance ministers and central bankers are preparing a statement to release before the open of Asian markets, the Nikkei newspaper reported, without citing anyone. Japan may intervene in currency market if dollar falls. G-7 finance ministers, central bankers expected to express confidence in dollar, pledge liquidity. U.S. to explain fiscal rebuilding efforts." [so no more sniping at S&P and actually doing its job eh?] "Japan to express intention to maintain Treasury holdings. G-7 expected to show support for EU fiscal efforts." And while the G7 is about to realize that when faced with a $100 trillion (equities plus debt) market onslaught its printing powers are next to laughable, Dow Jones reports that the "ECB is weighing Italian, Spanish bond buying on a massive scale." Two take homes: i) the Fed has just lost its competitive advantage of doing idiotic things on a massive scale as the world wake up to tits trickery (unless of course the Fed resumes said thing on a massiver scale, which it will), and ii) tomorrow is the day when the infinite force of central planning meets the immovable object of capital markets. We will find out who blinks first in a few hours.

As expected, Goldman, who came up with the promptly imploding plan of using the EFSF as a EUR rescue mechanism, is now scrambling to come up with yet another Eurozone rescue plan. Below is the full text of what Francesco Garzarelli just released as a prompt to Trichet. Gone are the days of nuance: the note is titled brutally enough Europe Should Say That BTPs Are ‘Cheap’.  Just in case anyone is confused of course. We expect the ECB head to pretty much read from this note to "clients" verbatim. In a nutshell, Goldman's view is that, "Italian government bonds are fundamentally attractive, but we have reached a point where only the European authorities can credibly signal this is the case. Secondary bond market purchases by the ECB are needed to stabilize markets in the near term. The 10-yr BTP spread to Bunds could fall back to around 200-250bp in such a scenario." Sure. It will work. For a week or so. Then what?