Archive - Sep 2011

In speeches by 'Andsome George Papandreou and Evangelos 'Creosote' Venizelos today, the state of Greek, and for that matter global, economic challenges seemed to swing from dire to soluble to dismal within a few small sound-bites. Noting, via Bloomberg, that Greece faces 'huge challenges' and the 'end to the global financial crisis appears more distant', G-Pap admitted (somewhat intriguingly) that there is an urgent need to shield EU members from the crises but was then followed up by his wing-man finance minister who whined that Greece is not the Euro-area's central problem and that the problem of sovereign debt in Euro-area is significant. What was most comforting was Venizelos' expectation that the IMF will extend Greek loan maturities while at the same time BBC News is reporting a growing concern that the IMF will not have enough money to bail out larger European countries if the crisis should spread. It is neither a case of IF or WHEN! It is now, and while this weekend has been marked by a litany of statements, corrections, and re-statements indicating left-hands not knowing what right-hands are doing, we suspect that the simple application of game-theoretical first-mover-advantage is weighing heavy on many politicians (especially Portuguese and German). Just to put one final coffin in the nail of co-operation, IMF's Borges then notes his expectation of the ECB and EFSF as the solution for Europe, once again deflecting, denying, and de-risking?

Cash remains king into the weekend. I’d love to say BUYBUYBUY but it’s a crap shoot.

Two weeks ago, the media's heart went aflutter when it learned that the president had borrowed a page right out of ole' Joe McCarthy's communist witch hunt book with the launch of Attack Watch. The response by everyone, even fans of Obama, was immediate and brutal. Yet where Obama took about 24 hours to crash and burn, someone else has stepped in with a far stealthier method of ferreting out the traitors amongst us: none other than our old friends, the Federal Reserve Bank of the United States, which in a Request for Proposals filed to companies that are Fed vendors, is requesting the creation of a "Social Listening Platform" whose function is to "gather data from various social media outlets and news sources." It will "monitor billions of conversations and generate text analytics based on predefined criteria." The Fed's desired product should be able to "determine the sentiment [ED:LOL] of a speaker or writer with respect to some topic or document"... "The solution must be able to gather data from the primary social media platforms – Facebook, Twitter, Blogs, Forums and YouTube. It should also be able to aggregate data from various media outlets such as: CNN, WSJ, Factiva etc." Most importantly, the "Listening Platform" should be able to "Handle crisis situations, Continuously monitor conversations, and Identify and reach out to key bloggers and influencers." Said otherwise, the Fed has just entered the counterespionage era and will be monitoring everything written about it anywhere in the world. After all, why ask others to snitch for you and anger everyone as Obama found out the hard way, when you can pay others to create the supreme FIATtack Watch^TM using money you yourself can print in unlimited amounts. And once the Internet is completely "transparent", the Fed will next focus on telephone conversations, and finally will simply bug each and every otherwise "private" location in the world. Because very soon saying that "printing money is treason" will be treason, and such terrorist thoughts must be pre-crimed before they even occur.

Bottom line this market is very dangerous right now . As witnessed in August when the SPX appeared "oversold" it still managed to sell off another 200 points and take out support levels as if they never existed. The most recent short covering rally has taken away buying pressure and flushed out weak shorts. With leverage still at multi year highs it appears selling pressure remains the bigger risk to equities. Most important though is the diminished threat of the Bernanke put which is analogous to a pick up game between a group of guys on the weekend. The "bears" begin to show an ability to outscore the "bulls" only to see Michael Jordan (the most famous Bull) come in from the sidelines and reverse everything. Perhaps Michael Jordan is sidelined for a while finally or at least limited in his ability to score at will.

Unless something changes in the next 24 hours, I expect we will hear more and more talk about default, not only of Greece but of other countries and of banks. Just in case that happens, here is some information that may help you make good decisions. There will be lots of chatter about the “likelihood of default” the CDS market is implying, but although it can be a useful statistic, it can also be very misleading. Before jumping into trades based on erroneous assumptions, it is worth spending a few minutes reading this. If all it does is confuse you, maybe that is a good thing in itself, because you won’t take a headline about default probability as fact.

"You measure a democracy by the freedom it gives its dissidents, not the freedom it gives its assimilated conformists."-- Abbie Hoffman [WB7: or Bankster Bailout Queens...]

The bank that Napoleon created, and which will very shortly be in every major newspaper's headlines,  certainly believes in the ideology of Keeping It Simple Stupid. Presenting the Banque De Paris Org Chart.

It's just getting plain idiotic in France and Europe. After last week the global stock market soared (then crashed) on two separate micro-occasions (since everything is now measured in HFT time) following rumors first from the FT then from someone we don't even remember who, that French banks would be recapitalized, here comes the strawman reset for the next 24hours. From Reuters: "French banks are solid and can face any risk from their exposure to Greek sovereign debt, the head of the Bank of France, Christian Noyer, told a French newspaper, adding that there was no secret plan in place to recapitalise them." Well, no, they are not. Just ask the Chinese. Or Siemens. But at least this latest refutation gives France hope that when BNP, SocGen and CA are all down 15%, leaking this same rumor for the third time, may provide a short-term temporary boost. Alas, not even the vacuum-tube controlled market is that dumb.

With pretty much everyone else mocking the comedic interlude that nearly daily GOP debates have become, it was only a matter of time before Saturday Night Live had something to say on the matter. Sure enough, last night it did... And with Alec Baldwin doing Rick Perry, the conservative response aftershock begins in 5...4...3...

Modern economics is analogous to the junk-science of 17th century medicine, and it serves a symbolic economy of phantom wealth and freedom. Back in the bad old days, the premier physicians of the age accepted and practiced the idea that the cure for illness was to bleed very ill patients, effectively weakening them. Countless patients who might have recovered if simply left "untreated" died as a result of the misguided "science of healing" of the era. Only with the advent of a true understanding of the nature of infection, the immune system and disease did the "folk" pseudo-science of bleeding pass from accepted medical practice. We are mired in a similar era of pseudo-science being accepted as actual science, i.e. as reflecting the underlying causal mechanisms of life and the universe, and that pseudo-science is called economics. As I have noted here many times, we are experiencing not just a standard-issue financial crisis but the failure of the entire pseudo-science edifice of modern conventional economics.

The topic of surging market return correlation (and the death of alpha on broader terms) is nothing new to long-term Zero Hedge readers: every time the market appears poised to crash, stock and sector correlations reach new highs while return dispersion drops as fundamentals and technical are broadly ignored, and only the roar of the thundering herd matters. And while whether a spike in volatility is a precondition to correlation jumps, or simply a coincident factor, is unknown, in recent weeks an equity correlation of 1.000 has been matched by a jump in volatility not seen since the days of September 2008. What this has done is to make return dispersion for the hedge fund community higher than historical associated with comparable episodes of palpable market fear, exposing a broad rift between the outperformers (very few, mostly macro hedge funds) and underperformers (many, long-biased primarily). Curiously in the (massively levered) mutual fund community everyone is broadly underperforming with roughly the same intensity. Which means that while in the past one’s returns could suck, at least so would everyone else’s, the past month has accentuated the ability of funds to generate alpha (and even beta) lead to broad reallocation of capital by fund LPs. The will force the en masse selling of winners to satisfy margin calls, exacerbated by record low mutual fund cash "dry powder" positions, and sets the groundwork for even more volatility as all traditional hedging strategies fail. So what is an investor to do in such a confusing environment? Pray... is the short answer. As for the longer one, there is not much that can be done according to Goldman, which in its latest weekly chartology has little if any words of encouragement for both clients and market speculators alike.

Roubini and Soros talked the same double dip recession doom regarding the U.S. and the rest of the world.

Tahir Square 2.0?  Or a tempest in a teapot?

People are freaking out that gold has fallen to $1,650, from its lofty highs above $1,800—they are freaking out something awful. “Gold has fallen 10%! The world is coming to an end!!!” I myself took a shellacking in gold—...—but copper is what has me worried. Copper fell from $4.20 to $3.25—close to 25%—in about three weeks. Most of that tumble has happened in the last ten days, and what’s worrisome is that, as I write these words over the weekend, there is every indication that copper will continue its free fall come Monday.  From the numbers that I’m seeing—and from the historical fact that copper tends to fall roughly 40% from peak to trough during an American recession—there is every indication that copper could reach $2.67 in short order. And even bottom out below that—say at $2.20—before stabilizing around the $2.67 level.  But we’ll see. The price of copper is not the point of this discussion. The point of this discussion is what the price of copper means. What it means for monetary policy.

The global economy has entered a dangerous phase, calling for exceptional vigilance, coordination and readiness to take bold action from members and the IMF alike. We are encouraged by the determination of our euro-area colleagues to do what is needed to resolve the euro-area crisis. We welcome that the IMF stands ready to strongly support this effort as part of its global role...Today we agreed to act decisively to tackle the dangers confronting the global economy. These include sovereign debt risks, financial system fragility, weakening economic growth and high unemployment. Our circumstances vary, but our economies and financial systems are closely interlinked. We will therefore act collectively to restore confidence and financial stability, and rekindle global growth....