Archive - Oct 1, 2012

There is something very wrong with this story. Two months ago, the world's most legendary race track, Germany's Nürburgring filed for bankruptcy. As AP wrote then: "Germany's legendary Nürburgring racetrack and entertainment complex is effectively bankrupt. The circuit—which hosted Formula One's German Grand Prix last year—is to launch insolvency proceedings amid fears that it could run out of cash while the European Commission considers planned government aid. The state government in Rhineland-Palatinate, which owns the financially troubled Nuerburgring GmbH, decided on the move on Wednesday, the dapd news agency reported.... A state subsidy had been in place since a disastrous development plan left the 'Ring organization saddled with more than 350 million euros in debt. While the Nordschleife—the circuit's famous “North Loop” which covers more than 13 miles—generates healthy operating profits, the income does not cover the interest payments on the enormous debt incurred when the state entered into the plan with two developers, Kai Richter and Jorg Lindner." Sadly such is life in a world in which not everyone is bailed out by the government, and when it comes to the "fairness for everyone, bankruptcy for no one" doctrine, Germany has still not jumped on the bandwagon. One country which has is the country which many say is alive only due to German generosity, is Greece. And in what may be the biggest slap in the face to Germany, and its recently defunct race track, is the news that Greece is now "unblocking a subsidy" (a subsidy which came from Germany) for €29 billion to, get this, build a Formula 1 racetrack. The same type of racetrack that just went belly up in Germany and cost countless jobs.

Cats can now walk on the ceiling...

There have been a few nations in the world over the last decade or so that have garnered somewhat mind-blowingly negative attention and have been forced to restructure, take losses, or default (semantics) on their debt (or financial system). Three of the best known are Argentina, Iceland, and most recently Greece. The following chart of GDP growth may have a lesson for every investor around the world (especially those in sovereign bonds) - and maybe more importantly for the Greek (and European) leadership. Is there something different about the post-restructuring growth in Greece that did not occur in the other two nations? Perhaps taking your medicine is indeed the right way to go - and enables growth to once again re-emerge - and the constant use of the M.A.D. argument is pure bluff.

Market indexes and recessions are two very different data series...

~ Doug Short

Venture capital (VC) has delivered poor returns for more than a decade. VC returns haven’t significantly outperformed the public market since the late 1990s, and, since 1997, less cash has been returned to investors than has been invested in VC. Speculation among industry insiders is that the VC model is broken, despite occasional high-profile successes like Groupon, Zynga, LinkedIn, and Facebook in recent years. As The Kauffman Foundations finds, from its 20-year history, investment committees and trustees should shoulder blame for the broken LP investment model, as they have created the conditions for the chronic misallocation of capital (no doubt driven by the failure of 'hope' over experience). All is not lost to the money-pumping narrative-followers though as five myths are destroyed and five recommendations made that may help LPs allocate and follow-through more effectively.

Ben Bernanke is so desperate to find support regarding his steal from the poor and give to the 0.01% policies he is now telling blatant lies about famous, dead economists that can’t refute what he says.  In this case Milton Friedman.  In his Q&A today, The Bernank claimed:

BERNANKE: MILTON FRIEDMAN WOULD HAVE SUPPORTED WHAT FED DOING

Well I suppose it’s easy to make things up about people that can’t claim otherwise, but he made a big mistake this time.  Why?  Because Anna Schwartz, who co-wrote the famous work “A Monetary History of the United States” with Milton Friedman in 1963, actually came on the record on several occasions calling out The Bernank and saying there’s no way Friedman would agree.  The sad part about this is it seems Bernanke waited until Schwartz died to really start spewing the lies.  This guy is not only dangerous he is despicable and increasingly desperate… Don’t take it from me though, back in October 2008 Anna Schwartz had this to say in the Wall Street Journal.

According to a recent CNN poll, 60% of Americans want go to war with Iran to prevent them from getting nuclear weapons. This in spite of the fact that the US intelligence community is fairy unanimous that Iran is not even currently pursuing nuclear weapons. Simultaneously 71% of Americans — in total contradiction to the evidence recognised by both the CIA and Mossad that Iran is not currently even developing a nuclear weapon — believe that Iran currently has nuclear weapons. Unlike the 71%, I’m not really convinced by this — if anything, it could be Iranian disinformation to try and avoid an American or Israeli attack. More importantly, the US and Israeli intelligence community at large don’t buy it. If they had any real evidence that Iran had a bomb today, Netanyahu would have been presenting it at the UN instead of drawing red lines on Wile E. Coyote bomb diagrams.

With gold being horded in Iran and hitting 2012 highs this morning, CNBC's Rick Santelli addresses the 800lb gorilla in the Fed's room - the threat of inflation. Critically noting that the hyperinflation of Weimar Germany "did not happen overnight" but was gestated quietly until it was unstoppable by currency debasement; the question remains of what exactly the Fed thinks it is doing. Santelli makes the important point that if we look at 'printing money' as any type of solution then why not take it to the extreme - "if we just print a million dollars for every man, woman and child and handed it to them, wouldn't that fix everything?" As he adds "if it was that easy there would be no need for economist, no need for even CNBC, but it isn't that easy," Reflecting on Evans' earlier inability to quantify any metrics for whether QEternity was working, Santelli notes that the Fed man falls back to 'confidence' (animal spirits) but worries that inflation is a lot like soybeans; need sun, water, and time but eventually will grow rapidly.

Obama may want to throw this one in the unsolicited communist dictator endorsement pile. From CNN: "President Barack Obama received one endorsement he definitely did not ask for Monday: Venezuelan President Hugo Chavez. The leftist leader and strong man, who has used strong anti-United States language in his political rallies and official speeches, told state-owned VTV, "In the point of view of his politics, if I were voting, I would vote for Obama and I believe that if Obama was from Caracas, he would vote for Chavez." Whatever one says or thinks about the Caracas head guy who recently is quoted as saying that "perhaps Mars had life at one time but then evil capitalism showed up and finished the planet off" (and Mars didn't build that life he forgot to add) or his foray into US elections, where he now shares the view of socialist Europe, he sure knows a gold bar in the local safe is worth two in the LBMA vaults in London.

Because the horse and buggy is the new normal car:

• FIAT ITALY NEW CAR SALES FALL 24% IN SEPT
• FRENCH CAR SALES FALL 18.3% IN SEPTEMBER, DOWN 13.9% THROUGH SEPTEMBER
• PORTUGUESE LIGHT VEHICLE SALES DROP 42% THROUGH SEPTEMBER

This is what happens when you don't take advantage of US, Chinese, or for that matter Global channel stuffing. It is, for now, unclear if Mario Draghi's monetization of 1-4 cylinder Fiats is forbidden by Article 123.

While the 'Misery' Index in Iran reaches exceptional levels, and the US aggregate of inflation and unemployment peaked last October, Europe's misery has continued to rise in the face of an ever-easing ECB and political jawboning. As SocGen notes today, the UK's misery has turned back higher and the Euro-zone's Misery Index has never been higher. These misery indices clearly reflect deteriorating economic performances in the main G10 countries, with some unsurprisingly weaker performances in Spain and Greece, leading the eurozone index higher. Given recessionary situations expected in some eurozone countries next year, the misery index is unfortunately quite unlikely to edge south significantly.

Getting caught in end of day divergence between recovering Bunds / UST and equities readying up a pre-close squeeze out.Note a rather muted, in line, Credit performance.

No real data anywhere tomorrow, so either the good spirits of recovery keep up their heads up – or not…

Catching up to the apparent 'good news' from the Spanish bank audit debacle and as we noted earlier, the smallest of beats in a singular data item, provided some support for equity prices in Europe today. It appeared as though traders had reduced weight or been modestly short-biased into the news and the lack of events spurred a reversal - which on its own looks good but merely returns us to Thursday's close (or not even for Spain). In other markets, the US ISM data spurred a jump which was immediately faded in both EURUSD, European sovereigns, and European corporate/financial credit markets. Bottom line - European equities round-tripped from Thursday but credit markets are much less sanguine.

"History may not repeat itself but it does rhyme"