Archive - Dec 23, 2012

Presented with little comment.

We have a new era dawning in Global Monetary policy. It is a new day with the monetary skies already red. Within 90 days the captains of monetary policy have steered the world into uncharted waters and on a course that history warns us against. Federal Reserve: QE3 "Unlimited" and QE4 within 90 days, ECB: OMT "Uncapped", BoJ: QE 10 and the newly elected Prime Minister Abe's mandate for "Inflation at any cost" BoE: UK's newly appointed BoE Governor, Mark Carney's Monetary Evan Rule targeting. These untested and newly commissioned captains all have PhD's from the finest Economic schools in the world, but they clearly have not studied nor grasped the key lessons of history. To any sane person, who has a grasp of what is presently occurring, it is obvious that the current state of affairs is unsustainable. The question is how long can the Monetary Captains' misguided policies keep us off the shoals of our economic destruction. How long can policies of "Extend and Pretend", Kick the Can Down the Road" or "Fake it Until You Make It" continue? The answer is likely unknowable, the certainty of it ending badly is not.

It seems a few humans have read a little this weekend and sold into the algo-induced euphoria from Friday's close. S&P 500 futures are down around 9 points - at the lows from Friday's day-session. EUR is bleeding modestly and JPY is weakening as equities appear to be recoupling with FX as a risk-driver (following EUR's dislocation two weeks ago). Cash Treasuries are yet to open but futures infer 2-3bps compression in yields. Much was made of VIX's 'strength' on Friday as some kind of tell; unfortunately misunderstanding is rife and it is evident that hedges were in fact rolled out into January (rather than lifted in any bullish manner). So far stocks are pushing back down to recouple with VIX's view of the world. Silver is flat at $30, Gold and Oil down a little. 6 more hours til Europe opens.

We recently posted Kyle Bass’s keynote speech at the Americatalyst 2012 conference. One of the main threads running through his thesis is the “Keynesian Endpoint”; covering debt super-cycles, the Federal Reserve’s inability to move rates from 0% and the (unintuitive) interconnectedness of sovereign default and hyperinflation. By way of clarification to global Ponzi we discussed earlier, Addogram has created an excellent infographic plotting the development of these ideas and mechanisms from 1792 to the present day.

It’s getting hot: “unprecedented waves” of people are bailing out — not just the super-wealthy

A Cassandra is a hopelessly honest person, while a Pollyanna is an incredibly hopeful person, the incurable optimist. Cassandras are often disparaged as "nattering nabobs of negativism/negativity," instead of being looked upon as prophetic realists, while Pollyannas are deservedly dismissed as the "pandering puppies of positivity/positivism." To wit, this wondrously self-satirical clip pitting Marc Faber's doom-and-gloom reality with Becky Quick's boom-and-boom status quo.

I am not sure what to make of this tidbit of information, but it does point out how silly and fickle investors have become.

The developed world’s Ponzi scheme is caused by record-high levels of public and private debt. As Boston Consulting Group notes, it is exacerbated by huge unfunded liabilities that will be impossible to pay off owing to long-term changes in developed-world demographics. Addressing these challenges at any time would be difficult. To make matters even worse, however, BCG points out that they come at a moment when the developed world’s traditional model of economic growth appears to be broken. This is partly a consequence of the Ponzi scheme itself. The underlying issues cannot be ignored any longer. The developed world faces a day of reckoning. It is time to act. In this excellent layman's guide to the the real world, not only does BCG explain the Ponzi, but they lay out ten critical steps that developed economies must take to definitively end the era of Ponzi finance. Some are sacrifices required of various stakeholders. Others are new social investments, both public and private, that are needed in order to return to a sustainable growth path.

There are, according to USA Today, 364 items that need to be purchased to create the ultimate gift basket from the epic holiday song "The 12 Days of Christmas". Based on PNC Wealth's Christmas Price index, the cost of this basket is $107,300 in 2012 (up 6.1% year-over-year). Since 2001, when the Fed embarked upon its uber-expansionary monetary policy experiments, the cost of Christmas has risen over 40% faster than the Government's prescribed CPI (and if we use a different cost-base, since 2006, the cost of Christmas has risen 46% per year on average). And on an even more Bah! Humbug note, there is the important economic question of the Deadweight Loss of Christmas - i.e. gift-giving means consumption choices are made by someone other than the final consumer, with potentially sub-optimal micro-economic effects such as a mismatch with the recipient's preferences. This wonderfully positive report finds that between 10% and 33% of the value of gifts 'given' is destroyed through this inefficiency (with cash - or gold - the least impacted?). Happy Holidays, everyone!

The slew of economic releases over the last couple of days have all had two things in common:  1) the data has been markedly improved which has given a silver lining to the economic storm clouds we have witnessed over the last several months; and 2) the fingerprint of Hurricane Sandy has been very visible.  This is not a surprise. The question that needs to be addressed, however, is whether these surges are sustainable in the months ahead?

Forget Facebook; Bob Pisani would be cock-a-hoop. Imagine the euphoria and excitement from a Fed IPO? What better way for the rich to get even richer than to buy shares in the world's most profitable hedge fund. And for those saying this is preposterous and that central banks should never trade publicly we bring you exhibit A: The Bank of Japan

Why'd the Fed announce QE 4? Three reasons: the US economy is nose-diving again and the Fed is acting preemptively. The Fed is trying to provide increased liquidity going into the fiscal cliff. The Fed is funding the US’s Government massive deficits.

From Gas Prices to Food Stamps; from 'Bulk Ammo' to Consumer Confidence; and from Earnings to Economic Data, these 12 charts of the 12 months of 2012 are definitely Not Jim Cramer's.

2013, which is still a week away, is already off to a 'crazy pills' bang. Because while the bulk of the politipunditry is shocked, shocked, that it was dead wrong about the Cliff outcome which is now set to ram the country front and center on January 1, the most amusement appears to be emanating from the land of the rising sun, where the brand new PM just issued an ultimatum to the central bank, which can be summarized as follows: stop being independent, or we will change the laws and take away your independence.