Archive - Dec 2012

There was a time when it was nothing short of economic blasphemy and statist apostasy to suggest three things: i) that the Fed's canonic approach to monetary policy, in which Stock not Flow was dominant, is wrong (as we alleged, among many other places, here); ii) that the Fed is monetizing the deficit, thus enabling politicians to conceive any idiotic fiscal policy: the Fed will always fund it no matter how ludicrous, converting the Fed effectively into a political power and destroying any myth of its "independence" (as we alleged, among many other places, most recently here in direct refutation of Bernanke's sworn testimony); and iii) that by overfunding bank reserves, the same banks are left with one simple trade - to frontrum the Fed in its monetization of the long-end, in the process destroying the bond curve's relevance as an inflationary discounting signal, with more QE, leading to tighter 10s, flatter 10s30s, even as the propensity for runaway inflation down the road soars, in the process eliminating any need for the massively overhyped, and much needed to rekindle animal spirits "rotation out of bonds and into stocks" trade (as we explained, first, here). Well, that time is now officially over, with that stalwart of statist thinking, JPMorgan, adopting all of the above contrarian views as its own, and admitting that once again, the Fed and conventional wisdom was wrong, and fringe bloggers were right all along.

“The Government Has Bought Into the Notion that Too Big to Fail Is Too Big to Jail”

The United States is the only country that taxes American citizens even if they have never lived in the United States at any time. Once born American, you owe taxes as an economic slave even when you receive nothing and have never lived in the USA. This law passed last December that authorizes the confiscation of any firm’s assets if they do not report what an American citizen does overseas has been devastating. How Americans are being treated by their own country is not as a free individual, but as economic property to pay revenue to the government regardless of where they live. No other nation does this but the USA. We are in such serious trouble with this Sovereign Debt Crisis that all liberty is being lost. The desperate need for revenue to pay the bond holders has destroyed everything the constitution was intended to secure.

The following is a list of key events to watch over the next several weeks and months – events that could have bearing on how the euro sovereign debt crisis evolves.

FX markets just opened and the market's reaction to the in-the-bag election of Shinzo Abe is 'expectedly' negative for the JPY. Trading up towards 84.50, JPY is back at 20-month lows against the USD with 85.50 the next target. With JPY weakness and the long-end of the Japanese sovereign bond curve at its steepest on record, it seems Abenomics 2.0 may be about to prove out the Keynesian Endgame. As Kyle Bass noted in the past, from the mouth of a Japanese finance minister "It's only money printing when the market says it is" - well, we suspect the market is getting the joke, finally.

How is it possible for a nation of almost 100 million people to survive - and indeed prosper exceedingly - when the government of that nation has a TOTAL debt of about $US 2 Billion? That question is asked in the context of today. Today, that same nation has a population of a bit more than 300 million people and is “run” by a government whose funded debts approach $US 16,400 Billion and whose TOTAL debts (funded and unfunded) are in excess of $US 200,000 Billion? That is the record of the US over the past century. Its population has tripled. Its government debt has grown by a factor of 100,000.

Who or what is going to "save" the markets from a long overdue correction? And what will be that catalyst?

The chart below is self-explanatory, and somewhat jaw-dropping...

To little surprise, and confirming the pre-election polls, Shinzo Abe, who previously was Prime Minister of Japan from September 2006 to September 2007, has just won a second chance in today's Japanese election, following a crushing defeat by the LDP and the concession moments ago of challenger Yoshihiko Noda (who will no longer be watchim\ng, watching, watching). As BBC reports "The LDP, which enjoyed almost 50 years of unbroken rule until 2009, is projected to have an overall majority in the new parliament. Mr Abe has already served a Japan's Prime Minister between 2006 and 2007. He campaigned on a pledge to end 20 years of economic stagnation and to direct a more assertive foreign policy at a time of tensions with China. He is seen as a hawkish, right-of-centre leader whose previous term in office ended ignominiously amid falling popularity and a resignation on grounds of ill health. But Japanese media project big gains for his LDP who they say are on course to win between 275 to 310 seats in the 480-member house." In other words, with Japan's sharp turn to the right, this time will be different, and Abe will succeed where previously he failed miserably, or so the people, who have long abandoned any hope of an economic recovery, dare to hope.

And an update from Waikiki DC...

“How much can this society endure before it explodes?”

The Fiscal Cliff cat and mouse game is entering its last two weeks of calendar 2012, with Congress now officially closed for the year. And while we would have expected major updates in the Cliff timeline to only hit during trading hours, usually just as AAPL once again threatens to trade with a 4-handle, Reuters reports that out of the blue Boehner, who last we checked is back in Ohio, has made a radical departure with the Norquist pledge status quo, and has offered to raise tax rates on high earners to break the "fiscal cliff" deadlock in exchange for major cuts in entitlement programs, "but President Barack Obama is not ready to accept, a source said late Saturday."

"it then dawned on me that all the improvements in the conditions of the working classes were the result of capitalism. social laws brought about the very opposite of what the legislation was intended to achieve"