Archive - Jan 2012

January 30th

Tyler Durden's picture

Guest Post: The Price of Growth





Growth. It's what every economist and politician wants. If we get 'back to growth', servicing debts both private and sovereign become much easier. And life will return to normal (for a few more years). There is growing evidence that a major US policy shift is underway to boost growth. Growth that will create millions of new jobs and raise real GDP. While that's welcome news to just about everyone, the story is much less appealing when one understands the cost at which such growth comes. Are we better off if a near-term recovery comes at the expense of our future security? The prudent among us would disagree.

 

Tyler Durden's picture

Diebold Leaks Election Results Early... Again





Yes, it has happened before, but since truth is timeless, we were not surprised to find that it has been "leaked" again, in this timeless clip from TheOnion which explains everything one needs to know about the upcoming "elections"

 

Tyler Durden's picture

Long-Dated VIX Still Priced For Depression Risk





Since the spike in VIX in October of last year, short-dated volatility (and correlation) has dropped significantly, but the vol term-structure has steepened, and long-dated volatility remains stubbornly high. Goldman Sachs updates their volatility debt cycle thesis today and so far we are following the typical cycle post-volatility-spike - realized vols drop, short-term implied vols drop, term structure steepens, long-term vols drop - leaving them focused on both the implications of the current low levels of short-term vol and the high-levels of long-term vol. In brief, short-term volatility reflects very closely the current macro environment (GDP growth, ISM, high-yield, and Goldman's models) but longer-dated volatility trades significantly worse. The volatility (variance swaps) market is expecting realized volatility to be very high over the next 5-10 years - the only time this has happened was during The Great Depression. Professionals remain anxiously aware that the global debt super-cycle has ended and that we face deleveraging and deflationary pressures for years to come, short-dated vol will continue to ebb and flow with each band-aid and risk flare but investors deep-down know that the 'big one' remains around the corner. Although markets are in a healthy state at the moment it would only take a relatively mild cross-wind to expose the problems again and vol markets reflect this despite what the mainstream media's view of the fear index tells us.

 

Tyler Durden's picture

Credit And Financials Underperform As S&P Holds 1300





US equity markets went sideways to higher after the European close on low volumes and minimal support from broad risk drivers in general (with SPX bouncing off 1300). HYG tracked ES (the e-mini S&P 500 futures contract) higher as it tried to get back to unchanged (during an afternoon of notably smaller average trade size until the close which suggests covering by bigger players). HY and IG credit markets were not as ebullient as stocks and into the close HYG sold off relatively well to catch back down with HY's weakness on the day. Treasuries, credit, FX, and commodities all closed near the middle of the day's range while ES managed to get back near its highs (with volumes down 15% from Friday and near the lowest of the year so far). Financials underperformed once again (as Tech was the only sector in the green by the close). Treasury yields helped support some of the rally in the afternoon in US equities as 30Y shifted from -11bps to -5bps by the close but overall Treasuries outperformed (stocks should be down more on a beta basis given bonds move). JPY was the outlier today, stronger vs USD by 0.46% from Friday while elsewhere in FX, the USD (+0.4% from Friday) lost some of its gains against the majors after the European close with EURUSD back above 1.31 by the close. Gold (with its pending death cross to match SPX's golden cross) just outperformed its commodity peers (with oil close behind) though they all lost ground as USD strengthened with Copper and Silver underperforming. VIX gained about 1 vol from Friday but leaked lower by around 1 vol from its opening peak above 20.

 

Tyler Durden's picture

Van Rompuy Barroso Sarkozy Live Press Conference - Webcast





Can't get enough of gravitationally-challenged presidents and Gollum wannabes? Then this webcast is for you. Oops, looks like no Sarko, just that D-grade actor Barroso. Oh well - both are completely irrelevant.

 

Tyler Durden's picture

Good Gendarme: Recently Downgraded France Opposes German Demands For Greek "Tutelage"





Whowouldathunk it - beggars can be choosers. The country which just slashed its economic outlook, and which depends on GermAAAn capital and goodwill to preserve its well-being in the Eurozone, has just decided to pull a good gendarme to Germany's bad [insert the blank] and has voiced its opposition to German demands stripping Greece of its fiscal sovereignty.

  • SARKOZY REJECTS GREECE CEDING BUDGET MANAGEMENT TO EU
  • SARKOZY SAYS NO QUESTION OF PUTTING GREECE `UNDER TUTELAGE'
  • SARKOZY SAYS EU TAKEOVER OF GREECE WOULD NOT BE REASONABLE, "DEMOCRATIC"

Nice try Sarko: somehow we fail to see how FraAAnce's opinion is even remotely relevant in future European decision making at this point. But an admirable attempt by the future ex-president to go for the solidarity bonus points.

 

Tyler Durden's picture

Commerzbank CEO Says Greece Should Exit Eurozone





As if Merkel did not make it all too clear over the weekend that Germany no longer wishes Greece to be part of the Eurozone, and that the ball is now in Athens' court to accept what is a glaringly unfeasible demand, i.e., to hand over fiscal sovereignty over to "Europe" with Merkel having the cover of saying it did everything in its power to keep Greece in the union, here comes Commerzbank's CEO Mueller to pick up where Merkel left off:

  • COMMERZBANK'S MUELLER SAYS GREECE SHOULD EXIT EURO ZONE
  • COMMERZBANK'S MUELLER SPOKE TO DEUTSCHES ANLEGER FERNSEHEN

Presumably this means that German banks have sold off all their Greek bond exposure, and believe that the Eurozone would be better off without Greece in it. However, that Commerzbank, or one of the most insolvent banks in Europe, and only in line with Dexia, is confident that it can withstand the contagtion that would follow, only makes us even more skeptical that a Greek default and Eurozone departure will be contained, and in all likelihood will have scary implications for all European banks, not only German ones. Just ask DB's Ackermann...

 

Tyler Durden's picture

ESM, EFSF, Or EB. Will Any Of It Work?





It appears that the market is cheering the move that the ESM will be implemented sooner than originally expected. That would be good if the ESM was materially different than the EFSF or if it was being done for some reason other than that the EFSF has been a total failure. Imagine the applause when the EU decides to transfer the responsibility from the ESM to the EB (Eastern Bunny). The EB is as likely to solve anything as the ESM is. For clarity we present (adn dismiss) four fallacies of the ESM.

 

williambanzai7's picture

SHoCKiNG HeaDLiNe!





Prepare yourself Florida, Banzai7 is ready and waiting for goofball Tuesday...

 

RickAckerman's picture

Europe’s Banks Afloat on Dwindling Credibility





Sometimes it’s impossible to tell whether the financiers and politicians who carry water for the central banks are bad liars or just clueless dolts. A bureaucrat from the U.K. surfaced in the Wall Street Journal over the weekend, exhaling what seemed to us an ostentatious sigh of relief over the supposed success of the European Central Bank’s latest loan program: “[It provides] a very significant degree of breathing space to banks.” Yeah, sure. 

 

Tyler Durden's picture

San Francisco Fed Admits Bernanke Powerless To Fix Unemployment Problem





That the fine economists at the San Fran Fed are known to spend good taxpayer money in order to solve such challenging white paper conundrums as whether water is wet, or whether a pound of air is heavier than a pound of lead (see here and here) has long been known. Furthermore, since the fine economists at said central planning establishment happen to, well, be economists, they without fail frame each problem in such a goal-seeked way that only allows for one explanation: typically the one that economics textbooks would prescribe as having been the explanation to begin with. Today, is in some ways a departure from the default assumptions. In a paper titled "Why is Unemployment Duration so Long", a question which simply requires a brief jog outside of one's ivory tower to obtain the answer, Rob Valleta and Katherin Kuang, manage to actually surprise us. And while we will suggest readers read the full paper attached below at their leisure, we cut straight to the conclusions, which has some troubling observations. Namely, they find that "the labor market has changed in ways that prevent the cyclical bounceback in the labor market that followed past recessions...  In addition, anecdotal evidence suggests that recent employer reluctance to hire reflects an unusual degree of uncertainty about future growth in product demand and labor costs."Oddly enough, this is actually a correct assessment: the mean reversion "model" no longer works as the entire system has now broken, and since the administration changes rules from one day to the next, companies are not only not investing in their future and spending capital for expansion, and hoarding cash, but have no interest in hiring: an observation that previously led to a surge in profit margins, yet one which as we pointed out over the weekend, has now peaked, and margins have begun rolling over, even as the rate of layoffs continues to be at abnormally high levels, meaning all the fat has now been cut out of the system. Yet it is the following conclusive statement that is most troubling: "These special factors are not readily addressed through conventional monetary or fiscal policies." And that is the proverbial "changeover" as the Fed has just acknowledged that both it, and Congress, are completely powerless at fixing the unemployment situation. In which case is it fair to finally demand that the Fed merely focus on just one mandate - that of controlling inflation, and leave the jobs question to the market, instead of making it worse with constant central planning tinkering which only makes it worse by the day?

 

rcwhalen's picture

Fannie Mae, Freddie Mac Shown as Mortgage Market Predators





This morning, NPR and ProPublica, began reporting on financial transactions at Freddie Mac that bet against homeowner refinancing with their portfolio.

 
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