Archive - Mar 27, 2012

This chart tells millions of stories. That’s right: since 1984 (surely an appropriate year) while the elderly have grown their wealth in nominal terms, the young are much worse off both in inflation-adjusted terms, as well as nominal terms (pretty hard to believe given that the money supply has expanded eightfold in the intervening years). So why are the elderly doing over fifty times better than the young when they were only doing ten times better before? There is enough money to keep the economy flowing so long as there are opportunities for people to make themselves useful in a way that pays. With the crushing burden of overregulation and the problem of barriers to entry, these opportunities are often restricted to large corporations. These issues of youth unemployment and growing inequality between the generations are critically important. Unemployed and poor swathes of youth have a habit of creating volatility in response to restricted economic opportunity.

John Taylor, of the Taylor-Rule, who has not been sheepish with his views towards the Fed openly questioned the Fed's independence during a speech to the Joint Economic Committee today. During his testimony at the hearing on the 'Sound Dollar Act of 2012', Taylor noted: "The discretionary interventions of the Federal Reserve have been ratcheted up in such unprecedented ways in recent years that they raise fundamental questions about the future of monetary policy." Perhaps more pointedly, especially given Bernanke's speech today on the Fed's extreme actions and given the hope for a constant interventionist role for the Fed to keep our economy market afloat "The fact that the Fed can, if it chooses, intervene without limit into any credit market - raises more uncertainty, and of course raises questions about why an independent agency of government should have such power."

Much has been made of the lack of retail participation in the casino equity market rally of the last few months (and few years for that matter). Whether it is a signal of the individual investor's overly anxious nature and only the pros 'get it' or more likely this is the end of the baby-boomer-driven secular savings and investment bonanza is perhaps more likely as a nation of soon-to-be-retirees rotate from massive-drawdown-inducing stocks (no matter how diversified your group of trees, when the tornado hits the forest, they all fall down) to the relative (low-drawdown) safety (and steady income) of fixed income. Nowhere is this 'its different this time' secular shift more evident than in cumulative fund flows.

The labor data since last fall has been rather encouraging, writes UBS' Art Cashin in a note today. However, he is skeptical at this reality, agreeing with "lots of folks [who] think it may be the warm winter weather that accounts for it." The warm weather allows for construction (and other outdoor industries) to start p[rojects earlier than planned and also avoids the short shutdowns that winter storms often cause in Jan and Feb. While Art believes the weather could be a significant impact on the positivity, and suspects the follow-through will be disappointing (a la Bernanke), he also notes (as we have commented numerous times) that perhaps it is the distortions in seasonal adjustments that have become warped in the post-Lehman collapse era.

Everything worked...

Italy has issued €157 billion of debt between November of last year and the end of last week.  This is direct Italian government issuance and doesn’t include any of the debt the government has guaranteed in the meantime, which seems to be at least €70 billion more, but hey, who counts guaranteed debt. Of the €157 billion that has been issued, about €122 billion matures within the lifetime of LTRO.  So over 77.5% of Italian new debt is 3 years and in.  In fact, at least 56% was issued with maturities of less than a year.  So in spite of LTRO, in spite of a big rally in Italian yields, in spite of having a technocrat in charge of the country, they continue to issue well over half their debt so that it will mature within a year from now.  That means they will be continuously rolling over debt.  The prudent country would be trying to extend maturity, not shrink it. The market celebrates each “successful” auction, but we should be focusing on what they are actually issuing.  If Germany is serious about a firewall, they or the ECB, should be encouraging countries to pay up and borrow longer.

Housing is improving! Housing is improving! Housing is improving!

if I say it enough will someone believe it?

This post has a link to a Bloomberg story about a revival in Seattle where house bidding wars are in progress: Date March 27, 2012. You won't believe it. It reads like a story from the heart of the days of the bubble market.

Dylan Ratigan, Eliot Spitzer, Matt Taibbi, Van Jones: Superstar Lineup Tackles Financial Crisis and Congressional Collusion. An unprecedented live-streaming event March 27th 7pm EST brings together some of the hottest critics of our political and economic system.

UPDATE (via Bloomberg): *BERNANKE: `FORCEFUL' RESPONSE PREVENTED WORSE RECESSION and AIG HAS STABILIZED - phewee...

Today could be the day when all your beliefs and misconceptions of the great central banking machine are set straight. After explaining to us in the previous two lecture how the gold standard is just silly, why central banks are constitutionally awesome, and how the Fed almost single-handedly created the US since World War II, today's piece-de-resistance is Bernanke's take on his own response to the financial crisis. We are sure it will be thorough in its discussion of the massive and entirely hidden loans for nothing that were given to the banks, how they encouraged the risk-taking that led to it via their regulatory mis-controls, and removing MtM and unlimited free-money helped the world go around - all the while maintaining a strong-dollar policy inline with Treasury's apparent mandate. As far as Word-Bingo: Tweet if you hear the word 'Helicopter' or 'Printing Press' or 'Level 3 Assets are all worthless illiquid junk at best' and if Bernanke says 'CDO' more than 10 times, we all get an animated silver bear.

In a brief but as usual succinct statement, MEP Daniel Hannan points out the country that decided to say no to establishment-rules and stuck to its guns by taking losses, devaluing its currency, and growing its way out of its pit of despair. The eloquent Englishman notes Iceland's current enviable position in terms of not just growth but Debt to GDP and proffers upon his European Parliamentarian peers that perhaps, just perhaps, there is a lesson in here for all European governments (cough Greece/Portugal cough). 67% of 'shrewd and canny' Icelanders are now against joining the Euro.

As if the 'risk-less' dollar-swaps the Fed has extended to any and every major central bank were not enough, William Dudley just unashamedly admitted that the Fed now holds 'a very small amount of European Sovereign Debt'. Explaining this position, as Bloomberg notes:

• *DUDLEY: FED HOLDS OVERSEAS SOVEREIGN DEBT TO MANAGE RESERVES
• *DUDLEY: HIGH BAR FOR ADDITIONAL PURCHASES OF EUROPE DEBT

Dudley, testifying to a House panel, noted that he doesn't see more efforts by the Fed to buffer the US from Europe's tempests and believes European banks are deleveraging in an orderly manner. So not only is the US taxpayer bailing out Europe via the IMF (as we noted here a week ago using Greece as an intermediary) and the Fed is providing limitless USD swap lines but now we join the ECB in monetizing European government bonds - something we warned might happen back in December 2010. As for being a small amount - wasn't MF Global's holding relatively small too? And aren't we getting a little full from all this 'buying'?

With today's less than stellar consumer confidence number and continued path of missed expectations on key macro data over the past few weeks, it is perhaps wondrous that our brain-trust of analysts and economists continue to forecast higher expectations across the board. While this may not come as a surprise to readers used to comprehending the magic of the Birinyi ruler's extrapolation and the inevitable and clockwork 'miss' of turning points of any and every educated talking-heads model, this chart from Deutsche Bank's asset allocation group should contextualize where we are actually versus where LaVorgna and friends see us going. The sad truth is - we have seen this play out again and again and as the printing-press-pressure drives up asset prices (providing confirmation bias upon anchoring bias for any and every economist or long-only manager quoting the 'recovery' or decoupling), the truth is that as prices (and expectations) distend from value and actual reality, the central bank's efforts to 'maintain' the status quo simply create a larger and larger vacuum for asset prices to fall through when sad reality is finally peeked.

Law-abiding taxpayers are treated like criminals while the criminal class of financiers and State apparatchiks are free to loot and pillage muppets and taxpayers alike. It's actually very simple: whatever the state or Federal government does to you, that's legal. Whatever action you take to protect your rights is illegal. In case you have any doubts about where our "leadership" is taking us, please review these Assorted quotes by Fascists or about Fascism.

Consumer Confidence fell for only the second time since this unerring rally began and basically met expectations but it is under the covers that is concerning. Expectations for high inflation in the next six months has reached its highest level in six months jumping considerably from the previous month. Combine this with the overall drop in the expectations subindex of the consumer confidence index which fell for the first time in 5 months and all is not well in the 'stocks are going up so we are all doing great and the economy must be awesome'-transmission mechanism. On top of this wonderful news, the Richmond Fed missed expectations (with its biggest miss in 10 months) - taking us to 15 of 17 (removing the consumer confidence and S&P Case Shiller meets) missed economic data prints now. 7 of the 9 subindices of the Richmond Fed index dropped precipitously with only wages rising notably (more inflation?) even as 'number of employees' slumped by more than half and expectations for 'number of employees' in six months fell to its lowest since September. It would appear that higher gas prices are much more of a detrimental impact on the individual's confidence than a rising equity market is a boost - whocouldanode?