Archive - Aug 2012

August 29th

Tyler Durden's picture

"You Are Here": Echoing The Cognitive Dissonance Of September 2006





With an almost perfect six-year lag, the S&P 500 appears to be following the same path as it did into the Subprime crisis from the Feb 2003 lows - almost too accurately. The analog is stunning 'optically' and even more concerning from a behavioral perspective. By this time in 2006, we had seen the US Home Construction Index drop 40%, Subprime lenders going bankrupt left and right, Magnetar Capital had started to create CDOs with the express intent of failing, and Nouriel Roubini had just given his IMF presentation on the forthcoming US housing bust and major recession. Despite all of this, which in hindsight was extremely worrisome, the S&P 500 managed to gain 200 more 'the Fed has our back'-points before cognitive dissonance finally gave in to the reality that the 'music had stopped' - first out wins, and large crowds and small doors don't mix. With the current market rising on ever-decreasing volumes (in futures and stocks - so it's not about the high-price equities), divergence between the new highs in equity indices and falling 'net new highs' in NYSE stocks, and near-peak post-crisis level of complacency in options prices, it seems risk and reward are at best skewed neutral, and at worst flashing red warning signals.

 

Tyler Durden's picture

Citigroup Has The Best Summary Of Europe's Fiasco Yet: "Losses Are Unquantifiable"





Feel like every day Europe is juggling hot potatoes? You are not alone. As the following graphic summary from Citi's Matt King (whose insight into Europe, liquidity conduits, shadow banking and a comprehensive picture of modern financial "innovation" has rapidly become second to none) shows, the hot potatoes are getting hotter by the minute, and are flying ever faster and higher. But the kicker: King has the best punchline on Europe we have yet encountered: "Losses are unquantifiable" Q.E.D.

 

Tyler Durden's picture

Guest Post: Boom and Bust - The Evolution Of Markets Through Monetary Policy





The outcome of the next round of monetary policy will be similar to those in recent history mentioned in this paper... "Perceived inflation will go through the roof.  We’re talking about near 0% interest rates around the developed world (near-term rates in Germany hit 0% in the auction at the end of May and are expected to go negative).  Oh yeah, and massive inflation.  I think gold will have no trouble hitting $3,000/oz in the medium-term and I see copper tripling over the next decade.  This is, of course, until we hit the next bubble sometime around 2018 and start over again.  The trend remains: since the stock market crash of 1987, through the dotcom bubble, and into the real-estate & stock market bubbles of 2007, each euphoric high and ensuing crash have been more extreme than the last.  These extremes are fueled by the easing that is meant to cure us.  The policy that we are facing within the coming months/years will, as the trend dictates, trump them all, and so inevitably will its hangover."

 

dottjt's picture

The Zero Hedge Daily Round Up #115 - 29/08/2012





It's the unofficial podcast/summary of today's Zero Hedge articles! The very articles, even Max Keiser couldn't be bothered reading. Eat it while it's still hot. 

 

Tyler Durden's picture

Draghi’s Master Plan Matrix





Following the dismal failure of Draghi's OpEd this morning (which we assume was a reprint of his much-anticipated - and now cancelled - speech from J-Hole) to jawbone anything but a very brief pop in EURUSD, we thought it useful to aggregate all the great-and-good deeds the ECB elder is considering (and why). Europe remains in a long-term deleveraging phase (as much of the developed world finds itself). This lack-of-demand for credit has crushed the so-called 'money-multiplier in Europe, just as it did in the US (which we discussed in detail here as worse than the Depression); as banks have simply stockpiled the vast sums of LTRO/ECB-collateralized funds. This has left him feeling less than his normal omnipotent self and so he is forced to act even more extremely (or talk about acting that way). The following matrix from Morgan Stanley outlines his policy options under various scenarios as we note few (aside from a rate cut) are actionable in the short-term, and even fewer are likely to make any difference to this long-term deleveraging-cycle

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Tyler Durden's picture

The Math Behind Italy's 28,000 "Cash For Gold" Outlets





A couple of weeks ago we wrote about how the Portuguese citizenry was being forced to sell its gold in order to eat.  It seems that the Italians have now joined this illustrious club.  What do you expect when you allow Goldman Sachs to impose technocrat dictator Mario “Three Card” Monti as your political leader?

The pawnbrokers, ...can hardly keep up with business. They normally have the gold quickly melted down and sent abroad, making it one of Italy’s fastest growing exports. Official gold sales to Switzerland leaped 65 per cent last year to 120 tonnes, up from 73 tonnes in 2010 and 64 tonnes in 2009.

That’s not just gold being exported, that is wealth being exported.  China says thanks.  At least you protected your bankster class from taking a hit on their bond portfolios.

 

Tyler Durden's picture

Will The Current Market Distortions Last?





Recent market trends such as equity and debt strength, the periphery outperforming the core, Europe outperforming the US, banks outperforming non-financials, and unsecured credit outperforming secured all seem predicated on the belief that there will be a funding plan for Spain and Italy. The ECB's gradual draining of assets from the market combined with hopes of more liquidity (something we are already not short of) has created a problem of 'excess demand' but, as Citi's Matt King notes, this 'scarcity factor' has suspended normal market relationships. The question is, across a variety of scenarios, which recent market trends are more vulnerable than others.

 

Tyler Durden's picture

Guest Post: Some Clear Thinking On 'The Debt'





If you haven't heard yet, the United States of America just hit $16 trillion in debt yesterday. On a gross, nominal basis, this makes the US, by far, the greatest debtor in the history of the world.  It took the United States government over 200 years to accumulate its first trillion dollars of debt. It took only 286 days to accumulate the most recent trillion dollars of debt. 200 years vs. 286 days. This portends two key points:

  1. Anyone who thinks that inflation doesn't exist is a complete idiot;
  2. To say that the trend is unsustainable is a massive understatement.

This is banana republic stuff, plain and simple... and smart, thinking people ought to be planning on capital controls, wage and price controls, pension confiscation, and selective default. Because the next trillion will be here before you know it.

 

Tyler Durden's picture

VIX Rises, Equity Futures Fall, Volume Disappears (Again)





For the 22nd day of the last 23, the S&P 500 was unable to manage a 1% gain or loss, having only managed to gain/lose more than 0.25% four days in the last 16. It's dead Jim. S&P 500 e-mini futures (ES) volume was equal to its lowest volume of the year (in years) and NYSE shares traded were also near multi-year lows. While cash equity indices closed very marginally green, ES ended modestly red (shock horror). VIX kept leaking higher, closing at 17% (up 0.5 vols), its highest close in a month (and the premium-to-realized just keeps growing) - seems like noone wants to sell their stocks and everyone wants to hedge - how did that portfolio insurance work out last time everyone was on one side? EURUSD sold off - even with Draghi's OpEd and so today saw Equities Up (all <0.15%), Treasury yields Up (1-2bps >7Y), EURUSD Down 35 pips (and implicitly USD stronger by 0.23%), Commodities - Gold/Silver/Oil/Copper Down around 0.3-0.5%, and credit tracked stocks. A 7.75 point range in ES over its 24-hour period is almost multi-year lows and once again the late-day pull back from highs to VWAP (and into the red) was the only volume of the day. Energy lost, Discretionary gained (consumption data up?) as AAPL and FB dropped (ugliest at the close), and the 18-day range is the lowest since May07 (and we know what that was).

 

Tyler Durden's picture

Guest Post: Currency Competition





Monopolies contribute to many problems - the record of evidence illustrates the potential inefficiency, waste and price fixing. Yet the greatest trouble with monopolies is what they take away - competition. Competition is a beautiful mechanism; in exercising their purchasing power and demand preferences, individuals run the economy. If we are for competition in goods and services, why should we disclude competition in the money industry? Would competition in the money industry not benefit the consumer in the manner that competition in other industries does? Why should the form and nature of the medium of exchange be monopolised? Shouldn’t the people - as individuals - be able to make up their own mind about the kind of money that they want to use to engage in transactions? Earlier, this year Ben Bernanke and Ron Paul had an exchange on this subject. It is often said in Keynesian circles that Bernanke is too tame a money printer, and that the people need a greater money supply. Well, set the wider society free to determine their own money supply based on the demand for money.

 

Tyler Durden's picture

Is This The Fed's Secret Weapon?





As the world anticipates Bernanke's speech on Friday - which most do not expect to explicitly say "NEW-QE-is-on-bitches" - we started thinking just what it is that he can suggest that would provide more jawboning potential. His speech is likely to lay out 'lessons learned' and outline the various conventional, unconventional, and unconventional unconventional policy options available (as we noted here). While open-ended QE, cutting the IOER, and 'credit-easing' are often discussed, none would be a surprise; this reminded us of an article from Morgan Stanley two years ago - after QE2 - that raised the possibility of Price-Level Targeting (PT), which is quite different from Inflation-Targeting. While its cumulative effect could be anti-debtflationary, it is however tough to communicate, reduces the Fed's inflation-credibility, and could be seen as inconsistent with the Fed's dual mandate. Our hope is that by understanding this possibility, the mistaken shock-and-awe is dampened.

 

Reggie Middleton's picture

European Bank Run Watch: Spaniard Edition





The Spanish bank run has started -  as was explicitly warned about 6 months ago!

 

Tyler Durden's picture

Your Tax Dollars At Work: The US Budget Visualized For Congressional Dummies





With a $3.8 trillion yearly budget, the US Government is the most powerful entity in the world. This simple infographic shows how the money was spent.

 

Tyler Durden's picture

Guest Post: The Gold Standard Debate Revisited





The discussion over the GOP's gold standard proposals continues in spite of the fact that everybody surely knows the idea is not even taken seriously by its proponents – as we noted yesterday, there is every reason to believe it is mainly designed to angle for the votes of disaffected Ron Paul and Tea Party supporters, many of whom happen to believe in sound money. As we also pointed out, there has been a remarkable outpouring of opinion denouncing the gold standard. Unfortunately many people are misinformed about both economic history and economic theory and simply regurgitate the propaganda they have been exposed to all of their lives. Consider this our attempt to present countervailing evidence. The 'Atlantic' felt it also had to weigh in on the debate, and has published an article that shows, like a few other examples we have examined over recent days, how brainwashed the public is with regards to the issue and what utterly spurious arguments are often employed in the current wave of anti-gold propaganda. The piece is entitled “Why the Gold Standard Is the World's Worst Economic Idea, in 2 Charts”, and it proves not only what we assert above, it also shows clearly why empirical evidence cannot be used for deriving tenets of economic theory.

 
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