Archive - Sep 2012

September 27th

RANSquawk Video's picture

RANsquawk EU Market Re-Cap - 27th September 2012





 

September 26th

Tyler Durden's picture

Bubble Formation And Bubble Bursting: A Flowchart So Simple Even An Economist Can Get It





Since it is now quite clear that despite calling for even endless-er QE, the uberdovish Chicago Fed, and by implication the entire FOMC, is still clueless about the two most critical processes of modern fiat-based economics, namely bubble formation, and its counterpart, bubble bursting, we decided to give them a helping hand, and to explain just how these two fundamental events occur, with flow charts so simple, even an Economics PhD can get it.

 

Tyler Durden's picture

Chicago Fed Asks "What Are Asset Bubbles" As Its President Calls For Even More QE





Readers may know the Chicago Fed best for its president: arguably the greatest dove in the history of central banking, Charles Evans, for whom QEternity is so insufficient, it is just the beginning, and he is already looking forward to QEternity^infinity. In fact, just today he reiterated his support for QE3 for the second time since the program's announcement on Thursday the 13th (a day which will live in infamy), saying the recovery has so far been so "disappointing" (which at least means one can safely ignore all those pundits who claimed over the past 3 years the economy was growing, so roughly 99% of them) that the Fed should do even more. So far so good. But where it gets scary is that just today, the same Fed, which is so sure about the affirmative impact of its actions, asks "what are asset price bubbles" (answer: always and without fail the direct effect of ultra loose monetary policy combined with unleashed animal spirits, but what do we know: we have no Econ PhD), confirming it has no clue what the adverse consequences of monetary policy are. And this is the Fed - one which does not grasp the very simple nature of asset bubbles in a fiat world - that is saying Bernanke should print until he literally runs out of toner cartridge. Why whatever can possibly go wrong?

 

Tyler Durden's picture

Intrade Implies At Least 65% Odds Of Major Fiscal Contraction Post-Election





While certainly not always correct; the InTrade markets trading on the various outcomes of the Presidential have become increasingly liquid and active in recent weeks. As Morgan Stanley's Vince Reinhart cleverly notes, by analyzing the odds for control of the Senate, the House, and the Presidential winner, one can arrive at some rather useful insights into the conditional probabilities of various tax-and-spending-related outcomes.

 

Tyler Durden's picture

Is A Gold Standard Possible?





While a gold standard could work, we remain sceptical that it will be considered (barring a serious financial crisis, perhaps associated with highly volatile inflation). In large part we blame the low probability on culture. The world economy has, over the past century, morphed into a highly integrated, government dominated system guided by conventional wisdom (group think). The self-reliant, individualism of the free market has been left behind in favour of a ‘new age’ of coddled consumerism. Culturally this represents a very powerful force in our view, one which minimises creative options/solutions to economic impasses. On this basis we are cautious of predicting such a radical solution to monetary imbalances.

 

EconMatters's picture

QE3, SPR Release and Gasoline Prices





The divergence in crude oil and gasoline supply fundamentals could mean not even an SPR oil release, unilateral by the U.S. or not, would significantly bring down gasoline prices as people might expect.   

 

Tyler Durden's picture

FX Concepts' John Taylor Will Always Be A EUR Bear





John Taylor, founder and CEO of the world's largest FX hedge fund, spoke with Bloomberg TV this morning and was his typically clarifying - if not sanguine - self when it comes to prospects in Europe and the US. Stating that he'll "probably always be a bear on the Euro", Taylor added that it is "hard to look at the European situation and see a cloudy sky become clear," and while there has been noisy swings in the movements of currencies of late, "the reason the euro is up is because the dollar is down - two guys have done this: Draghi and Bernanke." Ranging from FX to volatility, Taylor opines on the time-varying correlation of the weak euro with a strong US equity market and notes, however, that "the equity market is not showing any legs."

 

Tyler Durden's picture

Guest Post: Why QE May Not Boost Stocks After All





If there is one dominant consensus in the financial sphere, it is that the Federal Reserve's $85 billion/month bond-and-mortgage-buying "quantitative easing" will inevitably send stocks higher. The general idea is that the Fed buys the mortgage-backed securities (MBS) and Treasury bonds from the banks, which turn around and dump the cash into "risk on" assets like equities (stocks). This consensus can be summarized in the time-worn phrase, "Don't fight the Fed." This near-universal confidence in a QE-goosed stock market is reflected in the low level of volatility (the VIX) and other signs of complacency such as relatively few buyers of put options, which are viewed as "insurance" against a decline in stocks. The usual sentiment readings are bullish as well.

But what if QE fails to send stocks higher? Is such a thing even possible? Yes, it does seem "impossible" in a market as rigged and centrally managed as this one, but there are a handful of reasons why QE might not unleash a flood of cash into "risk on" assets every month from now until Doomsday

 

Tyler Durden's picture

Gold Holds As Equity Dead-Cat-Bounce Folds





10Y Treasuries hit a 1.60% handle as yields fell without a bounce all day. Equities managed a post-European-close bounce (notably to VWAP and unable to break above it) off pre-FOMC levels but that faded rapidly into the close of the US day session as volume and average trade size picked up. VIX traded over 17% (up over 1.4vols on the day). Gold held up better than stocks - especially given the strength in the USD - and remains well above pre-FOMC levels (holding its bounce into the close). Of the major US equity indices, only the Dow remains green from pre-FOMC as CRAAPL sees its worse 3-day slide in 5 months dragging NDX down (and high-beta Russell dropping fast). MS and GS are down 4.2% from pre-FOMC levels now as Financials are the biggest losers (just trumping Energy and Industrials) from when Ben opened his book. Healthcare remains the clear winner. WTI dived into the EU close but recovered to close at $90 (-3% on the week) but in general risk-asset correlations with US equities are extremely high (with risk suggesting more downside to come).

 

Tyler Durden's picture

iNflation: Americans Spend Less On Food, Movies To Pay For Soaring Cell Phone Obsession





As America's mania with cell phones as an aspirational status fad hits new records every day, this borderline addiction to "thinner, longer" mobility and a sub-1 year upgrade cycle, is starting to extract its pound of flesh: average cell phone bills that have risen by over 10% in one year (from $1,110 to $1,226), even as total household spending rose by half, or $67. In a word: iNflation. It gets worse. As the WSJ reports, "spending on food away from home fell by $48, apparel spending declined by $141, and entertainment spending dropped by $126." Like a true faux status/gadget junkie, Americans don't care what other discretionary items are cut, even such "American staples" as eating out and watching movies, just so they can keep up with all the other Joneses sporting a brand new iPhone X+1, while everyone's credit card bill just gets larger and larger, and the collective wealth evaporates.

 

Tyler Durden's picture

USPS Bailout Imminent: Postal Service Will Miss September 30 'Mandated' Payment





Color us unsurprised by this litte gem (via Bloomberg):

  • *POSTAL SERVICE SAYS IT WON'T MAKE MANDATED PAYMENT ON SEPT. 30
  • *POSTAL SERVICE COMMENTS ON HEALTH BENEFITS PAYMENT IN E-MAIL
  • *U.S. POSTAL SERVICE SAYS OPERATIONS WON'T BE AFFECTED

Miss a payment here, miss a payment there; never mind. It would appear that everyone wants to be bailed out before the election so they can pledge votes for taxpayer cash

 

Tyler Durden's picture

Quote Of The Day: Iran > US, EU





Today's quote of the day award goes to...

  • AHMADINEJAD SAYS SITUATION IN IRAN `NOT SO DIRE'
  • AHMADINEJAD SAYS IRAN ECONOMY `CERTAINLY BETTER' THAN U.S., EU

The irony of course is that absent the trillions in fiat created out of thin air by the "developed world's" central banks, and the destruction of the purchasing power of their populations, he would be absolutely right. The bigger irony is that the Iran is by far winning the global race to debase, with its currency hitting a new record low of 26,500 vs the USD just yesterday, and has lost more than half of its value in the past year. Needless to say, Iran's epic ability to destroy its currency with such utter disdain is making central bankers around the world green with envy.

 

Tyler Durden's picture

Is This Why Europe Is Selling Off?





The odd timing of the Fed's QEternity (given macro data, risk, financials conditions, inflation expectations, and equity valuations) provided some impetus for the markets which had anticipated Bernanke's action. The supposed 'safety net' which we suspect has now been used up - by market front-running from a lower than implied Fed Put strike - does however look in question as the US fiscal cliff looms and global growth concerns grow. However, as Deutsche notes, there remain a large number of hurdles ahead for Europe - and while many 'believe' that progress has been made, it seems now that the rubber is meeting the road, that path forward looks a little less clear - and hence risk-wary investors are unwinding peripheral ST exposure and reverting back to the core (or US MBS/TSYs).

 

Tyler Durden's picture

3bps To Go Until QE3 Makes Treasuries America's Second Safest Security





We discussed the unintended consequence of QEternity previously as we noted the massive front-running of the Fed's MBS buying program that was occurring as 30Y current coupon mortgage bond yields were tumbling. While the last week or so has seen Treasury yields reverse their rising trend, the trend of front-running the Fed has not abated. In what, quite frankly, stunned us more than Sofia Vergara's wardrobe malfunction this weekend, we note that today the spread between the 30Y FNMA CurCpn mortgage bond (at 1.66%) and 10Y US Treasuries has smashed to incredible all-time lows of around 3bps. The day before QEternity, this spread was 60bps - having been over 100bps at the start of June 2012. The previous low from July 2010 of 54bps has been obliterated as Bernanke has managed to remove one more market from the lexicon of risk (and in the meantime, PIMCO's Bill Gross has earned back his 'bond guru' title by making a killing). Can we see Mortgage yields trade inside of Treasury yields?

 
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