Archive - Oct 2013

For all your, well, just one really, New Normal daytrading needs.

It is a common view that the shutdown, the debt-limit debacle and the repeated failure to enact entitlement and pro-growth tax reform reflect increased political polarization. John Taylor believes this gets the causality backward. Today's governance failures are closely connected to economic policy changes, particularly those growing out of the 2008 financial crisis. Despite a massive onslaught of legislation and regulation designed to foster prosperity, economic growth remains low and unemployment remains high. Claiming that one political party has been hijacked by extremists misses this key point, and prevents a serious discussion of the fundamental changes in economic policies in recent years, and their effects.

Earlier this afternoon, it was Steve Cohen's final fall from grace. Now, Bloomberg reports that Brazil's one time super billionaire, and now negativeworthaire, Eike Batista, whose sprawling petroleum empire was once valued in the tens of billions, is set to file for bankruptcy tomorrow.

• BRAZIL'S OGX SAID TO PLAN BANKRUPTCY PROTECTION FILING TOMORROW

We are confident that just like in Europe, there is no bank with any exposure to either OGX, Brazil, or whatever potential intercreditor avalanche will tear down many more Brazilian companies once this first insolvent domino finally tips over.

Why China DOESN'T WANT the Yuan to Become the Reserve Currency

Not only would SocGen be shocked if the Fed made any significant policy shift this week, they appear to be finding "belief" in a growth renaissance hard to sustain in light of the dismal reality that keeps getting in the way of 'faith'. Undertaking any policy shifts at this meeting would be akin to driving at night with no headlights, they note, taking the opportunity to slash Q3 and Q4 GDP expectations - pushing off hope for any Taper announcement until late Q1 at its earliest. Of course, they remain "fundamentally bullish" on US growth (or every assumption about the world would implode) but the mid-year inflection point they hoped for appears to be further into the future than they hoped.

Many have asked us to expand on how the rapid expansion of money supply leads to an effect the opposite of that intended: a fall in economic activity. This effect starts early in the recovery phase of the credit cycle, and is particularly marked today because of the aggressive rate of monetary inflation. The following are the events that lead to this inevitable outcome. And while many central bankers could profit by reading and understanding this article, the truth is they are not appointed to face up to the reality that monetary inflation is economically destructive, and that escalating currency expansion taken to its logical conclusion means the currency itself will eventually become worthless.

There's a Monetary Firestorm Coming

“This could turn into a very violent wake-up call for [screen-traded gold]. People talk about ‘fiat currencies’, but we also have ‘fiat gold.’ Volatility is too cheap right now.”

Nearly three years ago, before anyone had heard of expert networks, before the SEC had brought any major enforcement action against any hedge fund and long before anyone had to gall to accuse SAC of insider trading, Zero Hedge started a series of posts commencing with "Is The SEC's Insider Trading Case Implicating FrontPoint A Sting Operation Aimed At S.A.C. Capital?" exposing the fraudulent transactions of Steve Cohne's hedge fund despite fears of violent legal reprisals. We are delighted to inform our readers that this particular chapter is now over: the WSJ has just reported that SAC will plead guilty to securities fraud, pay a final $1.2 billion penalty (still a tiny sum compared to all the ill-gotten gains by Steve Cohen over the years), and most importantly, end the fund's management of outside money.

SSDD. Collapsing confidence, check. Housing Recovery meme toast, check. Volume at 2013 lows, check. BTFATH and send Trannies up for 13th of last 15 days (+10.4%), Dow near all-time highs again (thank you IBM buybacks), and S&P to new all-time highs... but don't tell Treasuries (which stand +/-1bps on the week). VIX wasn't drinking the kool-aid but the NASDARK session enabled futures to drag us back to higher before limping lower into the closer. The USD oscilatted around Nowotny comments and POMO ending the day up a rather notable 0.5% from Friday's close and that pressured commodities in general lower (gold hovering at $1345). Credit, Treasuries, VIX, and volume are all diverging from equity exuberance. The last 2 minutes saw stocks scream higher on their own as the world was terrified it would miss out on something (but no other market moved) and all the major indices managed new highs.

Following the humiliation of having a US ambassador summoned so he would explain the spying conducted by the US government, in liberated Paris of all places (because while the NSA spying on your own citizens is an absolute travesty and trampling of basic human rights and smacks of Stalingrad circa 1960, spying abroad is permitted, accepted and largely forgiven by all the developed nations - after all everyone does it) the US has struck back in the most poetic way imaginable: it said that whatever phone records the NSA acquired were passed on to it by the local spy agencies of none other than France and Spain. The implication is simple: the local people understandably furious at the US and screaming blood, have just been given a far more convenient target at which to fume: their own governments.

There is a fear stalking the corridors of European politics. It is not the surging unemployment in France, or record delinquencies in Spain, or all-time low credit creation across the region; it is the growing concern that the powers that be have from the rise of Euroskepticism. As UKIP's Nigel Farage exclaims to Barroso and his brood, "years ago, you were less worried... but now we are "evil", "populists", we are "dangerous" and are going to bring down Western Civilization." As the outspoken Brit implores in this brief clip, there is nothing extreme in his views. "The real European debate is about identity," he notes, "what we are saying, large numbers of us from every single EU member state is: we don't want that flag, we don't want the anthem that you all stood so ram-rod straight for yesterday, we don't want EU passports, we don't want political union." As Greece faces down its 3rd bailout and deflationary threats loom across the region, we suspect top-down and bottom-up angst will bubble back to the surface soon enough.

You know the old rule of thumb about laws - the more high-sounding the legislation, the more destructive its consequences. Case in point, HR 3293 - the recently introduced Debt Limit Reform Act. Sounds great, right? After all, reforming the debt seems like a terrific idea. Except that’s not what the bill really does. They’re not reforming anything. HR 3293?s real purpose is to authorize the government to simply stop counting a massive portion of the US national debt.

We recently noted that, despite all the hot money flows and self-congratulatory extrapolation, European macro data is collapsing (as opposed to supporting ideas of recovery). In fact, it is falling at the fastest pace in over a year as the prospect of the euro area falling into deflation may be increasing; as Bloomberg's Niraj Shah notes the single currency rises, growth loses momentum, money-supply expansion slows and bank lending stagnates. As Shah fears, that may push the region into a debt spiral as the real value of debt increases, marking a new phase in the crisis.

Demonstrated concisely with four pictures...