Archive - Nov 30, 2013
The "Anti-Widowmaker" Trade: Get Paid To Wait For The Japanese House Of Card To Collapse
Submitted by Tyler Durden on 11/30/2013 22:46 -0500
Taking a “short position” in either Japanese interest rates or their currency is a fundamentally sound idea; however it may take three to seven years for the “Macro-profits” to be fully realized. Over that time, a short position will demand a cost, either in the terms of the negative carry of a spot position or the time decay of a short-dated option. Additionally, since it is unlikely you will enter the trade at the extreme, there could be some mark-to-market vibrations that may breach your risk limits. To the rescue is the strange circumstance of a widening USD vs. JPY Rate differential in conjunction with a flattening Volatility Term Surface. Below is a table of mid-market values for Par Strike USD call // JPY put options with expiries from one-year to ten-years. The critical observation is that a five-year option costs more than a ten-year option; thus the weird dynamic of owning an option with (effectively) positive “theta”: You are paid to own an option !
Guest Post: Krugman’s Adventures In Fairyland
Submitted by Tyler Durden on 11/30/2013 20:17 -0500
After studying and teaching Keynesian economics for 30 years, it is clear that the “sophisticated” Keynesians really do believe in magic and fairy dust. Lots of fairy dust. Austrians such as Mises and Rothbard have well understood what Keynesians do not: the structures of production within an economy are heterogeneous and can be distorted by government intervention through inflation and massive borrowing. Far from being creatures that can “save” an economy, the Debt Fairy and the Inflation Fairy are the architects of economic disaster. Despite Keynesian protestations that the U.S. and European governments are engaged in “austerity,” the twin fairies are active on both continents. The fairy dust they are sprinkling on the economy, however, is more akin to sprinkling ricin on humans. In the end, the good fairies turn into witches.
The Other America: "Taxpayers Are The Fools... Working Is Stupid"
Submitted by Tyler Durden on 11/30/2013 19:25 -0500
While what little remains of America's middle class is happy and eager to put in its 9-to-5 each-and-every day, an increasing number of Americans - those record 91.5 million who are no longer part of the labor force - are perfectly happy to benefit from the ever more generous hand outs of the welfare state. Prepare yourself before listening to this... calling on her self-admitted Obamaphone, Texas welfare recipient Lucy, 32, explains why "taxpayers are the fools"...
"...To all you workers out there preaching morality about those of us who live on welfare... can you really blame us? I get to sit around all day, visit my friends, smoke weed.. and we are still gonna get paid, on time every month..."
She intends to stay on welfare her entire life, if possible, just like her parents (and expects her kids to do the same). As we vociferously concluded previously, the tragedy of America's welfare state is that work is punished.
Grant Williams On Flushing The Impurities Of QE From The System
Submitted by Tyler Durden on 11/30/2013 18:41 -0500
Grant Williams "pulls no punches" in this all-encompassing presentation as the "Things That Make You Go Hmmm" author reflects on what is behind us and looks ahead at the ugly reality that we will face when "the impurities of QE are finally flushed from the system." Central bankers of today have "changed everything" he chides, "in ways that will ultimately end in disaster." Following extraordinarily easy monetary policies across all of the world's central banks, Williams explains why "we are now near the popping point of the 3rd major bubble of the last 15 years," each bigger than the last. The only way Janet Yellen avoids being at the helm when this ship goes down is to blow an even bigger bubble than Bernanke's government bond experiment, "which is highly unlikely." From how QE works, why many don't "feel" wealthy anymore, to the fact that "the geniuses that gave this thing life, don't have the guts to kill it," Williams warns, ominously, "the bills have come due on the blissful latst 30 years."
Russell Napier: "We Are On The Eve Of A Deflationary Shock "
Submitted by Tyler Durden on 11/30/2013 17:26 -0500"We are on the eve of a deflationary shock which will likely reduce equity valuations from very high to very low levels.... Each investor must decide for themselves just how close to midnight they want to leave this particular party. The advice of Solid Ground is leave now as it is increasingly likely that one event will be the catalyst to very rapidly change inflationary into deflationary expectations... So perhaps it is global deflationary forces creating a bankruptcy event, somewhere in the world, that is the catalyst for a sudden change in inflationary expectations in the developed world. It can all happen very quickly; and it is dangerous to stay at an equity party driven by disinflation when it can spill so rapidly into deflation... When there is plenty of leverage in the system and any key price starts to decline then a credit event and a sudden change in inflationary expectations are much more possible than the consensus believes. So watch the TIPS, BAA bond spreads and copper if you must, but this analyst prefers to observe the party from outside.... Each investor must decide for themselves just how close to midnight they want to leave this particular party."
- Russell Napier, CLSA
Guest Post: Economic Prosperity Ahead Or A Train A Comin'
Submitted by Tyler Durden on 11/30/2013 16:25 -0500
Many believe that government and its partner the Federal Reserve are wise and strong enough to avoid this crash. If printing money and spending money were a solution, there would be no poverty anywhere in the world. Even the poorest country has a government and can afford a printing press. Thus far there has been no collapse. However, that is equivalent to the man who jumps off the Empire State building and is heard to say as he flashes by the fortieth floor: “So far, so good.” His fate was sealed when he jumped. Similarly, so is our economy’s. Economics has its own gravity. A complete cleansing of the mal-investments, distorted incentives and regulatory burdens must occur before a true recovery can take place.
1974 Enders To Kissinger: "We Should Look Hard At Substantial Sales & Raid The Gold Market Once And For All"
Submitted by Tyler Durden on 11/30/2013 14:57 -0500
Four years ago we exposed what appeared to be a 'smoking gun' of the Fed's willingness to manipulate the price of gold. Then Fed-chair Burns noted the equivalency of gold and money, and furthermore pointed out that if the Fed does not control this core relationship, it would "easily frustrate our efforts to control world liquidity." Through a "secret understanding in writing with the Bundesbank that Germany will not buy gold," the cloak-and-dagger CB negotiations were exposed as far back as 1975. Recently, we exposed Paul Volcker's fears of "PetroGold" and the importance of the US remaining "masters of gold." Today, via a transcript of then Secretary of State Kissinger's 1974 meeting we see how clearly they understood that demonetizing gold was a critical strategy to maintaining a dominant power position in the world, and "raiding the gold market once and for all."
What's The Difference Between Markets & Reality? About 22% YTD
Submitted by Tyler Durden on 11/30/2013 13:41 -0500
Faith, hope, and confidence are the 3 key factors driving stocks at this point with fundamentals lagging an awkward 4th place. Faith in the perpetual central bank put (and bad news is thus good news); Hope that repeating the same 'experiment' following its previous failures will work this time; and confidence that the old normal is re-attainable (no matter how many times we kick the can). Year-to-date, S&P 500 earnings are up around 7% (and the trajectory is declining); accordingly, as we noted previously, confidence is ultimately responsible for levitating nominal stock prices through multiple expansion.. and is responsible for the rest of the market's gains. With confidence now fading (according to most surveys) investors will not be willing to pay increasing multiples unless they are confident that the future streams of earnings are sustainable and forecastable...
This Inflation Is Supposed To Be GOOD For Japanese Workers?
Submitted by testosteronepit on 11/30/2013 12:59 -0500Printing yourself out of trouble and to wealth works. For the elite. Even in Japan. But how are workers and consumers faring? And by implication the real economy?
Ukraine President Explains Relations With Russia Using Body Language, While Local Violence Escalates
Submitted by Tyler Durden on 11/30/2013 11:00 -0500
A week ago Europe was furious, and Putin once again glorious, after Europe's "bread basket", the Ukraine, under president Yanukovich decided to terminate its pro-European stance, and instead in a very symbolic shift, chose Moscow as its future trading partner hub. "This is a disappointment not just for the EU but, we believe, for the people of Ukraine," EU foreign policy chief Catherine Ashton said in a statement. Yanukovich said he had declined to sign the EU pact as the cost of upgrading the economy to meet EU standards was too great and that economic dialogue with Russia, Ukraine's former Soviet master, would be revived. Today, tensions in the Ukraine finally spilled over when following the break up of a pro-Europe protest by local police, the opposition announced it would call a countrywide general strike to force the resignation of president Viktor Yanukovich.
Is Janet Yellen Smarter Than Me?
Submitted by EconMatters on 11/30/2013 10:20 -0500There are a couple of disturbing points that came out of her take on bubbles and the rationale behind not tapering a mere 10 or 15 Billion dollars given the monthly commitment of 85 Billion in Fed Purchases every month.
A-Rod And Janet Yellen: What Valuation, Debt And The Fed Can Say About The Next Bear Market
Submitted by Tyler Durden on 11/30/2013 09:45 -0500
Think of it this way: You’re a baseball player trying to break into the majors despite mediocre fielding skills, no foot speed, and a batting average that hovers around 250. Egged on by your friend, A-Rod, you think you can make it by using steroids and turning yourself into a power hitter. But it doesn’t work out as planned. After a year, you’re losing hair, your skull’s gotten bigger, there’s fatty tissue on your chest that wasn’t there before, and you’ve still only managed 18 home runs in a season. You finally accept that it’s not going to happen for you. In the baseball scenario, steroids didn’t show enough payoff before the side effects told you enough was enough. And you can say pretty much the same thing about our economic scenario and monetary steroids. We’re seeing dubious benefits and fast developing side effects from the Fed’s actions, causing many observers to recommend a rethink of the Big Experiment. Yet, the experiment continues...
Dollar and Yen Weakness may Persist, Aussie Poised for Bounce
Submitted by Marc To Market on 11/30/2013 06:54 -0500Overview of the near-term outlook for the major currencies.





