Archive - Jun 2013

The problem is central banks have created a vast pool of credit-money that is far larger than the pool of sound investment opportunities.  Why are asset bubbles constantly popping up around the globe? The answer is actually quite simple. Asset bubbles are now so ubiquitous that we've habituated to extraordinary excesses as the New Normal; the stock market of the world's third largest economy (Japan) can rise by 60% in a matter of months and this is met with enthusiasm rather than horror: oh goody, another bubblicious rise to catch on the way up and  then dump before it pops. Have you seen the futures for 'roo bellies and bat guano? To the moon, Baby! The key feature of the New Normal bubbles is that they are finance-driven: the secular market demand for housing (new homes and rental housing) in post-bubble markets such as Phoenix has not skyrocketed; the huge leaps in housing valuations are driven by finance, i.e. huge pools of cheap credit seeking a yield somewhere, anywhere:

From central-planning to universal-panning...

Just a month ago we broke above the magical 1,600 level on the S&P 500... today we broke back below, with the index now down over 5% from its 5/22 highs. From a technical perspective, the Nikkei 225 is below its 100DMA, and the Dow and S&P 500 just broke below the 50DMA. VIX has risen, now back above 18% (highest in over 3 months). No Hindenburg Omen signal (yet). What we worry about is that everyone is focused on tomorrow's NFP print as some panacea for "Taper." This is incorrect. The "Taper" jawboning from the Fed is because they are increasingly fearful of the bubbles they have created (just look at the sudden influx of frothiness discussions) and need to 'try' and talk us off the exuberant ledge. Whether the NFP is strong or weak is irrelevant - we all know the 'real' economy is weak - it doesn't matter to the Fed who can't support such disconnected markets any longer since they know that the higher it goes the worse it will end.

It's USDJPY waterfall time and Mrs Watanabe has just left the building. She is now getting familiar with the far less known cousin of the "wealth effect" - the "poverty effect." In other news, someone big just got the proverbial tap on the shoulder.

India should monetise their huge gold stockpiles of over 20,000 metric tonnes according to the World Gold Council (WGC) as reported by Bloomberg this morning.

“In the long term gold could be monetized as a financial asset," Aram Shishmanian, the CEO of the WGC said in India overnight.

The World Gold Council has approached the Reserve Bank of India (RBI) to work with it so that bullion could be used as a financial asset, rather than just a physical asset. 

Portugal suffered the most - with its bond spreads now a huge 45bps wider on the week. It seems between the ever-increasing vol in Japan, a rapidly fading JPY carry funding mechanism, and lack of fresh meat from Draghi, Italian and Spanish bonds and stocks are losing their 'greater fool' bid. Sovereigns are seeing their worst day since February; stocks among their worst days since Feb - with several Spanish and Italian banks halted limit-down (as ECB's QE-like collateralization was not eased); and EUR is strengthening against the USD as risk-flows are repatriated. Italian and Spanish stocks are now at 6 week lows, and Spanish, Italian, and Portuguese credit spreads at six-week highs. European financial and corporate credit are now wider (worse) on the year and equities are catching down. And the ultimate 'greater fool' momentum trade - GGBs - is fading - now down 9.5% in the last week...

Our final observation on the matter of the US government, no longer accountable to anyone, and treating its citizens as indentured debt serfs who are entitled to precisely zero privacy rights, comes from Stephen Wolfson and "The NSA, AT&T And The Secrets Of Room 641A."

Zero-G free fall follows. But...But... the USDJPY is going to 105-110 they said. Don't fight the Japanese Fed they said. Elsewhere, the Watanabe retreat bugle just became the Watanabe gong show. For now, GETCO and DE Shaw's USDJPY-ES correlation algos are furiosuly pretending to ignore what is going over in FX land. We wish them luck...

Late last night, Japan's Nikkei 225 touched the 12,815 20% correction level and bounced. With the collapse stronger in JPY this morning (sending JPY-carry-traders scrambling) that level has been well-and-truly breached with the Nikkei 225 now trading 12,760 - down 20.25% from the 5/22 highs of 16,020. It appears the "buy-the-dip-mentality" is lacking among market participants that are decidedly one-way on this ship.

From 2006:

Two months after Kuroda's first speech at the BoJ unveiling the 2-2-2-2 awesome extravaganza of excess that will enable Abe to slay his deflation-monster, we thought it worth a quick update on the score... things are not going according to plan, we suspect...

If we are to believe what they said, then this is the year. 2013! It’s going to happen.. The stock-market is ready to crash yet again this year and this time it’s going to be a big one. Let’s take a look at what was said, when, why and by whom.

Blink and you have likely missed Obama's latest Watergate moment, this time following the disclosure that the White House has instructed the NSA to collect millions of daily phone records from Verizon (and likely all other carriers). What is surprising to us is that this is even news. We reported on just this in March of 2012 with “We Are This Far From A Turnkey Totalitarian State" - Big Brother Goes Live September 2013" and then again in April 2012 "NSA Whistleblower Speaks Live: "The Government Is Lying To You" using an NSA whistleblower as a source. Still, no matter the distribution platform, it is a welcome development for the majority of the population to know that the same Stazi tactics so loathed for decades in the fringes of the "evil empire" are now a daily occurrence under the "most transparent administration in history." This is especially true in the aftermath of the recent media scandals involving the soon to be former Attorney General.

While there was an initial knee-jerk bid for S&P 500 futures as Draghi set forth his unchanged policy (in fact worse, no new measures discussed amid the contraction of the ECB balance sheet), since the press-conference and Q&A began, risk markets everywhere have taken it on the chin. S&P 500 futures are at overnight lows, Nikkei futures are testing back to the 20% correction levels, Spanish and Italian bond yields are surging (back at near-two-month highs), Spaniosh bond spreads back above 300bps, and European stocks are tanking.

“Volatility is rising and asset prices are highly vulnerable to all incoming news... The amount of attention paid to rumors about QE highlights how vulnerable the U.S. economy is to the prospect of a tapering in asset purchases or a rise in interest rates. This is largely because the current economic expansion is dependent on further gains in housing, which would be adversely affected by a material rise in mortgage rates... This dynamic underpins the Federal Reserve’s current dilemma over how to normalize monetary policy. I do not anticipate an easy ride for policymakers or investors over the coming months.”