Archive - Jul 18, 2015

"Moody’s, which in 2013 began using a lower rate than governments do to calculate future liabilities, has estimated that the 25 largest U.S. public pensions alone have $2 trillion less than they need", Bloomberg reports.

This is it. It is indeed historic. And diplomacy eventually wins. In terms of the New Great Game in Eurasia, and the ongoing tectonic shifts reorganizing Eurasia, this is huge: Iran — supported by Russia and China — has finally, successfully, called the long, winding 12-year-long Atlanticist bluff on its “nuclear weapons.” And this only happened because the Obama administration needed 1) a lone foreign policy success, and 2) a go at trying to influence at least laterally the onset of the new Eurasia-centered geopolitical order.

In an rare convergence of Greek and German viewpoints, overnight former Greek finance minister Yanis Varoufakis told the BBC that "economic reforms imposed on his country by creditors are "going to fail", ahead of talks on a huge bailout. At the same time, Germany's most noted Eurosceptic, Hans-Werner Sinn, in an interview with the newspaper "Passauer Neue Presse" also earlier today warned that any new aid would be "totally worthless" and "would never come back." Meanwhile, the Greek PM, who is facing an economic abyss  "does not eat, does not sleep, but he has no choice -- he has a debt to the people who put their faith in him" his mother Aristi Tsipras, 73, told Parapolitika weekly.

Due to significant retail participation and the fact that the equity mania in China has served as a distraction for a nation coping with decelerating economic growth and a bursting property bubble, some (and we were among the first) began to suggest that the broader economy and indeed, social stability, may be at risk in China if stocks continued to fall. The extent to which this suggestion represented a real concern (as opposed to the ravings of a tin foil hat fringe blog) was underscored by the extraordinary measures China adopted in a desperate attempt to stop the bleeding and, later by several sellside strategists who began to warn about possible spillovers into the real economy. Now, with Beijing still struggling to restore the stock bubble, the first signs of knock-on effects are beginning to emerge.

Greece’s lesson for Russia, and for China and Iran, is to avoid all financial relationships with the West. The West simply cannot be trusted. The “globalism” that is hyped in the West is inconsistent with Washington’s unilateralism. No country with assets inside the Western system can afford to have policy differences with Washington. It is testimony to the insouciance of our time that the stark inconsistency of globalism with American unilateralism has passed unnoticed.

It’s not too interesting to say that Donald Trump is a nationalist and aspiring despot who is manipulating bourgeois resentment, nativism, and ignorance to feed his power lust. It’s uninteresting because it is obviously true. It’s so true that stating it sounds more like an observation than a criticism. However, 'Trumpism' is an ideology that is very much present in American life, though hardly acknowledged. It lives mostly hidden in dark corners, and we don’t even have a name for it. You bump into it at neighborhood barbecues, at Thanksgiving dinner when Uncle Harry has the floor, at the hardware store when two old friends in line to checkout mutter about the state of the country. The ideology is a 21st century version of right fascism - one of the most politically successful ideological strains of 20th century politics. Though hardly anyone talks about it today, we really should.

There’s simply too much debt and too little cheap oil for there to be any other trajectory to this story. We need to all prepare for the inevitability that, as the rot proceeds, the people of Greece will not be the only casualties of the banks' attempts at self-preservation. They'll try to throw all of us under the bus before taking any losses themselves.

By removing liquidity via massive purchases of high quality (and in some cases) low quality collateral, the impact on investors of central bank repression of interest rates around the world can be summed up in three simple words: "reach for yield." These three ever-so-simple words provide blanket excuse for 'investors' to pile head long into far riskier investments than they ever would before and considerably lower levels of compensation than they would ever have accepted before... but hey, as long as the central bankers have got their backs, there will always be a greater fool? However, as BofA notes, the mania for "yield reaching" is showing signs of fatigue with the biggest cumulative outflows since 2008...

Last week, former Secretary of Education and US Senator Lamar Alexander wrote in the Wall Street Journal that a college degree is both affordable and an excellent investment. He repeated the usual talking point about how a college degree increases lifetime earnings by a million dollars, “on average.” That part about averages is perhaps the most important part, since all college degrees are certainly not created equal. In fact, once we start to look at the details, we find that a degree may not be the great deal many higher-education boosters seem to think it is.

Fifteen years after Vladimir Putin first walked into the Kremlin, Russia’s army is bigger, stronger, and better equipped than at any time since the end of the Cold War. Able to call on three quarters of a million frontline troops, The Telegraph reports, with more tanks than any other country on the planet, and the world’s third largest air force, Russia retains much of the brute force associated with a former superpower. But it has also rapidly modernised, spending millions on rearmament and retraining programmes aimed at professionalising the lumbering, conscript-reliant force it inherited from the Soviet Union. The latest effort, as Reuters reports, Putin has ordered the creation of a new reserve armed force as part of steps to improve training and military readiness at a time of international tensions with the West over Ukraine.

What have the bailouts achieved? Well, the Greek economy is doing worse than ever, and the people are poorer than ever; and both have a lot more bad ‘news’ to come. The bailouts needed to be as big as they were to 1) successfully make the international banks ‘whole’ that had lent as much as they had into the Greek economy, 2) get the IMF involved, 3) and absolve the notorious -and cooperative- domestic oligarchy from any pain. And make all the usual suspects a lot more money in the process. It therefore doesn’t look at all unlikely that Greece was saddled with an artificially raised deficit, and that the intention behind that, all along, was to get the Troika ‘inside’ for the long run. So the country could be stripped of all its assets.

The ongoing decline in the VIX starting last week (and still going) is the largest supernormal volatility collapse in VIX history. Over the past 2 years, we have been experiencing a quantifiable ‘outlier’ or ‘black swan’ decline in the VIX every 6 months as evaluated against history. We can only point to government intervention as the core reason. We firmly believe that this moral hazard produces a hidden leverage and “shadow market gamma” that at some point will result in a sustained volatility outlier event in the opposite direction.

"A Ku Klux Klan chapter and an African-American group plan overlapping demonstrations on Saturday outside the South Carolina State House, where state officials removed the Confederate battle flag last week", Reuters reports.

There has been so much attention on Greece in recent weeks, but the truth is that Greece represents only a very tiny fraction of an unprecedented global debt bomb which threatens to explode at any moment.  The only “solution” under our current system is to kick the can down the road for as long as we can until this colossal debt pyramid finally collapses in upon itself.

Would you rather have one “Share” of the S&P 500 at $2,124, or 41 barrels of crude oil, or 1.86 ounces of gold? Yes, they are all worth the same amount at the moment, but the price relationship between the three has shifted over the decades.