Archive - Nov 2010 - Story

The fact that looking at market performance on a nominal basis (i.e., unadjusted for the decline in purchasing power, or the increase in hard asset prices) is foolish, has recently been understood by even some of the most garish financial tabloids. That said, Ben Bernanke could not be happier if the general public remained broadly dumb about the so-called Zimbabwe phenomenon: i.e. when the stock market goes up by a billion percent, yet purchasing power drops by a trillion. Which is why today we present a visual projection by Sean Corrigan of Diapason Securities, which looks at the S&P on a trade weighted basis, and which looks at the various market cycles not so much from a stock/PE boom-bust basis, but from the view of monetary strength of the underlying currency backing the US stock market, namely the dollar. Corrigan says: "Remember that it never does to get carried away by nominal prices, meaning one should always try to adjust for either or both of currency changes and alterations in the purchasing power of the cash in which an asset is quotes. On that first reckoning, asll you triskaidekaphobes might want to review the prospects for the S&P500, where a 50% loss of dollar-adjusted value over the next year or two, would just be neurologically exact for words." Why 50%? As the chart below shows, a 50% real retracement in stock prices is precisely where the downward channel of the lower lows of the S&P would take us. What that wouold mean is that by October 2012, the S&P will hit approximately a 20 year low. Considering all the monetary fornication that the chairman has embarked on vis-a-vis the middle class and the US currency, we will be lucky if in 2 years the market IS down just 50% adjusted for the amount of KY poured down (or as the case may be, up) the appropriate middle class orifice.

RANsquawk Thanksgiving Update - Stocks, Bonds, FX etc. – 25/11/10

The push back against the HFT market-propping travesty is finally starting to gain steam...but for now only in Europe. After all, the Fed realizes all too well that it needs all the resources it can get in its bid (no pun intended) to keep stocks as artificially high as possible, of which the HFT upward biased feedback loop is a critical one (the PD POMO monetization circuit being a second one... and when both fail, there is always the Citadel dark pool direct purchasing channel). Reuters reports thet "Britain and France flagged on Thursday a looming crackdown on ultra-fast share trading that featured in May's brief "flash crash" freefall on Wall Street, alarming regulators and investors globally. French Economy Minister Christine Lagarde said a
form of computerized trading known as high-frequency trading (HFT) may
need banning in some cases." Lagarde, who has recently shown a willingness to be seen as not part of the Bernanke mold, told reporters that her "natural tendency would be at least to
regulate, to oversee it very strictly and after a cost-benefit analysis
of these methods, maybe to forbid it." Elsewhere, a European Parliament November 16 report on MiFID "Calls for the practice of ‘layering’ or ‘quote stuffing’ to be explicitly defined as market abuse." This is something Zero Hedge has been demanding for about a year now, and obviously something that the corrupt regulators at the SEC, headed by the galactically incompetent Mary Schapiro continue to pretend does not exist. Lastly, in an attempt to make the life of the NYSE easier, whose primary source of revenue, now that Chinese IPOs have been uncovered to be a pathological, unauditable scam, has collapsed, the target has now shifted to dark pools: "The proliferation of dark pools was a tragic error and I would like us to come back to it" according to Bank of France Governro Christian Noyer. The latest onslaught against dark pools is not at all surprising: after all the NYSE is pushing hard to preserve some semblance of relevance (and EPS) as it is now attempting to create "a global network of as many as 40 "liquidity hubs" in data centers around the world." All in all, this smells like the role of HFT right here in our own back yard is about to get seriously curbed. Add the fact that Prett Bharara is about to open at least one criminal case against a domestic HFT outfit, and the robotic permabid behind the market may soon be very, very scarce.

Famous euroskeptic Nigel Farage (as seen previously here), in just under 4 brief minutes tells more truth about the entire European experiment than all European bankers, commissioners, and politicians have done in the past decade. As we have already said pretty much all of this before, we present it without commentary: "Good morning Mr. van Rompuy, you've been in office for one year, and in that time the whole edifice is beginning to crumble, there's chaos, the money's running out, I should thank you - you should perhaps be the pinup boy of the euroskeptic movement. But just look around this chamber this morning, look at these faces, look at the fear, look at the anger. Poor Barroso here looks like he's seen a ghost. They're beginning to understand that the game is up. And yet in their desperation to preserve their dream, they want to remove any remaining traces of democracy from the system. And it's pretty clear that none of you have learned anything. When you yourself Mr. van Rompuy say that the euro has brought us stability, I supposed I could applaud you for having a sense of humor, but isn't this really just the bunker [or banker?] mentality. Your fanaticism is out in the open. You talk about the fact that it was a lie to believe that the nation state could exist in the 21st century globalized world. Well, that may be true in the case of Belgium who haven't had a government for 6 months, but for the rest of us, right across every member state in this union, increasingly people are saying, "We don't want that flag, we don't want the anthem, we don't want this political class, we want the whole thing consigned to the dustbin of history." We had the Greek tragedy earlier on this year, and now we have the situation in Ireland. I know that the stupidity and greed of Irish politicians has a lot to do with this: they should never, ever have joined the euro. They suffered with low interest rates, a false boom and a massive bust. But look at your response to them: what they are being told as their government is collapsing is that it would be inappropriate for them to have a general election. In fact commissioner Rehn here said they had to agree to a budget first before they are allowed to have a general election. Just who the hell do you think you people are. You are very, very dangerous people indeed: your obsession with creating this European state means that you are happy to destroy democracy, you appear to be happy with millions and millions of people to be unemployed and to be poor. Untold millions will suffer so that your euro dream can continue. Well it won't work, cause its Portugal next with their debt levels of 325% of GDP they are the next ones on the list, and after that I suspect it will be Spain, and the bailout for Spain will be 7 times the size of Ireland, and at that moment all the bailout money will is gone - there won't be any more. But it's even more serious than economics, because if you rob people of their identity, if you rob them of their democracy, then all they are left with is nationalism and violence. I can only hope and pray that the euro project is destroyed by the markets before that really happens."

A few weeks ago, Hitler realized he was in deep doodoo when the fraudclosure scandal was refusing to go away. Well it still hasn't, although for the time being it has been brushed under the carpet, courtesy of Europe which once again dominates the airwaves with its sad existence. Today, a far more industrious Hitler presents his plan to save Ireland. Oddly enough, it just may work.

Goldman's Thomas Stolper joins Erik Nielsen with an updated, and painfully bullish, Euro forecast: "our baseline is that these risks will not escalate much further." As Stolper is the guy who has successfully top.ticked.every.single.move in FX, it is time to call the undertaker (the profit margins on a coffin the size of Europe will be sufficiently high no matter the input cost of lumber). Not surprisingly then Stolper follows up: "we believe EUR/$ remains very much on track for the projected trajectory of 1.40 in 3mths as well as 1.50 and 1.55 in 6 and 12 months." Recall that Stolper came out with his upward revised EURUSD forecast just before the pair topped out in the low 1.40s (which was shortly after he scrapped his 1.15 target just after the eurozone stopped its implosion last time around after the Stress Test lie and QE2 rumors started). In other words, we just doubled down on our bet that John Taylor is once again spot on. What is unsaid here is that Goldman expects the world to start pricing in QE3 imminently, and punish the USD: "one question we face very often is about the viability of Eurozone
growth with EUR/$ at 1.55. Our answer is that we really believe in broad
USD weakness." At the end of the day, as we have claimed for over a year, the key dynamic is between the race of USD and EUR to devaluation: on one hand via outright currency printing and on the other via a continental disintegration. The one thing that many are forgetting, is that the faster a European crisis unwinds, the bigger the European banks' funding needs for dollars due to record FX asset-liability mismatch (and now, due to the dollar serving as a carry funding currency). In other words, the worse Europe gets, the doubly-faster that the Fed will need to print reserves to keep the dollar low. All that is a long-winded way to say that we anticipate Stolper will revise his EURUSD forecast lower within a month, once Goldman's ex-prop-now-"client facing" desks have accumulated enough USD positions.

Can Germany have its cake and eat it too?

Who would have thought a little pre-thankgsiving truth that the EFSF is missing a zero would set off such a firestorm of protest. From Die Welt (google translated): "The EU Commission wants to double the rescue to calm the markets. But so far, the federal government off against the proposal."

Rosie enters the "future of the euro" speculation race, and sees a "devastating deflationary shock" when Europe finally accepts the inevitable: "U.S. companies would likely confront a huge appreciation in the dollar, which would cut into their foreign-derived earnings base. Commodity prices would undoubtedly correct and safe-haven flows would certainly redress the loonie’s overvaluation gap. Treasuries would rally big-time." Stocks, of course, would plummet, and "Gold would remain bid — yesterday’s rally in the face of the USD rally is a case in point." On the other hand, the fact that we are starting to see traces of Krugman in Rosie's thinking is very. very worrisome.

If you are wondering why Irish bonds are ready to take out 10% by the end of the week, wonder no more. Any minute to follow: Portugal and Spain.

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RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 25/11/10

After we noted earlier that the latest trending topic regarding Europe's insolvency was that the €440 billion EFSF rescue facility will likely not have enough cash to bail out Spain, the ECB immediately came to the rhetorical rescue, with Governing Council member and Bundesbank head Axel Weber speaking at a conference in Paris, telling participants that "The European Financial Stability Fund should be
sufficient to dissuade markets from speculating against the solvency of
Eurozone member countries, and if not, more money will be provided." Lamenting the market's idiocy, which refuses to stop punishing bankrupt stats, Weber further added that markets suffer from "limited rationality" and players
often follow market movements to the neglect of "fundamentals." Of course the same should be said for all those who are buying into this rally, which is driven exclusively by the genocidal desire of central bankers to ramp up stocks, kill currencies, and make the cost of living unbearable for half their constituencies. But nobody has ever accused central bankers of objectivity, or ever doing something that puts the interests of a few billionaire "Jenny 20" rejects over a billion or so filthy peasants.

“I draw the conclusion that, assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not – if we look into the future – the permanent problem of the human race.” (John Maynard Keynes, Economic Possibilities for Our Grandchildren, 1930). There have of course been some “important” wars (though in truth they were, and remain, mere installments in a Long War that is by no means over). And there has of course been an “important” increase in population (the abreaction, for the most part, of the premodern underbrush that was uprooted amid the modern nation-state’s relentless campaign of unification, centralization, and consolidation). But let us give Keynes his due for imagining a time, in the not-too-distant future, when “the economic problem” – which is to say, the scarcity that impels all economic endeavor – will at long last have been solved, and universal abundance is at hand. Let us do so, however, with no illusions about who the man was, fully acknowledging that he was “a charming but power-driven statist Machiavelli, who embodied some of the most malevolent trends and institutions of the twentieth century” – so malevolent, in fact, that one is left to wonder what Keynes might have had to do with the fact that, eighty years later, a solution to “the economic problem” seems more out of reach than ever.

A summary of all the key events in stocks, rates, corporates, FX, commodities, vol and a quick look at tomorrow's negligible calendar.