Archive - Jan 22, 2011 - Story

An analysis of world-wide clean tanker spot fixture volume in 2010 characterizes a sobering picture of developed-world economic health. A significant 8.3% contraction in total reported fixtures from 2009 marks a downturn from what had seemed to be a market on the mend from the depths of the 2008 financial crisis. Although many pundits point to a rapidly-growing eastern
demand for tonnage in crude tanker markets as reason for optimism, nearly all market participants are left scratching their heads looking for any similar signs of optimism in the product shipping market.

Demonstrating Humankind's remarkable ingenuity with financial and philosophical innovation, Non Sequitur's Stone Age geniuses Ook and Mook invent money, wealth and Taoism with only sticks and stones...

After a week ago we learned that the central bank of Tunisia had parted with 23% of its gold stash courtesy of now deposed president who fled the country with a 1.5 ton shipment of gold, it appears that Egypt is preparing for a comparable spike in revolutionary activity. Only unlike the now former Tunisian president whose gold sequestering actions were retroactive and thus, quite lucky to succeed, Egypt has taken proactive measures. According to Egypt News, the country's airport has intercepted 59 shipments of gold directed for the Netherlands "worth tens of millions." The gold, as well as an indeterminate amount of foreign currencies, was hidden in pillow cases: uh, cotton may not show up on X-Rays, but gold sure does. We eagerly await to learn how big the decline in the country's official holdings 75.6 tonnes of gold will be after this most recent episode confirming that gold is precisely money. And all this happening despite gold's complete and thorough inedibility.

Over the past twenty years, few people have been as discredited in their worldview as New York Times columnist Thomas Friedman. The thorough fall from pedestalized grace of the Pulitzer Prize winner, whose latest book, "The World is Flat: A Brief History of the 21st Century," not at all surprisingly won the inaugural Goldman Sachs/Financial Times Business Book of the Year award, can only be compared to that other New York Times columnist who will go down with the debt-leaking titanic, kicking and screaming, that no matter the impending global default, he is right. And as the premise of globalization goes through its own death rattle, just like the ridiculous Keynesian notion that only more debt can save us from record debt, globalization's biggest advocate is monetizing his last remaining ounces of credibility. Below, we present Fora TV's recently released Asia Society interview with Friedman who discusses at length his view on the parallels and differences between China and the US. Note: absolutely nothing of significance will be learned in this presentation, which is merely a rehash of stale, faulty and thoroughly discredited assumptions yet it is a good starting point to learn about all that is flawed in the prevailing view of how the two countries are supposed to coexist in the future. In other words: take verything Friemdna says and flip it 180 degress, and you will be on the right path.

The number of Americans filing first-time claims for unemployment insurance payments fell 37,000 in the week ended Jan. 15, the biggest decline since February 2010, to 404,000, figures from the Labor Department showed today. The four-week moving average dropped to 411,750 from 415,750. While the trend in claims is no doubt headed in the correct direction, it is important to stress that the current level of initial unemployment claims is still above the trailing 10 year average of 396,486. That fact is amazing given the massive number of layoffs which occurred during the last 3 years. So layoffs are still above trend and hiring is below trend. Those are the facts.

The schizophrenia at Goldman continues. After one part of the FX trading desk told clients last week to chase the EURUSD up to a 1.37 stop limit, in John Noyce's most recent update on his EURUSD views he notes: "The ST structure is not particularly clear, but we are certainly uncomfortable chasing the recent bounce and are watching for signs of the market again peaking/turning to the downside." Uh... So one part of Goldman says to chase the EUR, while another part says it is not comfortable chasing it. Well, win win. Too bad the rest of us don't have access to the discount window and if all that 5,000x margin does not work out our way, we can't go running to our former co-worker Bill Dudley (not to mention our subordinate Brian Sack who personally came over to us and introduce himself) and demand another bail out.

One of the hottest topics over the past two weeks in Europe has been whether or not the EFSF, or the multi-billion, AAA-rated synthetic CDO that is affectionately called the "rescue fund" (and which we are confident Goldman is somehow betting against as we type), should be allowed to buy back debt of insolvent countries trading at less than par (obviously). Allowing this process to go ahead is nothing less than a wholesale ponzi pyramid, whereby everyone chips in to make everyone that little richer, while in reality the fundamental problem remains, and the only thing achieved is eliminating the need to have a market interest for any country's sovereign debt (something Portugal recently did when it placed a billion or so in debt with China), and completely eliminating market discovery. And while Germany has, as usual, been very much against this proposal, which it sees as one step short of a federal Euro debt issuance authority, it will sooner or later have to cave in to the chorus of demands by everyone who is insolvent, if it wants to keep the Euro, which it does since it is the European equivalent of the Dollar-Yuan peg, and keeps the country's export strength supremacy to the rest of the continent. To that point, earlier today, Eurogroup Chief Jean-Claude Juncker told Spiegel that European leaders should not shy away from a proposal to buy back the bonds of troubled euro member states but should not rely too much on rich countries. "It would be wrong to create taboos but we cannot overstretch the strong countries," Juncker said in an interview with German magazine Der Spiegel seen by Reuters on Saturday ahead of publication. We wonder who they should rely on then: why themselves of course - let everyone chip in a little so they can grab from the rescue fund with both hands, all the while pretending this is a fair and equitable treatment.

The first casualty of the great Irish "pension funded banker bail out" is the man responsible, Brian Cowen, himself. The Taoiseach has stepped down as the Fianna Fáil party leader, but says he will continue to remain in office as Taoiseach. According to The Journal, "Speaking at a 2pm press conference, Cowen began his announcement in
Irish, saying he was proud to have been elected party leader in April
2008. He said at that time, he saw the role the party had in the
development and growth of the country, but now he believes Fianna Fáil’s
role in the public is in doubt. He said that he understood the membership of Fianna Fáil is concerned
about the party’s prospects on 11 March and he believes the focus
should be on the policies each party is offering." In other words: the Olli Rehn protectorate now is leaderless two months ahead of a key election that may well overturn the recent bailout of the country's senior debtholders. Which of course ties in rather well with our theory that in April and May there may well be an "unexpected event" to quote Fed's Plosser, which will serve as the springboard for the QE2+ extension. And since this year has been a complete rerun of 2010 so far, we expect the source of such market "contagion" to naturally be in Europe once again.

The plan is to theorize a process that is the product of two underlying processes: one that describes the time evolution of the fundamentals of a name, and an accompanying one that describes the time evolution of trading momentum of a name. This price process states the problem in terms of potential theory, which interplays with probabilistic models. At the same time it avoids overplayed assumptions that plague conventional probability modeling. Also, for exposition purposes, potential theory is more efficient and less hellacious in notation.