Archive - Oct 15, 2011 - Story

The #OccupyWallStreet crowd has shifted over to the heart of tourist New York (where no actual New Yorker has set foot.. probably ever) - Times Square. Follow the action live with this convenient live feed.

Not saying anything, but wink wink nudge nudge. Because you know when dealers need to hedge massive cash exposure in suddenly mispriced commercial real estate (oh, look, it's a Chinese fighter jet, it's the stock price of Morgan Stanley, it's a REIT)  the one place they all go to next is... And there is nothing like some concerted selling in a brand spanking new product in which the entire dealer community is long.

Over the past two weeks, there is one simple thing that has been bugging skeptical macro observers: namely the paradox of i) just how ugly the European funding and liquidity situations have gotten, on the one hand, confirmed by the blow out in French bond yields (the French-Bund 10 year spread just hit an all time record yesterday) as well as continuing deterioration in credit spreads across core European nations, yet, on the other, ii) the euro, especially in that critical pair the EURUSD, has seen one of its most explosive rises in recent history, which as Zero Hedge pointed out yesterday, has totally decorrelated with the French-Bund spread, to which it had been firmly 'pegged' previously. As a result of ii), equity markets have surged due to legacy correlation arbs, which see Euro strength, and hence dollar weakness, as an empirical signal of equity "cheapness", which in turn leads all algos to treat a rise in the EURUSD as a buying signal. So how is it that even with the interbank liquidity situation in Europe frozen and getting worse, further keeping in mind that European banks are now expected to (or have already commenced - see yesterday's move in PrimeX) engage in widespread asset liquidations, that broad market risk is perceived as cheap? Simple. As the following note by Deutsche Bank's Alan Ruskin explains, the sole reason for the EUR (and hence S&P and global 100% correlated equity risk) surge in the past 9 days is not driven by any latent "optimism" that Europe will fix itself, but simply due to the previously discussed wholesale asset liquidations (as none other than the FT already noted), which on the margin are explicitly EUR positive due to FX repatriation, courtesy of the post-sale conversion of USDs to EURs. Which means that the ever so gullible equity market has just experienced one of the biggest headfakes in history, and has misinterpreted a pervasive European, though mostly French, scramble to procure liquidity at any cost by dumping various USD-denominated assets, as a risk on signal!

When it comes to economics, our ridicule of the underpinnings of the dismal voodoo science are well known. Only Ivy league professors can profess to predict the future based on special case equations that isolate a system in vacuum, completely oblivious of the fact that nothing in the world is linear and if anything, a system based on Lorenz attractors and Mandelbrott theory would be far better suited to demonstrate that as far as predicting the future is concerned, it is nothing short of an exercise in futility. That said, we do appreciate the work of those economists who are first to admit not only their own limitations but the limits of the art, not science, that they engage in. Chief among them is Australian Steve Keen, whose work and analysis we always enjoy. For those unfamiliar with Keen, we have attached the following just released interview with Ross Ashcroft of The Renegade Economist in which he deconstructs the failings of contemporary interpretations of Keynesianism (in essence the usurpation of theory by those in power to perpetuate their own greedy practical pursuits), and exposes the core of neoclassical economics that guide every day macroeconomics for the sham it is: "fundamentally neoclassical economists are the priests of Capitalism, but the priests don't necessarily know there is god. They have this model of god and ditto with neoclassical economics: they have a model of capitalism which is almost but not quite, completely unlike actual capitalism. And they don't even realize that they have erected a smokescreen behind which if people want to rip the system off, then there is plenty of avenues created by these guys." Just a thought, but perhaps it is time for #OccupyWallStreet to pay a visit and #OccupyNYUEconomicsDepartment...

As talk about an actual restructuring of Greek debt increases, the EU continues to think avoiding a CDS Credit Event is a good thing. More and more stories and leaks indicate that a real restructuring of Greek debt is on the table, with write-offs of as much as 50%. Whether it will be real, permanent reductions in principle this time, or some other form of principle protected rollover with a subjective NPV calculation like the 21% haircut, remains to be seen. In any case, the EU continues to head down the path of bending over backwards to avoid trigger a CDS Credit Event. They are wrong to be avoiding a Credit Event on the Hellenic Republic. If they are really pushing for a true restructuring where banks and insurance companies are for all intents and purposes forced to accept a big haircut, they should want to trigger a CDS Credit Event. They are allegedly avoiding a credit event because it “could unleash a cascade of losses” according to a bloomberg article. That just makes no sense. It also seems that pride plays a role as the EU doesn’t want to be impacted by the stigma of a default – a 50% write-off is even, but they don’t want to be called defaulters. That is plain silly. They also seem to want to punish speculators, and this is where they really have it wrong, not only are few hedge funds short Greece via CDS at this time, the problems this creates for bank risk management desks is big and will have long term negative consequences for sovereign debt demand.

Two months ago we suggested that as part of the transition of austerity's center from Greece to Rome, we would soon see the launch of "The Piazza Navona Strike Cam." Close enough: as of this afternoon local time, Rome is literally burning, as expected yesterday when we covered the most recent events in Milan. From the Telegraph: "Demonstrators in Rome set fire to two cars and broke shop windows during a protest in the Italian capital, as activists organised a series of rallies in 82 countries. Inspired by the Occupy Wall St movement and Spain's "Indignants", demonstrators from Asia to Europe took to the streets. Riot police in Rome charged hundreds of protesters and fired water cannons, while a group of activists set alight a defence ministry annex nearby. Flames could be seen coming out of the roof and windows of the building on Via Labicana as firefighters struggled to tame the blaze. Dozens of masked protesters could be seen in the area, which had not been cordoned off. The violence was said to be caused by hooded militants known as "black blocks," who have infiltrated demonstrations in the past. There were no immediate reports of injuries. Television images showed one of the cars in flames and spewing thick black smoke over the route of the demonstration, which was otherwise peaceful." Whether due to a subversive group, or representative or broader pent up anger, increasingly more people are waking up to the fact that the current system does not work and needs a reset. Alas, for the "resistance movement" to be truly effective, things will have to deteriorate far more, and the welfare state structure will have to be truly on its last breath. As long as the status quo can dangle promises of (completely insolvent) pension benefits and retirmenet plans to the 99%, all of "this" is mostly for show.

Through the ages, nations and cultures of spectacular proportion and prominence have risen to prosperity, and fallen to chaos, on very particular and fundamental principles. In some cases, these great and terrible declines have taken centuries to culminate (as was the story of the Roman Empire), and only a few years in others (the Soviet Union comes to mind). In every example of societal destabilization, however, there were many signs of danger long before the final plunge; some unique to each particular culture, and some common to all. One of the most enduring and frightening similarities between crumbling nations is an overwhelming belief amongst the people that they have somehow “advanced” beyond the need for concern. Each self-destructing society presumed itself invincible. Each country thought itself the pinnacle of human potential, only to discover yet again that in abandoning or subverting the principles of freedom, and the bedrock pillars of conscience, reason, and wisdom, they had become merely another footnote in a long marathon of footnotes. Ultimately, the vast and sordid history of collapse could be summarized simply as a series of breaking points; moments at which opposing ideals and forces hyperextend the prevailing mechanics of a system, changing it entirely.

The most concise summary of bullish and bearish events in the past week and commentary