Archive - Oct 2012 - Story

It was only yesterday that we pointed out the ever decreasing halflives of central bank interventions. We are grateful that none other than the biggest intervention basket case of all came out and proved us 100% correct, when the BOJ announced none other than QE 9 just one month after the impact from QE 8 fizzled about 8 hours after it was disclosed. This time around, the destructive "benefit" to the JPY was negative from the first second, resulting in the first instance of monetary easing that.. wasn't. Japan just came up with a brand new New Normal concept: tightening through easing, when its ¥11 trillion intervention proved to be woefully insufficient for a market addicted to ever more liquidity injections.

With the stock markets of the "developed world" in limbo for the second straight day and leaderless as New York is paralyzed, and the US was set to be closed for a second straight day, and with futures tumbling to their lowest level in over 2 months overnight, it was time for the East to step up. And step up it did! First, it was China's turn, which while still refusing to ease outright, conducted a massive 395 billion yuan reverse repo - this operation is the biggest on record, according to Bloomberg data going back to 2004, which in turn sent China's seven-day Repo rate plunging the most since January. And because this whopping injection would prove to be promptly internalized, a few short hours later Japan followed with nothing less than QE9! Just around 2 am eastern, the BOJ announced the 9th installment in its neverending monetary farce, when it said it would proceed to monetize an additional Y11 trillion in assets. From BusinessWeek: "The BOJ expanded its asset-purchase program by 11 trillion yen ($138 billion) to 66 trillion yen, the central bank said after a policy meeting today. The range of forecasts in a Bloomberg survey was from 10 trillion yen to 20 trillion yen." Of course, in this bizarro world in which intervention is the only thing left, the latest Japanese QE had an immediate and opposite effect of that planned, sending the USDJPY lower the second it was announced, as the amount announced was disappointing to most who had expected even more easing, and the halflife was for the first time in recorded monetary intervention history, absolute zero! But at least this failed intervention for Japan, helped America, sending ES from 1393, a full 13 ticks higher, where they are now. And so the epic defense of 1400 (and 1.2900 in EURUSD) continues for a 5th straight day!

The good news is that no workers are trapped. The bad news is that between the 14th Street transformer explosion and the flooding and damage elsewhere, there are 670,000 people without power and over 230,000 of them are in Manhattan.

*CON ED SAYS UNDERGROUND SUBSTATIONS COULD BE UP IN 3 TO 4 DAYS
*CON ED SAYS IT WILL TAKE LONGER TO REPAIR ABOVE GROUND STATIONS
*CON ED SAYS IT COULD BE UP TO A WEEK FOR POWER RESTORATION
*LARGEST STORM RELATED OUTAGE IN CON ED HISTORY, MIKSAD SAYS

It seems the market - or the collection of pre-programmed heuristic biases that make up the equity investing public (and machines) - is slowly but surely realizing the confidence trick that is the Fed's Quantitative Easing programs. The following chart should clarify - to anyone placing their gambling chips on the hopes of another round of easing from the Fed - why the game is up. To wit, the reverse geometric progression of S&P 500 performance during each Fed action: QE1 +50%, QE2 +30%, Twist +18%, QE3 & Twist +8%... so QE4 +4%, QE5 +2%, and QE6 +1%...

As a reminder, the biggest catastrophe that resulted from last year's Tohoku earthquake in Japan was not the earthquake itself, nor the infrastructure destruction from the susbequent tsunami, but the impact of the soaring water wall on the nuclear power plants in the coastline, namely Fukushima, and its aftermath, by now known all too well to all. So tonight too, all along the east coast, the biggest threat is not the wind, nor the rain, but the impact of the storm surge on the tens of nuclear power plants located in the vicinity of the rapidly rising tide. Such as Oyster Creek in New Jersey which just went on alert due to the surging water level.

Moments ago the Emergency Services were hit with the following disturbing update:

NYC | MANHATTAN | EXPLOSION | FDR DR & E-14 STREET | U/D CMD RPTS EXPLOSION AT THE CON ED PLANT. MULTI-RESCUES UNDERWAY | UEA01

See it happen in real time: fast forward to 3:10 in the clip below to see an underwater power station explode.

Once the surge levees break, the water level just soars and covers everything in a "reverse Titanic" as the following pictures demonstrate:

Plenty of talk has gone into the rising income inequality that America has experienced since the early 1970s. But income is merely a wealth flow, and the truer measure of equality is the distribution of net worth and financial wealth (the wealth stock). The historical change is clear: the bottom 80% have gotten considerably poorer both in financial wealth and in terms of total net worth.

With the unlimited asset purchase announcements by the Fed and ECB recently, the limits of balance sheet expansion will be put to the test. The current levels would have been seen as inconceivable a mere few years ago and now it seems business-as-usual as investors have become heuristically biased away from the remarkable growth. The problem is - central banks are missing inflation targets and credit growth is still declining - need moar easing, forget the consequences.

As we warned earlier - due to the flooding from the storm surge - ConEd has cut power to parts of lower Manhattan:

• *CON EDISON CUT POWER TO PARTS OF LOWER MANHATTAN, SPOKESMAN SAY
• *CON EDISON CUT POWER EAST OF BROADWAY, SOUTH OF WALL ST TO TIP
• *POWER CUT BETWEEN WALL, FRANKFORT, WILLIAMS & EAST RIVER :ED US
• *CON EDISON CUT POWER TO PROTECT LINES FROM HURRICANE FLOODING

'Dark Pools' comes to mind as the financial district is blacked out.

Update: good news: the storm surge is now receding. The water level has to decline by 2-3 feet for the flooding to subside.

Curious how many feet of water the rats in downtown NYC are under right now? The real-time answer is available after the jump below, courtesy of the NOAA and this tide height tracker at New York's Battery.

Nature came, saw, and showed the city that never sleeps and those for whom money is no object in exchange for a penthouse apartment in the very same building, what a true "master of the universe" is. The actual crane collapse clip below...

While hardly the biggest priority for NYC at this time, where rats in downtown New York of all varieties are doing their best to scramble away from the flood and get to higher territory, futures have just resumed trading for the overnight session, only to close before the average retail investor can buy or sell tomorrow at 9:15 am. The first trades indicate a resumption of this morning's weakness, but keep the 1400 support area in mind: if solidly taken out this may be Waterloo for the Fed for this year. And while normally we would expect the futures to get a NY Fed-assisted ramp that would make the TSX last second surge seems like a joke, the just released news from AAPL could well shake the bulls out of their trance, and finally force the world's biggest hedge fund hotel (230 hedge funds long) to puke and take the entire market with it. As we post, S&P 500 futures are sliding to 1397.5 (down over 10 points) - in line with where we noted they would trade at today's 'pretend' market close.

It doesn’t matter how abundant liquid fossil fuels might be; it’s their cost that impacts the economy. Many people think “peak oil” is about the world is “running out of oil." Actually, “peak oil” is about the world running out of cheap, easy-to-get oil. That means fossil fuels might be abundant (supply exceeds demand) for a time but still remain expensive.  We are trained to expect that anything that is abundant will be cheap, but energy is a special case: it can be abundant but costly, because it’s become costly to produce. EROEI (energy returned on energy invested) helps illuminate this point.