Archive - Dec 2012 - Story

It seems a few humans have read a little this weekend and sold into the algo-induced euphoria from Friday's close. S&P 500 futures are down around 9 points - at the lows from Friday's day-session. EUR is bleeding modestly and JPY is weakening as equities appear to be recoupling with FX as a risk-driver (following EUR's dislocation two weeks ago). Cash Treasuries are yet to open but futures infer 2-3bps compression in yields. Much was made of VIX's 'strength' on Friday as some kind of tell; unfortunately misunderstanding is rife and it is evident that hedges were in fact rolled out into January (rather than lifted in any bullish manner). So far stocks are pushing back down to recouple with VIX's view of the world. Silver is flat at $30, Gold and Oil down a little. 6 more hours til Europe opens.

We recently posted Kyle Bass’s keynote speech at the Americatalyst 2012 conference. One of the main threads running through his thesis is the “Keynesian Endpoint”; covering debt super-cycles, the Federal Reserve’s inability to move rates from 0% and the (unintuitive) interconnectedness of sovereign default and hyperinflation. By way of clarification to global Ponzi we discussed earlier, Addogram has created an excellent infographic plotting the development of these ideas and mechanisms from 1792 to the present day.

A Cassandra is a hopelessly honest person, while a Pollyanna is an incredibly hopeful person, the incurable optimist. Cassandras are often disparaged as "nattering nabobs of negativism/negativity," instead of being looked upon as prophetic realists, while Pollyannas are deservedly dismissed as the "pandering puppies of positivity/positivism." To wit, this wondrously self-satirical clip pitting Marc Faber's doom-and-gloom reality with Becky Quick's boom-and-boom status quo.

The developed world’s Ponzi scheme is caused by record-high levels of public and private debt. As Boston Consulting Group notes, it is exacerbated by huge unfunded liabilities that will be impossible to pay off owing to long-term changes in developed-world demographics. Addressing these challenges at any time would be difficult. To make matters even worse, however, BCG points out that they come at a moment when the developed world’s traditional model of economic growth appears to be broken. This is partly a consequence of the Ponzi scheme itself. The underlying issues cannot be ignored any longer. The developed world faces a day of reckoning. It is time to act. In this excellent layman's guide to the the real world, not only does BCG explain the Ponzi, but they lay out ten critical steps that developed economies must take to definitively end the era of Ponzi finance. Some are sacrifices required of various stakeholders. Others are new social investments, both public and private, that are needed in order to return to a sustainable growth path.

There are, according to USA Today, 364 items that need to be purchased to create the ultimate gift basket from the epic holiday song "The 12 Days of Christmas". Based on PNC Wealth's Christmas Price index, the cost of this basket is $107,300 in 2012 (up 6.1% year-over-year). Since 2001, when the Fed embarked upon its uber-expansionary monetary policy experiments, the cost of Christmas has risen over 40% faster than the Government's prescribed CPI (and if we use a different cost-base, since 2006, the cost of Christmas has risen 46% per year on average). And on an even more Bah! Humbug note, there is the important economic question of the Deadweight Loss of Christmas - i.e. gift-giving means consumption choices are made by someone other than the final consumer, with potentially sub-optimal micro-economic effects such as a mismatch with the recipient's preferences. This wonderfully positive report finds that between 10% and 33% of the value of gifts 'given' is destroyed through this inefficiency (with cash - or gold - the least impacted?). Happy Holidays, everyone!

The slew of economic releases over the last couple of days have all had two things in common:  1) the data has been markedly improved which has given a silver lining to the economic storm clouds we have witnessed over the last several months; and 2) the fingerprint of Hurricane Sandy has been very visible.  This is not a surprise. The question that needs to be addressed, however, is whether these surges are sustainable in the months ahead?

Forget Facebook; Bob Pisani would be cock-a-hoop. Imagine the euphoria and excitement from a Fed IPO? What better way for the rich to get even richer than to buy shares in the world's most profitable hedge fund. And for those saying this is preposterous and that central banks should never trade publicly we bring you exhibit A: The Bank of Japan

From Gas Prices to Food Stamps; from 'Bulk Ammo' to Consumer Confidence; and from Earnings to Economic Data, these 12 charts of the 12 months of 2012 are definitely Not Jim Cramer's.

2013, which is still a week away, is already off to a 'crazy pills' bang. Because while the bulk of the politipunditry is shocked, shocked, that it was dead wrong about the Cliff outcome which is now set to ram the country front and center on January 1, the most amusement appears to be emanating from the land of the rising sun, where the brand new PM just issued an ultimatum to the central bank, which can be summarized as follows: stop being independent, or we will change the laws and take away your independence.

Yesterday, the man planted by Goldman to be Italy's unelected leader in November 2011, officially stepped down and shortly thereafter his government was dissolved in advance of the February 25, 2013 elections. Yet Monti, under whose helm Italy has been in deep recession since the middle of last year, where consumer spending is falling at its fastest rate since World War Two and unemployment has risen to a record high above 11 percent, and whose candidacy is vastly unpopular with the Italian population, moments ago generously offered to continue being Italy's unelected leader: just the way Europe's political masterclass and its central bankers want it, if not so much Italy's people.

The collapse of the Fiscal Cliff talks should come as no surprise to anyone (except, of course, for all those "expert" political commentators virtually all of whom saw a deal by December 31: a full list of names is forthcoming). The reason: a simple one - a House torn, polarized to a record extreme, and a political environment in which the two parties, in the aftermath of a presidential election humiliating to the GOP, reached unseen before antagonism toward each other. In this context, it was absolutely inevitable that America would see a replica of last summer's debt ceiling collapse, which mandated a market intervention, in the form of a crash, and the wipeout of hundreds of billions in wealth - sadly the only catalyst that both parties and their electorate, understand. We had prefaced this explicitly in early November when we said that "the lame duck congress will posture, prance and pout. And it is a certainty that in the [time] remaining it will get nothing done. Which means, that once again, it will be up to the market, just like last August, just like October of 2008, to implode and to shock Congress into awakening and coming up with a compromise of sorts." Which of course brought us to Thursday night's mini-TARP moment. With all that said, there are those forensic detectives who are addicted to every single political twist and turn, and who are curious just where and when the Fiscal Cliff talks broke down in the past week. In this regard, the WSJ provides a useful timeline.

Leaving the highly sensitive topic of "gun-control" aside for the time being, one can't help but wonder if it isn't time that the US government, seemingly hell-bent on regulating virtually everything in its quest to prove (to itself?) that America's population can no longer be trusted with making any responsible decisions on it own (and in the process becoming even bigger), shouldn't be more focused on "fat-control" instead. Why? Because while guns may or may not kill people, the bottom line is that of the 32K or so death attributed to firearms, roughly 20K, or two thirds were suicides, meaning firearm-based homicides were 11,015 in 2010. Putting this number in perspective, every year some 935,000 Americans suffer a heart attack, and 600,000 people die from some form heart disease: 1 in every 4 deaths. Net result to society: the cost of coronary heart disease borne by everyone is $108.9 billion each year. And of all proximal factors contributing to heart disease, obesity and overweight is the main one. But of course one can't make a media spectacle out of 600,000 hospital wards where people quietly pass away, in many cases due to a lifetime of ill decisions relating primarily to food consumption. In fact, some estimate that obesity now accounts for one fifth of the total US health-care bill (the part of the budget which no amount of tax increase can offset). Which is why if the topic of gun-control has managed to promptly tear the country into two (or three, or more), just wait until fat-control (far more than the recent tepid overtures into this field such as Bloomberg's NYC sugary soda ban) rears its ugly head and sends the already polarized (and weaponized) US society into a state of agitated hyperflux.

First it was Citi, then SocGen, now a third key investor has decided to pull their money from SAC - the once vaunted hedge fund which now everyone is now avoiding like the plague, and for which the only question now is "when" - when will Stevie close down shop, and will this happen before or after the paddywagons finally arrive  at 72 Cummings Point road. The WSJ reports: "Titan Advisors LLC recently told clients that it had decided to withdraw its entire investment from SAC, said clients who received phone calls from Titan.  "They've told us they still think SAC is a good firm but Titan doesn't need the headline risk, and we sure don't," said Tom Taneyhill, executive director of the Fire & Police Employees' Retirement System of the City of Baltimore, on Friday.  Société Générale SA, which has client money in SAC through its Lyxor asset-management arm, also decided to pull its money from SAC, The Wall Street Journal reported earlier this month. At the time, an SAC spokesman declined to comment. Titan's departure is significant given SAC's long-standing relationship with one of Titan's founders. Titan co-founder George Fox began investing in SAC in the mid-90s, several years after Mr. Cohen started what became the firm in 1992."

Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).

How casually, how frighteningly, The risks are now dismissed. Spain’s fall to junk, Greek exit, The looming fiscal cliff. For recent years do demonstrate, The power of QE.What matters sovereign solvency, When you have OMT?