Archive - Aug 25, 2012 - Story

The link between nominal interest rates, inflation breakevens, and stocks has changed; especially with regard the last few years' seemingly increased dependence on the Central Bank to keep an anti-deflationary floor on breakevens (or conversely the Bernanke Put under stocks). UBS' macro team, while humbly professing not to be experts in corporate earnings (which have been dismal) or balance sheet ratios (which are positive but have deteriorated in recent months) believe in a big picture macro perspective that we have been vociferously commenting on for a year or two now. Specifically, they have noticed a potentially curious link between the way the market interpreted monetary policy signals and the large cap stocks in the US: the breakeven inflation rate on 10yr TIPS has tracked the S&P 500 very closely this year. When the Fed is perceived to be successful in stimulating the economy, stocks benefit and breakevens also rise. When the Fed’s potency is called into question, stocks fade and breakevens decline. As official policy rates remain frozen near zero (and remain so for the foreseeable futures), nominal Treasury rates have lost their 'signal' as UBS agrees with the point we have been making for a long time: central bankers and politicians, not economic fundamentals and inflation expectations, currently drive the nominal rate and equity markets.

"If you’re rich you get a bailout. If you’re poor you get a handout. And if you’re middle class you get left out." That's not a sustainable way to run the system, exclaims investment strategist Keith Fitz-Gerald. A cancer at the core of our current economy is the magical thinking, "no pain, all gain" philosophy, pursued by those running it. They are doing all they can to remove the consequences of failure from the system -- blind to failure's essential 'waste-clearing' function in a healthy free market. Without the discipline of Darwinism, the individual actors in the system make all sorts of malinvestments that would never make sense in an efficient marketplace. But since the losses from these inane pursuits are socialized, there's no incentive to stop making them. At least, up until the point where the class whose back is burdened with paying for the socialized messes finally breaks.

We have desperately tried to explain the sheer idiocy of the circular argument of the Fed 'attemping' to stimulate fiscal policy by enacting an overly permissive monetary policy, having failed miserably time after time. Perhaps the 'simplistic' argumentation of Diapason's Sean Corrigan will succeed where we have failed (although we are not holding our breath) as ne hotes, in true Orwellian fashion that 'Weakness is Strength' and "Once bailed out, always bailed out seems to be the guiding inference. Meantime, close your eyes and pray."

China has two problems... well more than two we are sure, but these seem critical. The combination of a slowing (and seemingly unstoppable) economic trajectory with significant negative money-flows is becoming a vicious circle - that the PBOC is increasingly unable (or politically incapable) to 'fix'.

While Belize is comfortable buggering bondholders, the Greeks (following this morning's headlines) remain beholden to their euro-zone overlords - having survived a few more months on the back of reach-around 'bailouts' and ponzi-financing - all in the effort of providing more time for the 'rest of Europe' to figure out how to handle the 'Athens moment' that is surely coming. With September and October critical 'event-rich' months, Patrick Young, of DV Advisors, provides the clearest and least 'rose-tinted' perspective on where Greece has been, where they are now, and where this will all end. From the forged application for euro-zone membership to Oz-like fantasies of growth and austerity targets that remain pipe-dreams (and are constantly being missed), the bold Irishman in this brief clip explains "Greece has not done anything to really help itself, missed every deadline its been given" and the PM's comments on their 'spectacular come-back' clarifies the 'utter delusion' among the Greek political class because "Greece is bankrupt; full stop; game over" and Merkel must agree to 'let' Greece leave the Euro (post Troika) - as the rise of civil unrest, since whatever new money flows their way exits right out the back door and never 'helps' the people, is inevitable.

Update: Yes it was - Police: All Empire State shooting victims were wounded by officers

The official media-friendly narrative explaining yesterday's latest tragic shooting incident in midtown Manhattan in which a recently unemployed Jeffrey Johnson, 58, walked up to his former boss and shot him three times point blank before "calmly" walking away, is that Johnson also shot 9 other people, luckily none fatally, before being taken down by the NYPD. Sadly, as so often happens these days, the "media-friendly" narrative is wrong, and as CBS and Guardian report, Johnson did not fire during the quote unquote shootout, in which at least nine other perfectly innocent were hit, all of them by stray NYPD bullets.

Goldman's David Kostin has just released a whopper of a 72-page script for the latest episode of the "El Muerte De Muppet" telenovella in the form of a comprehensive report titled "Where to invest now - Cliff Notes". And since the qualifier is obviously a reference to the fiscal cliff which Congress will continue to ignore as long as the market is at or near 2012 highs courtesy of Ben Bernanke's politicized promises of massive easing on any market downtick, thus providing zero impetus for any proactive legislation that resolves the imminent GDP collapse, one can provide a not so rhetorical answer to Goldman's rhetorical question: "nowhere" (if one is limited to investing in paper-based pyramid schemes of course in which the "catalyst" is not hope and prayer for more printing or the emergence of a greater fool).