Archive - 2012 - Story

Well that did not take long. T+2 days from his re-election, Shinzo Abe has summarily unbudgeted himself. As Kyodo News reports, the sphincterially-challenged wild-man has decided to scrap the country's spending cap for the annual budget. Previously capped at a measly JPY71 trillion (excluding debt-servicing costs) in an effort to create some pretense of fiscal discipline, the new Keynesian has unilaterally decided that moar is better. Not exactly helping, though perhaps exactly what the currency-war-inflaming Abe might like, the trade balance plunged yet again (to -JPY953bn from -JPY540bn) from  - setting a new all-time record negative average as the implicit capital flight continues. JPY weakness has resumed but it is the collapse in JGBs that will be worrying people - the biggest 5-day run-up in 10Y JGB yields in over 13 months.

Reminding the world of just the kind of truthiness that got him sacked originally by that other Italian, the Ex-Goldmanite Mario Draghi, back in November 2011, and which the world has to look forward to when Silvio Berlusconi returns to power some time in 2013, even if not as PM (a position he currently has a snowball's chance in hell of regaining based on current political polls), Reuters informs us that the Italian, who certainly has not read the Goldman book on status quo perpetuation, just said the unimaginable: the truth. To wit: "If Germany doesn't accept that the ECB must be a real central bank, if interest rates don't come down, we will be forced to leave the euro and return to our own currency in order to be competitive." Berlusconi said in comments reported by Italian news agencies Ansa and Agi. The 76-year-old media tycoon has made similar remarks in the past about the possibility of Italy, or even Germany, leaving the euro, but has often at least partially rectified them later." Not this time. Now with Germany and the Buba folding like a broken chair, Silvio is coming back and knows he can demand anything and everything, and Germany has no choice but to accept, Merkel reelection in a few months be damned.

There is one chart that everyone should see that is part of Reuters' must read special series: The Unequal State of America: Redistributing Up - it is the chart we have said over the past 4 years is the only one that matters for America - that showing the flattening of America's wealth distributon Gaussian curve, aka the plunder and accelerating destruction of America's middle class, at the expense of the poorest and the wealthiest. This is nothing but the inevitable outcome of a co-opted, conflicted and controlled marionette government, which does the bidding of the wealthiest lobby powers (read corporate shareholders and Wall Street), partitioning the bulk of the wealth to the richest, while sending the scraps to the poorest in order to keep itself in power due to the power of the ever poorer, democratic majority. Alas, since there is never a free lunch, and since the Fed does not create wealth but through its currency debasement merely accelerates the transfer of wealth, someone ends up footing the bill? Who? None other than that part of the US population which made the United States of America the greatest country in the world, and is now watching it implode first slowly, then fast.

Just over a year ago:

• METLIFE SAYS `NO MATERIAL EXPOSURE' TO GREECE - BBG

Just over a few seconds ago:

• METLIFE SAYS `NO MATERIAL EXPOSURE' TO GUN MANUFACTURERS - BBG

How the times change. Does this mean that the ECB now accepts 44 caliber hollow points as Tier 1 collateral?

Update: in what may be a death knell for Instagram, National Geographic just announced it would stop posting images to Instagram.

A day after an epic backlash to what many understood was a change in Instagram's TOS, which would see users vacate property and ownership rights over their photos shared on the popular social network - a concept clearly spelled out - and hand these over to Facebook (which recently acquired the Photoshop filters at the backbone of Instagram's business model for an ungodly amount), leading to a furious and perfectly expected exodus of users closing their Instagram accounts, here is the company's panicked response, in which it explains it did not mean what it meant. To wit:"To be clear: it is not our intention to sell your photos." What about selling photos accidentally? Which explains the legalese, because while it may not be "our intention", it is no longer expressly prohibited, is it?

While parts of the world experience economic hardship, a team of Portuguese, UK, Japanese, Italian and Dutch astronomers has found an even bigger slump happening on a cosmic scale. In the largest ever study of its kind, the international team of astronomers has established that the rate of formation of new stars in the Universe is now only 1/30th of its peak and that this decline is only set to continue. The team, led by David Sobral of the University of Leiden in the Netherlands, publish their results in the journal Monthly Notices of the Royal Astronomical Society… Dr Sobral comments: “You might say that the universe has been suffering from a long, serious “crisis”: cosmic GDP output is now only 3% of what it used to be at the peak in star production!”

To understand the reasons why our financial system, our economy and our present policies are unsustainable, we need to come to grips with two simple truths. First, the economy and government are an interconnected system. As such the party attempting to steer it does not have controlling power over it. The second fact is that “faster, better, cheaper” always wins, replacing the inefficient and unsustainable. This is the reality within which the system operates. The present foundation of the system, and our economy, is Financialization. This is not by design but rather by Darwinian evolution. It has unfortunately, become the basic engine of consumer growth through its' leveraging of collateral into debt and phantom assets, such as derivatives and bubble valuations. The limiting fact to this system is that ever-rising debt and leverage is unsustainable, once household assets and incomes stop rising.

Our biggest concern here on the cusp of 2013 is the current odd combination of extreme complacency about the risks presented by extend-and-pretend macro policy making and rapidly accelerating social tensions that could threaten political and eventually financial market stability. Before everyone labels us ‘doomers’ and pessimists, let us point out that, economically, we already have wartime financial conditions: the debt burden and fiscal deficits of the western world are at levels not seen since the end of World War II. We may not be fighting in the trenches, but we may soon be fighting in the streets. To continue with the current extend-and-pretend policies is to continue to disenfranchise wide swaths of our population - particularly the young - those who will be taking care of us as we are entering our doddering old age. We would not blame them if they felt a bit less than generous. The macro economy has no ammunition left for improving sentiment. We are all reduced to praying for a better day tomorrow, as we realise that the current macro policies are like pushing on a string because there is no true price discovery in the market anymore. We have all been reduced to a bunch of central bank watchers, only ever looking for the next liquidity fix, like some kind of horde of heroin addicts. We have a pro forma capitalism with de facto market totalitarianism. Can we have our free markets back please?

As so often happens when dealing with the fickle public, the aftermath of the news of the second worst school massacre in US history has led to precisely the opposite outcome to the one desired by the media and at least part of the general population. Because in the backlash for gun control at its tamest, and against weapon ownership of any kind at its most rabid, driven primarily by those who don't own weapons, everyone else decided to think one step ahead and preempt what may soon be yet another governmental subjugation of a constitutional amendment. The result? An absolute surge in weapon sales in the days following last Friday's tragedy.

The recent surge in Direct Bidder records continues, and in the aftermath of yesterday's 2 Year which saw a record low Indirect takedown, the historic surge in the Direct award in today's 5 Year was almost anticlimactic. The auction in broad strokes: Treasury sold $35 billion in 5 year bonds at a yield of 0.769%, just wide of the When Issued of 0.765%, and at a 2.72 Bid to Cover, not tragic, but well below the TTM average of 2.88, and as the chart below shows, it appear that an inflection point in the BTC for the series life was hit about a year ago, and the interest in the bonds is now declining. The internals were ugly: the Indirect take down was a low 32.4%, with a huge Hit Rate of 89.8% based on a $11.3 billion award out of $12.6 billion in offeres tendered. This was the lowest Indirect take down since November 2010. Primary Dealers were awarded 37.2%, the lowest since April 2010, which logically meant that Directs have to take up the slack, and sure enough they did, with an award of 30.%, the highest on record. Is there some major shift in the underlying dynamics for US paper based on these recent results? You bet. What is said shift? We hope to find out soon enough.

Since the beginning of December, the Russell 2000's most-shorted index has outperformed the Russell 2000 by a magnicently squeezed 500bps! How much longer can it last? No idea but once again the worst becomes first in this topsy-turvy market.

Over two years ago, while scouring through TheStreet.com's filing we stumbled upon something interesting: "As a result of the need for the Company and its independent registered public accounting firm to focus attention on matters related to the Company's previously-announced review of the accounting in its former Promotions.com subsidiary, which subsidiary the Company sold in December 2009 -- including matters related to the preparation and filing by the Company in February 2010 of a Form 10-K/A for the year ended December 31, 2008, a Form 10-Q/A for the quarter ended March 31, 2009 and Forms 10-Q for the quarters ended June 30, 2009 and September 30, 2009, respectively, and matters related to an investigation commenced by Securities and Exchange Commission in March 2010 -- the Company requires additional time  to prepare its financial statements, assess its internal controls and file its Form 10-K for the year ended December 31, 2009 ("2009 Form 10-K")." Oops. We can't wait to see how Mr. Cramer will explain to the Mad Money faithful this particular twist on the hangover of the show's five year birthday bash. Also, we wonder if CNBC will finally cancel the ludicrous Jim "truth" Cramer campaign once this news breaks. We doubt it- in the quest for evaporating eyeballs, all is fair." This was in April 2010. Today, we got resolution on the matter, as the SEC finally has put the matter to close.

Across many of the desks we hear from there is a distinct feeling of incredulity at the moves in the last week or two. Bullish or bearish, it seems the velocity and scale of the runaway moves after every utterance from D.C. has wrong-footed many across every asset class. However, one thing remains constant, a very strange case of deja vu all over again with last year's market and macro-economic behavior. The following two charts are showing spooky similarities between this year's 'fiscal cliff' hopes and fears and last year's 'debt ceiling' ecstasy and anxiety. Perhaps it will be useful to all those claiming that the market efficiently predicts a resolution - it might be useful to temper that enthusiasm given the moves we saw last year and the market's clear ignorance.

Credit expansion, wrote the great Austrian economist Ludwig von Mises, is not a nostrum to make people happy. "The boom it engenders must inevitably lead to a debacle and unhappiness." That seems a pretty accurate summary of the current situation for the western economies: a debacle, and unhappiness. Von Mises also wrote that "The final outcome of the credit expansion is general impoverishment." And, "What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom is built on the sands of banknotes and deposits. It must collapse." It seems to us that we may be fast approaching the tail end of a 40-year experiment in money. The conventional financial media continue to keep central bankers on their pedestal; such thinking is astounding for the rest of us who know the Emperor's new clothes when we see them.

Several days ago, various media outlets misinterpreted a statement out of Russia, in which it was said that Assad may be defeated by the local Al Qaeda-funded and US-supported rebels, and which many took as an indication that the geopolitics in the Middle East may be shifting as Russian support of Syria was ending. Turns out nothing could be further from the truth, and moments ago the AP reports that a "Russian navy squadron has set off for the Mediterranean" with destination Syria. The official point of the exercise: evacuation. The unofficial: anything but. "The Defense Ministry said Tuesday that the ships will rotate with those that have been in the area since November. Russian diplomats said last week that Moscow is preparing plans to evacuate thousands of Russians from Syria if necessary. The ministry did not say whether the navy ships are intended for an evacuation." Remember that "evacuation" was the pretext when Russia also sent the Grand Missile Cruiser Moskva off the Gaza coast last month at the height of the latest escalation of the Israel-Gaza conflict. The pretext then? "Evacuation" too. Why anyone would send their Black Sea Navy flag ship to 'evacuate' a few hundred citizens, all of whom are perfectly proficient with instructions on how to board a plane, is of course, anyone guess.