Archive - Jan 4, 2013 - Story

Central Planners are trying with all their might to force people into behaviors and financial assets that are in direct contrast to their logic as well as long term financial well being.  This is the height of immorality, not to mention hubris.

“In general [traders/economists] are trained to analyze the economic data, balance sheets and so on. They’re not trained to predict political decisions. These factors have ruled the lives of fund managers in a more significant manner than what used to be over the past 20 or 30 years.”

The paragraph above pretty much sums it up.  There are no markets, there are manipulations.

Ex-Barclays chief 'Austrian' economist Thorsten Polleit provides a few clarifying thoughts on the hyperinflatory endgame (and democracy-crushing impact) of the fiat currency environment. Critically, Polleit notes that fiat currency tends to result in "collective corruption" in societies, and how this then leads to hyperinflation, despite the dangers to society that hyperinflation always brings. Ring some bells? This brief interview (with more detailed article below) stretches from the development of the global fiat currency regimes over the last 40 years to the increasing levels of debt that may (just as Kyle Bass and others have noted) mark the terminal decline of the fiat regime and the self-serving majority electing themselves into a vicious circle. Mises noted:

"The masses... do not conceive any ideas, sound or unsound. They only choose between the ideologies developed by the intellectual leaders of mankind. But their choice is final and determines the course of events. If they prefer bad doctrines, nothing can prevent disaster." If these "uncommon men" become "court intellectuals," the door will be opened for effectively spreading of false theories, supporting government-friendly ideas."

Must watch.

While prosecuting the wrongdoers is clearly not part of the new normal (see Sokol et al.), what Nanex found this morning beggars belief - both in its method of manipulation and clarity that our regulators are clueless. As they note, the high frequency traders (HFT) are at it again. Contorting the spirit of the rules, because those who wrote the rules aren't technically savvy. On January 4, 2013, we found another instance of HFT morphing their manipulative and illegal quote stuffing strategy in an effort to fly under the radar. Why they don't just stop this manipulative practice altogether tells us a few things. First, this isn't some coding error, this is sophisticated cheating. And second, because they are spending valuable programming time on this strategy, there must be some real economic advantage. Which mean a disadvantage to everyone trading against them.

Two weeks ago, when we commented on the biggest farce in financial thinking at the time (promptly replaced by the even more lunatic platinum coin "idea"), namely that one of the main "spending cut" proposals of the Obama administration, one amounting to $290 billion, was the assertion that the US will save hundreds of billions because, get this, interest rates are now lower than they were before. We commented as follows: "this is where one's Excel refs out, because the interest payment on Treasurys, at least in a non-banana republic, one set to see 120 debt/GDP in 3-4 years, is a function of fiscal decisions (central-planning notwithstanding), and to make the idiotic assumption that one can control interest rates for 10 years (central-planning notwithstanding), just shows what a total farce this whole exercise has become, and also shows that nobody in the administration, or the GOP for that matter, has even modeled out the resultant budget pro forma for the proposed tax hikes and budget "savings" as that would blow up said excel model immediately." We now learn that one other entity that did not fully model out the last minute Fiscal Cliff deus ex, and especially not the recursive debt relationship in a country where half the government spending is funded by debt, is the always amusing CBO (whose epic prediction failure rate has been discussed here on numerous occasions). It appears that they just did, after the close, on Friday. The outcome? Their initial estimate of a $4.0 trillion budget increase was wrong and when one factors in the fact that this incremental spending would have to be funded by, you guessed it, debt, debt which has interest, the full impact of the Obama tax cut rises deficits by 15% to $4.6 trillion over the next decade.

Oops.

Wondering where the somewhat out-of-character economic improvements of Q4 2012 data came from - given Sandy and the fiscal cliff uncertainty? Wonder no longer. Charles Biderman, CEO of TrimTabs, has done the data-mining and explains, quite succinctly in this clarifying clip, just what happened in Q4 2012. To wit, after-tax income saw a somewhat impressive (but "don't get too excited" he adds) post-election spike as individuals (and small businesses) front-ran expectations of tax-rises in 2013 by pulling forward income and bonuses etc. into 2012. Q4 income rose by over 6% YoY, which , he believes means Q1 2013 income will be correspondingly lower. Following an epic rant/exposition of the higher taxes US citizens will be paying, Biderman batters GDP (and the government's infinite idiocy) instead focusing on the real recession of lower after-tax take-home-pay and expects Q1 to see the US plunge with the "US economy starting out the new year on its butt!" Then, as a bonus, he destroys the nonsense myth that the US housing recovery is leading us forward.

S&P 500 futures lurched in a vol-driven mania above their implicit QE3 highs (stop-run) and yay verily there was much rejoicing as cash S&P 500 reached closing levels not seen since December 2007. The only trouble with all this jubilation - Treasuries rallied all day (so no 'Great Rotation'), high-yield credit was having none of it, and AAPL positively hated it (though financials had their best week since the stress tests in March). Average trade size surged as did volume into these highs and as we noted before, the VIX term-structure is now at its steepest in 5 months - as hedgers shift their positions out past the debt-ceiling deadline (and implicitly crush short-term vol spurring the rally further). But, into the close, S&P 500 futures were decidedly skittish as it appeared we ran out of greater fools for a few seconds at the close (via @nanexllc $1.1B worth of $SPY and 25,000 eMinis in last few seconds). Equities pulled away from the rest of risk-assets in the last 30-minute ramp closing the week right at the QE3-day highs, with the USD +1% on the week.

Last week we introduced our readers to the BIS' Head of Foreign Exchange and Gold, Benoit Gilson. As this week's induction into the FleeceBook hall of fame of faceless individuals behind the scenes whose fingers are on all the relevant buttons, we present to you Michael Cross, Head of Foreign Exchange, and Executive Director for Markets, at the Bank of England, a role which with the arrival of the BoE's new Goldman leader will become quite crucial in the coming weeks as the race to debase finally crosses the English Channel and it is cable's turn to crash and burn against all other currencies.

We explicitly noted that the purchase of vol steepeners across the debt-ceiling deadlines was the short-term trade as soon as the ATRA deal was approved. In the brief period since, the VIX term-structure has smashed from its flattest (most inverted) in 2 months to its steepest now in 5 months as hedgers roll out to March and beyond. Of course, all algos know is that they can lever VXX (and other synthetics) in the short-term to ramp equities higher - and sure enough the S&P 500 just hit highs above the highest close since December 2007.

We first noted the shift to a barter economy that is occuring in Greece back in April. But Mike's excellent update below shows that this 'barter' has progressed to a new 'alternative' currency. The city of Volos, 200 miles north of Athens with a population of 170,000 is highlighted in the article due to the size of its alternative money market centered around a local currency call the Tem.  This sort of behavior will be the wave of the future in all countries, as Central Bank currencies are debased into extinction (and it's happening in the US already).

So you want a trillion dollar platinum coin? Ok: here are some facts...

Fed mouthpieces Bullard and Lacker are out in force this morning talking the market back from the edge of yesterday's FOMC Minutes and reassuring us that the economy is going to be weak enough for a lot longer to justify the Fed's actions. However, right at the end of Jim Bullard's interview with CNBC's Steve Liesman, we got a glimpse of the reality behind the curtain as the St. Louis Fed president threw Bernanke under the purge-ry perjury bus... Following a discussion of fiscal policy uncertainty and the need to carefully spend what money we have, Liesman jokingly commented to Bullard that it is "Easy for you to say, you have a lot of dollars to spend; you get to print them!" To which the now foot-in-mouth Bullard replied, "Aaahh; indeed we do." This seems a little different from what Bernanke previously told Congress.

In money management long term success lies not in garnering short term returns but avoiding the pitfalls that lead to large losses of invested capital.  While it is not popular in the media to point out the headwinds that face investors in the months ahead - it is also naive to only focus on the positives.  While it is true that markets rise more often than not, unfortunately, it is when markets don't that investors are critically set back from their long term goals.  It is not just the loss of capital that is devastating to the compounding effect of returns but, more importantly, it is the loss of "time" which is truly limited and never recoverable. Therefore, as we look forward into 2013, we want to review three reasons to be bullish about investing in the months to come but also review three risks that could derail the markets along the way. The reality is that no one knows for sure where the markets will end this year; and while it is true that "bull markets are more fun than bear markets" the damage to investment portfolios by not managing the risks can be catastrophic.

Secretary of Labor Hilda Solis made her ubiquitous post-NFP appearance on CNBC this morning and spouted the usual propaganda. However, while discussing how wonderful the ATRA was, the seemingly slap-happy Solis noted how great the fact that emergency unemployment benefits were extended for millions of people was - and that thanks to that (and the magic of the Keynesian multiplier), millions of jobs were saved. So, to sum up, paying people not to work, saved millions and millions of jobs? Indeed America, indeed.

Sometimes I just have to smile when faced with anti-gun propagandists, regardless of the vicious statements they make, because I know from years of past experience in this debate that because of their deep rooted hypocrisy, they will inevitably make my pro-gun case for me.  All I have to do is sit back and wait for them to contradict themselves. The gun grabber personality is interminably flawed, but it could be summarized thus: They believe the whole of society should cater to their personal concerns.  That we should give up our rights just to make them feel safer.  And, that they are somehow a step above the rest of us, and do not need to practice what they preach.  My question is, why should we go out of our way to please such weaklings and frauds?  I have yet to hear a good reason...