Archive - Jun 11, 2013 - Story

There are three words that come to mind when we think of Ron Paul; principles, credibility and consistency.  Not only is the video below great because we get to see Dr. Paul speak on the Congressional floor thirty years younger, but also because he was adamantly criticizing civil liberties threats in the context of a Republican President, Ronald Reagan.  He warned us about what the NSA and other intelligence agencies are currently doing well before the internet became widespread.

We first discussed the possibility of state and local governments using eminent domain to 'save us' from further housing issues a year ago but now the NY Fed has gone one step further with an academic-based justification for why this process is not a "zero-sum-game" and will render all stakeholders better off. We can hear echoes of "trust us" in this commentary as the authors explain how multiple valuation methods will be used to ascertain "fair-value" - which has always worked so well in the past -  and that we have "little to fear" from the  resultant long-term contraction in liquidity or credit as bubbles can only inflate during times of easy credit availability (and that will never happen!) Paying for all this? Don't worry - resources to fund purchases of loans/liens can be raised from public, private sources or a combination of the two. It seems to us that MBS holders will not be happy, consumers hurt as mortgage costs would rise (this 'risk' has to be priced in), and taxpayers unhappy as this is yet another transfer payment scheme to bailout underwater loans.

A smorgasbord of secondary Japanese data missed expectations this evening and while all appears relatively calm if you just look at USDJPY, it is anything but in the stock and bond markets which have both lost significant ground already. Nomura launched the largest IPO of the year (Nomura REIT) and it is down 4.8% out of the gate (at least they didn't pull the 'market conditions' trick so many US companies fall back on) but the broad TOPIX index is down 2.4% and unable to find any dip-buyers to encourage. Financials (-3.4%) and Consumer stocks (-2.5%) are the worst with Utilities modestly bid (+0.3%) for now. JGBs were following the 'open down, rally gently higher for the rest of the day' pattern of the last three days but soon after the BoJ announced its buying program at 9ET, the selling escalated. All-in-all, it is more of the same from the US day-session but with JPY oddly quiet for now as the JGB market remains mildly out of control...

In America today there is a great rushing storm, a swirling hurricane of clashing opinions and ideologies that defy coherent organization and classification.  This social tempest has been triggered by certain revelations among the general public on issues which we in the Liberty Movement have long been aware.  The fact that our government is bought and paid for by international corporate interests, the fact that our government has positioned itself to spy on ALL Americans without warrant and without probable cause, the fact that our government is instituting policy initiatives that target common citizens as enemy combatants, the fact that every one of our Constitutional rights is being deliberately torn away; these things are not news to us, but to many once ignorant people, they are a shock to the system. Open corruption on the part of a criminal establishment has a funny way of politicizing everyone, even those people who go out of their way to avoid the bigger picture.  In the end, no man or woman gets a pass.  Whether you like it or not, one day soon, you will have to choose a side; freedom or tyranny.  There is no middle ground.

On the two-year anniversary of our most in-depth explanation of how all stimulus globally is fungible, CNBC's Rick Santelli took up the mission of explaining how the never-ending rush of global central bank provided liquidity flows any and everywhere fungibly around the world in an instant. Furthermore, as we explained to Rick's colleague Mr. Liesman, not only is the stimulus fungible but it means all global leverage is 'shared', and available for use in any and every risk-asset-funding. In other words, as Rick so eloquently points out, thanks to the fungibility of stimulus, the speed of modern finance, and the shared leverage of global banks and hedge funds seeking (to enter and exit) the same leveraged carry trades wherever they are in the world, even a small 'David' of a Taper by the Fed is instantly transformed (3% swings in JPY, 800 point swings in Nikkei, 8bp ranges in IG credit, 10% drops in GGB prices, limit down breaks in European banks, 12% collapses in EM stocks) into a 'Goliath' of global deleveraging and, "you will hear a flush."

We now know that 'muddle through' is over, and just as we noted here "there may only be painful ways out of this crisis" as we evidenced by Europe's attack on Cypriot depositors. With the pillars of Abenomics starting to crumble, it seems plans are afoot to prepare for the bank failures that will come from a BoJ-inspired out-of-control bond market. As Nikkei reports, Japan's Financial Services Agency will enact new rules that will forced failed bank losses on investors, if needed, via a mechanism known as a "bail-in." The FSA report also notes that Mitsubishi UFJ (MTU), Mizuho Financial (MFG) and Sumitomo Mitsui (SMFG) are among those proposing amendments to allow them to issue the types of preferred shares or subordinated bonds that would be used in such cases. So not only will Japanese banks suffer VaR shock-driven needs to reduce JGB holdings but a weaker deposit base will further exacerbate the deleveraging.

First it was the conspiracy theory that Li(e)bor traders were manipulating the entire rates market which a year ago became conspiracy fact. Then it was commodities with an emphasis on the energy market (but not gold - gold is never, ever manipulated) with even such luminaries as JPMorgan's Blythe Masters, subsequently implicated. And moments ago, via Bloomberg, to absolutely nobody's surprise, we learn that that final market which so far had not been exposed as the "wild west" of manipulators, the FX market, is part of the conspiracy "fact" too. According to Bloomberg, "employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years."

Both Keynesians and monetarists believe that increased government spending, or more money injected into the economy, is sometimes necessary. The intervention is in the form of unfunded government spending, artificially low interest rates to boost demand for money and bank credit, or a drive to make the currency “competitive” by lowering it. These methods have been tried unsuccessfully time and again, and they must be denounced if we are to understand our true economic condition. The reason they don’t work can be summarized as both an oversight and a fallacy.

Trading has a few simple rules - do the opposite of Goldman's Thomas Stolper; don't fight the Fed; and buy low, sell high. However, as this series of charts from Nanex shows, it is the latter rule that is the easiest to comprehend and yet - thanks to massive and obvious HFT manipulation - is an extremely difficult thing to do. As Nanex's Eric Hunsader notes, high frequency trading algos do not get much clearer than this as the machines buy low (from you) and sell high (to you) each and every millisecond of the trading day.

Would you be willing to give up what Edward Snowden has given up?  He has given up his high paying job, his home, his girlfriend, his family, his future and his freedom just to expose the monolithic spy machinery that the U.S. government has been secretly building to the world.  He says that he does not want to live in a world where there isn't any privacy.  He says that he does not want to live in a world where everything that he says and does is recorded.  Thanks to Snowden, we now know that the U.S. government has been spying on us to a degree that most people would have never even dared to imagine. Up until now, the general public has known very little about the U.S. government spy grid that knows almost everything about us.  But making this information public is going to cost Edward Snowden everything. The following are 27 quotes from Edward Snowden about U.S. government spying that should send a chill up your spine...

With a massive 6,208 (or 80% of the total in the entire Comex system) Customer Delivery issues outstanding against JPM so far in June alone, many have been wondering - how and when will the firm reconcile what is seemingly more demand for JPM vaulted gold than the firm has in its possession?  While we still don't have the answer, what we do know is that as of an hour ago when the Comex released its daily vault depository statistics, JPM has said goodbye to another 28.4% of all of its vaulted gold, the result of the departure of 61.5% of its Eligible gold, as hundreds of thousands of registered ounces in the bast few weeks have seen warrant detachment. Which means that as of last night, total gold held by JPM has fallen to a new fresh all time low of just 550k ounces, down from 768K the day before, and total eligible gold of only 136,380 troy oz in inventory - also a record low.

With the US macro surprise index having hit 10-month lows - and now among the dirtiest of dirty shirts of world economic regions (thanks to the over-optimistic expectations) - we thought it useful to reflect somewhat stoically on the reality of the macro-economic environment that we are told day after day is doing so well in the US...

If the constitutional scholar was hoping he would quietly avoid a major showdown over the constitutionality of the biggest spying scandal since Nixon (whether legal or not remains to be determined) and which would likely have led to an early POTUS retirement if current president was republican, the ACLU just slammed the door shut on the possibility. Moments ago, the American Civil Liberties Union filed a lawsuit against the Obama administration over its "dragnet" collection of logs of domestic phone calls, contending that the once-secret program is illegal and asking a judge to both stop it and order the records purged. And, as the NYT reports, "the lawsuit, filed in New York, could set up an eventual Supreme Court test." Only once that happens it will be too bad that InTrade is no longer available, to take the other side of a trade that believes the SCOTUS will for once do the right thing and preserve the constitution when everyone knows the decision to formally enact a Big Brother state will pass along political party lines and America will officially become the country that for 5 decades, at least superficially, it was waging "cold war" against.

After a couple of days of exuberant dead-cat-bouncing in Japan (and therefore implicitly US equities), the reality that credit markets had been hinting at is starting to be realized once again. A nasty gap-down open in US equities saw BTFDers come piling back in, aided by pressure on bonds and a final liftathon into the EU close in AUDJPY. That was the best of the day and JPY's biggest surge in over 3 years (~3%!) dissolved any equity-dip-buying power as stocks jerked up and down around VWAP for the rest of the day. Credit markets opened even more gap wider than stocks weaker as chatter was that bondholders were hedging exposures (as opposed to reducing exposure - hoping that redemptions don't come). That gap was very rapidly filled and aided the parabolic ramp into the EU close. Then, credit was offered, stocks followed as VIX and Treasuries were bid the rest of the day. A very chaotic day in almost every asset class (with PMs actually relatively stable) as US markets begin to mimic Japanese volatility. The Nikkei is now 800 points off the dead-cat-bounce highs from 2 days ago.

Equity bulls remain cognitively biased to the belief that a rising interest rate market implies growth expectations (enough to warrant a Fed Taper) that confirm the hope priced into stocks (entirely missing the bubble concerns and technical corruptions in the markets caused by these policies). However, at the very short-end of the interest-rate curve in the US, the market has pulled forward rate-hike expectations from End-2015 to May 2015 in the last month alone. The problem with the velocity of this adjustment is that in order to hike rates - the entire extraordinary asset purchase program known as QE4EVA has to be over... Still think equities are pricing that in?