Archive - Aug 2013 - Story

It’s ironic, or it seems that way to us, that two of the least understood financial markets by equity investors are two of the most systemically important – repos and gold. Even more ironic is how so many investors don’t even consider them to be all that important. In our view, stability in both markets is a pre-requisite for maintaining confidence in the financial system and keeping the credit/asset bubble inflated. The significance of these markets is not lost on governments, central banks and regulators, although the definition of “stability” in each of them is slightly different. Looking underneath the bonnet/hood, we are doubtful that either of these markets, repos or gold, can reasonably be described as “stable” right now. There also seems to be a paradox where the current low repo rates and gold prices are, we suspect, fooling people into a false sense of complacency. What’s really piqued our interest, however, is whether there is a similar issue which is increasingly impacting both of these systemically important markets? This issue relates to the availability of sufficient collateral...

INSIGHT - military intervention in Syria, post withdrawal status of forces

Released on 2012-03-06 07:00 GMT

The twenty-first-century economy has thus far been shaped by capital flows from China to the United States – a pattern that has suppressed global interest rates, helped to reflate the developed world’s leverage bubble, and, through its impact on the currency market, fueled China’s meteoric rise. But these were no ordinary capital flows. Over the last decade, the vast quantities of short-term capital that were being pumped into China’s banking system drove commercial banks and other financial institutions to expand credit substantially, especially through the shadow-banking system, leading to a massive credit bubble and severe over-investment. Given this, in the event of a crisis, China would most likely have to begin selling off its massive store of US debt - and indeed it is. After spending years attempting to insulate the US economy from the upshot of its own banking crisis, the Fed may ultimately be forced to bail out China’s banks, too.

If Obama was betting on a "rally 'round the flag" effect ahead of the US attack of Syria as a result on an endless chain of false flag-based interventions in the middle east which started with Colin Powell's lies to the UN, and has never ended, he appears to have completed his latest epic foreign policy blunder and miscalculation. As Reuters reports, Americans strongly oppose U.S. intervention in Syria's civil war and believe Washington should stay out of the conflict even if reports that Syria's government used deadly chemicals to attack civilians are confirmed, a Reuters/Ipsos poll says. About 60 percent of Americans surveyed said the United States should not intervene in Syria's civil war, while just 9 percent thought President Barack Obama should act.

Iran is backing Assad. Gulf states are against Assad! Assad is against Muslim Brotherhood. Muslim Brotherhood and Obama are against General Sisi. But Gulf states are pro Sisi! Which means they are against Muslim Brotherhood! Iran is pro Hamas, but Hamas is backing Muslim Brotherhood! Obama is backing Muslim Brotherhood, yet Hamas is against the US! Gulf states are pro US. But Turkey is with Gulf states against Assad; yet Turkey is pro Muslim Brotherhood against General Sisi. And General Sisi is being backed by the Gulf states!

Moments ago, Syria relented to the main gating condition that would prevent an all out escalation, and as Russia urged it to, has permitted an inspection of last Wednesday's alleged chemical weapons attack by UN inspectors. The WSJ reports that "Syria would allow United Nations inspectors currently present in Damascus immediate access to areas around the capital where the opposition accused the regime of using chemical weapons against fighters and civilians five days ago. A presenter on Syrian state television reading a statement attributed to an unnamed official at the Syrian Ministry of Foreign Affairs said the agreement was reached after a meeting between Foreign Minister Walid al-Moallem and Angela Kane, the U.N. disarmament chief, who arrived in Damascus on Saturday." Of course, since demand for said inspection was just a strawman as the last time the UN inspected a "certain" chemical weapons attack by Assad it found "rebels may have used sarin" instead, and the US was absolutely certain Syria would not relent to an inspection thus allowing a full scale military attack, the US is now downplaying compliance with this key demand, by saying it is too little too late.

While the United States is repositioning its naval forces in the Mediterranean as it considers a possible military response to recent developments in Syria (as reported and shown yesterday), at least two other nations are joining in preparation for a naval offensive against the Middle Eastern nation.

As rising Taper (and QE unwind) uncertainty, the biggest trade driving the rate complex, and by implication, the entire risk complex, is being put (no pun intended) to rest. As BofA explains: "the FOMC (the biggest buyer of duration and convexity risk in the world) is long the option to taper asset purchases (and eventually raise rates) if the data improves. That leaves the market short the option that the Fed may decide to taper. The market has looked to hedge this “short gamma” exposure by selling duration and buying vol."

While central planning has seemingly achieved its goal, they have merely created another bubble. A bubble in which fundamentals will have their day and a completely unsustainable societal situation has emerged. Rising rents and falling incomes. For example, in Minnesota we find that “since 2000, rents have risen about 6 percent statewide, but renter incomes have dropped about 17 percent.”

The new American Dream is to one day be able to move out of your parent's basement and rent from Blackstone.

— Michael Krieger (@LibertyBlitz) August 22, 2013

For roughly forty years (since the report was published in 1972), technology has pulled one magic rabbit after another out of the hat, making a mockery of the claims that there were limits on consumption and resource extraction: the green revolution and fossil-fuel fertilizers expanded food production, new supergiant oil fields and improved drilling technologies opened up vast new energy reserves, and improved technologies led to more efficient use of resources. The success of the past four decades in pushing back looming limits has created a widespread confidence that technology can solve any apparent limits. For example, if the seas have been stripped of fish, then aquaculture will fill the desire for fresh fish. Presto-magico. But what if the technological improvements are entering a terminal phase of diminishing returns? What if the "solutions" don't really replace what has been destroyed? For example, the ecology of the open ocean is not restored by aquaculture; rather, it is further harmed by poor aquaculture practices.

"Not having encryption on the web today is a matter of life and death," is how one member of the Internet Engineering Task Force - IETF (the so-called architects of the web) described the current situation. As the FT reports, the IETF have started to fight back against US and UK snooping programs by drawing up an ambitious plan to defend traffic over the world wide web against mass surveillance. The proposal is a system in which all communication between websites and browsers would be shielded by encryption. While the plan is at an early stage, it has the potential to transform a large part of the internet and make it more difficult for governments, companies and criminals to eavesdrop on people as they browse the web. "There has been a complete change in how people perceive the world," since Snowden exposed the NSA's massive surveillance efforts, and while "not a silver bullet," the chief technologist at security firm RSA notes, "anything that improves trust in this digital world is a noble aim."

"When things are going well people become greedy and enthusiastic, and when times are troubled, people become fearful and reticent. That’s just the wrong thing to do. Another mistake that people often make is that they compare themselves with others who are making more money than they are and conclude that they should emulate the others’ actions ... after they’ve worked. This is the source of the herd behaviour that so often gets them into trouble... As long as human nature is part of the investment environment, which it always will be, we’ll experience bubbles and crashes.... People talk about the wisdom of the free market – of the invisible hand – but there’s no free market in money today. Interest rates are not natural. They are where they are because the governments have set them at that level. Free markets optimise the allocation of resources in the long run, and administered markets distort the allocation of resources. This is not a good thing..." - Howard Marks

"The latest numbers that we have received, in particular from Germany, are encouraging, whether it's manufacturing, whether it's service activity, whether it's exports. That is heading in the right direction, but it needs to be sustained over time. And I'm crossing fingers for the eurozone..."

Russia may reinforce naval grouping in Mediterranean in response to U.S. buildup - expert http://t.co/gtOai0LqqU #Russia #interfax #news

— Interfax News (IFAX) (@IFAXnews) August 24, 2013