August 17th, 2011
Courtesy of Fed dissident Dick Fisher, who made it clear that for the first time in history, the Fed is no longer in the plunge protection business, ES wasted no time to react appropriately and take out the 1184 technical support level, a $20+ swing in a few hours. Remember: the Treserve needs someone to boost purchases of Treasurys now that Obama is about to announce that the 2012 budget deficit will be a few hundred billion larger (funded, naturally, through bond issuance), so the old song and dance where the S&P has to be under 1000 for QE3 begins anew...
Did you know that the word ‘idiot’ is actually derived from the origins of democracy in ancient Greece? Thousands of years ago, a Greek citizen who demonstrated disinterest in politics was labeled ‘idiotes’; it literally meant ‘private person,’ which curiously enough was a term of derision at the time. Fast forward to the pitiful excuse we have for a democratic process in the world today, and the opposite is now true: you have to be a complete idiot to invest yourself in these politics.
The quote, again, for those who missed the headline, is:
- My long-standing belief is that the Federal Reserve should never enact such asymmetric policies to protect stock market traders and investors. I believe my FOMC colleagues share this view.
Oh, so 3 years after doing everything in their power to "protect" the dumbest momos ever conceived, spawning countless newsletters and twitter services that believe they provide value but merely fool others into chasing momentum, the Fed gets religion?
No thanks Dick, please Fed continue protecting stock traders: that way when you finally blow up you will take every idiotic, momentum chasing Tom, Dick and Harry with you.
Once abundant aquifers worldwide are being rapidly depleted, and resolving this is expensive and requires growth controls and sacrifice.
While we are not sure if this is the biggest weekly outflow from mutual funds (the weeks after the Lehman bankruptcy potentially being larger), we do know that the week ending August 10 saw a near-record amount of redemptions from domestic equity mutual funds, amounting to an unprecedented $23.5 billion. This brings the total for August along to $34 billion: just $13 billion in outflows more and this will be the single biggest outflow month in ICI history. This is obviously a problem because as of the end of June mutual funds once again held a record low just 3.4% in cash. And the outflow was not limited to just US stocks: investors pulled cash from every single asset class for the third week in a row, including foreign stocks, bonds and munis. In fact, in the last three weeks a total of $67 billion has been withdrawan across all asset classes. Going back just to US stocks, this is the 16th consecutive week of outflows since April 2011, amounting to $87 billion in total outflows, and also about $172 billion in domestic equity fund outflows since the beginning of 2010. One thing is certain: there is no way that mutual funds have survived this veritable stock market run unscathed. We expect to find just which funds have blown up as a result in the next few weeks as the news of wholesale terminations can no longer be contained.
S&P Slashes US Growth Forecast, Says Current Crisis Is Worse Than 2008 As US At "Risk Of Default", Ridicules "Transitory"Submitted by Tyler Durden on 08/17/2011 12:37 -0400
First they cut the rating of the US, then the went and downgraded Google, now S&P is going for the "treason trifecta" by just releasing a report which literally takes the US to the toolshed. Among many other things, the rating agency just cut US growth for the next 3 years. To wit: "While July data finally showed a slight improvement in the U.S. economy, it's not enough to support expectations that the second half of the year will see a bounce in growth. We now expect to see an even slower recovery than the half-speed we earlier expected. We now expect just 1.9% growth in the third quarter and 1.8% in the fourth, to bring 2011 calendar year growth closer to 1.7% instead of 2.4% we earlier expected. We also downwardly revised growth expectations for 2012 and 2013, as a more drawn-out recovery is factored into our forecast." We wonder how soon before the realization that the US is in fact contracting will force S&P to downgrade America even further, a move which will force Moodys and Fitch to come up with a AAAA rating for the US in order to keep the weighted average rating at current levels. It gets even worse though as S&P now openly brings the 2008 analogy: "The markets' violent swings in early August resurrected fears of the market meltdown, such as the one in 2008 when Lehman Brothers went under and Reserve Fund broke the buck. Currently, the crisis is considered to be much more severe, with U.S. sovereign debt at risk of default. The low Treasury yields indicated that markets were expecting Congress to come to its senses and reach a deal. However, the wait and the last-minute deal, which left a lot to be desired, only increased worries that the government will do more harm than good. Confidence in the recovery and in U.S. policymaking has hit new lows. After U.S. sovereign debt lost its triple-A status and financial markets unwound, consumer confidence hit a 31-year low and manufacturing sentiment readings contracted." And the kicker: S&P, yes S&P, makes fun of the Fed, and specifically the "transitory" nature of the economic collapse: "Continued weak growth after sharply downward GDP revisions has made the "temporary argument" a less plausible explanation for the slew of bad news for the first half of the year. At least the GDP revisions make the persistently high unemployment rate make more sense. But the revised data also indicate a much weaker outlook than we previously expected. As the boosts from rebuilding inventories and fiscal stimulus unwound, consumer spending and housing couldn't cover the hole, because the former is still working off excess debts and the latter excess supply. The recovery comprised a first-half average growth of just 0.8%." And that is how you respond to endless scapegoating that now blames the S&P for the collapse. Look for S&P to make the FBI's most wanted list very shortly.
A growing number of individuals believe our economic and societal status quo is defined by unsustainable addiction to cheap oil and ever increasing debt. With that viewpoint, it's hard not to see a hard takedown of our national standard of living in the future. Even harder to answer is: what do you do about it? Charles Hugh Smith, proprietor of the esteemed weblog OfTwoMinds.com, sees the path to future prosperity in removing capital from the Wall Street machine and investing it into local enterprise within the community in which you live. "Enterprise is completely possible in an era of declining resource consumption. In other words, just because we have to use less, doesn’t mean that there is no opportunity for investing in enterprise. I think enterprise and investing in fact, are the solution. And if we withdraw our money from Wall Street and put it to use in our own communities, to the benefit of our own income streams, then I think that things happen."... "Being dependent on corporate America and a job a hundred miles away - that’s a really fragile, vulnerable lifestyle. So if you can relocalize your income streams and your enterprises and live close to work and school, you’re already tremendously more resilient and have a much more sustainable household regardless of what happens."
As we predicted earlier, following the disappointing announcement out of the SNB overnight, now it is the Swiss government's turn to make it clear that nothing good will happen for USDCHF and EUCHF longs following a 9 sigma move higher in the past week. As a result, the EURCHF promptly took out another 200 pips in the past hour and tumbled as soon as Switzerland's Widmer-Schlumpf said that the Franc is a matter for the SNB, not a matter for politicians, and that it is up to the SNB to decide on the CHF target, throwing the ball of responsibility back in Philipp's court, and making sure that all the CHF pairs retest all time lows in the very near future. Because, just as eurobonds are the last ditch option for the eurozone, so a CHF peg is the last option for the SNB before ongoing pressures in the eurozone push the CHF to parity with the EUR, in the process bankrupting the CHF, and destroying the country's export sector.
A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.
Courtesy of The Chart Store, here is more evidence that the Fed just pushed the day of reckoning forward a few months: the first charts the current NASDAQ market plotted over the Great Depression Dow, and the second plots the current NASDAQ over the post-1989 Nikkei market. The similarity of the two Bear market progressions is uncanny. As Ron Greiss of the Chart Store notes on the chart, "Did QE2 prevent nature from pursuing its intended course?" Judging by the recent "unexpected" cascade in stock valuations, it seems the Fed has yet to learn that you can't fool Mother Nature for very long:
Due to tangential questions arising out of a parallel twitter-based conversation, we have been swamped with requests to demonstrate the performance of gold versus US Treasurys since the "great moderation" or the period of time benefiting the most from both the end of the Bretton-Woods system, or infinite fiat dilution, and the Volcker counter-inflationary protocols (infinite printing ot Treasury puts among others) which has led many to fallaciously believe the thought experiment (hopefully just that) that an infinity in outstanding US debt would mean zero in prevailing US interest rate. Anyway, here is the result.
The next round of German elections comes in September (the 4th, 11th, and 18th). Is Merkel (and her party) really going to commit political suicide to support the Euro? After all, she would literally have to change the German constitution to participate in the creation of Eurobonds (the latest deranged ECB idea). You think the German people will go for that?
Yesterday we had some choice words indicating why fiscal stimulus in a period of unprecedented monetary intervention (such as now) is about the worst thing that can happen to America, when not even 8 months ago Goldman based its completely wrong and now discredited call that the $100 billion payroll tax "stimulus" would lead to 4.5% 2011 GDP (since retracted). Today, we provide some additional information on just how Obama plans to further stimulate the economy by sacrificing the middle class at the alter of the "this time it's different" gods. From Bloomberg: "President Barack Obama plans to ask Congress for billions of dollars in fresh spending to boost the economy and reduce unemployment, with a new focus on helping the long-term unemployed, an administration official said." But as pointed out the humor is in the post script: "The president also will call for long-term cuts beyond the $1.5 trillion that Congress has charged a 12-member bipartisan “super-committee” of lawmakers to trim by late November, the official said." Preferably cuts that actually affect the US after 2016 when Obama's second term expires. Or even 2013, because according to the mainstream media Perry is now gaining, and who is that Ron Paul fellow?
A Trader's View On US Equities & Why The Inevitable Pan-European CRE Collapse Has A Cousin In the US!Submitted by Reggie Middleton on 08/17/2011 09:54 -0400
What are the chances rate volatility, excess supply from a burst bubble and insolvent banks causes a CRE crash on both sides of the Atlantic? Yeah, if only all test questios were that easy...
The ECB's new bond purchases are not being sterilized like last year. In fact, just the opposite.