Greg Mankiw provides a useful primer on runaway inflation done right... and done Ben. Yet his warnings that inflation may be stealthily approaching, sure to risk the ire of deflationists everywhere, may be very much irrelevant: the Fed, which is entering the bottom ninth on the great failed Keynesian experiment realizes it is running out of cards. The one thing that is certain, is that no matter what the true final outcome, the Federal Reserve will certainly miss the Goldilocks landing strip by a mile. And the political and economic ramifications of the Fed's outright failure will be tremendous.
- Must read: Did foreigners cause America's financial crisis? Or what happens when all your debt and equities are belong to us (Newsweek)
- Ben Bernanke's term running out as Senate democrats try to set a vote (The Hill)
- Banks set for record pay, and you thought Goldman was bad - Morgan Stanley prepares to fork over a stunning 63.8% of revenue as compensation (WSJ)
- Dark pools may face pricing disclosure rules, EU watchdog says (Bloomberg)
- In defense of the case against HiFTers (Cassandra)
- Senate to vote on PAYGO legislation to clear way for debate over debt ceiling (The Hill)
- Dubai flare up 2.0? Abu Dhabi's Dubai aid shrinks to $5 billion (Reuters)
An extended analysis of TIC, FMS, DTS and TreasuryDirect data confirms that while Indirect bidders (aka Foreign Investors) continue to bid up US Government securities, their interest in the short end of the curve has not only declined, but accelerated redemptions have left Indirects with a heavily weighted long bond exposure. This raises the following questions: are inflation expectations once again vastly premature, who keeps buying the short-end at record low yields, and what kind of event will be responsible for the unwind of the groupthink idea of the day: the curve steepener?
I am so tired of the absolute nonsensical and foolish approach in regards to Banker Bonuses taken by both the Obama administration as well as the bankers themselves. Here's what is really going on and what should should be going on if we lived in a world that was dependent on telling the truth, prudent financial management, reduction of systemic risk, and if a cure to our banking system malady is genuinely being sought.
While banks would be the last entities to reveal disclosure on bonuses during the current time filled with populist agita and froth (it certainly would "destabilize" the financial system if Joe Sixpack was aware that XYZ's main bond trader made $50 million simply by buying short and lending long), none other than Tim Geithner's treasury department provides a convenient way to track aggregate bonus dissemination data in the form of daily tax withholding data from the Financial Management Service. A historical analysis indicates that December and January are traditionally the high outlier months when it comes to tax withholdings, for the simple reason that these two months is when the majority of bonuses payments are disbursed, and being defined as "supplemental income" and taxed at a flat Federal rate per IRS publication 15, they provide the double whammy of increased income tax withholdings and a higher withholding rate. Zero Hedge has compiled daily data from the past three years' bonus seasons to determine whether there is any secular shift to bonus outlays, not just on Wall Street but Main Street as well (surprisingly for the Obama administration, the bulk of withholdings does not come from Wall Street). Our observations were somewhat unexpected.
Crude oil futures fell for five straight sessions as warmer weather in the U.S. dispelled forecasts of unusually low temperatures and allowed concerns about demand to come to the fore. The price for Nymex’s West Texas crude fell about 6% during the week, starting at nearly $83 and finishing at $78.
"An interesting article by Ambrose Evans-Pritchard came my way the other day. It’s worth a read, if for no other reason than that he paints an appropriately dark picture of the current state of the U.S. economy. You can read it here. While I very much share Mr. Evans-Pritchard’s view that the global economy is far from out of the woods, our views diverge in that he sees devastating deflation speeding our way down the tunnel. Casey Research readers of any duration know that we see devastating inflation.
While we could both be right, with deflation first and inflation later, I’m not so convinced." David Galland, Casey Report
And you thought JP Morgan was aggressive. Goldman just threw out the last trump card in its current sell-side arsenal by increasing Q4 GDP estimates from 4% to a paroxysmal attack inducing 5.8%. While Zero Hedge long ago gave up discussing corporate fundamentals due to our long-held tenet that currently the only relevant pieces of financial information are contained in the Fed's H.4.1, H.3 statements, and, when Ron Paul's attempt at Fed deobfuscation is finally successful, the Fed's daily Sources and Uses of Funds statement, it would appear even macro economic data now is essentially one big joke. We are confident that JPM and Goldman are right on the money, and that the government will present the economy as having grown by nearly 6% in Q4. What is troubling is that after having taken over the housing and treasury market, and according to some others, the equity market as well, the Treserve (thank you Marla) has also singlehandedly added several log scale orders of magnitude of volatility to the general economy itself. Too bad GETCO does not have some predatory algo floating around, and overextending GDP momentum in any one general direction, as at this rate we would not be in the least surprised if Obama's Disinformation Czar (TBD) were to announce that the US is now competing for 10% GDP growth with China. As the two countries' centrally-planned economic systems now differ, well, not at all, it is only a matter of time before the race to the bottom in currency devaluation is enjoined by a competition as to who can fabricate, manipulate, inflate, stimulate and other "-ates", the fastest.
This week has been noticeably weak for credit markets as they underperformed equity markets, fitting with our aggregate capital-structure model perspective. IG-HY has decompressed rather well buy the intrinsics have decompressed considerably more as market breadth is dominated by wideners and steepeners.
We see a slightly different picture evolve as spreads remain slightly tighter from 12/31 close with FINLs still leading the way as non-financials are mostly wider on average. Breadth is negative around 4to3 as the indices have handily outperformed intrinsics in IG and ExHVOL but not so in HY. Credit has underperformed equity since the start of 2010 (once again fitting wit hour model perspective) and their is more room to go yet on this.
Let’s assume for a moment that Goldman Sachs is wrong. After all, at most points in time and space, predictions tend to fail—except the lucky ones. So it’s good to think through scenarios that one would consider extremely remote. Active risk management means low probability / high catastrophic outcome tail events must be hedged, and as importantly, gain exposure to those pesky Blacks Swans in ways that lead to advantage. To accomplish this, it helps to obtain a quantitative sense of their impact, to get a “feel for the cloth” as an wise former boss of mine used to say. So let’s try here.
What if the Fed more than succeeds in reflating and the end result is hyperinflation? As remote a possibility as I think this is, they really could print a way to another, completely different type of economic destruction. All they have to do is print proactively, not reactively.
Several observations out of Goldman's Investment Strategy Group which seek to allay fears that even if the Fed were to print another few trillion dollars, the greenback would still reign supreme, never mind that all the currency in circulation now (secondary Fed liability after excess reserves), one could argue, is more than 100% backed by MBS on the asset side of the equation (or in other words, diluted by more than half from solid, and real AAA-rated securities). Goldman is also taking a stab at gold-bugs, claiming that all reports of the dollar's demise are not only premature, but borne out undue fatalism, and in fact are deja vu. Yet is this time really not different?
As many readers have pointed out, CNBC's Diana Olick is out with some pretty damning news of a new form of pervasive homeowner fraud, this time conducted in complicity of the very banks that yesterday were swearing up and down the FCIC hearings that they hear, see and speak no evil. Maybe such hearings should become a weekly spectacle as they now represent the only expression of Main Street's excess and growing anger, yet pushed far enough and the imminent revolt will surely become a reality. A few more incidents like this, uncovered by America's unbought journalists, may be all the straws needed to break a few CEO's backs. At least the bankers will have a few hundred billion in bonuses and some Textron private jets to help with their head start to non-extradition treaty countries.
Darrell Issa Seeks To Expand AIG Disclosure Inquiry To Ben Bernanke, Hank Paulson And Goldman's FriedmanSubmitted by Tyler Durden on 01/15/2010 - 17:10
Soon coming to a daylight drama TV show near you: Ben Bernanke, Hank Paulson and Stephen Friedman, valiantly defending America from itself and the dumb peasants that inhabit it.
It was a four short months ago that the Clearing House Association, in a court filing, threatened with untold destruction if the Fed was ordered to submit to an audit that would expose all their dirty laundry in the form of undervalued assets used as collateral by the Federal Reserve.
It is fitting that as attempts to expose the Fed's shady practices accelerate on all fronts, and include direct legal approaches as well as subpoena demands by various politicians, that a Fed President would once again come out today, and recap the good old Mutual Assured Destruction treatise that both Wall and Main Street have gotten used to since the beginning of the bailouts. Somehow financial M.A.D. makes an appearance every time the bankers demand something and have no other rational justifications. So why not just feed the stupid plebs something about the Apocalypse that is certain to transpire should the financial oligarchs not get their way. Today was no exception.