• Bruce Krasting
    12/18/2014 - 21:42
      The one thing that Jordan can't do in this war is appear to be weak.

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How Crony Capitalism (Or The 'Undiluted Lunacy' Of The Fed) Corrupts The Free Markets

"This is the final abomination" is how David Stockman begins his epic rant on the Federal Reserve and crony capitalism in this clip. The "undiluted lunacy" of their actions prompted him to address the Fed's decision to "print ourselves to death" by saying "this has gone too far, it's street-fighting time" as he decides, instead of the erudite philosophical view of how capitalism is being destroyed by statist philosophies of one type or another, to launch into a full-strength tirade about The Fed. For starters, "The Fed is being run by the single most-dangerous man ever to hold high office in the history of the United States, "as he opines that Bernanke is more dangerous than Geithner, Greenspan, Summers, Hank Paulson all put together. Must watch...



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The Financial Crisis Of 2015 - A Non-Fictional Fiction

The financial crisis of 2008 shook politicians, bankers, regulators, commentators and ordinary citizens out of the complacency created by the 25-year "great moderation". Yet, for all the rhetoric around a new financial order, and all the improvements made, many of the old risks remain (and some are far larger). The following 'story' suggests a scenario based on an 'avoidable history' and while future crises are not avoidable, being a victim of the next one is.

"John Banks was woken by his phone at 3am on Sunday 26th April 2015. John worked for Garland Brothers, a formerly British bank that had relocated its headquarters to Singapore in late 2011 as a result of..."



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How The Fed Crushed China's Ability To Join The Ease-Fest

It will not come as a surprise to anyone who has spent any time reading Zero Hedge (here, here, and here very recently) but now yet another one of our 'crazy fringe blog' non-consensus ideas - the fact that China is cornered by inflation concerns and unable to ease aggressively - has now been confirmed by none other than the Bank of China and Bank of Korea themselves. As the WSJ reports, "The rise in global liquidity could lead to rapid capital inflows into emerging markets including South Korea and China and push up global raw-material prices." The latest round of easing by the U.S. will increase inflationary pressures for emerging-market economies, Mr. Chen said. "This contributes to a monetary-policy dilemma for Chinese authorities", he added. While markets have looked for signs of more forceful action by China's leaders to rekindle growth, some officials attribute the government's caution to fears of reigniting inflation. This confirms previous comments by the PBoC that "A domestic policy may be optimal for the U.S. alone. However at the same time it is not necessarily optimal for the world," he said at the time. "There is a conflict between the U.S. dollar's domestic role and its international settlement role."



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Visualizing The ECB's 'Solar-Systemic' Impact On The Eurozone

Here's everything worth knowing about the euro-system in one huge infographic.



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Why The Wealth Effect Won't Support The US 'Recovery'

We, like Morgan Stanley's Greg Peters, are skeptical of the Fed's apparent belief that wealth effects can support a struggling recovery. Recent gains are small versus the wealth lost in recent years. More importantly, wealth only matters when it lowers saving. It seems that weak income growth through the recovery has depressed saving – stopped saving rising to fully reflect wealth destruction – which implies wealth increases now will not trigger a typical growth-boosting drop in saving. With poor fundamentals seemingly trumping central bank policy - as macro data and bellwether stock warnings highlight the downside risks of complacency. But, the housing recovery, we hear you cry? Not this time - given weak income growth; and as far as feeling wealthy, the 'right' savings rate to achieve that dream remains well beyond most in anything but the absolute riskiest assets - and implicitly lowers consumption.



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A Chinese Mega City Is On The Verge Of Bankruptcy

While most "developed world" people have heard of Hong Kong and Macau, far fewer have heard of China's province of Guangdong, which is somewhat surprising. With over 100 million people, a GDP of nearly $1 trillion - the biggest of all Chinese provinces, this South China Sea adjacent territory is perhaps China's most important economic dynamo. One of the key cities of Guangdong is Dongguan, which as the map below shows is a stone's throw from Hong Kong, has a population of nearly 10 million, and has long been considered Guangdong's boomtown and one of China's richest cities. One notable feature about Dongguan is that it is home to the New South China Mall, which is the world's largest. It also happens to be mostly empty ever since it opened in 2005. Which perhaps is a good segue into this story. Because while for the most part the city of Dongguan has been a story of prosperity, a wrinkle has appeared. According to the South China Morning Post, which cites researchers at Sun Yat-sen University, this city is now on the brink of bankruptcy.



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Guest Post: GDP And Durable Goods - Heading To Recession?

The recent release of the final estimate of Q2 GDP, and the September's Durable Goods Report, confirmed that indeed the economy was far weaker than the headline releases, and media spin, suggested. While the media quickly glossed over the surface of the report there were very important underlying variables that tell us much about the economy ahead. The problem is that there is little historical precedent in the U.S. as to whether maintaining ultra-low interest rate policies, and inducing liquidity, during a balance sheet deleveraging cycle, actually leads to an economic recovery.  This is particularly troublesome when looking at a large portion of the population rapidly heading towards retirement whom will become net drawers versus net contributors to the economic system. The important point for investors, who have a limited amount of time to plan and save for retirement, is that "hope" and "getting back to even" are not successful investment strategies.



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Santelli Vs. Liesman; Broken Pipes, Trickle-Down Frowns, And 'Imaginary' Inflation

In a little under seven minutes, the world of CNBC provided something for everyone in this epic confuse-a-rama between Rick Santelli, Steve Liesman, and Brian Sullivan. The president's jab at 'trickle-down' economics (with an eye to Bernanke's recent asset-wealth-inflation efforts) was the premise for the discussion but it went to an 11 on the Spinal Tap amplifier of self-deception and circular logic. The question is initially well-posed and subsequently addressed by Santelli who describes the broken pipeline from the Fed to the bank's reserves that is not allowing trickle-down of Bernanke's largesse. Liesman argues that the lowering of rates helps borrowers (all the middle-class apparently) as they pay lower costs on their debt (seemingly ignoring the fact that Santelli just said the 'flow ain't happening' - and the fact that retail-to-wholesale mortgage spreads are at record highs). This is then followed by Sullivan with his insightful quip that the inflationary by-product of Bernanke is higher costs of food/energy which buffers the benefits of lower interest costs... and that is where Liesman goes into full-propaganda mode...



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Stocks Ramp, PMs Ramp More, Oil Ramps Most

The world and their mum will be overjoyed all is fixed again in Spain and Apple can be bought safely as today's ramp-a-palooza in risk-assets indicates. However, the 100-pip run in EURUSD which 'correlated-ly' ramped everything did more damage than good in the long-run as Oil prices surged off their 'see QEternity inflation is only transitory' way. WTI topped $92 (up over 3% off yesterday's lows) as Gold and Silver surged on the day to end up around 0.25% on the week (in the face of a 0.25% strengthening in the USD on the week). JPY strength and moreover EUR's push dragged the USD 0.5% lower from yesterday's peak and provided just the lift to get the S&P back to Monday's lows, filled a gap in AAPL's chart and lifted the financials ETF briefly back up to unch from pre-FOMC. Volume and trade size was large as we ramped and drifted once we topped - which smells a lot like pros selling into a stop-run-driven strength. Equities pulled back into the close (even as VIX limped back under 15% down almost 2 vols today) catching down to risk-asset's slightly less ebullient perspective.



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What Student Loans Are Really Spent On

There was a time when student loans, now almost entirely funded by the US government, and thus a general obligation of all US taxpayers who however have no recourse to ever collect on any collateral, were spent on such trivial things as, well, higher education. Sadly, it appears that that is increasingly no longer the case. To wit: "feds accuse Newport man of using school loans on drugs, motorcyles, games and tattoos." At least no iPhone 3, 3S, 4, 4S or 5 was purchased using private and taxpayer cash.... in this case.

 



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Egan-Jones Downgrades Spain To CC From CC+

"Hoover-esque. Spain's has unemployment near 25% and yet the govt is proposing tax increases and a raiding of social security funds in an effort to rein-in its budget deficit. (The deficit was 4.77% for the first 8 months.) The rub is whether Spain will be able to cut enough to obtain  EU support (probably) and whether there will be an eventual haircut for current debtholders (probably). Catalonia, Valencia and other regions will probably need $20B of aid, the sen. debtholders of the weak banks will be forced to take losses, and there might be some sharing of losses among all banks. An estimated decline in GDP of 1.7% (per the Economy Ministry), the IIF's recent estimate of addl bank loan losses up to EUR260B, and depositor flight hurt. From 2008 to 2011, Spain's debt jumped from EUR436B to EUR735B while its GDP declined from EUR1.09T to EUR1.07T."



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Summarizing What Spain Just Announced, And What Was Left Unsaid (Hint: Cash)

With EURUSD now 100pips higher, equities holding gains, and Monti confirming to the world that his Spanish friends have made considerable moves here, we leave it up to BNP to point out the sad reality of what we have just been sold. The 2013 budget does indeed focus on spending cuts (worth potnetially 0.75% of GDP next year) which is providing a headline of epic austerity, but the use of the social-security fund to buy time, the overly optimistic growth forecasts for 2013, and the lack of detail on structural reform was disappointing (or should have been to anyone who actually listened). It seems Spain has effectively agreed the terms for financial aid, without agreeing the terms of financial aid and while their hope is that the leftovers from the banking bailout fund will ease some pain; it seems the regional angst (Catalonia for example) and the fact that, as we noted a month ago, Spain only has enough cash to see it through to October, leaving them likely to need EUR30-50bn minimum asap.



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Ambrose Evans-Pritchard's Contrition

In a fiery article written today, Telegraph's Ambrose Evans-Pritchard unleashes a scathing critique of Europe's AAA club for daring to demand that Spain actually follow through with what they have been pretending to be doing, namely cutting spending and promoting improved government tax collections. We now know that Spain did neither, with spending increasing while tax revenues dropped from last year (and as we will not tire of pointing out, if the government has lost sight of the ball, and the economy is collapsing, it is not due to a cut in spending but due to its own inability to govern - something the people in a democratic regime usually are quite capable of fixing on their own). But complying with agreements in a broke Europe is not part of the New Normal. His summation, phrase briefly is as follows: "We discover – yet again, you might say – that Germany, Holland, and Finland will not stand behind their solemn pledge of solidarity when push comes to shove. Spain’s premier Mariano Rajoy has been betrayed. Nobody should be entirely surprised if he and the Spanish arch-nationalists in his circle offer a condign riposte, and bring down the entire temple on the heads of the creditor powers." Of course, none of that is true, and what Germany, Holland and Finland are doing is doing their best to get dragged into the money pit that the rest of their insolvent socialist neighbors can so efficiently dug in the last several years.  What the article really is, is simply Ambrose's contrition for misreading the balance of power in Europe. Like so many others, he was all too eager to swallow the misdirection narrative that as a result of Mario Monti's stubborn gambit at the June 27th Euro-summit, the balance of power had finally shifted from the exporting, rich and quite solvent nations, to their liquidity and bailout addicted neighbors, something we claimed all along was a major mistake.



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Guest Post: Two No-Brainer Ways To Play Rising Food Prices

Last summer, two researchers from the New England Complex Systems Institute published a short paper examining the correlation between rising food prices and civil unrest. It was a timely analysis, to say the least. A number of food riots were occurring throughout the world, not to mention waves of revolution sparked by the high cost of food. This is nothing new; throughout history whenever people have struggled to put food on the table for their families, social unrest has been a common consequence. If food prices continue to rise, agriculture will be one of the best investments of the decade. Even if all the world's food challenges are magically solved, it's hard to imagine being worse off for having your own food supply.

 



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Berlusconi's Back With A New Grand Plan?

Presented with little comment as the populist media mogul steps back into the European political landscape with these little beauties:

  • *BERLUSCONI SAYS EURO A `SCAM' WITHOUT CENTRAL BANK BACKING IT
  • *BERLUSCONI SAYS GERMANY LEAVING EURO WOULDN'T BE A TRAGEDY
  • *BERLUSCONI: BAILOUT CONDITIONS WOULD LEAD ECONOMY TO COLLAPSE
  • *BERLUSCONI SAYS ITALY RISKS HEADING TOWARD 'ENDLESS CRISIS'

It appears he has a new plan then - Allow Germany to leave; and let the rest of the broke insolvent European countries print themselves to socialist utopia. Vote Bunga...



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