America's Bubble Economy Is Going To Become An Economic Black Hole

What is going to happen when the greatest economic bubble in the history of the world pops?  The mainstream media never talks about that.  They are much too busy covering the latest dogfights in Washington and what Justin Bieber has been up to.  And most Americans seem to think that if the Dow keeps setting new all-time highs that everything must be okay.  Sadly, that is not the case at all. Right now, the U.S. economy is exhibiting all of the classic symptoms of a bubble economy. What we are witnessing right now is the calm before the storm.  Let us hope that it lasts for as long as possible so that we can have more time to prepare. Unfortunately, this bubble of false hope will not last forever.  At some point it will end, and then the pain will begin.

Dead Cat Bounce Deja Vu Ends 2nd-Worst Week Of The Year For Stocks

The 2nd worst week of the year (2nd only to Cyprus) for US equities was accompanied by Treasury buying as the JPY carry trade unwind continues in every risky-or-'yieldy' product. On an admittedly low volume day (typically good for a magical levitation in stocks), Treasury markets closed the day unchanged (and 30Y bonds ended the week unchanged). Stocks bounced after testing yesterday's intraday lows but intriguingly (Mrs. Watanabe?) it was Utilities that were the hardest hit sector on the day as stocks fell back rapidly after bonds closed finding balance at VWAP. The JPY strength weighed on the USD as it fell 0.7% on the week with gold and silver both up notably relative to other asset classes (+1.8% and 0.5% respectively). The last minute of the day saw a ridiculous instantaneous spike to take the S&P 500 to their day-session highs to desparately try to regain green on the day (SPX cash closed -0.87 points). Futures closed green with an 8 point run from 455ET (as we note no credit police were around to stop the idiocy).

The Rich Actually Are Different

With the long-weekend rapidly approaching, ConvergEx's Nick Colas takes a trip to the Hamptons, but through a time warp back to the Great Depression.  Examining the social registers (colloquially called the “Blue Book”) from 1927 and 1940, he finds that “The great and the good” of the day had real trouble holding their status during the social upheavals of the late 1920s and 1930s.  Only 32% of the families appearing in the Blue Book in 1927 were still there in 1940.  The ratio was even worse, at 29%, for the ultra-elite who belonged to the Meadow Club in Southampton.  It’s too early to tell what the last few volatile years will do to the upper crust of East Coast society, of course.  Or what may still be in store.  But when the hedgie in the Bentley cuts you off on Route 27 this weekend, take some solace in knowing he may not be there in a few years. “Yes, the wealthy are different. Every year there are different wealthy people.”

The Hamptons Weekend Disconnect

Today's binary message to vacuum tubes: "ignore the last available signal that has driven the market for months and make sure stocks close green" - simply just not to leave a bitter taste in the mouths of all those billionaire hedge-funders enjoying the launch of Hamptons season. The other best hope is that volume tapers (sorry Hilsenrath, we just said the word, oops) to zero, in which case the DJIA (now that nobody even pretends to care about the S&P) may just close limit up on a 1-lot trade.

RANsquawk Weekly Wrap - 24th May 2013

Explaining This Week’s Market Jitters In One Chart

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BNP Warns On Japanese Repression: Echoes Of The 1940s Fed

In the 1940s, the Fed adopted pegging operations to protect the financial system against rising interest rates and to ensure the smooth financing of the war effort. In effect, the Fed became part of the Treasury’s debt management team; as the budget deficit hit 25% of GDP in WW2, it capped 1Y notes at 87.5bps and 30Y bonds at 2.5%. From the massive bond holdings of its domestic banks to its exploding public debt, Japan today faces a situation very similar to the US in the 1940s. When the long-term rate climbs above 2%, the BoJ will probably adopt outright measures to underpin JGB prices to prevent turmoil in the financial system and a fiscal crisis - and just as Kyle Bass noted yesterday, they are going to need a bigger boat as direct financial repression in Japan is unavoidable.