I'd say the world's biggest bubble is real estate in China, but real estate bubbles are just starting to deflate elsewhere, too—in Australia and Canada, for example. It's relatively hard to short real estate, of course. Shorting bank stocks is an indirect way to play it. I'd say bonds are the short sale of the century. They're going to be destroyed. Bonds pose a triple threat to capital because:
- Interest rates are artificially low, and as interest rates rise—which they must—bonds will fall.
- Bonds are denominated in currencies, and most currencies, let's say dollars, are going to lose a lot of value.
- The credit risk of most bonds, certainly those issued by governments, is high.
On the long side, mining stocks are very cheap relative to the price of gold right now. I'd say there's an excellent chance of a bubble being ignited in gold mining stocks, especially the small ones; in fact, I'd put my finger on that as likely being the easiest way to make a killing.
Following the FT's news that (totally un-shockingly) there is disagreement among European member countries over pretty much everything, equities (and broader risk assets) rolled over and accelerated to the downside. We had been pointing to the early weakness in credit markets (especially European financials) as a signal that the rumors were made of nothing and that the rally in equities was starting to get ahead of itself - having been jump-started yesterday by a small cap short-squeeze (and potentially some asset allocation decisions which may have also impacted equities)but the velocity of the retracement was still surprising. The S&P lost 30pts from its highs, HY ended wider on the day (risk appetite seems low given new issue concessions) and financials in the US managed a small bounce off unchanged right before the close after giving up over 3%.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 27/09/11
About a month ago, after everyone in the wholly conflicted media (just ask one question: who pays all that advertising money - nuf said), on both the left and the right, was ignoring the most promising presidential candidate this country has had in decades, Jon Stewart decided to take Ron Paul under his wing, and made it clear that while those who don't matter can pretend to ignore Ron, the one man who does, and who reaches more than most of the legacy "serious media" combined, has certainly noticed Paul. Naturally Stewart could have left it there, especially given his own personal political view. To his great credit, he did not. Instead last night in an extended exclusive interview, he presented Ron Paul in a way that he should have been presented from the beginning: no tricks, no gotchas, no gimmicks, no commercial breaks every 45 seconds. Hopefully this is the beginning of the transition of the Paul campaign to one where he has enough critical mass to be taken seriously by everyone - something "everyone" should be doing regardless.
FT Report That Greek Bailout Package On The Verge Of Collapse After Surge In Greek Funding Needs Sends Stocks, Euro Plunging From HighsSubmitted by Tyler Durden on 09/27/2011 - 15:27
Wondering what just caused the market to slump? Take a wild guess. That's right - Greece. Minutes after Greece passed a vote in which it promised to promise to promise to consider collecting 1998-1999 taxes (even as all of its tax collectors are about to go on permanent strike), the FT was breaking news that while the Troika was "bailing out" Greece in the past years, the country was spending itself into an even greater oblivion. As a result, the terms of the July 21 Second Greek Bailout will most certainly need to be renegotiated, with banks having to take even greater write downs on the bond exchange, and with far more capital having to be injected into the country. The result is the France and the ECB are panicking because as we all know, any additional write downs will expose just how undercapitalized French banks already are (no need to even mention the world's most toxic hedge fund: Trichet et Cie). Should this story pick up traction, look for Europe to open limit down again tomorrow.
Presenting A Post Mortem Of "Anonymous" First Trade Reco: Anon To Give Muddy Waters A Run For Its Fraudbuster MoneySubmitted by Tyler Durden on 09/27/2011 - 14:57
Yesterday we reported on the historic transition of Operation Anonymous from a loose, disorganized, and quite dangerous hacker collective, to a (substantially more) organized, opaque, unregulated, and seemingly, quite effective and just as dangerous research organization. As Zero Hedge first reported, yesterday Anonymous (which is now known as Anonymous Analytics) came out with a report on (then) $HK 8.5 billion Hong Kong agri-firm Chaoda, alleging the company is a total fraud, and that its stock will soon be delisted. So how did Anon do when the stock opened for trade late last night Eastern time? See for yourself. It looks like Muddy Waters has finally got some competition. We can't wait until these dedicated short sellers finally shift their attention away from China, and start taking down the ponzi monstrocities of our own stock market...
BBC Releases Official Statement On Alessio "The Trader" Rastani: He Is Perfectly Legit And The Interview Was Not A HoaxSubmitted by Tyler Durden on 09/27/2011 - 13:58
Zero Hedge's post yesterday of a trader telling the BBC how he (and everyone else) really feels about the current cataclysmic situation, went viral, and as of this writing, was about to generate 100,000 hits (legit ones: no slideshows were massacred in the creation of a some CPM abortion). Needless to say, the trader in question, Alessio Rastani, very suddenly and violently entered the public's eye, the most amusing side effect of which was the emergence a fringe group claiming that just because he looks like some other guy, that he is a spoof, and this was immediately used by the conventional media to attempt to discredit him. And as usually happens, this has backfired. The BBC has just released a statement confirming that Rastani is, indeed, a trader, and that all those (Forbes) who have nothing better to do than to attack the messenger and not the message, may be better advised to taking a Math 101 class and realizing why we are all scroomed, instead of polishing their character assassination skills. To everyone else who attempted to marginalize Rastani, "suck it" is not exactly what we would like to say, but it sure does the job. And to that we would like to add that just because Larry Summers is a spitting image of Jabba the Hut, that does not make him an automatic member of the "Tattoine Men" comedy troupe.
Today feels just like it did in 2008. We had almost as many manic up days back then as crazy down days. Remember how we were saved when Fannie and Freddie got put into conservatorship? Remember how all was good when AIG was taken over by the government? Then we sold off the day that TARP failed, but rallied when it passed? Though by the time it was signed into law, the market was already selling off again? Or that weekend when the TARP infusions were made? That suddenly TARP was available to shore up the capital of banks? And the FDIC put in the Temporary Loan Guaranty Program so that banks could issue bonds guaranteed by the FDIC and that the depositor insurance amount was increased? And reflecting on today's price action in Europe, maybe credit just started to realize that the backdoor tricks to increase the size of EFSF are unlikely to work, and that the guy with the credit card (Germany) seems reluctant to let everyone use it. Maybe they actually like being AAA!
While Fed's Lockhart earlier opined on his 'hope' that rates will drop under 'Twist' (and we remind him that all but the 30Y are now higher in yield than before Twist was announced) but expects its impact to be modest, Fed's Fisher just lost-the-plot with his truthful explanation on why he dissented. Speaking in Dallas, Bloomberg reports some rather refreshingly honest headlines from the outspoken Fed President:
*FISHER SAYS FED POLICY `HAS YET TO SHOW EVIDENCE OF WORKING'
*FISHER SAYS BENEFITS OF OPERATION TWIST DON’T OUTWEIGH COSTS
*FISHER SAYS RECENT FOMC POLICIES LIKELY TO BE INEFFECTIVE
*FISHER SAYS FOMC POLICIES MAY WORK AGAINST JOB CREATION
*FISHER SAYS OPERATION TWIST WILL INCREASE INCENTIVES TO SAVE
Still confused by the 500 DJIA point rally in 48 hours? You are not alone. Here is David Rosenberg guaranteeing that your confusion will be even greater when you realize that nothing has really changed, suffice to say that the record confusion has provided the best smokescreen for nothing short of a collusive global window dressing session for massively underwater hedge and mutual funds.
If you’ve followed this letter for any length of time, you know that I tend to roam around the world with great frequency; we’ll typically have these conversations across 40 to 60 countries in 6 continents over a year’s time. Lots of international travel means lots of silly stamps, seals, and stickers to fill up the visa pages in my passports. Even though I have multiple passports, they tend to fill up within 18-months or so given my travel schedule. My current US passport, for example, was issued last February while I was in Thailand. By late summer, there was barely a single square inch of space remaining, so today I had the unfortunate displeasure of heading down to the US consulate in Cape Town to have them insert more pages. Each time I’m forced to demean myself in this way– sitting around those sterile government waiting rooms and filling out useless paperwork only to justify the salary of some bureaucrat– I have plenty of time to reflect on the nature of this system.
Remember the below chart which we are so fond of posting on Zero Hedge occasionally? Well, it will have to be redone very soon, because the SEC has just submitted a proposal for public comment to cut market-wide circuit breakers in half from the current thresholds of 10%, 20% and 30%, by 33%. And if the SEC is actually proactively looking at something such as marketwide circuit breakers, a glaring admission that vol is about to surge, but not quite enough to actually trigger the 30% market collapse needed for a full day market halt, then all hell must be about to break loose.
The onslaught of denials appears to have met its denouement in credit markets while equities find it harder to turn on 'real' news. The drivers of the strength from early Friday have been financials, particularly European financials, and while the rally has been persistent on both sides of the pond, the last few hours have seen a dramatic disconnect between the reality perceived by credit market participants and the machines/traders in equity markets with the former notably weaker.
In a brief note this morning from Goldman, the correlation between European equities and bond yields is noted at a 40-year high - above the levels reached in the initial credit crunch period of '07/'08. They find that the rolling correlation is highly dependent on the absolute level of bond yields and at current levels is very indicative of significant growth concerns (much more so than any inflation fears) and furthermore that the relationship is starting to look a lot like the lost twin-decades in Japan.
If there has been one consistent theme since day one at CI, it has been our perhaps near myopic focus and focal point highlight of importance that is the macro credit cycle. Does this play into long wave and perhaps Kondratieff cycle or Austrian economics type of thinking? Call it what you will, but elements of all of these schools of thought very much overlap. Right to the point, we believe THE key thematic construct to keep in mind as a macro cycle decision making overlay and character point dead ahead is the now more than apparent collision of the generational long wave credit cycle with the current short term business cycle of the moment. Without trying to reach for melodrama, this is the first time a multi-decade long wave credit cycle has collided with the short-term business cycle since the late 1920’s/early 1930’s. Most decision makers and Street seers of the moment have absolutely no experience with this type of a generational collision. Moreover, our illustrious academician Fed Chairman has never even considered long wave or credit cycle based Austrian economics thinking in his and the broader Fed’s policy making – absolutely key and crucial mistake. Although it’s just our perception, this will be Bernanke’s legacy Waterloo. It also tells us directly that his only policy tool ahead will be more money printing.