Tyler Durden's picture

The Electrical Grid May Well Be The Next War's Battlefield

We talk a lot about Peak Cheap Oil as the Achilles' heel of the exponential monetary model, but the real threat to the quality of our daily lives would be a sustained loss of electrical power. Anything over a week without power for any modern nation would be a serious problem. When the power goes out, everything just stops. A blackout of a few hours results in an inconvenience for everyone and something to talk about. But one more than a day or two long? Things begin to get a bit tense; especially in cities, and doubly so if it happens in the hot mid-summer months. Anything over a week and we start facing real, life-threatening issues.



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Where The Real Inflation Is

Despite being dismissed as "noise", inflation is here and it's rising. As the following chart shows, if you eat, drive, use electricity, or live in a house, you are paying dramatically more this year than you did last year. On the bright side, if you wear clothes or use electronics, prices have dropped (but remember deflation is bad...). How much longer can the Fed pull the wool over the eyes of the people?



Tyler Durden's picture

On Janet "Pump-And-Regulate, Baby" Yellen's Acting Skills

Fed history is riddled with examples of how ‘too-low-for-too-long’ Fed policies have created booms that caused busts.   The crazy irony now is that current policy is specifically trying to create the boom with the belief that rules, promises, and a gradual change of any policy will be enough to massage a soft landing.   Equally disturbing is the fact that the FOMC appears to believe that it has no choice but to keep policy exceptionally easy, because with rates at zero, it has no bullets left should the economy falter.  It reminds me of that movie when Sargent Foley (Louis Gossett) was trying to get Mayo (Richard Gere) to quit boot camp and a broken Mayo cries out, “I’ve got nowhere else to go”.



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Russian Sanctions Retaliation Escalates: Dumps Intel/AMD And Now Foreign Cars

Ignoring for one second yesterday disastrous air crash in Ukraine, the 'boomerang' of sanctions continues to be thrown back and forth between the US and Russia. Having restricted Russian firm's access to USD funding, Putin has come out swinging. His first act was to demand that state departments and state-run companies will no longer purchase PCs built around Intel or AMD processors (which might explain AMD's slashing their outlook); but now he has hit out at the heart of what has made America great (in the eyes of some) - banning the use of foreign cars for officials in favour of home-produced cars.



Tyler Durden's picture

This Is Not Your Grandma's Business Cycle

Presented with little comment aside to ask - in all frankness - does this look like a 'recovering' economy five years after a central bank unleashes its extreme monetary policy?



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Chinese Commodity Contagion Leads To First Letter Of Credit Settlement Failure

At the heart of the China Commodity Financing Deals (CCFD) is the ability to leverage a letter of credit on the basis that there was some collateral somewhere that backed the risk of this rehypothecatable 'money'. Until now, the biggest concern has been "where's my copper, nickel, gold, etc..?" as the Qingdao ponzi scheme is unveiled; but, as Metal Bulletin reports, the contagion from the exposure of CCFDs ponzi has now hit Western banks. At least one western bank has stopped discount financing of copper into China after Industrial & Commercial Bank of China (ICBC) applied for the right not to settle a letter of credit it issued earlier this year, as a result of the Qingdao investigations. In other words the collateral chains were just snapped...



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The Coming Crash Is Simply The Normalization Of A Mispriced Market

To those who believe the correlation of Fed monetary heroin and the stock market is eternal and cannot possibly come undone, please consider this line from songwriter Jackson Browne: "Don't think it won't happen just because it hasn't happened yet."



Tyler Durden's picture

Friday Humor, "Blame It On ..." Edition

Remember: when central planning works (almost exclusively in the form of another all time "market" high, if not so much in the increasing frequency of wars and conflicts around the globe) it is because the Fed's policies worked. When, however, it doesn't, it's the snow's fault, or the heat, or, in this case, the rain.



Tyler Durden's picture

5 Things To Ponder: Yellen Talk

What if Janet Yellen is wrong?



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Stocks Shrug At Global Disorder, Squeezed Back To Record Highs

Just imagine how high stocks would be if more jets were shot down in Ukraine, more ground operations were unleashed in Gaza, more sanctions were placed on global growth, more European and US macro data disappointed, more job cuts at major firms, and more European banks declared bankruptcy. Today's farcical Friday surge (with the Nasdaq up 2% from its overnight lows and 30 point rip in the S&P) appears 100% based on the squeezing of "most shorted" stocks (best day in over a month) and the ramping of AUDJPY.  Credit markets ignored the idiocy; Treasury markets ignored it; The USD went nowhere (after EUR dumped on Italy downgrade then recovered). Gold, Silver, and Copper all closed down 2-3% on the week (given back yesterday's gains) as Oil surged 2.2%. VIX dropped over 2 vols to close with a 12-handle (but disconnected notably from stocks at the close). It's not all ponies and unicorns though - Biotechs are down 5% from Yellen's comments and the Russell 2000 closed red for the 2nd week in a row (and still -1% year-to-date). Best Dow Friday in 5 months (up 11 in a row).

 



Tyler Durden's picture

Happy Birthday Paper Money: 353 Years Of Wanton Destruction

On July 16, 1661, the bank of Johan Wittmacher - a Latvian merchant of Dutch descent - became the first in history to issue paper banknotes - Kreditivsedlar. After only seven years, the bank collapsed. But the idea of paper notes lived on to infect the evolution of money ever since. Today’s commercial banks take in customer deposits, maintain a laughably small portion in reserve, and use the rest of our money to make idiotic loans for their maximum benefit. When they fail, they’re bailed out by taxpayers and do the same thing all over again. In Wittmacher’s time, this was fraud. Today it’s not only legal, it’s the industry standard. So... happy birthday paper money. It’s a hell of a system you’ve brought us.



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High Yield Bonds Are Flashing Red Again

There is a glaring divergence between the performance of US equities and high-yield credit's spread over investment-grade credit. As BofAML warns, "either HY rallies or stocks soon in a bit of trouble," because the only pillar left to hold up the fragile un-bubble-like stock market - buybacks - will disappear if costs of funding start to surge (there's always a limit to the leverage a credit cycle will bear). The more concerning aspect is that it appears investors are already rushing for the doors... as this week saw the largest HY outflows in over a year.



Tyler Durden's picture

Holding Company Of Portugal's 2nd Largest Bank Just Filed For Bankruptcy Protection

Following this morning's farce of huge investor demand and then Bank of Portugal's Costa 'hoping' for demand from investors willing to pile more money on losing money into Espirito Santo, it appears things have escalated rapidly...

*ESPIRITO SANTO INTERNATIONAL SAYS IT CAN'T MEET OBLIGATIONS
*ES INTERNATIONAL APPLIES FOR `CONTROLLED MANAGEMENT' REGIME UNDER LUXEMBOURG LAW

The "controlled management" application is the equivalent of declaring a breakup or controlled bankruptcy process (as we explained here). ESI is the ultimate HoldCo in the Banco Espirito Santo family.



Tyler Durden's picture

US Foreign Policy Toward Russia In Two Charts

"Costs" and "Consequences"... not only has US foreign policy enabled Vladimir Putin's approval rating to surge to record highs but, perhaps more importantly, it has driven a massive wedge between the West and the rest...



Tyler Durden's picture

Why One Big Bank Is "Worried That The Market Is Stretched And Could Correct Rapidly"

We show that equity markets are stretched (e.g., more than 80% of the S&P rally since last year is due to re-rating), but we also find that the fixed income market has become quite rich (we have been overweight European peripherals for more than a year on valuation grounds, we show that this argument no longer holds), and the same is true of the credit market. Second because capital has been flowing rapidly into risky assets, we document that argument and here too find evidence that the market might be ahead of itself. We read the market reaction last week to the Portuguese news as a sign that the market is indeed too complacent and could correct rapidly.



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