While various three letter economic schools of thought continue sprouting left and right, in an attempt to validate endless spending predicated on one simple thing: transitory reserve currency status, and we emphasize transitory, reality moves on, oblivious of what economic theoreticians believe it should be doing. As Yomiuri Shimbun reported last night, China and Japan are set to launch direct currency trading, bypassing the dollar, and the associated benefits and risks, entirely. "But how can that be?" dollar purists will scream. After all, when one bypasses the dollar, one commits blasphemy to a reserve currency. Somehow we think China gets that. From the AP: "Japan and China are expected to start direct trading of their currencies as early as June as part of efforts to boost bilateral trade and investment, according to reports. With the planned step, exchange rates between the yen and the yuan will be determined by their transactions, departing from the current "cross rate" system that involves the dollar in setting yen-yuan rates, Kyodo News said on Saturday."
We present the following postcard we just got from Sweden. We can only hope this is a very isolated incident of people enjoying to wait in line for a few pieces of paper, completely devoid of any contextual reference. That, or they are all suddenly applying for a mortgage, or in the best case, merely enjoying the wonderful weather, just incidentally next to a branch of one of Sweden's largest banks.
If you cannot read the writing on the wall then allow me to read it for you. The European Union has abrogated the Rule of Law for the good of the State. This is the second such abrogation with the first being the exemption of certain European institutions and the IMF from the Private Sector Involvement of Greece. Greece may be a one-off exemption as they claim but we now have a second instance where jurisprudence has been overturned for the good of the nations of Europe. This is not Socialism or Capitalism but rather some sort of Fascist governance which I publically decry as the echo of the jackboots sounds across the Continent once again. The precedents have now been set and the future is clearly marked by a return to the totalitarianism of a politically controlled State. My advice is therefore succinct:
The dream of virtually anyone who has ever traded even one share of stock has always been to generate above market returns, also known as alpha, preferably in a long-term horizon. Why? Because those who manage to return 30%, 20% even 10% above the S&P over the long run, become, all else equal (expert networks and collocated flow-frontrunning HFT boxes aside), legendary investors in the eyes of the general public, which brings the ancillary benefits of fame and fortune (usually in the form of 2 and 20). This is the ultimate goal of everyone who works on Wall Street. Yet, ironically, what most don't realize, is that these returns, or Returns On Investment (ROI), are absolutely meaningless when put side by side next to something few think about when considering investment returns.
Only in public schools and universities is the fairy tale still taught that governments are representative of the people. The blue collared man on the street realizes the chips are stacked against him. For those who don’t have political connections, the pseudo fascist system that is still referred to as “capitalism” in the U.S. is akin to a casino game of chance. That is, the odds are always in the house’s favor. The house is the federal leviathan and its equivalent at the state and local level as well as the big, cartelized industries which feed off government protection. With Obamacare, the middle class will end up being liable for yet another entitlement program that, like any other government initiative, will cost more than was initially estimated. Worse yet, they will be bombarded with advertisements they paid for which attempt to convince them that Uncle Sam has once again delivered prosperity with a badge and a gun. The disheartening part is some Americans will be foolish enough to actually believe it.
In a brief clip from a lengthier discussion between historian Niall Ferguson and ex-Greek PM George Papandreou at this week's Zeitgeist conference, the effusive Englishman lays out perfectly what many are missing with regard to Europe: "Greece is not the problem - it is a symptom of a much more profound malaise that affects the entire monetary union." - just as Lehman Brothers was not the 'cause' of the US's problems. The wasted energy spent moralizing about the 'work habits' of Mediterranean citizens as being the problem is incorrect as this is a European-wide problem - a systemic crisis of European banking and public finance. Papandreou pipes in by noting, in typical toe-the-line manner, that Germany must swerve (in the game of chicken) or there is a major danger of disintegration because "there will be contagion".
On any other occasion, we would translate this title from the German into English, however at this point in the European lifecycle it is self-explanatory. A poll was conducted by Germany's ZDF today, asking many questions, but this one above all. The answers were then compared to a similar poll conducted six months ago. It is pretty clear which way Germany is leaning (certainly not the one suggested by a very clueless Peter Mandelson during the Munk Debates).
Munk Debates Live: "Has The European Experiment Failed?" - Niall Ferguson And Others Dissect Today's Most Critical IssueSubmitted by Tyler Durden on 05/25/2012 - 18:02
Today's most exciting piece of financial analysis and debate has been conveniently saved until early evening, when courtesy of BNN's "Munk Debates" we will get a great discussion on the number one topic of the times: whether the European experiment has failed. Arguing for the argument will be famed historian Niall Ferguson as well as Josef Joffe, while the contra side will be defended by Daniel Cohn-Bendit and Peter Mandelson. Courtesy of BNN: "In the sweep of human history, the European Union stands out as one of humankind's most ambitious endeavors. It encompasses half a billion people, twenty-seven member states, twenty-three languages and an economy valued at over $15 trillion. Modern Europe's stunning achievements aside, its sovereign debt crisis has shaken the world's largest political and economic union to its core. Can the federal institutions and shared values of Europeans meet the challenges of debt crisis that are as much political as economic? Or, are Europe's current woes indicative of a series of deep structural faults that will doom the European Union to breakup and failure?"
While eugenicists and Keynesians make correct descriptive observations — like the fact that certain qualities and traits are inheritable, or more simply that children are like their parents — their attempts to use the state as a mechanism to control these natural systems often turns out to be drastically worse than the natural systems that they seek to replace. As Keynes seems to admit when — in the German language edition of his General Theory — he noted that the conditions of a totalitarian state may be more amenable to his economic theory, the desire for control may be the real story here. Keynesianism brings more of the economy under the control of the state. It is a slow and creeping descent into dependency on the state. As we are seeing in Europe today, cuts in state spending in a state-dependent economy can cause deep economic contraction, providing the Keynesian more confirmation for his idea that the state should tax more, and spend more. That is, until nature intervenes. Just as a state-controlled eugenics program might well spawn an inbred elite suffering hereditary illnesses as a result of a lack of genetic diversity, so a state-controlled economy may well grind itself into the dirt as it runs out of innovation as a result of a lack of economic diversity. Such a situation is unsustainable — no planner is smarter than nature.
FaceBook is now not only the worst (from an investor standpoint) large IPO in the past decade, but by the time Andy Borowitz is done with it, it will also be the funniest. Today, having previously presented the world with the "adjusted" letter from Zuck, and introduced PhoneBook, Borowitz gives us the low down on the Facebook founder's own post-mortem.
Presenting How Carl Icahn Accumulated A 7.5% Stake In Chesapeake In 18 Days, And His Letter To The CHK BoardSubmitted by Tyler Durden on 05/25/2012 - 15:38
Recall when Zero Hedge said two weeks ago that in the age of ZIRP, corporate balance sheets simply do not matter. The reason for that conclusion were of course the endless public debates over whether Chesapeake's massively overlevered capital structure would lead to its demise. Our view was that while balance sheets certainly matter in a normal market, one not dominated by central planning and endless hunger for yield, in the new ZIRP normal, none of the old school metrics of solvency, viability or even profitability matter. One person who appears to have agreed with our assessment, and put his money where his mouth is, or $775MM more specifically, is none other than legendary corporate raider Carl Icahn, who minutes ago announced that funds controlled by Icahn have raised their stake in CHK to 7.56%, making him the second biggest holder of the stock, and in a letter just sent to the CHK Board, in rather angry tones, demanded 2 board seats for his own representatives and 2 for Chesapeake's largest shareholder Southeastern Asset Management. Below we chart just how it is that beginning on April 19 at a price of $18.03, Icahn's funds accumulated over a period of 18 days, a total of 49.4 million shares of stock at what appears to be a Volume Weighted Average Cost of $15.70/share, meaning that as of the stock spike on this announcement he is currently in the money.
S&P 500 e-mini futures closed at 415ET today at 1314.75 which is the lowest close of the week, with Monday's surge providing all the juice for what seemed a hope-driven rumor-ridden few days.Tough day today for recent darlings of the dumpfests FB and JPM - as the former tested back towards 31 the figure and the latter retraced all its post-Wednesday-ECB-rumor-ramp gains - before a late pop helped it out (-1.5% today). Volume was expectedly low and average trade size equally dimsally low as yesterday. Stocks repeated the same pattern today, retracing all of their late-day-ramp gains and reverting back to credit's reality but we note that HYG was a significant underperformer today - as credit markets went dead into the last hour. For the week, commodities have seemingly regrouped from mid-week dispersion but are generally lower (despite a positive last couple days for Gold and Silver) but are outperforming the implied weakness from a 1.6% gain in the USD on the week as EURUSD went out at its lows around 1.25. Slow day with only Utilities managing gains in stocks today but Gold and Silver appeared to be the beat-adjusted winners as them and the USD gain from Europe's fears. Interestingly Gold and Stocks recoupled by the close - beta-adjusted, with USD and Treasuries pointing to lower risk asset prices. And as an FYI - Facebook's VWAP post-IPO is now $37!
Because maybe, just maybe, the woman tasked with bailing out Europe would at least know where it is.
Back when Dexia was nationalized in the fall of 2011, one of the running jokes was that it was the bank that had one of the highest grades in the European Stress Test conducted just months prior. Here is another joke: we now know that Spain's Bankia is the next major financial institution which is being nationalized, and whose bailout costs are literally growing by the hour. Was Bankia one of the Stress Test 2011 failures? Why of course not... But 5 other Spanish banks were.
We have discussed the realities of Spanish (and Italian and Portuguese and Greek) debt to GDP data relative to the official estimates a number of times over the past few months and just as Mark Grant tells Rick Santelli today, the sugar buzz of self-financed sovereign bond buying hides the truth - until now when that liquidity is fading. From inaccurate data to LTRO ineffectiveness, 'Grantelli' sum it up nicely as the 'Bond Run' we have seen over the past few months (as professionals flee European banks and sovereigns) has now trickled down to the man-in-the-street and their equivalent - the bank-run.