For what may be the best look at the future of the world's most recent Banana republic entrant (the U.S.S. of A. for the confused) has to look forward to, we need to merely shift our attention at another one, which has had the privilege of experimenting with its Banana status for far longer: Bangladesh. After the stock market plunged on Sunday by 552 points or 6.72%, hundreds of angry investors took to the streets, "threw bricks at police, marched in the streets shouting slogans, and staged a sit-down protest." These very same "investors" which have and always will be better known as momo investors, which chase returns only to end up with the live grenades, "chanted slogans against the government and the regulators, and marched
through the busy roads in the Motijheel Commercial area, halting
traffic. They also staged a sit-in at the SEC building." The reason for the recent mass hysteria in chasing stocks: pretty much the same as what the Fed is trying to do right here in the US: "The rising value of the stocks in recent years has attracted hundreds
of thousands of small-scale or retail investors in Bangladesh, says the
BBC's Anbarasan Ethirajan in Dhaka. It became a popular investment for ordinary people, often providing higher returns than bank deposits and savings." Well, with the USA today posting an article with the following title on its cover page: "Experts agree: Get over your fear and get back into stocks ", and more incredulously, when one of these so-called experts is none other than David Bianco, the same utterly irresponsible creature who in October 2008 cut his 12 month S&P forecast from 1650 to 1500, well there is nothing much left to say: Bernanke has succeeded in converting America into a third-world subcontinent country.
The upcoming week will be largely one where absolutely nothing happens. Anemic volumes will continue to be anemic, outflows will continue, and nobody will care about news flow or technicals. That said, here is Goldman's analysis of the few items that actually may matter.
Sean Corrigan On Six Sigma Events In The Bond Curve, "Inexorably Rising Risk", And Other ObservationsSubmitted by Tyler Durden on 12/19/2010 - 15:31
Diapason Securities' Sean Corrigan is rapidly emerging as one of our favorite macro commentators. With his dose of weekly skepticism, he has quickly assumed the position vacated by Goldman Sachs' Jan Hatzius when it comes to the 3Ms: market, monetary and macroeconomic commentary (courtesy of the now well-known and very infamous flipping by the German strategist on his outlook on the economy). In his latest outlook piece, Corrigan dissects recent moves in the bond market, noticing a 6 sigma, three-decade statistical aberration when it comes to the 2s5s30s butterfly, and continuing through the implications of increasing bond vol on other risk assets (a topic which we believe will receive much more focus in the coming weeks and months), on fund flows (his views on the implications of the December Z.1 statement are worth the price of admission alone), on the cooling off of the European "economic miracle", and lastly, on what China's refusal to attempt a soft landing means for global risk. His conclusion is as always absolutely spot on: "in short, that risk assets can continue to rise, pro tem, it also means that RISK itself will be climbing inexorably up the scale and on into the danger zone."
The Next Stop In Obama's Political Suicide Tour: Announcing Social Security Cuts During State Of The Union AddressSubmitted by Tyler Durden on 12/19/2010 - 13:42
Obama's latest quid-pro-quo with the republican party over a doubling down on fiscal stimulus in the form of mutual back scratching, funding by yet another trillion in debt, may have well be the start of his toxic spiral to the the bottom of political insignificance. According to Politico, "The tax deal negotiated by President Barack Obama and Senate Republican leader Mitch McConnell of Kentucky is just the first part of a multistage drama that is likely to further divide and weaken Democrats." Next up on the path of what many see as the terminal alienation of the president from his liberal constituency, will occur during the next State of the Union Address, when the teleprompter in chief is expected to announce cuts in Social Security, according to Politico which quotes "well-placed sources." Why will the president pretend to espouse even an ounce of fiscal prudence? Because, around that time the discussion over the US debt ceiling will be in full heat: we expect total US debt to be about $14.1 trillion by the end of January: just a $200 billion buffer from the debt ceiling breach. Therefore, as Robert Kuttner of politico speculates: "The idea is to pre-empt an even more draconian set of budget cuts likely to be proposed by the incoming House Budget Committee chairman, Rep. Paul Ryan (R-Wis.), as a condition of extending the debt ceiling. This is expected to hit in April." And as Kuttner once again phrases it best: "How to put this politely? For a Democratic president, this approach is bad economics and worse politics."
Review Of Europe In 2010, And The 2011 Continental Outlook From The Rosy Prism Of Erik Nielsen; Is A New European Brady Plan Coming?Submitted by Tyler Durden on 12/19/2010 - 12:33
Reading Goldman's economic thoughts as recently as 1 month ago used to be insightful, and in many ways educational (this included its trading recommendations as well: after all, as the saying goes, someone who bats 0.000 - with perfect consistency - is just as valuable as someone who does 1.000). Unfortunately, ever since the firm, buckling under the demands of someone or something, or merely as an expression of its latest counter-agenda, flipped by 180 degrees, we are sad to say that it is nothing less than a complete chore to go through what is now an endless stream of Kool Aid, which while at least trying to be somewhat objective previously, is now like sitting through a Third Reich propaganda movie circa 1940. Which is why we scanned Erik Nielsen's latest "thoughts" on what happened in Europe in 2010 and what he expects to happen in 2011 with only a cursory focus. We present them here for those who care to know what the greater fools will be influenced by (to a little or greater extent). The key topics covered are: "Some thoughts on 2010, what we got right and what we got wrong; Will early 2011 be as bad as everyone seems to expect?; Reiterating my views on rescue or no rescue for Spain and Portugal; And the two key conditions for the longer term." The only really interesting observation is Nielsen's take on the European Plan B should all other measures fail: a Brady type of debt buyback. To wit: "The only real suggestion I have seen so far on this issue was the suggestions by the ECB’s Bini Smaghi, who pointed to a Brady style buyback of debt in the secondary market using loans from the official sector. I like that. As some of you know, I worked on the Brady plan at the World Bank years back, and this venue worked well in several cases." The bottom line is that even according to Nielsen, Europe has to become increasing more entrenched as not only a monetary but also fiscal union, with perpetual backstops at every stop. And since the dollar funding shortfall in the world amounts to over $6 trillion per last year's BIS analysis, said backstop will ultimately have to be funded by the Fed (with the respective consequences to the dollar as the Fed is engaged in printing nearly double digit trillion amounts of US currency). That said, Nielsen is certainly right about one thing: there will be some "amazingly interesting" events in 2011...
The main focus of QE2 is not domestic but international, exporting inflation and forcing BIC's hands. This is highlighted by Brazil's immediate and very public, very undiplomatic response as well as Bernanke's very undiplomatic jab at China shortly after QE2 announcement. In this it's been very successful. BIC have been trying very hard to resist. Although India has given in and raised rates, Brazil and China (along with other export economies such as Japan and South Korea) have been resorting to other means. But for how much longer can they resist?
The topic of Howard Marks' latest letter is gold. The Oaktree Chairman presents one the better comprehensive pieces on the precious metal, laying out both the pros and cons. Presenting the current broad schizophrenia when debating the value of of gold, Marks, in a comparative allegory to 1952 opinion of Noah "Soggy" Sweat on whiskey, Marks states: "I have no doubt: gold is the ideal investment"...yet..."Gold has no financial value other than that which people accord it, and thus it should have no role in a serious investment program. Of this I’m certain." Arguably one of the better two-sided presentations on gold's true value, we are nonetheless surprised that Marks did not reference the opinion of Dylan Grice (and others before him), who analyzes the price of gold in terms of the global monterey supply, which can be read in its entirety here. Nonetheless, as Marks is always one of the most thoughtful observers on markets, this piece is a must read for everyone.
Here's a hint: it's all great. Just like the 10 Year hitting 0% was great for stocks, Jim explains why its round trip bacl to 5% is even gooder. In fact, it may be one of the goodest things to ever happen to the gnome underpants business that Goldman suddenly believes the US economy is: "I would guess that GDP growth could be above 3 pct, and it would not surprise me if some start forecasting close to 4 pct soon...checking my simple stats with Jan Hatzius this weekend, the US stock market would “only” need to rise by around 19 pct in order for the 168 bps rise in government bond yields to be entirely neutralized...Are 5 pct US 10-year yields and an S+P of 1475 possible in 2011? We shall see. In my opinion, a 19 pct rise in the US stock market seems quite likely. As for 5 pct bond yields, I think they are much less likely, but not impossible. If they did occur, it certainly wouldn’t have to be for negative reasons." That's all fine and great even if it is totally and utterly insane. The real win here, and it may be hidden at first, is that we now have not a phrase, but an entire essay to challenge that all time dumbest thing ever uttered: "If it weren't for my horse, I wouldn't have spent that year in college"...
All those who believe there is sentiment of complacency within the precious metals camp may be forgiven. After all if one likes gold, one should like silver, and/or vice versa. Today FOFOA presents a counterargument. "I don't write about silver very much. Just like I don't write about copper or pork bellies. But, in fact, I have addressed many of the standard arguments for silver over gold in various comments on this blog and others. I'm sure someone will dig them out again and post links as people pose these arguments once again in the comments. But here's a new one. One of the argument for silver that we hear often is that it is "the poor man's gold." So I guess gold is "the rich man's gold." Well, what is the main difference between rich men and poor men? Is it that the rich have an excess of wealth beyond their daily expenses? In fact, the really rich have "inter-generational wealth," that is, wealth that lies very still through generations. The poor do not have this. So what do you think is going to come of all that "poor man's gold" that the silverbugs have hoarded up? Is it going to lie very still for generations? Or will it circulate, to meet daily needs? Note that circulation velocity is the market's way of controlling the value of any currency. Faster circulation = lower value. Lying still for generations = very slow circulation." Thus today's question - is silver money too?
After BofA Escalates, Refuses To Process Wikileaks' Payments, Wiki Retaliates, Advises Americans To Put Their Money "Somewhere Safer"Submitted by Tyler Durden on 12/18/2010 - 11:29
Bank of America just fired the preemptive escalation shot in its duel with Wikileaks. Late on Friday, America's biggest mortgage lender, and the firm that is now getting sued left and right for various mortgage transgressions, announced it is joining MasterCard, Paypal and Visa in ceasing transactions for Wikileaks. While this decision will certainly not improve Operation Anonymous' empathy toward the North Carolina bank, it may just precipitate overt retaliation by Assange, who is now rumored to be in possession of data that could provie harmful to BAC. Which is why this sudden escalation out of left field by the bank strikes as surprisingly odd: BofA's upside is very limited while its downside could be 100% - even if Wikileaks is bluffing, why provoke them. And as expected, Wikileaks has already retaliated: in two sequential tweets it advised its 568,117 (and very rapidly growing) subscribers to pull their money out of Bank of America, and also to close all their accounts with the firm, urging them to put their money "somewhere safer." What is curious is to see whether this sudden escalation, in what has now become synonymous with a quest for preserving the first amendment for a substantial deal of people (and freedom of speech globally), will have a far broader impact than the comparable "Pull Your Money" out of the Big Banks venture that was attempted by Huffington Post over a year ago, with unsatisfactory results. If people suddenly personify Bank of America with a First Amendment threat, arguably the one freedom most cherished in America, which is precisely what Assange is trying to do, all bets for the Countrywide acquirer may soon be off.
None can foretell the future, and yet the shape of what we face can be shrewdly estimated with enough attention to historical trends; with broad contextual understanding; and with sufficient insight into the character of leaders, their societies, and the structures which define their basis. These estimates will be tempered by the sudden acts of nature, the sudden emergence of true leadership from unexpected quarters, or key breakthroughs in science. Still, we can hazard reliable views on the shape of the world in, say, a decade — in 2020 — if present trends and characters remain, and on a knowledge of certain baseline levels of wealth and capability which presently exist. In 2011, the world will probably remain beset by the lingering of the present crisis of currency levels and economic performance. This is essentially a mass psychological crisis, based around the perceptions which create trust, particularly trust in asset values and institutions. In some respect, historical trends have given populations in modern societies excessive trust in the ability of their institutions to remain operational, untended by their populations. As a result, governments have grown larger and less efficient, and have arrogated to themselves more and more of the resources of societies, thereby inhibiting productivity. At some point, those societies, when beleaguered and impoverished, lose faith in the institutions of governance and leadership succession.
Lately, anywhere we look, there seems to be a pattern emerging: those economic thinkers who actually construct and run their own macro models (not the glorified powerpoint presenter variety) and actually do independent analysis and tracing of the money flow, instead of relying on Wall Street forecasts that have as much credibility as a Moody's home price hockey stick from 2006, almost inevitably end up having a very dire outlook on the economy. One such person is and has pretty much always been Shadowstats' John Williams, whose "shadow" economic recreation puts the BLS data fudging dilettantes to shame. That said any reader of Zero Hedge who has been with us for more than a few weeks, knows all too well our eagerness to ridicule the increasingly more incoherent lies coming out of the US department of truth, so no surprise there. Yet another aspect over which there is much agreement is that no matter how one slices the data, the outcome for the US currency is a very grim one. Which is why Williams over the past several years has become a major fan of the shiny metal. Below we recreate portions of his latest observations on the upcoming currency collapse, courtesy of King World News.
As we suggested earlier, there would be virtually no trading volume at all today, and any moves would be driven purely by the deltas. And following the close the fireworks would follows. Sure enough, here's the whoosh immediately following the start of the AH session.
It is no secret that Zero Hedge's favorite contemporary painter since what now seems time immemorial is none other than the unbeatably original Geoffrey Raymond. While his art has not made Sotheby's yet, it will eventually: after all who would not rather bet on the upside appreciation of an annotated painting of Dick Fuld, capturing the bipolar euphoria of a just insolvent Lehman Brothers for $30K than a diamond skull by Damien Hurst for a hundred million, with guaranteed downside? That said, $30K may be a little steep for a population which still has to feel the impact of inflation on its paycheck. Which is why we are delighted to once again offer Zero Hedge readers the chance to get what Raymond calls The Perfect Gift for the Person who has (Almost) Everything... and at a discount. Geoffrey is offering signed and numbered prints of five of his favorite paintings with guaranteed delivery by the 24th. They are "The Annotated Fuld", "The Annotated Fed", "The American Investor", "Big Lloyd 3 (The Root)" and one of my all-time favorites, "Cramer: Naked Short". Taken together, they are an amazing visual document of the American financial meltdown. All these can be found at www.annotatedpaintings.blogspot.com. After all what better inflation hedge than acquiring a print of the unbridled genius presented below. Considering the subject's most recent Nielsen ratings, it may be archival very, very soon.