- JPMorgan Trader Iksil Fuels Prop-Trading Debate With Bets (Bloomberg), but, but, he is just proividing liquidity, and serving JPM's clients
- Short on tools, central banks left with words (Reuters)
- And the mainstream media finally catches up: Investors braced for fall in US profits (FT)
- Iran rules out pre-conditions to talks: Salehi (Reuters)
- North Korea ‘planning third nuclear test’ (FT)
- Japan to Hold Talks With China on IMF Contributions (Reuters)
- American Universities Infected by Foreign Spies Detected by FBI (Bloomberg)
- Is the Fed Promoting Recovery or Desperation? (Hussman)
- In Europe, Unease Over Bank Debt (NYT)
- Banks test ‘CDOs’ for trade finance (FT)
Since most people live in the real World, this concept of cyclical versus structural falls on deaf ears. However, it’s actually a very important concept for you to understand and it could even save you a few bucks in your portfolio. Cyclical simply means the regular ebbs and flows of a market. Think of your daily commute to work (if you have a job) – some days are longer, some are shorter but in general they are quite predictable. Structural refers to the underlying foundation and how it supports the system. For example, what happens if suddenly in the middle of the night the bridge everyone uses collapses. Suddenly your commute has become a lot more complicated and will remain complicated for a long time. In the real World, 6 million people had their bridge collapse and lost their jobs. Yet, in Mr. Bernanke’s World this cyclical inconvenience could easily be fixed simply by cutting interest rates to 0%, spending billions on “shovel ready” projects, and cutting taxes. Sadly, a funny thing didn’t happen - the usual boomerang (or cyclical) rebound in new jobs has not occurred, and for some strange reason the collapsed bridge hasn’t been replaced either. The high levels of employment reached during the 2004-2007 period were achieved on the backs of the housing and debt bubbles. During that time, economic growth was boosted by 400% as a result of people taking equity out of their homes (mortgage equity withdrawal). Considering no one has any equity left in their homes to withdraw, economic growth and the jobs that come with it are going to have to find another adrenalin shot. If you know the next big thing – feel free to share it, the World needs it.
Last week, when we commented on the amusing spread between the Chinese PMI as measured by HSBC on one hand (plunging) and the official number (soaring), we had one very simple explanation for this divergence: "the Schrödinger paradox - where the economy was doing better and worse at the same time - which was experienced for the past three months in the US (and is now finished with the economy rolling over), has shifted to Shanghai, where it is now the PBOC's turn to baffle all with bullshit. Why? One simple reason: despite what everyone believes, China still has residual and quite strong pockets of inflation. So while the world may be expecting an RRR, or even interest rate, cut any second now (just as China surprised everyone literally house before the November the global FX swap line expansion by the Fed in November 2011), the PBOC is just not sure it can afford the spike in inflation, or even perception thereof." It appears we were correct, following the just released Chinese CPI number, which in March printed at a far greater than expected 3.6%, on expectations of a 3.4% print, and well above the February 3.2%.
And so the latest Goldman recommendation to muppets is now officially a dud.
As reported earlier, the Indian gold buying strike is now over, and just as we predicted, gold futures are off to the races right out of the gate, with the yellow metal surging $10 just as the electronic market broke for trading, touching $1647, about $30 higher compared to the liquidation rout from three days ago (has anyone seen Gartman today?). Unfortunately, while Indian purchases of gold are sure to provide a bid under the metal, their appetite for stocks appears to not have risen, and as a result, ES is continuing Friday's downdraft lower, with the E-Mini touching on 1372 in the first minutes of trading. Finally, with Brian Sack no longer there to facilitate the overnight ramp higher, this just may be one of those overnight futures sessions where we do not see a miraculous melt up on absolutely nothing.
Now that the time has come to expect Greek March economic data, which will show an acceleration in the total financial collapse of a society which is merely used as an intermediary to bail out insolvent European banks, something that virtually everyone takes for granted, together with a third bailout package sometime in the late summer, we can focus on the more entertaining developments out of the country that has become a symbol of all that is broken in Europe. Such as this story from Greek Protothema that one can now hire a cop for as little as €30/hour. €20 more gives one the option of chosing between the Athenian version of Erik Estrada, together with bike and ambiguous sexual tendencies, or a K-9 option. Finally, for those who are in need of urgent transport from point A to point B in total security, the Greek police choppers can be had for as little as €1500 an hour. In other words, one can own a 24/7 full-time militia of 20 policemen for as little as €14,400 a month. Naturally, the Greek PD has stooped so low because it simply has no money, and in its attempt to protect and serve, it has to do a little paid moonlighting on the side. As to what happens when all the wealthy robber barrons and tax evaders in Greek society end up owning all the officers in circulation, leaving the rest of the country defenseless, well, we are confident the local underworld elements will be more than happy to find out just what the consequences of that particular outcome will be. But at least Greece is still in the euro. And that's all that matters.
Something odd and not quite as planned happened as America grew from its "City on a Hill" origins, on its way to becoming the world's superpower: government grew. A lot. In fact, the government, which by definition does not create any wealth but merely reallocates it based on the whims of a select few, has transformed from a virtually invisible bystander in the economy, to the largest single employer, and a spending behemoth whose annual cash needs alone are nearly $4 trillion a year, and where tax revenues no longer cover even half the outflows. One can debate why this happened until one is blue in the face: the allures of encroaching central planning, the law of large numbers, and the corollary of corruption, inefficiency and greed, cheap credit, the transition to a welfare nanny state as America's population grew older, sicker and lazier, you name it. The reality is that the reasons for government's growth do not matter as much as realizing where we are, and deciding what has to be done: will America's central planners be afforded ever more power to decide the fates of not only America's population, but that of the world, or will the people reclaim the ideals that the founders of this once great country had when they set off on an experiment, which is now failing with every passing year?
India's Jewellers End Gold Strike As Government Caves On Excise Duty: Pent Up Gold Demand To Be UnleashedSubmitted by Tyler Durden on 04/08/2012 - 11:24
A month ago, after causing a spike in cotton prices following the imposition of an export ban, India promptly overturned said surprising move following a surge in protest from not only various trade local groups, but more importantly China, whose already razor thin margins would become negative if input costs soared even further. The whole process lasted about 72 hours from beginning to end. Days after, desperate to fund ongoing budget shortfalls, the government shifted its attention to price controls in a market it knew China would absolutely not mind to having the price kept artificially low - gold. What happened then was an announcement by the government to impose to levy an excise duty on unbranded jewelry. The response was swift - a countrywide strike among India's jewellers who all went dark, crippling demand from one of the traditionally strongest gold markets in the world. And all this happening at a time when the wedding season is at its peak, with Akshaya Tritiya, one of the biggest gold buying festivals later in the month, making the period crucial for jewellers. As of hours ago, the Indian finance ministry has caved, and while it took three days to end the cotton export ban, it took three weeks to end the excise duty proposal, India's Finance Minister Pranab Mukherjee said that the government would consider scrapping a budget proposal to levy an excise duty on unbranded jewellery. The result will be three weeks of pent up demand for precious metals being unleashed suddenly, likely pushing spot gold far higher, to where it would be had this latest artificial price control never been established.
Back in 2006, contrary to conventional wisdom, many financial professionals were well aware of the subprime bubble, and that the trajectory of home prices was unsustainable. However, because there was no way to know just when it would pop, few if any dared to bet against the herd (those who did, and did so early despite all odds, made greater than 100-1 returns). Fast forward to today, when the most comparable to subprime, cheap credit-induced bubble, is that of student loans (for extended literature on why the non-dischargeable student loan bubble will "create a generation of wage slavery" read this and much of the easily accessible literature on the topic elsewhere) which have now surpassed $1 trillion in notional. Yet oddly enough, just like in the case of the subprime bubble, so in the ongoing expansion of the credit bubble manifested in this case by student loans, we have an early warning that the party is almost over, coming from the most unexpected of sources: JPMorgan.
5 days ago saw the 150th year anniversary of an event so historic that a very select few even noticed: the birth of US fiat. Bloomberg was one of the few who commemorated the birth of modern US currency: "On April 2, 1862, the first greenback left the U.S. Treasury, marking the start of a new era in the American monetary system.... The greenbacks were originally intended to be a temporary emergency-financing measure. Almost bankrupt, the Treasury needed money to pay suppliers and troops. The plan was to print a limited supply of United States notes to meet the crisis and then have people convert the currency into Treasury bonds. But United States notes grew in popularity and continued to circulate." The rest, as they say is history. In the intervening 150 years, the greenback saw major transformations: from being issued by the Treasury and backed by gold, it is now printed, mostly in electronic form, by an entity that in its own words, is "set up similarly to private corporations, but operated in the public interest." Of course, when said public interest is not the primary driver of operation, the entity, also known as the Federal Reserve is accountable to precisely nobody. Oh, and the fiat money, which is now just a balance sheet liability of a private corporation, and thus just a plug to the Fed's deficit monetization efforts, is no longer backed by anything besides the "full faith and credit" of a country that is forced to fund more than half of its spending through debt issuance than tax revenues.
Since we have grown tired of variations on the theme of "The Pain in ...." (having been guilty of encouraging it ourselves), we will spare readers this triteness, and instead summarize the attached must read slidedeck from Carmel Asset Management as the ultimate Spanish doomsday presentation. Naive and/or idealistic Spanish readers are advised to resume sticking their heads in the sand, and to stay as far away as possible from the attached 54 pages, which prove without any doubt why not only was Greece the appetizer (have your UK law:non-UK Law divergence trade on yet?) but why things in Europe are about to get far, far worse, as the Hurricane shifts to its next preferred location, somewhere above and just south of the Pyrenees.
Do you think the US will always and forever be able to pay for our over-bloated military-industrial complex and our wars of choice? Do you think the federal housing agencies will always and forever be able to subsidize the real estate industry with money losing, non-economic mortgage loans? Do you think the government will always and forever be able to pay on the promises they've made regarding Social Security, Medicare and Medicade? Do you think the government will always and forever be able to extend debt-enslaving, subsidized student loans to anyone with a pulse? Do you think the fiat ponzi central planners at the Fed will always and forever be able to manipulate the Treasury curve to whatever levels the Oracles of Delphi decide? If you answer yes to the above, ask yourself this: how would all of these things be affected if the average interest rate paid by the US was to rise to 5%? At today's debt level of $15.6 trillion, the interest expense would be approximately $780 billion or about 35% of total government revenues. Welcome to the United States of Greece. Next stop, bankruptcy.
Let us take another step down the Holmesian path. As the economies in Italy and Spain deteriorate who will be seriously affected: Germany. Two of their largest buyers of their goods and services will radically cut back on their purchases and the German economy, for the first time in this cycle, will suffer as buyers are no longer able to afford various services. The circle always completes and the consequences will not be pleasant; this circle, in fact, will resemble a noose that is pulled tighter and tighter with each passing quarter and the pay master for the European Union will shrink as their economy, currently at the $3.2 trillion mark, sinks back towards $2.5 trillion during the next year. There will be screams of anguish aplenty and you might begin now to make the necessary adjustments to this coming reality. Then as Italy and Spain soon line up at the till you will see the Real Hurt being on which is why Europe is begging the IMF, the G-20, China and Japan for funds because they now have the burning smell in their nostrils of damaged flesh that has been singed and is about to be cooked and served up fresh in the begging bowls of those urchins turned out into the street.
Martenson Interviews Khosla Ventures: The US Is Massively Underfunding The Innovations Critical To Its Energy FutureSubmitted by Tyler Durden on 04/07/2012 - 12:02
"The age of cheap oil is over," agrees Andrew Chung, partner at Khosla Ventures, arguably the most knowledgeable venture capital firm spearheading next-generation energy projects. While perhaps more optimistic than Chris on the odds that the world can transition off fossil energy sources without experiencing some duration of lower overall energy output, Andrew is clear to point out that large and near-term capital investments are essential for such a smooth transition. The size and scale of the investments necessary to evolve and replace our existing (and increasingly outdated) power infrastructure are enormous, and too big for private companies alone to address the issue on an acceptable timeline. And as of now, the U.S. is decidedly NOT treating the matter with the urgency it deserves. Of the total U.S. budget, the Department of Energy receives only 8%; and only 0.1% of the total budget is directed to the alternative technologies we hope will one day replace our fossil-based sources. By contrast, China alone is dedicating $800 billion over the next ten years to help support the development and commercialization of alternative technologies and cleantech. In the coming decades, the efficient and effective use of energy is going to be a real determinant between winners and loser across the global landscape. Affordable, sustainable energy will increasingly determine the prosperity of world powers -- and America is at a growing relative disadvantage until it starts talking honestly with itself about the un-sustainability of its current energy policies and prioritizing its resources (both monetary and human) accordingly.
In a very thin market, the S&P futures came very close to hitting their 50 DMA on Friday. The S&P futures went from a high of 1,418 on Monday, to trade as low as 1,372 on Friday. A 46 point swing is healthy correction at the very least, if not an ominous warning sign of more problems to come. There were 3 key drivers to the negative price action in stocks this week. All 3 of them will continue to dominant issues next week.