Back in September 2010, Norway's sovereign wealth fund, the second largest in the world, decided to be contrarian for contrarianness' sake, and announced it had "stocked up on Greek debt, as well as bonds of Spain, Italy and Portugal. Finance Minister Sigbjoern Johnsen says he backs the strategy, which contributed to a 3.4 percent loss on European fixed income in the second quarter, compared with gains on bonds in Asia and the Americas." The explanation was one that not even the high priests of obfuscation and lies back in the US, which only invest in "maturity" could come up: "“The point is, do you expect these guys to default?” said Harvinder Sian, senior fixed-income strategist at Royal Bank of Scotland Group Plc, in an interview. “Norway has taken the view that they will not. The Greek holdings are particularly interesting because the consensus in the market is that they will at some point restructure or default. Norway says its long-term perspective will protect it from losses. “One could say we are investing for infinity,” Johnsen said in an Aug. 27 interview. “It is important when you look at the time scope of the fund and the investments that there should be a portion of active management." Less than a year later, infinity appears to have finally arrived. The FT reports that the fund "recently announced plans gradually to reduce exposure to Europe, which currently accounts for half its equity holdings, as part of efforts to increase diversification but Mr Slyngstad said the fund remained bullish about the region in the long-run. However, he acknowledged the “enormous challenge” facing eurozone policymakers and voiced concern over the potential repercussions of a possible restructuring of Greek debts. “It is difficult to see all the secondary effects of such a move and therefore I think there will be a lot of caution before any such decisions will be taken,” he said." But, But... Didn't they say just 9 months ago that there was no risk of Greek default? Perhaps it is a good thing nobody actually holds these gentlemen, or anybody else for that matter, accountable for the outright stupidity they tend to spout on way too many occasions.
The global economy is so rattled by price inflation, unemployment, natural disasters and global financial and political instability that it doesn’t know if it’s been “shot, f@*#ed, powder-burned or snakebit,”...
Well, the problems in CMBX are finally hitting some of the mainstream media. We first pointed out the problems in CMBX last Thursday. HYG is down just over 1% since then. We highlighted the CMBX and ABX problems again on Tuesday. Since then HYG is only down a little bit, but as we suggested at the time, it has now underperformed stocks. It moved 1:1 with stocks on Wednesday and was only up marginally yesterday in spite of a decent size stock gain. I am not sure what it means that there were two Bloomberg articles today talking about CMBS market and how it has impacted the rest of the credit market. CNBC just mentioned CMBX. How long has it been since they mentioned CMBX? I suspect it has been awhile. This could be a sign that the problem has played out. It isn't new news to people focused on credit markets. My only hope as someone who is still a little bearish, is that if we do get another round of weakness, the CMBX boogey man will encourage some people who typically don't play in credit, to buy some CDS or even sell financial stocks, which would be good for the short.
Gold has risen to new record nominal highs in British pounds and is consolidating just below recent record nominal highs in U.S. dollars, euros and other currencies. The ECB’s rate decision and Trichet’s ‘signals’ saw the euro fall sharply against the dollar and against gold with gold in euro terms quickly rising from €1,050/oz to over €1,065/oz. The fact that these new record highs are just nominal and not more important adjusted for inflation highs is a crucial fact not acknowledged by many commentators and analysts. As ever, it is important to realize that the inflation adjusted high for gold in 1980 is over $2,400/oz. When interest rates do rise, central banks will have to make them very gradual. With inflation and stagflation deepening, negative real interest rates are likely to remain with us for some time which bodes well for gold (and silver). The Titanic analogy grows increasingly apt. The various major currencies all face real challenges and are like various floors on the Titanic. The massive ship is holed and water is flowing into it, gradually affecting all floors of the boat. Gold represents the lifeboat.
In 2007, Shai Agassi starting a company called Better Place. The concept behind it was changing out batteries that power a car, instead of filling your car with gasoline. Shai Agassi looked at the problem correctly. He saw transportation fuel as a never ending relay race. But what if there was a technology that could do the same thing, without changing out the battery?
Just when one thought every imaginable taxpayer bailout scheme had been seen, experienced and in many cases, forgotten, here comes AIG once again. The specifics come from Deutsche Bank's Joshua Shanker initiation of coverage report on AIG (naturally with a Buy rating, $34.00 target price), where within the fine print he notes: "the company believes there may be bargains available from buying RMBS securities from European banks seeking better positioning under Basel III requirements. " Prudently, he adds: "We note that increased yield, in this regard, also carries with it increased risk." Translated this means that AIG is about to do for European banks what the ECB so far has been unwilling and/or unable: namely to transfer the risk associated with European banks' massive ongoing exposure to the continuously collapsing US housing market back to the US taxpayer, in the form of AIG, which was bailed out once, and which will certainly be bailed out again, when the time comes.
Over A Year After Being Dismissed As Sensationalist For Questioning the ECB's Continued Solvency After Sovereign Debt Buying Binge, Guess What!Submitted by Reggie Middleton on 06/09/2011 09:08 -0500
I warned that the attempt to centrally plan 16 economies in concert, by force nonetheless, would result in the Eurocalypse (that's a Reggie Middleton copyrighted term)! As is customary with warnings of common sense against unbridled, optimistic BULL(ishness), I was dismissed as being sensationalist. Well, as Malcom X is known as saying, "The chickens are coming home to roost!"
Trichet: "Strong Vigilance" Needed, ECB Raises 2011 Inflation Range From 2.0%-2.6% To 2.5% to 2.7%; July 1.50% Rate Hike ComingSubmitted by Tyler Durden on 06/09/2011 07:42 -0500
Soundbites from the Trichet conference:
- TRICHET: ECB SEES "UPWARD PRESSURE" ON EURO AREA INFLATION
- TRICHET: "STRONG VIGILANCE" NEEDED ON INFLATION RISKS; ECB WILL ACT IN FIRM AND TIMELY MANNER; ECONOMIC UNCERTAINTY REMAINS "ELEVATED"
- SEES 2011 INFLATION AT 2.5% TO 2.7% VS PREV 2.0% TO 2.6% *TRICHET SAYS HIGHER INFLATION FORECASTS REFLECT ENERGY COSTS
- TRICHET: COMMODITY, ENERGY COSTS DRIVING PRICE PRESSURES; UNDERLYING PACE OF MONETARY EXPANSION RECOVERING
- TRICHET: UNDERLYING PACE OF MONETARY EXPANSION RECOVERING; MONETARY STANCE IS "ACCOMODATIVE"
- TRICEHT: GREECE NEEDING ABOUT EU45B OF NEW LOANS; GREECE WILL GET EU57B OF LOANS UNTAPPED FROM 2010; RAISE EU30B FROM ASSET SALES THRU '14
- TRICHET: ECB TO SECURE FIRM ANCHORING OF PRICE EXPECTATIONS; ECB "WILL DO ALL THAT IS NEEDED" ON INFLATION
- TRICHET: NON-STANDARD MEASURES ARE TEMPORARY
- TRICHET: ECB TO KEEP FIXED RATE ALLOTMENT TENDER FOR 3 MONTH LTRO OPERATIONS FOR Q3
- TRICHET: ECONOMIC ACTIVITY EXPECTED TO BE SOMEWHAT DAMPENED BY BALANCE SHEET ADJUSTMENT
The EURUSD chart looks like an EKG
Our research analyst was interviewed by Carolyn Cui from Wall Street Journal regarding why we believe CME should have raised margins on silver earlier and had missed the best opportunity to do so.
The latest soundbite from Bill Gross comes from the Morningstar fund conference, where he again repeated his conviction that there will be no QE3. Reuters reports: "Pimco co-chief investment officer Bill Gross said the Federal Reserve would not be able to start a third round of quantitative easing after the second round expires at the end of this month. The members of the central bank's open market committee are "balanced but divided," Gross, manager of the world's largest bond fund, said on Wednesday in a speech at the Morningstar fund conference. "It will be difficult to initiate a QE3." Instead, the Fed will try to keep interest rates low with its official statements, Gross said. Gross's fund, the $243 billion Pimco Total Return Fund, has gained 3.24 percent so far this year, trailing 58 percent of similar funds, according to Morningstar data."
One of the conclusions that I try to coax, lead, and/or nudge people towards is acceptance of the fact that the economy can't be fixed. By this I mean that the old regime of general economic stability and rising standards of living fueled by excessive credit are a thing of the past. At least they are for the debt-encrusted developed nations over the short haul -- and, over the long haul, across the entire soon-to-be energy-starved globe. The sooner we can accept that idea and make other plans the better. To paraphrase a famous saying, Anything that can't be fixed, won't. The basis for this view stems from understanding that debt-based money systems operate best when they can grow exponentially forever. Of course, nothing can, which means that even without natural limits, such systems are prone to increasingly chaotic behavior, until the money that undergirds them collapses into utter worthlessness, allowing the cycle to begin anew.
Yesterday Reuters reported that a troubling, yet potentially inevitable development may be imminent: the default of the US, granted, a short-lived one (though we are not sure just how the world's "reserve" currency will be backed by a national that is technically insolvent). Luckily for the US, everyone else (except China) is just as bankrupt. Yet if there is one thing pushing Lehman into competitive bankruptcy just so that Goldman would have a monopoly in the US fixed income sales and trading market, it is that any such action will have massive downstream consequences, and in the pyramid of "unpredictable downstream effects", the insolvency of the US is at the very top. And just to make it clear, now that a default is becoming a palpable option, China announced that the United States is "playing with fire" if it opts to briefly default on its debt, which could undermine the dollar, Li Daokui, an adviser to China's central bank said on Wednesday. Yet the statement could very well backfire after Li, speaking on the sidelines of a forum, said China needs to dissuade the United States from defaulting on its debt, but he believed China may hang on to its investment in U.S. Treasuries in any case. This is precisely the case made by Stanley Druckenmiller: in fact, should there be a technical default, US bonds will become a true safe haven investment as America will for the first time take a step to indicate that it believes the relentless abuse of its fiscal situation is coming to an end.
As has been repeated on Zero Hedge many times, with the stock market just 15% off its post-Jackson Hole surge highs, the market continues to be irrationally exuberant that QE3 will come come hell or high water. No. That will not happen until all the mutual funds who have been holding for 2+ years realize that in order to get another heroin hit, some will have to be wiped out (thank near-record margin debt and record low cash holdings) before QE3 does arrive. The latest to confirm this is Goldman Sachs, which via a note just released by Dominic Wilson confirms our speculation that "QE3 optimism is excessive." Ironically, the only thing that will guarantee QE3 is a fresh round of significant pains which retraces the entire QE2 move higher. Nobody in the long-only community wants to hear it. Alas, it is the truth. As usual: he who sells first, will have a job tomorrow...
There is a great deal of uncertainty among investors about what the future of the U.S. economy may look like – so I decided to take a stab at what’s likely to happen over the next 20 years. That's enough time for a child to grow up and mature, and it's long enough for major trends to develop and make themselves felt. I’ll confine myself to areas that are, as the benighted Rumsfeld might have observed, “known unknowns.” I don’t want to deal with possibilities of the deus ex machina sort. So we’ll rule out natural events like a super-volcano eruption, an asteroid strike, a new ice age, global warming, and the like. Although all these things absolutely will occur sometime in the future, the timing is very uncertain – at least from the perspective of one human lifespan. It’s pointless dealing with geological time and astronomical probability here. And, more important, there’s absolutely nothing we can do about such things. So let’s limit ourselves to the possibilities presented by human action. They're plenty weird and scary, and unpredictable enough.
Not only are the PDs treating Treasury paper like last week’s garbage, banks in general are also dumping the stuff.