• 09/21/2014 - 14:52
    Dear Janet; If I may be so forward, as a concerned citizen of the Constitutional Republic of the United States, it is with great consternation that I feel compelled to write you this distressing...

fixed

Tyler Durden's picture

El-Erian Breaches The Final Frontier: What Happens If Central Banks Fail?





"In the last three plus years, central banks have had little choice but to do the unsustainable in order to sustain the unsustainable until others do the sustainable to restore sustainability!" is how PIMCO's El-Erian introduces the game-theoretic catastrophe that is potentially occurring around us. In a lecture to the St.Louis Fed, the moustachioed maestro of monetary munificence states "let me say right here that the analysis will suggest that central banks can no longer – indeed, should no longer – carry the bulk of the policy burden" and "it is a recognition of the declining effectiveness of central banks’ tools in countering deleveraging forces amid impediments to growth that dominate the outlook. It is also about the growing risk of collateral damage and unintended circumstances." It appears that we have reached the legitimate point of – and the need for – much greater debate on whether the benefits of such unusual central bank activism sufficiently justify the costs and risks. This is not an issue of central banks’ desire to do good in a world facing an “unusually uncertain” outlook. Rather, it relates to questions about diminishing returns and the eroding potency of the current policy stances. The question is will investors remain "numb and sedated…. by the money sloshing around the system?" or will "the welfare of millions in the United States, if not billions of people around the world, will have suffered greatly if central banks end up in the unpleasant position of having to clean up after a parade of advanced nations that headed straight into a global recession and a disorderly debt deflation." Of course, it is a rhetorical question.

 
Tyler Durden's picture

Chris Martenson: "Are We Heading For Another 2008?"





We all know that central banks and governments have been actively intervening in markets since the 2007 subprime mortgage meltdown destabilized the leveraged-debt-dependent global economy. We also know that unprecedented intervention is now the de facto institutionalized policy of central banks and governments. In some cases, the financial authorities have explicitly stated their intention to “stabilize markets” (translation: reinflate credit-driven speculative bubbles) by whatever means are necessary, while in others the interventions are performed by proxies so the policy remains implicit.  All through the waning months of 2007 and the first two quarters of 2008, the market gyrated as the Federal Reserve and other central banks issued reassurances that the subprime mortgage meltdown was “contained” and posed no threat to the global economy. The equity market turned to its standard-issue reassurance: “Don’t fight the Fed,” a maxim that elevated the Federal Reserve’s power to goose markets to godlike status. But alas, the global financial meltdown of late 2008 showed that hubris should not be confused with godlike power. Despite the “impossibility” of the market disobeying the Fed’s commands (“Away with thee, oh tides, for we are the Federal Reserve!”) and the “sure-fire” cycle of stocks always rising in an election year, global markets imploded as the usual bag of central bank and Sovereign State tricks failed in spectacular fashion.

 
Tyler Durden's picture

10 Year Treasury Prices Without Much Fanfare





The second bond auction of the week prices uneventfully, with the Treasury selling $21 billion of 10 Years at a yield of 2.043%, better than the 2.045% When Issued, and better than last month's 2.08%. Yet keep in mind that inbetween the March auction and today, the 10 year hit nearly 2.40%, so don't let the apparently stability give the impression that there is no volatility under the surface. Unlike the yield, the Bid To Cover dropped from last month's 3.24 to 3.08, which while week for recent auctions was just below the TTM average of 3.12. What is of note is that Dealers had to once again take down more than half the auction, or 50.5%, with the last time there was more than a 50% takedown being back in November 2011. Of the balance 11% went to Direct, and the remainder or 38.5% to Indirects. Overall, a quiet auction and now we just have tomorrow's $13 billion 30 Years to look forward to as total US debt approaches the $15.7 trillion milestone next on its way to the $16.3 trillion debt ceiling breach in 6 months. In the meantime enjoy fixed coupon bonds: for in one month, the FRN cometh.

 
Tyler Durden's picture

Is The Treasury's Imminent Launch Of Floaters The Signal To Get Out Of Dodge?





In a few weeks the Treasury will most likely launch Floating Rate Notes. Will that be the signal to get out of Dodge? If history is any precedent, and especially the 1951 Accord... you bet.

 
Vitaliy Katsenelson's picture

Not Buying Best Buy





 Best Buy’s CEO Brian Dunn did a courageous and proper thing for shareholders by resigning.  He was not the right person to lead Best Buy into battle against online-only competitors that use Best Buy’s spacious and beautiful stores as the showroom for their products.  To make things even worse, smart cell phones make comparison shopping so much easier nowadays, and structurally, Best Buy cannot have lower prices than its online competitors.  Its stores also lack the breadth of selection of Amazon and they are at a permanent, competitive cost disadvantage.&nbs

 
Tyler Durden's picture

A Modest Proposal: Students Refuse To Become Debt Slaves, Opt To Sell Equity In Their Future Wealth Instead





The topic of the student loan bubble (and even its popping) has been digested to death on Zero Hedge. One topic that has been avoided however, is that of the student equity bubble, for the simple reason that until now the concept did not exist. That may change soon: as the Economist reports, some California students have a modest proposal to the symbiotic University-Banker net worth extraction mechanism - shove your debt. Instead, they will pay for their unaffordable education (except when funded with copious amounts of unserviceable and non-dischargable debt) with equity.

 
Tyler Durden's picture

Daily US Opening News And Market Re-Cap: April 10





UK and EU markets played catch up at the open this morning following Friday’s miss in the US non-farm payroll report. This coupled with on-going concerns over Spain has resulted in further aggressive widening in the 10yr government bond yield spreads in Europe with the Spanish 10yr yield edging ever closer to the 6% level. As a result the USD has strengthened in the FX market in a moderate flight to quality with EUR/USD trading back firmly below the 1.3100 and cable falling toward the 1.5800 mark. There was some unconfirmed market talk this morning about an imminent press conference from the SNB which raised a few eyebrows given the recent move in EUR/CHF below the well publicised floor at 1.2000, however, further colour suggested an announcement would be linked to the naming of Jordan as the full-time head of the central bank when they hold their regular weekly meeting this Wednesday. Elsewhere it’s worth noting that the BoJ refrained from any additional monetary easing overnight voting unanimously to keep rates on hold as widely expected. Meanwhile, over in China the latest trade balance data recorded a USD 5.35bln surplus in March as import growth eased back from a 13-month peak.

 
Tyler Durden's picture

IceCap Asset Management March Perspectives: "I Need A Job"





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.

 
Tyler Durden's picture

150 Years Of US Fiat





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.

 
Tyler Durden's picture

Painful Revelations With Mark Grant As We Edge Down The Holmesian Path





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.

 
Tyler Durden's picture

The Weekly Update - NFP And DMA





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.

 
Tyler Durden's picture

US Needs To Generate 262K Jobs Each Month To Get Back To Breakeven





This is the latest tally: since the start of the Second Great Depression, the US has lost a total of 5.2 million nonfarm payroll jobs, beginning with 138 million jobs in December 2007, and printing at 132.8 million as of 90 minutes ago. So far so good. The problem, however is that the denominator in the equation is not fixed, and as everyone knows the US labor force, despite the ridiculous BLS data fudging, is growing in line with population, albeit at a slower pace. According to all non-partisan budget forecasters, each month the labor force should be adding 90,000 people. Which in turn means that since December 2007, the labor force has really grown by 4.6 million. Adding these two together leads to a 10 million job deficit. So what has to happen for these 10 million to get promptly put back into jobs, and for America to get back to the ~5% unemployment rate it boasted just as the credit bubble peaked? Nothing too crazy: the country just has to create 262,000 jobs every month for the remainder of Obama's first, and now, by the looks of it, second term too. We are quite confident he can handle it.

 
Tyler Durden's picture

Guest Post: The Eurozone X-Factor





Whatever one thinks about Lord Wolfson’s euro-skeptical meddling, it certainly has been entertaining. The British baron’s offer of a £250,000 prize for the best ideas to deal with a possible breakup of the eurozone has brought all sorts of people out of the woodwork. (Including this precocious 11-year old.) But one of the most fascinating ideas on the shortlist has come from Neil Record — although I’m not sure that my takeaway was his main intent. Suppose that a country does leave the eurozone — this was the starting premise of all the responses to Wolfson’s essay contest. Greece, as the weakest link, seems the most likely candidate. But on the other hand it’s possible that one of the strongest countries chooses to go its own way. Of course we’re talking about Germany. Whether it remains in the euro or decides to take its chances by introducing a new Deutschemark, the fact is that in the case of a euro breakup, Germany is where it’s at. Its fiscal position and reputation for prudence is among the strongest of all developed countries. If it were on its own then its currency would rise to reflect this. So, to the extent that you can choose, you will want to get your banknotes from Berlin

 
Tyler Durden's picture

Guest Post: Global Oil Risks in the Early 21st Century





The Deepwater Horizon incident demonstrated that most of the oil left is deep offshore or in other locations difficult to reach. Moreover, to obtain the oil remaining in currently producing reservoirs requires additional equipment and technology that comes at a higher price in both capital and energy. In this regard, the physical limitations on producing ever-increasing quantities of oil are highlighted, as well as the possibility of the peak of production occurring this decade. The economics of oil supply and demand are also briefly discussed, showing why the available supply is basically fixed in the short to medium term. Also, an alarm bell for economic recessions is raised when energy takes a disproportionate amount of total consumer expenditures. In this context, risk mitigation practices in government and business are called for. As for the former, early education of the citizenry about the risk of economic contraction is a prudent policy to minimize potential future social discord. As for the latter, all business operations should be examined with the aim of building in resilience and preparing for a scenario in which capital and energy are much more expensive than in the business-as-usual one.

 
Tyler Durden's picture

On The Demise Of European Bank Debt





While the LTROs were supposed to bring European banks back from the edge of insolvency with a warming blast of liquidity, the sad truth, now that the exuberance of fresh money-printing has faded, is that the unintended consequence has crammed down the senior unsecured bank debt holders to the lowest of the low. This realization, that we have discussed a number of times - most recently here - that nothing has been solved - as the LTRO Stigma unintended consequence, is starting to leak back into broader risk premia as now the contagion risks are back on the table and even non-LTRO-facing banks are seeing spreads increase as expectations of either broader forced cram-downs or interconnected vicious cycles rear their ugly head once again among European banks - and implicitly back onto European Sovereign balance sheets. Citigroup's Hans Lorenzen highlights four key reasons for the increasingly binary bifurcation that senior unsecured bank debt has become.

 
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