The very same problems that the world faced on November 5, 2012 remain in place. And we now know that those in power (Bernanke and Draghi) favor money printing over everything else. So the cost of living/ inflation will continue to rise and the world will lurch ever closer to the great debt implosion that will eventually take down the financial system.
The "Believe In Germany Bailing The EU" Trade: Go Long Magic Wand Raw Materials & Harry Potter ParaphernaliaSubmitted by Reggie Middleton on 11/07/2012 10:56 -0400
How's this for a Harry Potter-like Incantation? Margin up magic, go short math! Believe Germany will escape unscathed, prepare to take a bath!
Over the last few weeks we have looked at where the two candidates stand, the implications of a Romney win on the economy, how investors are positioning in equity and bond portfolios for each candidate's potential victory, what gold will do, what stocks will do, and the fact that either way; the easy-money days are over. The last market to look at is the largest - the foreign exchange market - and Citi's Steve Englander provides a succinct explanation of how the various asset-class shifts post-election will impact flows in the FX market. Most specifically, how sensitive various safe-haven and risk-sensitive FX crosses will be to House composition. He also notes the potential for knee-jerk reactions as timing issues across various state poll closings offers exit poll information - especially as a Romney win is very much not priced in.
Equity markets kick started the week on a negative footing, with the troubled Iberian giant back in focus after it was reported that the ECB is checking whether it may have contravened its own strict rules by lending to Spanish banks on overly generous terms, an ECB spokesman said on Sunday. According to press reports, Spanish banks had borrowed funds from the ECB at a preferential interest rate of 0.5% even though the creditworthiness of the T-bills they provide as collateral should have required them to pay 5.5%. The never-ending Greek drama is another factor for the risk-averse sentiment, with only weeks before the country runs out of cash and still no evidence that lawmakers will find a solution to diffuse the situation, there is a risk of another speculative attack on weaker EU states. As a result, credit and bond yield spreads widened, led by Italian and Spanish bonds, both wider by around 9bps in 10s. Despite the evident distress in credit markets, EUR/GBP is essentially flat, with GBP underperforming following the lacklustre PMI report from the UK.
As we warned here first, and as the sellside crew finally caught on, while the key macro event this week is the US presidential election, the one most "under the radar" catalyst will take place in Greece (currently on strike for the next 48 hours, or, "as usual") on Wednesday, when a vote to pass the latest round of Troika mandated austerity (too bad there is no vote to cut corruption and to actually collect taxes) takes place even as the government coalition has now torn, and there is a high probability the ruling coalition may not have the required majority to pass the vote, which would send Greece into limbo, and move up right back from the naive concept of Grimbo and right back into Grexit. Which is why the market's attention is slowly shifting to Europe once more, and perhaps not at the best time, as news out of the old continent was anything but good: Spain's October jobless claims rose by 128,242, higher than the estimated 110,000 and the biggest jump in 9 months, bringing the total number of unemployed to 4,833,521, a rise of 2.7%, according to official statistics released Monday. This means broad Spanish unemployment is now well above 25%. In the UK, the Services PMI plunged from 52.2 to 50.6, which was the lowest print in nearly two years or since December 2010, and proved that the Olympics-driven bump of the past few months is not only over, but the vicious snapback has begun.
It is easy to get swept into the momentum of the housing market. The Federal Reserve has managed to push interest rates to historically low levels creating additional buying power for US households. As we enter the slower fall and winter selling season, there is unlikely to be any major changes until 2013 as the election year concludes. We do face major challenges ahead. This current momentum in housing isn’t being caused by flush state budgets or solid wage growth. No, this is being caused by low inventory, big investors crowding out households, and a concerted effort to push mortgage rates lower. If you simply follow the herd, you would think that prices are now near peak levels again (or soon will be) and household incomes are hitting record levels. Let us examine where things stand today deep in 2012.
FIRE Burns From Hurricane Sandy - Fear The Insurance Companies, Twice Over - Just Ask the ECB, Greece, Spain & PortugalSubmitted by Reggie Middleton on 11/02/2012 11:39 -0400
Do you want to see FIRE burn as a result of hurricane level water. Visit NYC from the perspective of the insurance industry. The same industry poised to make sooo much money from EU sovereign debt.
It’s my understanding that Synthes has another headache on its hands.
Hedge Fund "gating", or the forced administrative limit on how much money hedge fund investors can redeem at any given moment, is one of those bad memories that most wish could remain dead and buried with the peak of the credit crisis, when virtually every hedge fund was swamped with redemption requests as impatient LPs couldn't wait to get what was left of their money back. However, the problem for hedge funds, in addition to underperforming the market substantially for a 5th year in a row, with almost all hedge funds now returning far less than the broader market (which continues to successfully defend the 1400 barrier every day) especially after October when the two biggest hedge fund darling stocks GOOG and AAPL finally reincountered gravity, is that their LPs have once again gotten restless and are now again actively seeking their money back from underperformers. Sadly, it was thus only a matter of time before the "gates" returned. As of this weekend they have.
If you bought the deep OTM, high theta option that is the Greek stock market on October 1, or wheat on January 1, 2012, you can now retire. For everyone else who still hasn't gotten the hang of this here "New Normal" Cramer market, better luck next time.
Europe is, supposedly, fixed: between the upcoming one year anniversary of the 3 year LTRO, which has flooded the continent in excess €1 trillion of liquidity, and the OMP, which has supposedly backstopped sovereigns in perpetuity (even though the market has fully frontrun what now appears to be a massively unpopular political decision, as Spain has been demonstrating for the past 2 months), European bank liquidity needs are supposed to be fully taken care of. Yet something went bump on Halloween. As the ECB reports, borrowing on the prohibitive, and largely "last resort" ECB "Marginal Lending Facility" (whose rate is an usurious 1.50%), one or more banks saw their need for EUR explode in the last day of the month, sending overall usage on this credit line to €7.8 billion, the most since mid-March, and a surge of over €7 billion overnight. What spooked European banks so much (whose liquidity needs are not month or quarter-end window dressing driven) that the ECB had to step in on top of everything else it has already done? We will surely find out soon.
"Obama/Romney, Romney/Obama – the most important election of our lifetime? Fact is they’re all the same – bought and paid for with the same money. Ours is a country of the SuperPAC, by the SuperPAC, and for the SuperPAC. The “people” are merely election-day pawns, pulling a Democratic or Republican lever that will deliver the same results every four years. “Change you can believe in?” I bought that one hook, line and sinker in 2008 during the last vestige of my disappearing middle age optimism. We got a more intelligent President, but we hardly got change. Healthcare dominated by corporate interests – what’s new? Financial regulation dominated by Wall Street – what’s new? Continuing pointless foreign wars – what’s new? I’ll tell you what isn’t new. Our two-party system continues to play ping pong with the American people, and the electorate is that white little ball going back and forth over the net. This side’s better – no, that one looks best. Elephants/Donkeys, Donkeys/Elephants. Perhaps the most farcical aspect of it all is that the choice between the two seems to occupy most of our time. Instead of digging in and digging out of this mess on a community level, we sit in front of our flat screens and watch endless debates about red and blue state theologies or listen to demagogues like Rush Limbaugh or his ex-cable counterpart Keith Olbermann."
Every Halloween people are engaging in free-market anarchism whether they like it or not. To the economist, it’s clear that the child values receiving candy, even if it means dressing up in a funny or scary costume and going door-to-door, sometimes for hours, saying “trick or treat”. It’s clear that for the adults, joining in for the festive evening is valued more-so than the monetary value of the candy, or else they wouldn’t be giving it away. And some don’t. Some people, adults and children alike, shy away from Halloween night neither tricking nor treating nor allowing their homes to be used as candy repositories. To the free-market anarchist, Halloween is a perfect example of a non-coercive display of voluntary goodwill. Here is a spontaneous order of people partaking in a festive holiday without any expectation of monetary gain.
If the just released 2013-2016 latest re-re-revised budget out of the Athens Finance Ministry (whose basement was forever memorialized in the following picture) is all Greek to you, it's because it is. But even it wasn't, it would still be absolute gibberish and yet another failed study in the analysis of animal entrails in order to predict the future. Why? We have extracted merely one data series: the brand new debt/GDP (ignoring for a second the -4.5% 2013 GDP forecast - already 0.5% worse than the just released IMF forecast for Greece for the same period and certainly worse than the May forecast of 2013 "growth"), and have compared it to the Debt/GDP "forecast" as of May 2010, when the first Greek bailout was announced. The numbers speak for themselves.