- Here come the rolling blackouts: Obama takes on power plant emissions as part of climate plan (Reuters)
- Walking Back Bernanke Wished on Too Much Information (BBG)
- As previewed last week: Bridgewater "All Weather" is Mostly Cloudy, down 8% YTD (Reuters)
- U.S. Said to Explore Possible China Role in Snowden Leaks (BBG)
- Coeure Says No Doubt ECB Loose Monetary Policy Exit Distant (Bloomberg)... so a "recovery", but not at all
- U.S. steps up pressure on Russia as Snowden stays free (Reuters)
- Texas' Next Big Oil Rush: New Pipelines Ferrying Landlocked Crude Expected to Boost Gulf Coast Refiners (WSJ)
- Singapore Offsets Bankers as Vacancies Fall (BBG)
- Asian Stocks Fall as China Sinks Deeper Into Bear Market (BBG), European Stocks Rally With Bonds as Metals Advance (BBG)
- Qatar emir hands power to son, no word on prime minister (Reuters)
Overview of the great unwind, which I suggest has three components--tapering talk in the US, Japanese selling foreign assets and the liquidity squeeze in China (squeezing another carry carry trade).
"Can central banks now really do “whatever it takes”? As each day goes by, it seems less and less likely... Six years have passed since the eruption of the global financial crisis, yet robust, self-sustaining, well balanced growth still eludes the global economy. If there were an easy path to that goal, we would have found it by now. Monetary stimulus alone cannot provide the answer because the roots of the problem are not monetary. Many large corporations are using cheap bond funding to lengthen the duration of their liabilities instead of investing in new production capacity...Continued low interest rates and unconventional policies have made it easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system... Overindebtedness is one of the major barriers on the path to growth after a financial crisis. Borrowing more year after year is not the cure...in some places it may be difficult to avoid an overall reduction in accommodation because some policies have clearly hit their limits." - Bank of International Settlements
Now, after the Fed's generosity caused by "a decoupling of the 'real' economy from the financial economy with its lavish creation of fictitious wealth...
That pesky marketplace (Bernanke vs Obama) - a political fable...
Moral: When the financial markets no longer reflect the human condition, authorities must answer to true power – the marketplace.
To find what is perhaps the best analogy of the mentality behind today's global capital markets and the perhaps the entire US economy as well, one has to travel to Zhongxiang in Hubei province, where a university entrance exam for 800 students did not go quite as expected. Telegraph reports: "When students at the No. 3 high school in Zhongxiang arrived to sit their exams earlier this month, they were dismayed to find they would be supervised not by their own teachers, but by 54 external invigilators randomly drafted in from different schools across the county. In short: everyone was hoping to continue a historical tradition and simply cheat, but the proctors finally and shockingly pulled the plug. End result: hundreds of test takers who had no idea what to do when the system is not rigged. "Outside, an angry mob of more than 2,000 people had gathered to vent its rage, smashing cars and chanting: "We want fairness. There is no fairness if you do not let us cheat."
There was a time when portfolio insurance guaranteed that events like Black Monday would never happen. Then Black Monday happened precisely due to portfolio insurance. Some years later, the credit-driven housing boom made modeling of declining home prices at rating agencies (and everywhere else) redundant. Then the (first) housing and credit bubble popped leading to the biggest housing market crash in US history. Fast forward to today, when ETFs were supposed to be the "greatest thing since sliced bread" and providing an ultra-low cost alternative to mutual fund and other market exposure "for the people", were supposed to revolutionize investing. Until days like yesterday. To wit from the FT: "The losses for ETFs today were far beyond what the most sophisticated financial risk models could have predicated for worst-case scenarios," said Bryce James, president of Smart Portfolio, which provides ETF asset allocation models.
Yesterday, Federal Reserve Chairman Ben Bernanke likened monetary policy to landing a jet on an aircraft carrier which reminded ConvergEx's Nick Colas of a few choice 'Top Gun' quotes... "Son, your ego is writing checks your body can’t cash" seems most appropriate. But Colas' review of a recent academic paper on the social dynamics of how long people applaud - and why they stop - is perhaps useful in comprehending the market's reaction. The funny thing about the work is that the distribution of ‘Clapping duration’ looks pretty much exactly like the P/E ratio of the U.S. equity market going back to the 1800s. Why do people start and stop their applause or buy into a stock market? It all happens "at the margin" in both cases, and just a few people putting their hands in their pockets is enough to get the rest to stop. In the end, this is a simple analysis, but one which speaks to capital markets as essentially large “Social networks”, and that is an intuitively appealing construct. Attention and engagement ebb and flow based on macro confidence, micro financial results, and other fundamental inputs. Valuation becomes an analysis of whether more or fewer investors will be clapping next month or next quarter. But one thing is for sure – you want to be among the first people to clap and quit when the noise is the loudest.
There has been considerable throughput of gold in western capital markets, with substantial buying from all round the world following the April price crash. The supply can only have come from two sources: the general public, or one or more governments. It really is that simple. Two months later the gold price has only partially recovered, so physical supplies have continued to be made available. Physical demand cannot have been entirely satisfied by ETF liquidations, confirming governments are involved. This article looks at the dynamics of the gold market around this event and the implications.
We discuss legitimate credit vs. counterfeit central bank credit, the concepts of marginal time preference and productivity, speculation, and finally resonance.
The Plight Of Europe's Banking Sector, Its €650 Billion State Guarantee, And The "Urgent Need" To RecapitalizeSubmitted by Tyler Durden on 06/15/2013 11:37 -0500
Since the topic of quantifying how big the sovereign assistance to assorted banks - both in Europe and the US (which Bloomberg calculated at $83 billion per year) - has become a daily talking point, we are happy to read that Harald Benink and Harry Huizinga have reached the same conclusion as us in their VOX analysis, and further have shown that in Europe the implicit banking sector guarantee by the state is a whopping €650 billion. "Europe has postponed the recapitalisation of its banking sector for far too long. And, without such a recapitalisation, the danger is that economic stagnation will continue for a long period, thereby putting Europe on a course towards Japanese-style inertia and the proliferation of zombie banks... Banks are already saddled with ample unrecognised losses on their assets, estimated by many observers to be at least several hundreds of billions of euros and mirrored by low share price valuations, and an additional loss of their present funding advantage will be crippling."
Goldman Sachs has suggested that there may be up to 349 Initial Public Offerings (IPOs) taking place in China this year. But, it’s not the Chinese capital markets that those companies will be wanting. Chinese firms are still hell-bent on getting floated on the world’s biggest and best stock exchange, and rightly so.
Turkish Riot Police Storm Taksim Square, Central Banks Warns Of Intervention Due To Extreme Market VolatilitySubmitted by Tyler Durden on 06/11/2013 06:28 -0500
Over a week into "Occupy Taksim", the Turkish situation is nowhere near resolution. In fact, judging by the capital markets response to news that hundreds of police stormed Taksim Square this morning using tear gas to disperse protesters, where the lira declined overnight to the weakest level since December 2011, bond yields dropped 29 bps, Turkish CDS rose wider than Russia, and where even the central bank has warned it may start engaging in tightening operations, things are going to get much worse. Finally, a big demonstration is due in a few hours: will Taksim Square June 2013 be the "Waddel and Reed/May 2010" Syntagma Square flash crash equivalent? Find out shortly.
All the news recently about the U.S. government’s telephone and online surveillance programs got ConvergEx's Nick Colas thinking about a rich academic field: the psychology of observation. How do observers differ from actual actors in their explanations of events they either witness or in which they actually participate? Scores of academic studies point to a key difference. Actors tend to attribute their decisions to situation-specific inputs. Those observing these actions, by contrast, tend to ascribe their ultimate cause as tied to the personality of the actors involved. Same destination, but radically different interpretations of the journey. Even the process of being watched can change human behavior. Bottom line – observers and actors are rarely on the same planet, let alone the same page, when it comes to explaining a given event. Keep that in mind as you try to understand Fed policy, or a company’s management, or even your own family.
In a confirmation that the S&P is starting to get worried about the drones surrounding the McGraw Hill building resulting from the ongoing litigation with Eric Holder's Department of Injustice, not to mention a reminder that US downgrades always happen after hours, while upgrades must hit before the market opens, Standard & Poors just upgraded the Standard & Poors 500 the US outlook from Negative to Stable. On what "receding fiscal risks" did the S&P raise its assessment of the US - the fact that the US is now at its debt limit, that there is no imminent resolution to the credit issue, or the 105% and rising debt/GDP - read on to find out. And of course, the countdown until the S&P wristslap settlement with the DOJ is announced begins now, as does the upgrade watch by Buffett's controlled Moody's of the US to AAAA++++.