CRAP

Guest Post: Cause, Effects & The Fallacy Of A Return To Normalcy

The most profitable business of the future will be producing Space Available and For Lease signs. Betting on the intelligence of the American consumer has been a losing bet for decades. They will continue to swipe that credit card at the local 7-11 to buy those Funions, jalapeno cheese stuffed pretzels with a side of cheese dipping sauce, cartons of smokes, and 32 ounce Big Gulps of Mountain Dew until the message on the credit card machine comes back DENIED.  There will be crescendo of consequences as these stores are closed down. The rotting hulks of thousands of Sears and Kmarts will slowly decay; blighting the suburban landscape and beckoning criminals and the homeless. Retailers will be forced to lay-off hundreds of thousands of workers. Property taxes paid to local governments will dry up, resulting in worsening budget deficits. Sales taxes paid to state governments will plummet, forcing more government cutbacks and higher taxes. Mall owners and real estate developers will see their rental income dissipate. They will then proceed to default on their loans. Bankers will be stuck with billions in loan losses, at least until they are able to shift them to the American taxpayer – again.

The Latest Market Craze: Stock Trading Robots Reacting To Stories Written By... Robots

It appears that while we were busy over the past month spreading the Greek pre- and post-bankruptcy balance sheet, and otherwise torturing Excel (something we urge other financial journalists to try once in a while - go ahead, it doesn't bite. In fact, it is almost as friendly as your favorite Powerpoint) our peer at such reputable financial publications as Forbes, and many others, were laying of carbon-based reporters and replacing them with... robots. As Mediabistro reports, "Forbes has joined a group of 30 publishers using Narrative Science software to write computer-generated stories. Here’s more about the program, used in one corner of Forbes‘ website: "“Narrative Science has developed a technology solution that creates rich narrative content from data. Narratives are seamlessly created from structured data sources and can be fully customized to fit a customer’s voice, style and tone. Stories are created in multiple formats, including long form stories, headlines, Tweets and industry reports with graphical visualizations.”" In other words, with well over 70% of stock trading now done by robots, we have gotten to a point where robots write headlines and stories read, reacted to and traded by robots. Surely, what can possibly go wrong. And here we were this morning, wondering why the market is not only broken but plain dumb.

Credit Card Fueled Binges No Longer Bring A Smile To US Consumers' Faces

To be happy is to be confident. And at least until the recent past, in America to be confident, meant to have purchasing power, which pretty much always, at least for the bulk of the population, meant to lever up, i.e., to take on debt and to spend it on worthless crap. Well, as we reported earlier this week, in December the US population literally jumped head first right back into the credit frenzy, experiencing the largest jump in unadjusted consumer credit since the peak of the credit bubble. however, very much contrary to naive interpretations that this would reignite the economy, as Lance Roberts explained, and as Charles Hugh Smith confirmed showing plunging gasoline usage, it merely indicated that with savings again at record lows, US consumer have no choice but to dig deep into their credit card stash merely to pay for staples, and non-discretionary spending. And one hardly is happy when one purchases a roll of toiler paper (not to be confused with US Treasurys - there is far less than 15.4 trillion pieces of toiler paper in the world) on credit. Sure enough, as the following chart from John Lohman demonstrates, the recent (mini) reincarnation (because it will last at most a month or two) of the consumer credit bubble has done absolutely nothing for consumer confidence. In fact, today's UMichigan data showed a decline in confidence. Which shows  all one needs to know about just what the true state of the US consumer is...

The Shorts Have Left The Building

Following the market's "sudden" realization in December that the ECB had been quietly pumping $800 billion, or more than the entire QE2, into the market (sterilized? yeah right - when one lends out cash in exchange for worthless crap nobody else wants, and certainly not the Bundesbank, it is not sterilized), it became all too clear that the market's response in 2012 would be a deja vu of 2011, if only for a while. Sure enough 2012 has been a tic-for-tic transposition of the market move in 2011. The only question is how far it would go, before, like back in 2011 again, it rolled over. To get a sense of one of the best indicators of an overextended rally, we go to the NYSE whose short interest update confirms that the rally, at least based on ongoing short squeeze dynamics (which as we said in mid-January has been the best strategy for a bizarro market) is now over. Sure enough, according to the latest data, short interest has collapsed from a multi-year high in September of 16 billion shorts, which coincided with the market lows, to essentially the lowest print seen in the past 4 years at 12.5 billion shares, a level which has not been breached once in the New Normal phase of market central planning. In other words, those who look at short interest and covering as a market inflection point, the time has come to take advantage of the short mauling, and bet on the market rolling over. That said, all it takes is for a central bank chairman somewhere to sneeze the wrong way, and this best laid plan will promptly collapse.

Goldman Conducts Poll On Latest European Deus Ex, Finds Respondents Expect €680Bn LTRO Take Up

We have discussed forecasts for the second (and certainly not last ) February 29 3 Year LTRO in the past, with expectations for its size ranging from €1 trillion all the way up to a mindboggling €10 trillion. Today, Goldman has conducted a poll focusing on investors and banks, to gauge the sentiment for what has over the past 2 months been taken as the latest Deus Ex, which is really nothing than yet another bout of quantitative easing, only one in which the central bank pretend to be sterilizing 3 year loans by accepting any and virtually all collateral that banks can scrape off the bottom of their balance sheets (as a reminder, back in the financial crisis, Zero Hedge discovered that the Fed was accepting stocks of bankrupt companies as collateral - certainly the ECB is doing the same now). And once the banks get the cash instead of lending it out, or using it for carry trades, they simply use it to plug equity undercapitalization due to massive asset shortfalls on their balance sheets which are mark-to-unicornTM, yet which generate zero cash flow, even as banks have to pay out cash on their liabilities. In essence, the banks convert worthless crap into perfectly normal cash with the ECB as an intermediary: and that is all the LTRO is. Luckily, as we pointed out, even the idiot market is starting to grasp the circular scam nature of this arrangement, and the fact that it is nothing short of Discount Window usage, and because of that, the stigma associated with being seen as needing this last ditch liquidity injection is starting to grind on the banks. It is only a matter of time before hedge funds create portfolios in which they go long banks which openly refuse to use LTRO cash, and short all the other ones (read every single Italian and Spanish bank out there, and most French ones too) because at the end of the day one can only fool insolvency for so long. But once again we are getting ahead of the market by about 3-6 weeks. In the meantime, and looking forward to the next LTRO, whose cash will be used exclusively to build up "firewalls" ahead of the Greek default, here is what Goldman's clients expect to happen...

rcwhalen's picture

Had to cross post this discussion with my brother Michael Whalen from The Institutional Risk Analyst. The past articles in The IRA require a $99/yr subscription, but the most recent is free. 

Also note link to comment by Barry Ritholtz on The Big Picture re: the Facebook IPO.  Actually Goldman Sachs led the covert IPO and hype festival last year, but the folks at the SEC and FINRA were sound asleep.  

Chris

Everything You Wanted To Know About Credit Trading But Were Afraid To Ask

Markets have become far less volatile than last year, but many investors remain focused on the Credit Markets for signs and cues as to the next move.  With so many people looking to moves in credit markets and trying to determine how successful an auction has been, we thought it would make sense to go through some examples of how credit trades.  At one extreme you have a real market like for the E-mini S&P futures.  That trades from Sunday at 6pm EST until Friday at 4:15 EST.  It is virtually continuous and at any given time you can see the bids and offers of the entire market.  Then you have credit trading, which has almost nothing in common with ES futures and their incredible liquidity and transparency.

Guest Post: Paychecks, Perception, Propaganda & Power

Humans are a flawed species. Our minds are easily manipulated. We don’t like pain. We prefer instant gratification. We are susceptible to mass delusion. We will often choose hope over critical thought. Those with higher IQs will regularly attempt to take advantage of those with lower IQs. Fear and greed are the two motivations used by the minority in power to control and manipulate the majority. The American people have been led astray by a small group of powerful men. We were herded through a door in the wall of perception that promised an American dream of material goods, entitlements and pleasure with no obligations or responsibility to future generations. There is only one choice that can save this country from ruin. Each individual must make a choice to either to continue supporting the manipulative, corrupt status quo or coming back through the Door in the Wall.

“The man who comes back through the Door in the Wall will never be quite the same as the man who went out. He will be wiser but less sure, happier but less self-satisfied, humbler in acknowledging his ignorance yet better equipped to understand the relationship of words to things, of systematic reasoning to the unfathomable mystery which it tries, forever vainly, to comprehend” – Aldous Huxley