Tim Knight from Slope of Hope's picture

Back in the late 1980s, the entire business world was obsessed with Japan. It's no wonder that this was the case: here was a country which had emerged from the ashes of World War 2 and had become the world's second-largest economy. They made high-quality cars, consumer electronics, semiconductors, plus they seemed to have a management style and work ethic that put the "good old USA" to shame.

Barclays Fined Record Amount For Channelling Enron, Manipulating California's Electricity Market

It just is not Barclays' year. After being exposed (so far the only one) as a ringleader in a massive LIBOR-rigging scandal which cost Bob Diamond his job, yesterday the British bank added insult to injury, after the Federal Energy Regulatory Commission (FERC) fined it $470 million - the largest penalty ever levied by the energy regulator, and even larger than the bank's LIBOR fine - for getting caught doing what Enron got caught doing about a decade ago: manipulating California's electricity markets. Although while the former ended up being the biggest corporate bankruptcy at the time, led to the end of one of the nation's largest auditors and sparked a scandal so great it was all corporate America spoke for about for the next year, this time the news has come and gone, and nobody cares. Perhaps this is to be expected: in a time when none other than the central bank intervenes each and every day in every single market to preserve the "wealth effect", habituation to epic corporate manipulation of every imaginable kind is perfectly normal.

Guest Post: Why Energy May Be Abundant But Not Cheap

It doesn’t matter how abundant liquid fossil fuels might be; it’s their cost that impacts the economy. Many people think “peak oil” is about the world is “running out of oil." Actually, “peak oil” is about the world running out of cheap, easy-to-get oil. That means fossil fuels might be abundant (supply exceeds demand) for a time but still remain expensive.  We are trained to expect that anything that is abundant will be cheap, but energy is a special case: it can be abundant but costly, because it’s become costly to produce. EROEI (energy returned on energy invested) helps illuminate this point.

Why The High-Yield Market Won't See A Performance-Chasing Rally

It seems that every commission-taking talking-head with a voice-box is espousing the 'truth' that equity portfolio managers will be forced to chase performance into year-end for fear of career-risk (we presume) in order to merely catch-up. In high-yield markets, however, where performance has been outstanding, things are quite different. As Barclays notes, performance among HY mutual funds is tightly clustered this year (especially relative to recent years). This leaves a HY credit market that is tightly call-constrained on capital appreciation (thanks to Bernanke's ZIRP), starting to see inflows fade post-QEternity (and shares outstanding drop in the ETFs), with managers anxious about their relative performance in a tightly correlated and crowded world of illiquidity away from ETFs. As is clear by recent performance, high-yield market participants are less sanguine on the future than their equity counterparts - just as they were in April.

Sam Zell On "Class Warfare Crap", QE3 Unreality, And Why Everything Is Mispriced Due To The Fed

"QE-whatever has created artificial numbers that the underlying won't support" is how Sam Zell sums up his view of the Fed's actions, adding that the Dow should be more like 9000, not 14000. The typically optimistic bottom-feeding real-estate magnate says he is not buying here, is gravely concerned about liquidity needs, and in his assessment "everything is massively too expensive." This epic CNBC interview-fest, where the less-than-cheer-leading Zell was allowed to speak, includes his views on a pending recession (as he sees capex planned projects being delayed) and while trying not to play the political card too strongly, he asks that we "stop this class warfare crap" and that the animal spirits are unleashed - as the game is being stacked against him. "We're kicking the can down the road... and with QE, there is now too much capital chasing too few opportunities - even when nobody has confidence in the future!"

CDS Market Begins Trading Imaginary Credit With LIBOR-Style Fixings

We have not been aggressive anti-CDS fanatics in the past - since the ignorance of mainstream media types satisfies that need - as the reality in the credit market is less extreme than many would love it to be. However, the latest move by Markit and its self-aggrandizing dealer owner/clients, to bring names into the high-yield credit index that do not even have CDS trading on them, is simply remarkable. While they will defend the move on the basis that it will force dealers to provide single-name CDS liquidity in three of the high-yield credit markets most-indebted companies (CIT, Charter Comms, and Calpine), the fact is that they are using the liquidity/fungibility of the index to enable risk to be unwound on what is likely bloated balance sheets containing too much of this crap. By imagining (or fixing LIBOR-style) where the CDS would trade, based on where the firms' bonds trade, we worry that the hitherto somewhat liquid source of 'fast' macro-hedging or positioning has become even more manipulable than before - and in the event of a default (or stress/illiquidity event), we can only imagine the law-suits. As the FT notes - all this does is provide more 'arbitrage' opportunities as opposed to real hedging; simply amazing that as with equities - it is now the synthetic indices that run the entire market.

Guest Post: Doug Casey On The Good, The Bad, And The Ugly Of Today's Journalism

"Yellow journalism" – which seems almost the only kind we have these days dominates our newsflow, but the truth is out there. As with everything else though, it's subject to Pareto's Law. So, 80% of what's out there is crap, and 80% of what's left is merely okay. But that remaining 4% of quality, uncensored, free information flow is extremely valuable. The terminal corruption of the major news corporations and the lack of interest in seeking the truth among the general population augurs very poorly for the prospects of the US and the current world order. This creates speculative opportunities, but prospects for mainstream investments are not good. Western civilization is truly in decline and far down the slippery slope.