The core strategy of central states and banks to fix the Global Financial Meltdown of 2008 was to buy time: take extraordinary emergency monetary and regulatory measures to save the parasitic too big to fail banking sector and the rest of the crony-capitalist Wall Street parasites, and initiate an unprecedented transfer of wealth from savers and Main Street to the banks and Wall Street via zero-interest rates and credit funneled to the very players who caused the crisis. The idea was that the system would "heal itself" if authorities simply "bought time" by saving the financial sector from its own predation. The terrible irony in the official strategy of "buying time so the financial system can heal itself" is the policies prohibit healing and guarantee the next financial crisis will be greater in magnitude than the last one.
Equity Blow Off Top Takes Brief Overnight Rest, Prepares For Another Session Of Low Volume LevitationSubmitted by Tyler Durden on 05/30/2014 07:03 -0400
Last night's docket of atrocious Japanese economic data inexplicably managed to push the Nikkei lower, not because the data was ugly but because the scorching inflation - the highest since 1991 - mostly driven by import costs, food and energy as a result of a weak yen, and certainly not in wages, has pushed back most banks' estimates of additional QE to late 2014 if not 2015 which is as we predicted would happen over a year ago. As a result the market, addicted to central bank liquidity, has had to make a modest reassessment of just how much disconnected from reality it is willing to push equities relative to expectations of central bank balance sheet growth. However, now that the night crew trading the USDJPY is replaced with the US session algo shift which does a great job of re-levitating the pair, and with it bringing the S&P 500 higher, we expect this brief flicker of red futures currently observable on trading terminals to be promptly replaced with the friendly, well-known and "confidence-boosting" green. The same goes for Treasurys which lately have been tracking every directional move in stocks not in yield but in price.
The complete implosion in volume and vol, not to mention bond yields continues, and appears to have spilled over into events newsflow where overnight virtually nothing happened, or at least such is the algos' complete disregard for any real time headlines that as bond yields dropped to fresh record lows in many countries and the US 10Y sliding to a 2.3% handle, confused US equity futures have recouped almost all their losses from yesterday despite a USDJPY carry trade which has once again dropped to the 101.5 level, and are set for new record highs. Perhaps they are just waiting for today's downward revision in Q1 GDP to a negative print before blasting off on their way to Jeremy Grantham's 2,200 bubble peak after which Bernanke's Frankenstein market will finally, mercifully die.
If oil is “just another commodity,” then there shouldn’t be any connection between oil prices, debt levels, interest rates, and total rates of return. But there clearly is a connection. As we have seen, rising interest rates will bring an end to our current equilibrium, by raising costs in many ways, without raising salaries. It will also reduce equity values and bond prices. A rise in the cost of extraction of oil, if it isn’t accompanied by high oil prices, will also put an end to our equilibrium, because oil producers will stop drilling the number of wells needed to keep production up. If oil prices rise (regardless of reason), this will tend to put the economy into recession, leading to job loss and debt defaults. The only way to keep things going a bit longer might be negative interest rates. But even this seems “iffy.” We truly live in interesting times.
Central banks see their main role now in supporting asset markets, the economy, the banks, and the government. They are positively petrified of potentially derailing anything through tighter policy. They will structurally “under-tighten”. Higher inflation will be the endgame but when that will come is anyone’s guess. Growth will, by itself, not lead to a meaningful response from central bankers. No country has ever become more prosperous by debasing its currency and ripping off its savers. This will end badly...
On the surface, the economic atmosphere of the U.S. has appeared rather calm and uneventful. Stocks are up, employment isn’t great but jobs aren’t collapsing into the void (at least not openly), and the U.S. dollar seems to be going strong. Peel away the thin veneer, however, and a different financial horror show is revealed. With the Ukraine crisis now escalating to fever pitch, BRIC nations are openly discussing the probability of “de-dollarization” in international summits, and the ultimate dumping of the dollar as the world reserve currency. The U.S. is in desperate need of a benefactor to purchase its ever rising debt and keep the system running. Strangely, a buyer with apparently bottomless pockets has arrived to pick up the slack that the Fed and the BRICS are leaving behind. But, who is this buyer? At first glance, it appears to be the tiny nation of Belgium. Clearly, this is impossible, and someone, somewhere, is using Belgium as a proxy in order to prop up the U.S. But who?
Fiat money is at base a form of indirect wealth transfer from those forced to hold the money to those issuing the money.
Treasuries are still cheap. The FOMC statement says that “even after employment and inflation are near mandate-consistent levels” the committee may keep “the target federal funds rate below levels” viewed as normal in the longer run. Whenever we read this, we think of Desi Arnaz screaming, “Lucy! You got some ‘splainin’ to do!” Treasury prices do not care if Q4 is around 4%. Economic data matters little for the time being. Prices are being driven more by positions, relative value, and future Fed policy. Markets know the Fed is ending QE. What it really wants to know is the terminal Fed Funds level in the new ‘world order’. In the meantime, stay long.
- Omnicom, Publicis call off proposed $35 billion merger (Reuters)
- Apple in talks for $3.2bn Beats deal (FT)
- Alibaba IPO Grew Out of ’80s Chaos and Guy From Goldman (BBG)
- Nigeria's president at WEF pledges to free kidnapped girls (Reuters)
- JPMorgan Joins Wells Fargo in Rolling Out Jumbo Offerings (BBG)
- It's 1999 all over again: Young Bankers Fed Up With 90-Hour Weeks Move to Startups (BBG)
- ECB stimulus talk knocks euro, peripheral yields (Reuters)
- Deutsche Bank Currency Crown Lost to Citigroup on Volatility (BBG)
- London Taxis Plan 10,000-Car Protest Against Uber App Use (BBG)
- Pfizer Holders Could Face Tax Hit in a Deal for AstraZeneca (WSJ)
...What’s left for the Empire of Chaos is to pray for chaos to keep spreading across Ukraine, thus sapping Moscow’s energy. And all this because the Washington establishment is absolutely terrified of an emerging power in Eurasia. Not one, but two – Russia and China. Worse: strategically aligned. Worse still: bent on integrating Asia and Europe. So feel free to picture a bunch of Washington angry old men hissing like juvenile delinquents: “I don’t like you. I don’t want to talk to you. I want you to die.”
Economist John Maynard Keynes described the effects of inflation citing Vladimir Ilyich Lenin this way: “Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” This is why governments love inflation so much and hate gold.
- EU regulators unveil details of bank stress tests (FT)
- Just use NSAfari: U.S., UK advise avoiding Internet Explorer until bug fixed (Reuters)
- China’s Income Inequality Surpasses U.S., Posing Risk for Xi (BBG)
- US races to refuel infrastructure fund as revenue dries up (FT)
- New Era Dawns at Nokia as Company Appoints CEO, Plans $1.4 Billion Special Dividend, Share-Repurchase Program (WSJ)
- Obama reassures allies, but doubts over 'pivot' to Asia persist (Reuters)
- Dissent at SEC over bank waivers (FT)
- U.S. Banks to Help Authorities with Tax Evasion Probe (WSJ)
- U.S., Europe Impose New Sanctions on Russia (WSJ)
- Why the U.S. Is Targeting the Business Empire of a Putin Ally (BBG)
- Euro-Area April Economic Confidence Unexpectedly Declines (BBG)
- Bitcoin traders settle class actions over failed Mt. Gox exchange (Reut
The bankruptcy of Energy Future Holdings, aka TXU, aka the largest LBO ever has been long in coming. As we previewed it most recently in September of last year, "if there was one deal that epitomized the last credit bubble, aside from the Blackstone IPO of course, it was the ginormous, $45 billion 2007 LBO of TXU, now Energy Future Holdings... the time to pay the piper for the last credit-fuelled binge has arrived and inevitable bankruptcy of this landmark deal is now just days away." It turned out it was more like months away, but it finally arrived, and moments ago, TXU finally succumbed to (lack of) cash flow reality, when it filed for a prepackaged Chapter 11 bankruptcy on Tuesday morning after months of negotiations with creditors aimed at speeding the restructuring of the private-equity backed utility's debt load of more than $40 billion. While it is unclear just how much total debt the company will ultimately restructure, it is likely that the final number will be greater than Enron's, making this also the largest ever non-financial bankruptcy in history.
Name The Continent: It Accounts For 7% Of The World's Population, 25% Of GDP And 50% Of Welfare SpendingSubmitted by Tyler Durden on 04/28/2014 21:21 -0400
Angela Merkel has a favourite mantra to offer troubled euro-zone countries: they should copy Germany. As The Economist notes, she put it last autumn: "What we have done, everyone else can do." Fifteen years ago, so she says, her country was widely regarded as the sick man of Europe; then it opted for fiscal austerity, cut labour costs and embraced structural reforms, turning it into an economic powerhouse. However, there is another mantra Mrs Merkel likes to repeat to her colleagues: Europe accounts for 7% of the world’s population, 25% of GDP and 50% of social-welfare spending. The Economist, and George Soros believe, Germany’s current course will exacerbate that problem as Europe's biggest economy is backsliding on structural reforms (as she preaches pre-growth reforms but implements anti-growth ones).
- U.S. Plans to Hit Putin Inner Circle With New Sanctions (BBG)
- Russian Billions Scattered Abroad Show Trail to Putin Circle (BBG)
- GE’s Alstom Bid Gains Steam as Hollande Said Not Opposed (BBG)
- Russia-West tensions pressure stocks, buoy oil prices (Reuters)
- Toyota Said to Plan to Move U.S. Sales Office to Texas (BBG)
- Egyptian court seeks death sentence for Brotherhood leader, 682 supporters (Reuters)
- Greece warned of 14.9 billion euro financing gap (FT)
- Comcast to shed 3.9 million subscribers to ease cable deal (Reuters)
- Big U.S. Banks Make Swaps a Foreign Affair (WSJ)