Just a reminder: this time won't be different.
- Cypriot Bank Levy Is ‘Ominous’ for Bondholders, Barclays Says (BBG)
- Euro, Stocks Drops; Gold, German Bonds Rally on Cyprus (BBG)
- Total chaos:Cyprus tries to rework divisive bank tax (Reuters)
- More total chaos: Cyprus Prepares New Deposit-Tax Proposal (WSJ)
- Euro Slides Most in 14 Months on Cyprus Turmoil; Yen Strengthens (BBG)
- Osborne to admit fresh blow to debt target (FT)
- Even the Finns are giving up: Finnish Government May Relinquish Deficit Target to Boost Growth (BBG)
- Moody’s Sees Defaults as PBOC Warns on Local Risks (BBG)
- Australia Faces ‘Massive Hit’ to Government Revenue, Swan Says (BBG)
- Inside a Warier Fed, Watch the New Guy (Hilsenrath)
- Obama to Tap Perez for Labor Secretary (WSJ) - and with that the "minorities" quota is full
- Finally, this should be good: BuzzFeed to Launch Business Section (WSJ)
What to make of this development?
The state, crippled by massive deficits, endless war and corporate malfeasance, is clearly sliding toward unavoidable bankruptcy. It is time for Big Brother to take over from Huxley’s feelies, the orgy-porgy and the centrifugal bumble-puppy. We are transitioning from a society where we are skillfully manipulated by lies and illusions to one where we are overtly controlled. We are one crisis away from a police state. All the powers are in place. Someone will flip the switch. Whether a Cyber Attack, escalating Currency War tensions or a 'terrorist' attack by indebted college youth, it is only a matter of time and circumstance... We are one crisis away from a police state. All the powers are in place. Someone will flip the switch. Whether a Cyber Attack, escalating Currency War tensions or a 'terrorist' attack by indebted college youth, it is only a matter of time and circumstance.
There is one problem with relentlessly ramping markets (whether due to four years of liquidity injections by the Fed, or due to four years of liquidity injections by the Fed) - they make all those who by definition have to be hedged, seem stupid by comparison. In this case, this means that for the fifth year in a row, the vast majority of brand name hedge funds are once again underperforming the S&P, even though most of them have shifted to the highest net long exposure in history, while charging their increasingly more angry investors 2 and 20 for the privilege of underperforming the most micromanaged asset of all - the S&P500, and its unpaid portfolio manager, Ben Bernanke. And while there are three certain things in life: death, taxes and Paulson being one of the worst performers in the world (perhaps he is moving to Puerto Rico not to avoid paying taxes but to escape furious LPs), as he indeed is for the third year running what is most surprising is that through the middle of March, according to HSBC, every single brand name hedge funds is once again underperforming the S&P.
Curious why Treasury yields have ground lower this morning, considerably more than would perhaps be expected given the consumer sentiment data, and in the process have prevented the intraday "rotation" out of bonds into stocks, pushing the DJIA higher for the 11th consecutive day? The answer comes from the Fed which tipped its hand earlier and scared a few big bond shorts by issuing a Large Positions Reports from those entities which own more than $2 billion of the 2% of February 2023 (CUSIP: 912828UN8 auctioned off in February and reopened on Wednesday). In an unexpected request, and on the back of a surge in fails to deliver earlier in the week and the huge apparent buyside demand in the latest 10Y auction (Primary Dealers getting only 22.3% of the takedown in the UN8 vs typical 40-60%) which settles today, MNI reports that the Fed is now inquiring who has large chunks of the bond: something it has not done since February 2012.
Over a decade ago, it was moms and pops downing tools and picking up mice to day-trade the latest and greatest dot-com wunder-stock from their home-office/kitchen table. Now, as equities perch atop a pile of rotten Federal Reserve effluent, it is tweens and below that are sought for their stock market prowess. Forget Rachel Fox - the 16 year old actress-cum-Jesse-Livermore, now we have 11-year-old Rachel Kelly from Naperville who is touted as an example of the greatness of our education system by CNBC because, "because people are going to need to trade stocks long after we're gone... it's inspiration for other 11-year-olds out there." Indeed we are.
The US has been lying to all of us for decades now.We’re not talking about some kooky conspiracy theory… we’re talking about something that affects every man woman and child in the US.
- JPMorgan Report Piles Pressure on Dimon in Too-Big Debate (BBG)
- Employers Blast Fees From New Health Law (WSJ)
- Obama unveils US energy blueprint (FT)
- Obama to Push Advanced-Vehicle Research (WSJ) - here come Solar-powered cars?
- BRICs Abandoned by Locals as Fund Outflows Reach 1996 High (BBG)
- Obama won't trip over Netanyahu's Iran "red line" (Reuters)
- Samsung puts firepower behind Galaxy (FT)
- Boeing sees 787 airborne in weeks with fortified battery (Reuters)
- Greece Counts on Gas, Gambling to Revive Asset Sales Tied to Aid (BBG)
- Goldman’s O’Neill Says S&P 500 Beyond 1,600 Needs Growth (BBG)
- China’s new president in corruption battle (FT)
- Post-Chavez Venezuela as Chilly for Companies From P&G to Coke (BBG)
The concept of the Great Rotation continues to garner significant investor attention. From a flow perspective, UBS' analysis across various asset classes infers there is scant evidence of a large rotation out of corporate credit or fixed income in general. They make a few simple observations. First, that the thesis of a great rotation out of Treasury securities into corporate equities is a fallacy - the Federal Reserve and global central banks are the dominant holders of Treasuries; if they decide to sell, the money will not directly flow into equities. Second, the thesis of a great rotation out of corporate credit into equities is complicated by three main cross-currents which suggests, correctly, to them that the Great Rotation debate is much ado about nothing.
Democratic governments in low-growth economies sometimes rely on their central banks to support fiscal policy so as to avoid asking voters to share more of the burden. BNP Paribas' Ryutaro Kono notes that it is the pathology of modern democracies to foist our bills onto future generations and one could argue that the prolongation of our zero-rate regimes and quantitative easing are facilitating this. When this societal weakness is combined with today’s financialized economies, we get a pronounced inclination toward monetization, which could lead to very serious problems. While Governor Shirakawa has described the BoJ as the “frontrunner” in venturing into unknown territory with policies like zero rates and quantitative easing, Kono warns that Japan could also become the frontrunner of outright monetization. This could intensify the dilemma of having to choose between price stability or financial-system stability when inflation actually starts to pick up.
They didn't see it coming last time either. Back in 2007, President Bush, Federal Reserve Chairman Ben Bernanke and just about every prominent voice in the financial world were all predicting that we would experience tremendous economic prosperity well into the future. In fact, as late as January 2008 Bernanke boldly declared that "the Federal Reserve is not currently forecasting a recession." At the time, only the "doom and gloomers" were warning that everything was about to fall apart. And of course we all know what happened. But just a few short years later, history seems to be repeating itself. All of our "leaders" swear that everything is going to be okay. You can believe them if you want, but denial is not just a river in Egypt, and another crash is inevitably coming.
The long-awaited tell-all is coming soon to an ebook near you soon - well in 2014. AP reports that none other than 'Turbo' Tim Geithner has an agreement with Crown Publishers (Random House) to publish his 'behind-the-scenes' account of the financial crisis. From his tenure at the NYFRB to his stint under Obama's wing, we can't wait for all the gossip - ...and then I said, "yes sir, whatever you want sir..." As Crown adds in its PR, "Secretary Geithner will chronicle how decisions were made during the most harrowing moments of the crisis, when policy makers faced a fog of uncertainty, risked catastrophic outcomes, and had no institutional memory or recent precedent to guide them." Should be a thriller... as he answers the all-important question of why (or not) but rest comfortably as he intends to "provide a 'playbook' that future policy makers can draw on." Given the success of Obama's odyssey, we humbly suggest Tim title the as-yet-untitled book, 'The Oddacity Of Hype'.
Why do I bring all of this up? Because it was China’s stimulus and China’s economy that supposedly lead the world back towards growth again. China is the proverbial canary in the coalmine, the economy that most quickly reveals what’s coming and where we’re all heading…