Irrational Exuberance

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It Was Never About Oil





What we do know is that the eurodollar system is failing and we know how it is failing. From negative swap spreads to the shrunken, depressed money and credit curves, they all spell out the death of the current standard. The money supply, for lack of a more appropriate term in the “dollar’s” universe, is in the long run converging with the shriveled economic baseline. The immediate problem for our current circumstances is that we don’t yet have any idea what that foundation might look like even now- how far is down.

 
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The Next Big Short





At the end of the day, the current preposterous $325 billion market cap has nothing to do with the business prospects of this firm or the considerable entrepreneurial prowess of its leader and his army of disrupters. It is more in the nature of financial rigor mortis - the final spasm of the robo-traders and the fast money crowd chasing one of the greatest bubbles still standing in the casino.

 
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How We Got Here: The Fed Warned Itself In 1979, Then Spent Four Decades Intentionally Avoiding The Topic





At least parts of the Fed all the way back in 1979 appreciated how Greenspan and Bernanke’s “global savings glut” was a joke. Rather than follow that inquiry to a useful line of policy, monetary officials instead just let it all go into the ether of, from their view, trivial history. But the true disaster lies not just in that intentional ignorance but rather how orthodox economists and policymakers were acutely aware there was “something” amiss about money especially by the 1990’s. Because these dots to connect were so close together the only reasonable conclusion for this discrepancy is ideology alone. Economists were so bent upon creating monetary “rules” by which to control the economy that they refused recognition of something so immense because it would disqualify their very effort.

 
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Now What: How Should One Trade In A World Where "Most Indicators Have Lost Their Informational Value"





A market which trades day to day on historic "whiplashes", record short squeezes, broken trendlines, and of course, $13 trillion in excess liquidity, got you shaking your head (and burning old Finance 101 textbooks)? Don't despair: here is Macquarie with a guide of how to trade in world where "most leading indicators have lost their informational value."

 
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The Problem Explained In 110 Words





"...declining velocity of money requires an ever rising level of monetary stimulus, which further depresses velocity of money, and requiring even further QEs. Also as countries compete in a diminishing pool by discounting currencies, global demand compresses, as current account surpluses in these countries rise not because of exports growing faster than imports but because imports decline faster than exports. This implies less demand for the global economy."

 
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Time To End Monetary Central Planning





Governments and their central bank creations usurped market-based monetary and banking systems to serve the plundering purposes of kings, princes, parliaments, and special interest groups who all wanted to hold the magical hand of the monetary printing press. Print up money (or its digital substitutes and surrogates in more modern times) and you can have access to all the hard work of others without the reciprocal effort. The monetary social engineers' century-long legacy in the arena of money and banking has been the booms and busts of the business cycle. The time has come to end the tragic and disruptive reign of monetary central planning.

 
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The Fed's Alice In Wonderland Economy - What Happens Next?





As powerful as the Fed is, it isn’t stronger than the markets. And the longer the Fed tries to sustain abnormalities like QE and 0% interest rates, the more likely it is that the whole business will end with the markets crushing the Fed. At the next sign of a market swoon or of a weakening economy, or with the next episode of deflationary jitters, the Fed will do whatever it takes, no matter what the eventual damage to the dollar’s value. Whatever the details, one thing should be clear. This politburo of unaccountable central planners is the greatest risk to your financial wellbeing today.

 
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Markets Turmoil After China Devaluation - Surveying The Damage





US equity markets have given up almost all of yesterday's irrational exuberance ramp gains in a perfect echo of last week's Wednesday/Thursday debacle. Bond yields are plunging - also retracing all of yesterday's losses (with 2Y -5bps since Friday now). Europe is suffering most as EUR strengthens (as it was the most popular carry trade against China), driving USD weakness and sending European stocks lower (DAX is dumping almost 3%). And finally commodities are seeing Crude and copper crushed as PMs bounce...

 
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Axel Merk Comes Out... As A Bear





"Increasingly concerned about the markets, I’ve taken more aggressive action than in 2007, the last time I soured on the equity markets. Let me explain why and what I’m doing to try to profit from what may lie ahead."

 
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Take Cover - Wall Street Is Breaking Out The Bubblies





This charmed circle includes Google, Amazon, Baidu, Facebook, Saleforce.com, Netflix, Pandora, Tesla, LinkedIn, ServiceNow, Splunk, Workday, Ylep, Priceline, QLIK Technologies and Yandex. Taken altogether, their market cap clocked in at $1.3 trillion on Friday. That compares to just $21 billion of LTM net income for the entire index combined. The talking heads, of course, would urge not to be troubled. After all, what’s a 61X trailing PE among today’s leading tech growth companies?

 
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Frontrunning: July 9





  • Only update software on down days: NYSE, SEC Suspect Software Update Triggered Trading Halt (BBG)
  • Trade halts add to China’s Potemkin market problem (Reuters)
  • Why Beijing’s Efforts Have Failed to Tame China’s Stock Market (WSJ)
  • Irrational Exuberance Triggers Chaos as China Watchdog Sidelined (BBG)
  • China bounce ends five-day losing streak for stocks (Reuters)
  • Fear Grows in Greece as Decisive Hour Nears (WSJ)
  • Once Swarming with Greek Visitors, a Bulgarian Town Reels as Business Languishes (WSJ)
  • Greece Shuts Markets Through July 13 as Officials Debate Bailout (BBG)
  • Germany calls for European defence sector consolidation (Reuters)
 
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Chart Of The Day: Is China Sending A Warning?





"I think China may be more important than Greece. Stick with the drill – stay wary, alert and very, very nimble."

 
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America Is Its Own Worst Enemy - Trapped In Irrational Exuberance





Yes, the clock’s ticking louder, louder, warns the Economist, “only a matter of time before the next recession strikes.” Unfortunately, the “rich world is not ready.” America’s not prepared. You are not ready.

 
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