Irrational Exuberance

Tyler Durden's picture

Guest Post: How to Position Yourself for the Future: Step 1 - Financial Security

Our framework centers on the idea that humanity is facing a set of predicaments quite unlike anything else in the history books. Because this time there are no borders to cross in search of safety; the entire world is involved. On a global basis, we've never experienced collective debt loads of this magnitude. Never before has an entire set of intertwined currency systems -- all debt-based money -- collectively been backed by nothing more than the hope of a larger future, and never before have this many people had to figure out how to move from more-concentrated to less-concentrated energy sources (from fossil fuels to sun- and wind-based alternatives). The convergence of exponential trends in population, energy depletion, debt accumulation, and an economic model that is hooked on growth will combine to produce quite an interesting, if not challenging and disruptive, future. The funny thing about complex systems is that they are unpredictable, and therefore preparing for what may come is a non-trivial (yet absolutely essential) task. The immediate question for most people is What should I do?  We break down the intelligent responses into three big buckets: financial, physical, and emotional. In this report, I detail the financial steps that everyone should undertake right now to manage future risks using the framework that I use to assess and understand the financial world and markets. My approach is founded as faithfully as possible on facts and data. But my views on how the markets operate are formed from personal experience, observation, and connecting a few dots that rely on opinions and sometimes beliefs. Therefore, this financial and investing framework is something that you should only accept if it works for you -- and reject if it does not.


Tyler Durden's picture

Guest Post: The Best Thing Ever Written On Europe

If a ballistics expert were so poor at his job that his artillery routinely fired missiles into the sea or, worse still, at his own men, he would soon be removed from office. He might perhaps be purged more dramatically, pour encourager les autres. No such logic would seem to apply, however, in either politics or economics in the west, where discredited practitioners of failed theories are allowed to pontificate and spend into absurdity. We cannot say with certainty what was spooking European investors prior to last week’s make-or-break summit (the 14th such “crisis summit” in 21 months), but it seems plausible to argue that they were concerned about an unsustainable build-up of credit, credit risk and leverage. Happily, those concerns have now been put to rest, because the Euro Zone’s leaders have pledged more credit, more credit risk, and more leverage. To put it another way, President Sarkozy and Chancellor Merkel have bought more time, albeit time paid for with yet more borrowed money. A three ring circus of blind, incontinent clowns would have more class.


Tyler Durden's picture

‘Perfect Storm’ Of Global Banking and Sovereign Debt Crisis To Lead to Global Currency Crisis

Volatility and wild gyrations in all financial markets continues due to a confluence of negative data, news and fundamentals. French banks have been downgraded and Chinese Premier Wen’s call that Europe get its own house in order quashed the unsubstantiated and unsourced rumors regarding massive Chinese intervention to solve the Eurozone debt crisis. European banks are hemorrhaging deposits as savers and money funds pile into other perceived havens such sterling, dollar and Swiss franc deposit accounts. Retail and institutional deposits at Greek banks fell 19 percent in the past year and almost 40 percent at Irish lenders in 18 months.  A tiny fraction of these European deposits has gone into gold with the majority going into other fiat currency deposits. It is not just the saver of periphery nations who are opening non euro deposit accounts - many German savers are opening up deposit accounts in Switzerland. Greece’s inevitable default is being prepared for despite the usual denials. A conference call among Greek Prime Minister George Papandreou, French President Nicolas Sarkozy and German Chancellor Angela Merkel is set for 16:00 GMT.


Tyler Durden's picture

ES To Contextual FV Spread Continues To Diverge

The ES to Contextual Risk spread presented on Friday, at which point the ES was 15 rich to "underlying" fair value (first red circle from the left on the chart) continues to make new wides. After collapsing to 30% of the original spread level shortly after presenting, (first green circle) the spread returned to almost inception levels, and has since continued to blow out wider. At last check, ES appears to be nearly 25 points rich to fair value. Whether this means that correlation traders have taken an extended vacation, or that once again the purchasing capacity of those who "wag the dog" of actual underlying risk expression is impaired due to lack of actual capital, is unclear. It is also unclear how much wider the last 24 hours of irrational exuberance can send this spread before it reverts to fair levels. If the recent move in ES is predicated by self-fulfilling expectations of the Fed announcing QE3 on September 21, it is quite likely this may blow out to historic wides as the Bernanke Put, as presented here and which impacts primarily stocks in the early part of the easing regime, continues to be priced in over the next 3 weeks.


Tyler Durden's picture

Spread Compression Time With ES "Fair Value" About 15 Point Lower

Time to reestablish some compression trades. As the latest update from Capital Context indicates, ES, relative to its risk benchmark consisting of all other risk assets, is once again along in its optimism, trading about 15 points above its implied fair value. Paradoxically, the driver of today's bout of irrational exuberance is not the latest monetary stimulus announcement by the Fed, which obviously did not come, (and it may be time for the daily dose of sobriety: without fiscal and monetary stimulus Q3 and Q4 GDP will tumble; good luck buying stocks on contrarian bent when even the NBER admits we have entered a double dip), but merely "buying the news" - supposedly everyone was convinced there would be announcement by the Fed, which in itself was a catalyst to buy?! Regardless, the buying is only happening in stock as can be seen by the ES. As such it is time to put the trusty old compression trade back on: short ES, long the Contextual Risk leg.


Tyler Durden's picture

Is Gold A Bubble? 14 Charts, The Facts And The Data Suggest Not

For more than 3 years - since gold rose above its nominal high of $850/oz in February 2008 - there has been much talk about gold being a bubble. Nouriel Roubini, professor of economics at New York University's Stern School of Business, is one of the more prominent financial and economic experts who said gold was a bubble and many other experts internationally echoed his sentiments. On December 10th, 2009, with gold at $1,100 per ounce, Roubini, said, "all the gold bugs who say gold is going to go to $1,500, $2,000, they're just speaking nonsense". Roubini went on to say ,"I don't believe in gold." Gold has now risen 50% since then and Roubini has been silent on the gold price. We believe that he was wrong regarding gold as he, like many in the western world, is simply not aware of the facts and the fundamentals driving the gold market. He also is not aware of gold’s diversification benefits. The fundamental drivers of the gold market are not appreciated by most and rapidly get forgotten by many due to the daily barrage of noise and fear emanating from the markets. The facts and charts below strongly suggest gold is not a bubble. However, even if it were a bubble, those calling gold a bubble should acknowledge the diversification benefits of owning gold and urge diversification rather than vainly trying to predict the future and the future movement of asset prices.


Tyler Durden's picture

Zillow: From $60 To $40 In Milliseconds

Irrational exuberance part two. The vacuum tube that bought Z at $60 lost 33% literally in seconds.


Bruce Krasting's picture

Irrational Exuberance - July 2011

A look at one of those "new ideas" to resolve the debt limit impasse. I think it is a No Sale.


Tyler Durden's picture

Paul Farrell's 7 Reasons Why America Needs A "Good Depression" Now...Or Face A Great Depression Later

Another must read from one of the "less cheerful" people on MarketWatch. His 7 reasons why "kicking the can" should no longer be the official policy of the ponzi banker syndicate: 1: Capitalism’s now a lethal soul sickness, needs a reawakening; 2. We’re already in the early stages of a Great Depression; 3. Good Depression exposes our self-destruct bubble-thinking; 4. Good Depression will stir outrage, force real reforms; 5. Good Depression forces Wall Street to think outside the box; 6. Good Depression will deflate America’s warring soul; 7. Good Depression now … avoids a far bigger depression later


Tyler Durden's picture

"Irrational Exuberance" Is Back... For The Third Time

Exhibit A.


Tyler Durden's picture

Gold Rises To New Record In GBP - Close to Near Record Highs In Euros And Most Currencies On Global Debt Contagion Risk

Gold is being supported as default risk has increased after EU finance ministers failed to agree on a new Greek loan package. Gold priced in sterling rose to new record nominal highs this morning at £954.84/oz and the weakness of the euro has seen gold rise to touching distance (9 euros) from new record highs in euro terms at €1,088/oz. The cost of borrowing euros for three months in the interbank market continued to rise today with the three month Euro Interbank Offered Rate, or Euribor, fixed at 1.510%, up from 1.502%. Corporate borrowing costs in the U.S. as measured by U.S. swaps rose sharply from 20 to 26.99 last week - the highest so far in 2011. Societe Generale SA raised its third quarter gold forecast by $90 to $1,580 an ounce and silver by $3.50 to $42 an ounce.


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