Great idea ... Not!
Whoooosh... or just another DXY flash crash? If this was indeed a BoJ intervention, it is the worst money spent by a central bank in the history of Keynesianism, with a half life of less than 30 minutes. Elsewhere, gold is predictably nearing its all time highs.
The most amusing email this morning sent around the trading desk community comes from the otherwise perpetually jovial Goldman Europe strategist Erik Nielsen. The email subject is simple enough: "Bad news out of Portugal." And the news is bad.
With just two months until the end of the year, the one most important issue facing the US economy, which incidentally is not how many trillions in new, never to be used (or used only upon the case of hyperinflation) dollar bills Ben Bernanke will issue on November 3, but what the fate of the Bush tax cuts will be, and especially that of capital gains tax, remains still unresolved, Bloomberg has done a good analysis that frames the dilemma for the crippled administration: insolvent states or a market sell off. One would hope that with Geithner's track record vis-a-vis taxes, the former would take precedence, although as Blankfein has been rumored to seek the capital to expand his 15 CPW duplex into a triplex, the final outcome is pretty much clear, and it likely means little if no change to cap gains taxes, and thus no sell off in stocks. The problem is, however, that California, the state with the biggest economy, projects taxpayers’ capital gains will grow 40 percent this year while New York, the third-most-populous state, forecasts a 59 percent increase, or roughly 24% from the current 15%: an event which would have rather dramatic implications on investors desire to close out positions well before January 1. Should these states not be able to recoup revenues from actual capital gains receipts, then a federal bailout is virtually assured.
Niall Ferguson Explains Why Keynesian Policies Are Dooming The World Economy To Round After Round Of Asset BubblesSubmitted by Tyler Durden on 10/24/2010 10:37 -0500
If there is one thing that everyone should watch to understand just why every policy attempt to fix the ongoing depression is doomed, it is the following short clip from Niall Ferguson in which he deconstructs the primary fatal flaw of Keynesianism. Ferguson explains why those who push for Keynesian policies in a globalized world are doing nothing to stimulate the economy, but merely inflate ever more bubbles. Quote Ferguson: "I wonder if it's worth revisiting the now familiar debate about whether or not Keynes can save us. Because I have some doubts about this. Deep doubts." Zero Hedge has no doubts about this - we are confident that the confines of a theoretical Keynesian system have been the recipe for the disaster unfolding now before our eyes (which is not to say that Austrian economics is necessarily better, although intuitively they certainly make a far more compelling case, and would certainly not have led to the current pre-apocalyptic economic situation, which only the most addicted to Kool Aid pig lipstickers refuse to acknowledge). However, that is not news - we have always made our position on the false voodoo religion of economics well known. We are, however, happy that more and more of the "mainstream fold" are finally starting to question the key flawed premise of this fundamentalist doctrine.
In an interview with Tom Keene yesterday, Citi strategist Willem Buiter, alongside Howard Davies chairman of the London School of Economics, said that "savage austerity" is in the US' future. "The only question was really the timing and the composition." Alas, for that to happen it would require an overhaul of the entire US kleptocratic oligarchy, and the entire premise of tenured politicians, who don't realize that in addition to boosting revenues, sometimes outlays have to be trimmed as well. Of course, as this is precisely the fatal flaw of Keynesianism, we can only commiserate with Buiter, who calls it exactly right. Too bad that even the possibility of actual austerity in the US would result with riots so severe it will make the ongoing economic freeze in France seem like the peak of Chinese economic growth.
The Federal Reserve is pulling out all the stops in attempting to invigorate the American economy. The stock market is surging. Everything is surging. The optimists are crowing that all is well. Deficits don’t matter. We can borrow our way to prosperity. Cutting taxes will not add $4 trillion to the National Debt if not paid for with spending cuts. All is well. So, the question remains. Was David Walker wrong? Are we actually on a perfectly sturdy solid platform? Or, are we on the Deepwater Horizon as it burns and crumbles into the sea? Let’s examine both storylines and decide which is true.
Zero Hedge is happy to present the latest members of our little club: IceCap Asset Management, whose market insights we will share with readers on a periodic basis. In the inaugural piece, "Somewhere over the rainbow", Keith Dicker looks for the treasure at the end of fiat rainbow and, as expected, finds gold (to misappropriate the symbolism of a bankrupt country to that of one of the world's strongest economies). The presentation, which is from July, is prophetic to the dot in our rapidly changing (and devaluing) times, and those who may have listened to the presented advice, would have been about 20% richer: "Gold is the ultimate store of value and insurance policy, and has proven to be a terrific asset in times of market uncertainty. After all, isn’t that what you would expect to find at the end of a rainbow?" What is it with Canadians, first Sprott and now IceCap, and their unabashed willingness to express their love for the metal: don't they know it is a barbarous relic which the shamans of Keynesianism, especially those who have found their last refuse in the NYT Op-Ed pages, enjoy ridiculing with every last breath of credibility they have left in their turgid ideological bodies? So for those who wish to leave failed economic dogma behind, here is IceCap.
Is HR3808 The Equivalent Of TARP 2 And Obama's "Get Out Of Bail" Gift Card For The High Frequency Signing Scandal?Submitted by Tyler Durden on 10/06/2010 21:21 -0500
Now that the High Frequency Signing (HFS, not to be confused with HFT) scandal is mainstream, and virtually every single foreclosure in the US in the past several years is under question, with the impact on mortgage servicers (who just happen to be the TBTF banks) could be just as dire as the fallout from the credit crunch, it appears that the get out of jail card for the banking syndicate has once again materialized, this time in the form of bill HR3808: Interstate Recognition of Notarizations Act of 2009, sponsored by Republican representative Robert Aderholt. The bill, it turns out, has passed both congress and senate, and is now quietly awaiting for Obama's signature to be enacted into law. In summary, the bill requires all federal and state courts to recognize notarizations made in other states. That's the theoretical definition: the practical one - the legislation, if enacted, could protect bank and mortgage processors from liability for false or improperly prepared documents. In other words, with one simple signature Obama has the capacity to prevent tens of billions in damages to banks from legal fees, MBS deficiency claims, unwound sales, and to formally make what started this whole mess: Court Fraud perpetrated by banks, a legal act, and to finally trample over the constitution. Will Obama do it? Potentially - the banking lobby certainly has enough power over him and his superiors, the members of the FOMC. On the other hand, the populist revolt that will surely follow the enactment of such a law will certainly end any dreams of a second term, and potentially of a completed first one. The drama is now on: will Obama openly side on behalf of the bankers (without a "blame the republicans" fall back this time) or of the foreclosure "victims" (granted, the bulk of whom are deadbeat homeowners who should never have owned a home to begin with). We doubt a decision will be reached before the midterms, although quite a bit now hangs in the balance.
Another day another falling dollar.
Good thing too or we'd be heading for the toilet this morning.
Many are quick (and correct) to blame Keynesianism for the current near pre-collapse state of the entire developed world. After all, the economy of the western world now functions strictly on an auction to auction basis (or, as is better known in layman's terms: "living paycheck to paycheck"): a state in which the US Federal Reserve and the global central banking cartel is responsible for making sure that not one hint of possible bond auction failure trickles down to the broader population. The fact that primary dealers, which are essentially the monetization vehicles of the New York Fed, account for taking down well over half of each auction is not lost on those who wonder what could happen in a world in which Ben Bernanke's organization were to lose its power, authority and market intervention capacity. Yet Keynesianism is merely an offshot of a far older thought experiment: that developed by Otto von Bismarck in the aftermath of the Franco-Prussian war 140 years ago. The "welfare state" regime created by Bismark is one that predates Keynesian economics, and serves as the nexus of today's rancid, nebulous and very much destructive intersection of economics and politics, at whose core, like a black hole which no wealth created through honest labor can escape, resides the "central bank" apparatus of status quo perpetuation. Luckily (for most), the welfare state experiment is ending. And as it departs one last time, it will expose the "depredations" of developed world governments for all to see, without the benefit of the cloak of the insurance provided by "welfare state" premises, which made the wealth transfer of 7 generations acceptable to those who knew they could extract at least something in exchange for the fruits of 140 years worth of labor. In his latest report, Bill Buckler, of the very highly recommended Privateer report, explains why and, more importantly, how this will happen.
From the FT: "An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness." Welcome to the new frontline. It is being played out at every 500x levered FX trade station. No prisoners are taken as those wounded are immediately shot. And the incursions have now entered stocks and bonds. Trading any assets is now retaliation against a central bank somewhere (most typically at Liberty 33 or at the Marriner Eccles building) which is engaged in open warfare against the world's middle class. And yes, the Brazil Central Bank earlier announced that it was heading unto the breach, buying yet more dollars for 1.7094 reais at auction, and has bought as much as $1 billion USD each day for the past two weeks, putting the Japanese intervention from two weeks ago to shame.
When a central bank says it is effectively LBOing Keynesianism, you know it is over. Which is precisely what Guido Mantega, Brazil's finance minister has promised to do. The Latin American country which has been caught in the crossfire of developed world central bank wars, in which it is every last man for himself and he who defects first wins, has just stated it is about to defect (and just in case it is unclear, Mantega clarified that "Brazil's would act on the currency, not just a promise"). And to confirm he means business, Mantega also added that the Brazil Central Bank has no limit to buy dollars. But here's the twist - as reported by Bloomberg, Mantega, speaking to reporters in Brasilia, said the Treasury can sell more debt to increase liquidity to buy dollars. You heard that right: debt-financed currency intervention. At least the trade surplus countries use capital generated from excess exports. Brazil is threatening to do something never before seen, which is to lever up in its FX intervention. Surely, this has to be the last boundary of Keynesian insanity.
Albert Edwards On Terminal Competitive Devaluation, The Nuclear Option, And How The Fed's Policies May Start An All Out WarSubmitted by Tyler Durden on 09/21/2010 18:06 -0500
The recent intervention by the BOJ has quickly become the most contentious decision in global economic circles, with many wondering now that the world economy is off on a course of radical currency devaluation, who will be next, and how far will this game continue? If Albert Edwards, whose latest piece rhetorically asks (and answers) "what do devaluation, high unemployment, inequality and food prices spell? C-H-A-O-S" is correct, this could be the beginning of a rapid descent in which central banks around the world are all forced to use the nuclear option: ceaseless FX devaluation, but one coupled with an endless increase in the money supply a process which can only have one outcome - that predicted recently by Eric Sprott when he said that "we are now paying for the funeral of Keynesian theory." However, the biggest threat is that this most recent invocation of the nuclear option is coming at a time when the world is least prepared to handle it - social imbalances are at unprecedented levels, and if, as many predict, the price of key food products is about to surge (courtesy precisely of these failed central bank policies) to a point where the great unwashed end up on the wrong side of hungry, from there, to armed conflict, the line is very, very thin.
NBER Announces US Recession Ended In June 2009, No Announcement Yet On When Depression Is Due To EndSubmitted by Tyler Durden on 09/20/2010 09:30 -0500
The NBER has finally announced the most worthless and overdue piece of data, namely that somehow, miraculously, the US recession that started in December of 2007 ended in June of 2009. We have yet to hear when the distinguished Ph.D.-bearing shamans of Keynesianism at the NBER will convene to decide when the Depression that started in December of 2007 will end. Our estimate is sometime in the mid 2020s, long after the Dow hit 36,000 as news of total nuclear annihilation was priced in by WOPR. From the NBER: "The Business Cycle Dating Committee of the National Bureau of Economic
Research met yesterday by conference call. At its meeting, the committee
determined that a trough in business activity occurred in the U.S.
economy in June 2009. The trough marks the end of the recession that
began in December 2007 and the beginning of an expansion. The recession
lasted 18 months, which makes it the longest of any recession since
World War II. Previously the longest postwar recessions were those of
1973-75 and 1981-82, both of which lasted 16 months." Somehow we think the 17% of America's labor pool that is not fully employed will beg to differ with this assessment. But at least bankers will be able to justify their 2010 record bonuses.