- Reuters 2011 Investment Outlook Summit LIVE (Link) John Taylor speaking now.
- Irish Vote Likely To Pressure Euro (WSJ)
- Bernanke Says Fed May Take More Action to Curb Joblessness (Bloomberg)
- Jobless Report Is Death of Keynesianism (IBD)
- European Officials Split Over Bailout Fund Increase, EU Bond (Bloomberg)
- WikiLeaks' Swedish servers may be under attack (AP)
All those who may have had the displeasure of trading CDS in late 2008, just after Lehman collapsed, will recall that the most perplexing phenomenon was the massive surge of US IG spreads, coupled with the very modest move out of Europe. How the market back then was so retarded not to realize that the US banking system is just a fraction of the European one, and thus the carnage that would follow in Europe should all hell break loose in the US would be orders of magnitude worse, is merely an indication of just how stupid most market participants are. Yet looking at the chart below shows that after years of denial, finally credit traders are realizing the sad truth: namely that the European financial system is far more risky than the American one. After having traded tighter pretty much since inception, the US IG index went tighter to iTRAXX Europe for the first time in May, when it became obvious that the best Europe can hope for is a delay of the inevitable. Yet even back then the widest the now positive spread differential hit was 14 bps. Enter November 26, and a new all time wide of about 16+ bps. In other words, the incipient risk of the "safest" of European names is now the widest it has been to comparable US risk. We expect iTRAXX to continue surging ever wider as the European implosion, after well over two years of denial, is finally accepted by all. Of course, just like in the inverse case, should Europe collapse, the US will follow shortly, as the great globalization experiment ends, and America's ability to fund an endless current account deficit, the Sino-US decoupling, and the myth that Keynesianism is in any way viable ends with a massive thud.
Guest Post: R.I.P, Homo Economicus: On the End of Ubiquitous Poverty and the Beginning of Universal AbundanceSubmitted by Tyler Durden on 11/24/2010 21:42 -0400
“I draw the conclusion that, assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not – if we look into the future – the permanent problem of the human race.” (John Maynard Keynes, Economic Possibilities for Our Grandchildren, 1930). There have of course been some “important” wars (though in truth they were, and remain, mere installments in a Long War that is by no means over). And there has of course been an “important” increase in population (the abreaction, for the most part, of the premodern underbrush that was uprooted amid the modern nation-state’s relentless campaign of unification, centralization, and consolidation). But let us give Keynes his due for imagining a time, in the not-too-distant future, when “the economic problem” – which is to say, the scarcity that impels all economic endeavor – will at long last have been solved, and universal abundance is at hand. Let us do so, however, with no illusions about who the man was, fully acknowledging that he was “a charming but power-driven statist Machiavelli, who embodied some of the most malevolent trends and institutions of the twentieth century” – so malevolent, in fact, that one is left to wonder what Keynes might have had to do with the fact that, eighty years later, a solution to “the economic problem” seems more out of reach than ever.
Once we realize what we all agree on, we will have a much better chance of turning our economy (and country) around.
Sean Corrigan Butchers The Chairman's Inversion Of Cause And Effect, Discusses The Fed's Brand New "Unbridled Imperial Arrogance"Submitted by Tyler Durden on 11/07/2010 14:12 -0400
Diapason's Sean Corrigan is out in full force for the second week in a row, this time looking at the consequences of a QE2, in which as he explains, the very premise of cause and effect has been inverted by the Federal Reserve, and which will result in even more dire consequences bequeathed by the launch of the HFRBS QE2. Yet in the last ditch effort to preserve a crumbling system, Bernanke is willing to sacrifice it all: the middle class, the dollar, and now logic. Here is how... and why.
Krugman Dementia Alert: Former Enron Consultant Says Jim Rogers "Has Been Absolutely Wrong About Everything"Submitted by Tyler Durden on 11/06/2010 15:50 -0400
While we approach the topic of Paul Krugman with the same eagerness one approaches a clogged up, never cleaned, bathroom at a frat party that is about 50 years past its due date, (pretty much like Keynesianism) this one just put us over the top. In his latest pointless drivel on the economy, instead of reverting to his usual mode of praying to John Keynes, bitching at those who dare call for accountability and the punishment of all those, such as Krugman, responsible for what is now a $4 trillion taxpayer monetary bailout tab, and begging for trillions, then quadrillions, then quintillions, then an infinite amount of money, the Op-Ed writer has instead decided to start a mudslinging campaign against none other than Jim Rogers, the co-founder of George Soros' Quantum Fund, who has been pretty much spot on with his calls for decades.
The three man who destroyed Keynesianism discuss the origins, history, and future of the Federal Reserve. Watch Greenspan, Bernanke and Corrigan discuss the last 30 years of America's monetarist system.
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 11:37 -0400
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.