Krugman

Despite Treasury being a few post-SFP weeks from stealing Mubarak's M.A.D. spotlight, TBAC minutes reveal just how it will crowd out the private sector permanently (Sack-Frost makes debut appearance).

The market was relatively quiet today as protesters in Egypt clashed with pro-government supporters (apparently one group wore plaid and another wore stripes, how gauche)...

Those poor idiotic rating agencies can never catch a break. Despite doing their fair share of hiring as many prosimians with a single digit IQ (not to mention a penchant for spreading inside information to preferred clients, see Deep Shah) as they can, thereby keeping the labor pool sufficiently susceptible to BLS manipulation, it was they that, according to Koo, destroyed the global economy the first time around, after keeping every toxic CDO at a AAA rating. Now, the Nomura economist, whose obstinacy in his views at times makes even such distinguished voodoonomic shamans as Paul Krugman seem like docile little lambs, is convinced that "these same agencies are once again attempting to interfere with governments that are trying to do the right thing in response to the economic crisis (ie, the balance sheet recession) triggered in part by these agencies’ actions. In spite of the fact that fiscal stimulus is the only effective measure during such a recession, the rating agencies are making it more difficult for governments to spend money by implicitly threatening downgrades." Yeah ok, the right thing is to fight debt with more debt. And more debt with morer debt. And so on. We wonder if that is the case, why doesn't Dictator Bernank just tell his Jeethner lackey to print $100 trillion tomorrow? After all that is the NEF's target for debt in 2020. That way we should grow world GDP by about 100% overnight, and save ourselves ten years of deleveraging misery. But stop there? Why not print $1 quadrillion, $1 quintillion, $1 decillion... After all debt is wealth remember? Because try as hard as we can, we just can't spot any faults with this argument which derives straight from Mister Koo's supposedly irrefutable logic.

With all the hoopla over Egypt some have forgotten that this is merely a geopolitical event (one of those that absolutely nobody, with a few exceptions, was talking about less a month ago, so in many ways this is a mainstream media black swan which once again exposes the entire punditry for the pseudo-sophist hacks they are), and that the actual mines embedded within the financial system continue to float just below the surface. Below we present the five key fat tail concerns that keep SocGen strategist Dylan Grice up at night, which happen to be: i) long-term deflation, ii) a bond market blow-up, iii) a Chinese hard-landing, iv) an inflation pick-up, and v) an Emerging Markets bubble. Far more importantly, Grice provides the most comprehensive basket of trades to put on as a hedge against all five of these, while also pocketing a premium associated with simple market beta in a world in which the Central Banks continue to successfully defy gravity and economic cycles. For all those who continue to trade as brainless lemmings, seeking comfort in numbers, no matter how wrong the "numbers" of the groupthink herd are, we urge you to establish at least some of the recommended trades in advance of what will inevitably be a greater crash than anything the markets experienced during the depths of the 2008 near-cataclysm.

The proper decision now regarding your child's education may be the difference in whether you set your child up for a life of failure or a life of success. Yes I really do believe that the decision on whether to send your child to university now or to forgo that traditional route is a “make or break your child’s life" type of decision.

Richard Koo's just released note has the usual set of insightful observations into the fringe Keynesianism which we all suffer on a daily basis, where one false move will lead to a systemic collapse, and as usual deals exclusively with the aftermath (and concurrent-math) of the Fed's QE. First, he brings forward the "ketchup declaration" which is a sad harbinger of what may soon happen to the US. "The “ketchup declaration” was made about a decade ago in the context of an argument between the Bank of Japan and a group of overseas economists that included Paul Krugman and Ben Bernanke. The BOJ’s position was that quantitative easing could have no impact as long as there was no demand for loans among businesses and households." What has happened, is that the BOJ adopted precisely what Bernanke espoused in the beginning of the last decade... to an abysmal failure. But that won't stop the Chair from repeating Japan's faults here. The scarier thought is that it is precisely Bernanke who will next proceed to monetize all equity-related assets: ETFs, REITs, and everything else. Yet the most notable argument, and the one which even Bernanke does not get in his push for reflation whose only hope is to get consumers to purchase on credit instead of just cash, is what happens if the US consumer is consuming, but is content to do so without leveraging again. That is by far the weakest link in Bernanke's argument. A link which will be broken soon enough by his relentless exporting of inflation, until such a point is reached that the entire world takes America aside, and tells them to get rid of the Chaircreature, or else.

A must read reply to that discredited shaman of voodoonomics, Paul Krugman, by one of the more notable proponents of Austrian theory, Mises Institute's Robert Murphy."As many readers already know, last week Paul Krugman linked to one of my Mises Daily articles explaining the importance of capital theory in any discussion of the business cycle. Although Krugman graciously described my fable about sushi-eating islanders as "the best exposition I've seen yet of the Austrian view that's sweeping the GOP," naturally he derided the approach as a "great leap backward" and a repudiation of 75 years of economic progress since the work of John Maynard Keynes. To bolster his rejection, Krugman listed several problems he saw with the Austrian understanding. In the present article I'll first summarize the Austrian (in the tradition of Ludwig von Mises) positions on capital theory, interest, and the business cycle. With that as a backdrop, I will then answer Krugman's specific objections."

• Irish meltdown (FT)
• China GDP 'to slow this year' - Decreased rate due to measures to curb inflation, think tank says (China Daily)
• Warning From S&P on Munis  (WSJ)
• In Case of Tech Bubble, Do Not Break Glass (BusinessWeek)
• Metals Traders Worth $3 Million at Wall Street Banks (Bloomberg) - guess where massive vol is going next
• Inflation Fears Grow (WSJ)
• Sarkozy: No Desire To Question Global Role Of US Dollar (Market News)
• Special Report: Life in Europe's "squeezed middle" (Reuters)
• Fed "expert network" Larry Meyer getting nervous, sees big pressure for rate hike: Fed Signals Seen Raising Treasury Yields 60 Basis Points in 2011 (Bloomberg)
• Proposal On Greek Debt Buy Back Circulating In Europe (Market News)
• Thank you yield curve, ZRIP and inflation: Treasury's toxic asset funds gain 27 percent (Reuters)
• How like the stock market to sell off just as the news turns good. Will the Fed "let" the downturn continue? (Barrons)

• Peter Orszag: America must brace itself for turbulence (FT)
• ECB Flags Risks of Higher Prices (WSJ)
• Spain Plans Partial Nationalization of Savings Banks (Reuters)
• BofA Reports Loss on Costs Tied to Bad Loans, Mortgage Unit (Bloomberg)
• European Governments Weigh Bond Buybacks (WSJ)
• Portugal Vote Imperils Accord (WSJ)
• Obama Taps GE's Immelt to Head Economic Advisor Panel (Bloomberg)
• Hu defends Beijing’s Currency Policy (FT)
• GE Net Rises 31%, Tops Estimates Amid Finance, Health Gains (Bloomberg)
• Nigeria oil fund fears hit bond issue (FT)
• Ivory Coast's Gbagbo Faces Financial `Asphyxia' by EU (Bloomberg), bad news for bondholders

The market was down strong in the morning as both fears of rising inflation in China and common sense seemed to hurt sentiment, but then...

There is no quite formal a confirmation of a problem than some petrified think tank or government center issuing a formal rebuttal. While we have only perused the 21 page report just issued by the Center On Budget And Policy Priorities titled "Misunderstanding regarding state debt, pensions, and retiree health costs create unnecessary alarm", this report's simplistic arguments and assumptions will merely stoke numerous far more erudite refutations, which will only make matters far worse, as the bogey has now been set. Among the pearls immediately sticking out in the report is the following: "Some who claim there is a state debt crisis have likened states’ problems to those in Greece or other European countries. There is no way directly to compare the state debt situation with a national government’s debt situation, but Greece’s situation was clearly far worse than the situation in the U.S. today." First of all, "some who claim", would mean the entire market: last we checked, muni bonds, ETFs and other derivatives are all trading at multi-year lows. Second, we haven't checked but we are confident that either this center or one of its just as worthless comparables, likely issued a report a year ago refuting "rumors" that Greece is insolvent. Look how that ended up. We will have more to say on this report soon, but for now we present it for our readers' amusement.

Some odds and ends from the "spooks".

The market sold off today as earnings were more mixed than...

One of the first, and arguably most stupid responses following Saturday's tragic shooting news, came from none other than self-appointed economic seer Paul Krugman (whose "government must spend more" ubiquitous retort to everything would have long-since bankrupted the world ten times over and left it with quadrillions of unrepayable debt), who in a post so disjointed and rambling, very unprofessionally decided against waiting for the dust to clear and facts to emerge, and instead proceeded to blame the republicans and the tea party for the tragic events that transpired: "We don’t have proof yet that this was political, but the odds are that it was." Today he proceeds to infuriate his few remaining readers with a blog post which one can say is even more intellectually challenged than its predecessor.

These guys are like gang members, once an academic, always an academic, until the day your policies are adopted by the leading political party and they quickly lead to mass social upheaval and economic turmoil. But even then, only if you belong to the "Right" will you be so disgraced and your academic street cred withdrawn. Lefties are free to rep themselves as hardcore academics all they want, no matter how bad they screw things up. Unless you're Ben Bernanke, or Hank Paulson. Then you just spook dissenters with end-of-the-world rhetoric if you don't get your way. Or baseball bats...The son of two statisticians... I almost feel sorry for him, the poor boy never had a chance.