Meltdown

While the idea of the interventionist suppression of short-term 'normal' volatility leading to extreme volatility scenarios is not new, hearing it explained so transparently by a current (and practicing) central banker is still somewhat shocking. As Buba's Jens Weidmann recent speech at Harvard attests, "The idea of monetary policy safeguarding stability on multiple fronts is alluring. But by giving in to that allure, we would likely end up in a world even less stable than before."

In Feb 2007, Oaktree Capital's Howard Marks wrote 'The Race to the Bottom', providing a timely warning about the capital market behavior that ultimately led to the mortgage meltdown of 2007 and the crisis of 2008 as he worried about "carelessness-induced behavior." In the pre-crisis years, as described in his 2007 memo, the race to the bottom manifested itself in a number of ways, and as Marks notes, "now we’re seeing another upswing in risky behavior." Simply put, Marks warns, "when people start to posit that fundamentals don’t matter and momentum will carry the day, it’s an omen we must heed," adding that "the riskiest thing in the investment world is the belief that there’s no risk."

Japan – Like the U.S. – Turns to Censorship

Another (like yesterday) late-day collapse in stocks was not enough to entirely ruin CNBC's headlines as the NASDAQ closed above 4,000 for the first time in 13 years. The only thing that could have made today better for the central planners was a red close for gold but despite rolling over from late-yesterday's spike, the precious metal closed marginally higher and unch on the week. The NASDAQ just rolls on - up over 100 points in the last 4 days and now +10.3% off debt-ceiling lows (outpacing the S&P and Dow). Today's 'apparently' good news on housing sent homebuilder buyers into a frenzy (+2.4% on the day as the squeeze continues wherever it can). The total lack of volume and liquidty was evident when sellers appeared in the last 15 minutes and instantly smashed the S&P back to VWAP and below echoing yesterday afternoon. Treasuries rallied on the day (with a little selloff as stocks sold off into the close) ending -3bp on the week. The USD slid from the US open but notably stocks disconnected from any JPY carry for most of the day until the closing collapse...

To the DOJ, a $13 billion receipt is the "largest ever settlement with a single entity." To #AskJPM, a $13 billion outlay is a 100%+ IRR. And perhaps more relevant, let's recall that JPM holds $550 billion in Fed excess reserves, on which it is paid 0.25% interest, or $1.4 billion annually. In other words, out of the Fed's pocket, through JPM, and back into the government. Luckily, this is not considered outright government financing.

In 1997, the SE Asian Tigers all faced severe economic stresses, partially triggered by a primarily foreign capital-funded massive real estate bubble in Thailand. Today the EXACT same thing is happening as untempered foreign investment into Thailand’s real estate market has created not a “soaring” real estate market as economists always incorrectly explain them, but massive real estate market distortions better known as a bubble.

It it walks like a duck, quacks like a duck and looks like a duck... Is it really a platypus? After all, this time is different... Right?

• Desperate Philippine typhoon survivors loot, dig up water pipes (Reuters)
• Fading Japanese market momentum frustrates investors (FT)
• China's meager aid to the Philippines could dent its image (Reuters)
• Headline du jour: Granted 'decisive' role, Chinese markets decide to slide (Reuters)
• Central Banks Risk Asset Bubbles in Battle With Deflation Danger (BBG)
• Navy Ship Plan Faces Pentagon Budget Cutters (WSJ)
• Investors pitch to take over much of Fannie and Freddie (FT)
• To expand Khamenei’s grip on the economy, Iran stretched its laws (Reuters)
• Short sellers bet that gunmaker shares are no long shot (FT)
• Deflation threat in Europe may prompt investment rethink (Reuters)

A central tenet of propaganda is that the Big Lie repeated often enough is accepted with greater ease than small lies. Thus it is no surprise that the leadership and propaganda organs of the Fed, Federal government and the Keynesian cargo Cult of fellow travelers all repeat our era's Big Lie: There is a free lunch after all. There are two free lunches, according to our financial and political leaders: free money, in the form of money created out of thin air by the Fed, and almost-free money borrowed into existence by the Federal government. The problem with Big Lies is reality has not been disappeared; it still exists. Actions create consequences, and not necessarily the consequences that were planned or expected.

The operator of Japan's wrecked Fukushima nuclear plant will double the pay of contract workers as part of a revamp of operations at the station, after coming under criticism for its handling of clean-up efforts. Reuters reports, hazard pay for the thousands of workers on short-term contracts will be increased from 10,000 yen ($100) to 20,000 yen a day, Tokyo Electric Power Co said in a statement on Friday. The plan released on Friday also lays out improvements to the management of hundreds of thousands of tonnes of contaminated water building up, which comes from groundwater mixing with coolant poured over melted uranium rods. All of this as the riskiest phase of the decommissioning of Fukushima begins soon...

The pushers of Obamacare had years to plan. Everything looked right on paper. No expense was spared. There were thousands of meetings, a foolproof plan, mountains of numbers to back it all up. Then finally you press the button. The whole thing explodes — and not just the website. The risk pools will not lower premiums. The mandates will not cause people to experience health-insurance bliss. The price controls will not control costs. The new tools for access will not lead to greater access. Science is glorious. But government is not science, and society cannot be managed scientifically from the center. Ludwig von Mises had a phrase he used to describe every attempt: “planned chaos.” There is a plan, and the experts are in charge with all resources and conviction. But the results are crazy, random, irrational, confusing, and chaotic. It would be the greatest legacy of the Affordable Care Act if the government finally understands this message.

If Anything Goes Wrong,  the Whole World Could Be Affected For a Long Time

With the Chinese property bubble set to burst, the bust may lead to even greater demand for physical bullion from the gold loving Chinese.

While it took Japan over two years to admit the Fukushima situation on the ground is "out of control", a development many had predicted for years, a just as important topic is what are the implications of this uncontrolled radioactive disaster on not only the local environment and society but also globally, particularly Japan's neighbor across the Pacific - the US. To be sure, there has been much speculation, much of it unjustified, in the past two years debating when, how substantial and how acute any potential debris from Fukushima would be on the US. Which is why it was somewhat surprising to see the NOAA come out with its own modeling effort, which shows that not only "some buoyant items first reached the Pacific Northwest coast during winter 2011-2012" but to openly confirm that a debris field weighing over 1 million tons, and larger than Texas is now on the verge of hitting the American coastline, just west off the state of California.

The U.S. House just passed a bill called H.R. 992 - the Swaps Regulatory Improvement Act - that was literally written by mega-bank lobbyists. It repeals the laws passed in 2010 to prevent another meltdown like the one that crashed our economy in 2008. The repeal was co-sponsored by a former Goldman Sachs executive and passed with bipartisan support from some of the House’s largest recipients of Wall Street cash. It’s so appalling... so unbelievable... so blatantly corrupt... that you’ve got to see it to believe it...