Nouriel

Ponzinomics

50% In Favor of Directly Breaking Them Up ... Many More In Favor of Stopping Artificial Support and Letting them Shrink On Their Own

Rather than sitting nervously and passively and awaiting the coming financial dislocations and expropriations, investors and savers need to be prepared for the uncertain financial scenarios that seem increasingly likely.

Hoping for the best, but preparing for less benign scenarios remains prudent.

No, American Banks DON'T Need to Be Big to Compete with Bigger Foreign Rivals

Ben was in congress campaigning er, testifying mostly about the effectiveness of all things ZIRP and QE. He was grilled about #0000ff;">#0000ff;">possible risks with QE especially if interest rates should rise. The Bernank saying that interest rates would rise was unlikely but he then cavalierly stated if rates rise, the Fed would just “hold back on payments” er, stiff the Treasury. That’s no big deal for him since by then he’ll be down the road writing his memoirs, making speeches and joining some big Wall Street firm as a well-paid consultant. The Bernank was also asked if he noted any bubbles or market excess and said he saw none. 

Currency War ... Trade War ... Hot War

In a quiet corner of Davos this week, Davide Serra (hedge fund manager) and Nouriel Roubini (doom-monger) laid out to the great and good attending just exactly what their puppet central-banking transmission channels were doing to our world. As The Telegraph reports, "Money printing is theft from our children and may merely be storing up problems for an even bigger crisis." QE has led to gross mis-allocation of capital, the two gentlemen go on to note, adding that they comprehend the reasoning why Bernanke's Put has replaced Greenspan's but add that in doing this money-printing-by-another-name, they have "made it difficult for bond vigilantes to do their job - force fiscal reform." QE just buys time - but the time must be used wisely. Roubini warned that central bankers need to think about turning off the cheap money tap or risk creating another, possibly even worse, bubble.

Several months ago, an ad hoc consortium of self-proclaimed millionaires, sent a letter to Obama, Reid and Boehner, demanding that "For the fiscal health of our nation and the well-being of our fellow citizens, we ask that you increase taxes on incomes over $1,000,000." This grass roots initiative sprung up into existence in the aftermath of Warren Buffett's, since defunct, proposal to impose a "millionaire tax" rule. Luckily, as all these very much informed millionaires know quite well, the US Treasury has a dedicated section, named simply pay.gov, which allows anyone: billionaires (here's looking at you Mr. Buffett), millionaire, or even thousandaire, to make a donation which is used directly to pay down the US debt. Because in the absence of the government mandating rich people pay their "fair share" (as determined by a subcommittee of course) for now at least, there is always that other alternative: voluntary action, as per the auspices of something called free will.And not only that, but the US Treasury also provides the general public with a running tally of just how much "Patriotic Millionaire" initiatives have given so far to paying down said debt. As in talk is cheap, signing petitions even cheaper, but putting money where your mouth is actually does go to the bottom line. The bottom line so far in 2012? $7.7 Million - this is how much has been volunteered in total gifts to pay down the US debt. The $16.3 trillion in US debt.

Key take-aways from today were: The IMF is gloomy, so is Draghi. Banking Union is months away. ESM and OMT ready to go, but no one wants that first dance. Spain is analyzing.

Oh, and an iPhone is just that. A phone.

Nothing new, nowhere.

Didn't get fooled again yesterday, but still facing denial today...

They All Share One Thing ...

If the point of quantitative easing was to provide enough  liquidity to keep the massive, earth-shatteringly large debt load serviceable, then quantitative easing succeeded — but the “success” of sustaining the crippling debt load is that it remains a huge burden weighing down on the economy like a tonne of bricks.  This “success” has turned markets into junkies, increasingly dependent on central bank liquidity injections. After QE3 will come more and more and more easing until the market has either successfully managed to deleverage to a sustainable level (and Japan’s total debt level as a percentage of GDP remains higher than it was in 1991, even after 20 years of painful deleveraging — so there is no guarantee whatever that this will ever occur), or until central banks give up and let markets liquidate. Quantitative easing’s “success” has been a junkie recovery and a zombie market.

With an almost perfect six-year lag, the S&P 500 appears to be following the same path as it did into the Subprime crisis from the Feb 2003 lows - almost too accurately. The analog is stunning 'optically' and even more concerning from a behavioral perspective. By this time in 2006, we had seen the US Home Construction Index drop 40%, Subprime lenders going bankrupt left and right, Magnetar Capital had started to create CDOs with the express intent of failing, and Nouriel Roubini had just given his IMF presentation on the forthcoming US housing bust and major recession. Despite all of this, which in hindsight was extremely worrisome, the S&P 500 managed to gain 200 more 'the Fed has our back'-points before cognitive dissonance finally gave in to the reality that the 'music had stopped' - first out wins, and large crowds and small doors don't mix. With the current market rising on ever-decreasing volumes (in futures and stocks - so it's not about the high-price equities), divergence between the new highs in equity indices and falling 'net new highs' in NYSE stocks, and near-peak post-crisis level of complacency in options prices, it seems risk and reward are at best skewed neutral, and at worst flashing red warning signals.

As was seen in Iraq, it is the people who suffer most from sanctions and economic and civil war and the Syrian people are indeed facing increasing hardships. Hunger is a problem that is growing more acute by the day. As the prices of what little food is available soar, there are increasing signs of desperation among parents seeking to feed families. Prices of fuel and medicine have also soared amid shortages compounding the misery of Syrians and leading to another humanitarian crisis. Professor Nouriel Roubini and other financial experts have pointed out that “you cannot eat gold.” However, people in nations suffering from currency and economic wars can testify as to how they can use gold in order to buy food, fuel and medicine for their families in difficult times. To wit, Syrian President Bashar Al-Assad announced measures facilitating imports of gold bullion coins and bars. Gold bullion imports no longer require a special permit and travellers are allowed to bring gold bullion coins and bars with them into the country, the decree said. Gold is, as it has done throughout history, protecting them and their families from the ravages of currency devaluation and economic collapse.

Will the Peasants Go Medieval?

NOT JUST SANDY WEILL ...