Had to cross post this discussion with my brother Michael Whalen from The Institutional Risk Analyst. The past articles in The IRA require a $99/yr subscription, but the most recent is free.
Also note link to comment by Barry Ritholtz on The Big Picture re: the Facebook IPO. Actually Goldman Sachs led the covert IPO and hype festival last year, but the folks at the SEC and FINRA were sound asleep.
A lot of stuff in here this morning.
On The Failure Of Inflation Targeting, The Hubris Of Central Planning, The "Lost Pilot" Effect, And Economist IdiocySubmitted by Tyler Durden on 02/05/2012 11:49 -0400
As an ever greater portion of the world succumbs to authoritarian control (whether it is of military disposition, or as we first showed, a small room of economists defining the monetary fate of the future as central banks now hold nearly a third of world GDP within their balance sheets) we can't help but be amazed as the population simply sits idly by on the sidelines as the modern financial system repeats every single mistake of the past century, only this time with stakes so high not even Mars could bail out the world. Unfortunately, with the world having operated under patently false economic models spread by hacks whose only credibility is being endorsed by the same system that created these models over the past century, the only temporary solution to all financial problem is to "try harder." Sadly, the final outcome is well known - a global systematic reset, in which the foundation of all modern democracies - the myth of the welfare state (which at last check, was about $200 trillion underfunded on an NPV basis globally and is thus the most insolvent of all going concern entities in existence) is vaporized (there's that word again) leading to global conflict, misery and war. Sadly that is the price we will end up paying for over a century of flawed economic models, of "borrowing from the future", of ever more encroaching central planning, and of an economic paradigm so flawed that as Bill Buckler puts it, "Keynes’ response to those who questioned the “longer-term” consequences of his advocacy of credit-creation as a basis for money was - “In the long run, we are all dead”. It is difficult to overemphasise the venal arrogance of this remark or the destructiveness of its legacy." Alas, the last thing the central planning "fools" (more on that shortly) will admit is their erroneous hubris, which in the years to come will claims millions of lives. In the meantime, we can merely comfort ourselves with ever more insightful analyses into the heart of the broken system under which we all labor, such as this one by SocGen's Dylan Grice, whose latest letter on Popular Delusions is a call for "honest fools" - "Frequently, when we make mistakes we try to correct them not by changing the flawed thinking which led to the mistake in the first place, but by reapplying the same flawed thinking with even more determination. Behavioural psychologists call it the “lost pilot” effect, after the lost pilot who tried to reassure his passenger: “I have no idea where we’re going, but we’re making good time!” Policy makers on both sides of the Atlantic are treating today’s malaise with the same flaky thinking which created it in the first place. How can that work?" Simple answer: it can't.
With $US 1 TRILLION plus annual deficits stretching out into the indefinite future, the Fed is certainly not going to “run out of Treasuries to purchase”. On top of that, there is the $US 2.8 TRILLION of maturing Treasury debt which must be rolled over this year. The simple truth of the matter is that ever since they were rescued by QE1 back in March 2009, the markets have become used to the idea that the financial “powers that be” will not let the concept of “risk” return to sully the rewards they now expect. The “Greenspan put” has turned into a “Bernanke guarantee”. Ben Bernanke reminded the world that the government does have such a thing as a “printing press” way back in 2002. Since he became Fed Chairman, he has left world markets in no doubt of that fact. And that is what they are relying on.
If last week's tax data is indicative of what's ahead this month, the "good news" won't be sustained.
What the heck is going on in Europe, and why are the peripheral countries putting up with it?
- Greece's Hazardous Road to Restructuring (WSJ)
- Spain Coaxes Banks to Merge to Purge Losses (Bloomberg)
- Brussels Discovers New €15bn Black Hole in Greece's Finances (Guardian)
- UK Recession Predicted to Return (FT)
- Senate OKs insider trading curbs on lawmakers (Reuters)
- China Limits Mortgages for Foreigners (Bloomberg)
- Villagers scramble for fuel in Europe's big chill (Reuters)
- SNB Head Warns of Political Fallout After Crisis (FT)
- Portugal Bond Rout Overstates Greek Likeness (Bloomberg)
- Bernanke Says He Won’t Trade 2% Inflation-Rate Target for More Job Growth (Businessweek)
With the world ever more lethargic daily, as if in silent expectation of something big about to happen (quite visible in daily trading volumes), it is easy to forget that just about a year ago the Mediterranean region was rife with violent revolutions in virtually every country along the North African coast. That these have passed their acute phase does not mean that anything has been resolved. And unfortunately, as BMO's Don Coxe reminds us, it is very likely that the Mediterranean region, flanked on one side by the broke European countries of Greece, Italy, Spain (and implicitly Portugal), and on the other by the unstable powder keg of post-revolutionary Libya and Egypt, will likely become quite active yet again. Only this time, in addition to social and economic upheavals, a religious flavor may also be added to the mix. As Coxe says: "Today, the Mediterranean is two civilizations in simultaneous, rapidly unfolding crises. To date, those crises have been largely unrelated. That may well be about to change." Coxe bases part of his argument on the same Thermidorian reaction which we have warned about since early 2011, namely the power, social and economic vacuum that is unleashed in the aftermath of great social change. But there is much more to his argument, which looks much more intently at the feedback loops formed by the divergent collapsing economies that once were the cradle of civilization, and this time could eventually serve as the opposite. To wit: "The eurocrisis has been front and center for nearly two years, during which time the economic and financial fundamentals have continued to deteriorate. “The Arab Spring” came suddenly, in a series of outbursts of optimism. It may have come at the worst possible time for the beleaguered nations of the North Shore. The Mediterranean has entered one of the stormiest periods in recorded history. It is the major contributor to risk in global equity markets. It is too soon to predict how these crises will end. The Cradle of Civilization is rocking amid an array of winds and storms. “The Arab Spring” ...may have come at the worst possible time for the beleaguered nations of the North Shore."
Get out Greece! Get out right now! You should have moved two years ago; you missed that chance, but now it is much better than later. Summer vacations are being planned while we speak, you must move fast to get the biggest advantage out of bolting from the euro. Don’t let the next global recession bare its teeth. Investors still have money and they are interested in buying your assets when the prices are knocked down – each day you wait their value is deteriorating and you are looking more desperate. Most important: don’t listen to the naysayers in Brussels who are warning you of disaster outside of the ‘protective euro blanket.’ It’s much better outside, even the Turks know this.
The Case Shillers are shilling that the market is still weakening. But that's just not the Case.
You're about to hear a big boom come from across the Atlantic, but I've yet to hear a peep from the rating agencies. And many of you guys think they were delinquent during the other credit bubble!!!????
Listen to the Landlord in Chief lay out his REO to LBO plan live and in stereo. Since everyone will end up paying for it, directly or indirectly, sooner or later it probably is relevant.
Bill Gross Explains Why "We Are Witnessing The Death Of Abundance" And Why Gold Is Becoming The Default "Store Of Value"Submitted by Tyler Durden on 02/01/2012 09:44 -0400
While sounding just a tad preachy in his February newsletter, Bill Gross' latest summary piece on the economy, on the Fed's forray into infinite ZIRP, into maturity transformation, and the lack thereof, on the Fed's massive blunder in treating the liquidity trap, but most importantly on what the transition from a levering to delevering global economy means, is a must read. First: on the fatal flaw in the Fed's plan: "when rational or irrational fear persuades an investor to be more concerned about the return of her money than on her money then liquidity can be trapped in a mattress, a bank account or a five basis point Treasury bill. But that commonsensical observation is well known to Fed policymakers, economic historians and certainly citizens on Main Street." And secondly, here is why the party is over: "Where does credit go when it dies? It goes back to where it came from. It delevers, it slows and inhibits economic growth, and it turns economic theory upside down, ultimately challenging the wisdom of policymakers. We’ll all be making this up as we go along for what may seem like an eternity. A 30-50 year virtuous cycle of credit expansion which has produced outsize paranormal returns for financial assets – bonds, stocks, real estate and commodities alike – is now delevering because of excessive “risk” and the “price” of money at the zero-bound. We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time." Yet most troubling is that even Gross, a long-time member of the status quo, now sees what has been obvious only to fringe blogs for years: "Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper." Let that sink in for a second, and let it further sink in what happens when $1.3 trillion Pimco decides to open a gold fund. Physical preferably...
For today's installment we'll take a look at the debt:gold ratio for the PIIGS countries to see who puts the IG in PIIGS (perhaps you've already guessed). the ratio represents the multiple by which the country's debt exceeds its gold holdings. To an optimist, a high ratio means that the rest of the world has great confidence in the economy of the country in question. To a pessimist, a high ratio means the country is ruined. At a quick glance, it appears that Italy is no worse off than America--assuming that both countries actually have the gold the World Gold Council claims they have. Italy may have trouble getting theirs from New York, if that is where it is. Notice the decline in the ratio over the past decade--that is a reflection of the rising price of gold, not a decline in these nations' debts. Debt has increased over the past decade. The price of gold has apparently risen more. So does this mean these countries are becoming solvent? Can a rising price of gold solve our economic woes? Historically, a decline in this ratio can been used by governments to justify monetary expansion, particularly if it happened during an episode of such expansion. Why not? The improvement of the ratio suggests that the government isn't printing enough. The destruction of the value of the currency (and the country's debt) begins to occur faster than the rate of monetary creation (thus the label in the US graph "Ben proposes, the Market disposes"). The government counters this by printing faster, but the destruction of the currency's value is faster still.