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This and That

Bruce Krasting's picture




 

 

MS All In

There is a big crowd of analysts that seems to be stuck with overly optimistic forecasts for Apple. For example, Citi did a bearish story on America's favorite stock today, but even with the bad news, Citi still thinks the stock should be $75 higher.

Morgan Stanley (MS) is stuck on what's looking like a bad call; the deep thinkers doubled up today. The one-year outlook for the stock is to trade at $714 (with a potential upside as high as $980). That's a big call for a stock that has lost $187B of market cap the past few months (equivalent to 3 Goldman Sachs, 5 Starbucks or 10 Dells)

Who knows? Maybe all these bulls are right. That rarely happens. What bothers me with the MS update on AAPL is that the firm sees the downside in the stock at close to zero (no lower than $495). That's never true. Talk to those who have been saying it has been a screaming buy the last $200.

 

 

 

 

Me and JA

I’ve been a member of JA most of my adult life. This important turning point came after I became addicted to the most powerful narcotic on earth. Like most addicts, I lost everything that I had. Were it not for JA, I probably would not be around writing blogs today.

 

Today, I’m somewhat of an elder statesman for this very private group. The grey hair and the decades without re-addiction have provided me some status. I keep in contact with senior JA members around the world. I do my own ‘self-help’ sessions with those who have recently fallen prey to this poison. Using this global network, I can observe the trends on the rate of those who become newly addicted, and also those poor souls who fall off the wagon, and make the fateful call to their dealer.

 

I have distressing news to report. The JA “Help” lines have been ringing off the hook. Tens of thousands of JA members, many of who had been ‘living clean’ for more than a decade, have started abusing the drug again. Worse still, is the explosive increase in first time users. (85% first time users become hopelessly addicted - 10Xs greater then heroin).

 

The full name for what is familiarly known as JA is, Japan Short Anonymous (JSA, or just JA). The group is patterned off of Alcoholics Anonymous (many JA members are also in AA). The only qualifications for joining JA are the loss of a great deal of money, and the willingness to (privately) admit to being a self-destructive Yen shorter.

 

 

Okay, I’m kidding, again. But I’m not kidding about the betting against Japan. It’s huge, both in the currency and debt markets. For the past few months, money has been making money on the short side of Japan. Nothing fans the short trade more than success.

 

This is the most seductive trade in the world, that’s why folks get addicted to it. I’m not going to re-iterate the dozen odd reasons why Japan Inc. is a screaming short. And I agree with the conventional wisdom that Abe is going to print to oblivion, and that, by itself, is good reason to rev up the short engines.

 

It’s possible that Short Japan is the trade of the next decade; a perpetual short that fuels the carry trade. But then again, this trade has killed tens of thousands over the past thirty years.

 

 

PS - I wasn't kidding about swearing off of the short yen trade 30 odd years ago. And I must admit, even I've had that old "itch" of late...

 

 

A Great Deal?

This is an update on an old story. This is about Munis and leverage.

Towson MD did a deal recently where it borrowed $256m for 30-years at a very sweet 3.43%. The money raised went into the Towson municipal employees' retirement fund. Some details.

 

Last summer the financial deep thinkers in Towson re-calibrated their investment returns on their $2b investment fund. The assumed rate of return had been a ridiculously high 7.875%, it was changed to a much more "conservative" assumption of 7.25% (It should be 5%). The drop in the benchmark return produced a whopping $760m hole in the Fund (Vs. the $2.4B it would be at 5%). The net present value of that hole comes to a much more manageable $250m.

Rather than raise taxes on the citizens, or cut future benefits for employees, Towson took the "bold" action of just borrowing the money and hoping like hell that it all sorts out over the next twenty odd years.

I don't get it, and I don't like it. Think of this from the perspective of the taxpayers. They are borrowing money at 3.43% in the hope that they can earn a much higher return. I think Towson is gambling. Consider the investment portfolio:

 

 

Note that 27% is fixed income. Towson is a high-grade yield buyer:

 

The "stuff"that Towson invests in has a yield today that is less than the cost of the new debt. This means that the results on the the other 73% of the portfolio have to be that much higher in order for Towson to achieve its new hurdle rate of 7.25%. I look at this 15-year chart of the S&P and wonder what happens if stocks don't go up a steady 8%+ for the next many years.

 

 

Anyway, Mr. Kamentz, the County Exec. for Towson had this to say when his borrowing deal got inked:

 

“Funding the pension fund in this manner protects employee benefits and shows taxpayers that we are serious about managing our budget

(Egad)

 

Wall Street loves pension obligation deals. The Street makes money in every direction. WS gets paid to issue and place the debt, it makes money trading the debt after it's issued, it makes more money selling the stocks and bonds that Towson buys with the debt, it earns custodial fees for all the paper that is created and it gets nice advisory fees. Towson spent $14m in 2011 on fees, that number will go up every year for the next 30.

 

 

I don't have a list of the munis that have done Pension Obligation bond deals, nor the gross amount of this swill that is now outstanding (does anyone?) I do know that most big munis have done this, the amounts are huge. It's a time bomb.

 

 

 

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Tue, 12/18/2012 - 14:58 | 3075464 Bertie Wooster
Bertie Wooster's picture

wow, 2 areas where you not only lost money, but were wrong too, Apple and the Yen.

 

Tue, 12/18/2012 - 11:54 | 3074767 NEOSERF
NEOSERF's picture

For those that even pay sideways attention to the real numbers and the real problems, too many of them have gone into "get mine while I can mode".  This is bankers, politicians, pensions among others and while the game is getting old, it will take a while before the cards come down as lies are loved on Wall St.

 

Tue, 12/18/2012 - 11:58 | 3074760 darteaus
darteaus's picture

How do we know they weren't just doing what they were told by the Feds?

They went on the hook for $256M, and then gave the Feds almost $70M (27%) of it.  The Feds keep spending, and the debt/risk get sent to Smalltown, USA.

Isn't that money laundering?

Tue, 12/18/2012 - 07:18 | 3074166 Escapeclaws
Escapeclaws's picture

I wonder if Japan's banks are like ours. Witness part of an article at Roubini's most recent Economonitor. My question is, when does the shit hit the fan on this stuff? Never?

"Here’s a quick round-up of recent financial news. You cannot make this stuff up.

1. Yes, Crime Still Pays.

What happens if you help Mexican drug lords launder $7 Billion of drug profits through US bank branches, and you finance purchases for international terrorists committed to attacks on America, and you have processed $60 Trillion (Yes, with a “T”) of questionable activity in 17,000 suspicious accounts?

Well, obviously you do not go to prison, much less face the electric chair. Indeed, if you are at a big bank, US State and Federal authorities decide you should not even be indicted with criminal charges. Why? Because that might shake confidence in your bank. You see, no bank has ever survived criminal charges against top management.

And so we read that HSBC, perhaps the biggest money-laundering racketeer in world history (and I say perhaps only because there are another half dozen banks big enough to rival HSBC and thus potential candidates for first prize in the money-laundering business), won’t be prosecuted.

Instead, in yet another vigorous rump-kissing by President Obama’s Justice Department, HSBC will just pay a settlement. The Justice Department’s Lanny Breuer trumpeted the $2 billion settlement he worked out with the fraudsters, bringing the running total that he’s got from global money-launderers to $4 billion. Folks, these are Trillion Dollar Plus banks. A trillion is a thousand billion. The Chicago mob would have considered this a real steal—buy the cops a couple of donuts and you are free to launder.

Think about that: flagrantly fund terrorists and launder drug money, and the consequence is a slap on the wrist.

Why? Well, let us presume that Attorney General Holder as well as Breuer are not running cover. Indeed, according to a NYTimes article, the Justice Department had wanted the bank to plead guilty to violations of the Federal Bank Secrecy Act (a lesser crime); however, they were waived off such “harsh” punishment by the Treasury Department, the Fed, and the Office of the Comptroller of the Currency who cautioned that this might hurt the bank’s reputation. See http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9-billion-settlement-over-money-laundering/ .

After all, in banking reputation is everything! We wouldn’t want to tarnish a known money-launderer and terrorist funder. That might put a crimp in their business model. Senator Tom Coburn remarked, the OCC is “a lap dog, not a watchdog.” Sort of like Timothy Geithner, who said that while he headed the Federal Reserve of NY he was not a regulator. This reminds me of the Saving and Loan fiasco, when the chief regulator of the thrifts told his staff they ought to act like “cheerleaders” for the industry. When our regulators become cheerleaders for bank fraud, we’re in big trouble.

As I said, you can’t make this stuff up. Are we out of the woods? No. Banks are not only too big to fail. They are too guilty to prosecute.

And what lesson would a criminal enterprise masquerading as a bank learn from this whole exercise?

Crime pays."

Tue, 12/18/2012 - 07:03 | 3074157 CheapBastard
CheapBastard's picture

Orange County, California, which suffered the biggest municipal bankruptcy in U.S. history, may borrow as much as $320 million from itself to pay pension costs as its expenses for retiree benefits balloon.

 

“When you think of the concept of borrowing from ourselves, we ask, ‘Why not?’” Supervisor John Moorlach, a former county treasurer, said yesterday in a telephone interview. “Who’s a better credit than yourself?”

 

Orange County, which sought protection from creditors in 1994 after a wrong-way bet on interest rates, is facing a shortfall of $3.7 billion in its $10 billion pension fund after benefit increases and investment losses during the recession. Its $6 billion investment pool is managed by the county treasurer.

 

http://www.bloomberg.com/news/2011-01-28/once-bankrupt-orange-county-con...

Tue, 12/18/2012 - 00:15 | 3073777 theblock
theblock's picture

Bette Davis' tell-all.

Tue, 12/18/2012 - 00:01 | 3073747 hairball48
hairball48's picture

As for APPL. I'm not up on all that technical analysis stuff. I'm just ur average redneck who looks at things in a rather simple, fundamental manner. Sooooo. Who is gonna buy all that Apple iShit after the economy goes into deep recession/depression...worldwide?

All these young people, especially those  in the middle and lower income classes, who buy all this  iShit other electronic toys simply  aren't going to have the cash, or the credit, to buy such trivial crap. They'll be lucky to have sufficient  "real wealth" to buy food and have a roof over their heads.

How's APPL stock gonna go up in that kind of  environment?

Mon, 12/17/2012 - 23:49 | 3073723 hairball48
hairball48's picture

I can't wait to see the look on the faces  those public employee union assholes when their pension plans go tits up in the coming bond market crash :)  

Mon, 12/17/2012 - 21:18 | 3073367 Bastiat
Bastiat's picture

 

Bruce,  I totally agree on these Pension Obligation Deals.  I spoke out years ago against a deal like this back in the 90s in a large public meeting with lots of power people--at some personal risk, having been directed to keep my mouth shut.   These deals are pushed by investment bankers who make a fortune because the deals are large.  This particular pig had been working the politics of this deal for over a year.   

Few people can see the obvious: it's a pure arbitrage deal.  Borrowing at taxable bond rates to arb to invest the proceeds in what?  Anything you like.  Easy isn't it?   I can't imagine the shape some of these deals are in with the poor returns of the last 4 years or so. 

Regarding assumed investment rates for pension funds.  Usually those are driven by actuarial standards which use some kind of moving average for the last X years.  The reasonable purpose is to smooth volatility;  and you need to assume an investment reat to give some sort of picture of your funding vs the PV of your liabilities. Investment rates, mortality rates -- all assumptions. I used to chair a retirement board.  In that postion you understand why you have the convention, some assumed discount rate, and if you are astute you also have scenarios run by the actuary to get a handle on exposure.  Precison guesswork.

 

 

 

 

Mon, 12/17/2012 - 22:04 | 3073489 SAT 800
SAT 800's picture

speaking of precision guesswork; I couldn't help laughing out loud when I scanned the line of expenses for Domestic Equities advisers--people who get paid for throwing darts at the stock list and writing down whatever they hit. Nice work if you can get it.

Mon, 12/17/2012 - 22:34 | 3073543 Bruce Krasting
Bruce Krasting's picture

Actually they don't even use a dartboard. It's done by robot. They set up a "strategy", (using Goldie as adviser). The strategy is always the same (similar);

 

25% fixed income

25% Russell 2000

15% S&P 100

20% International stocks - 5% EM, 15% big cap global.

15% Special - Hedge Funds, CRE, Venture cap, private equity.

 

This is called the "Wide and Narrow" approach. (Russell Vs S&P 100). 10 -15 years ago the Interational/ Special thing came into vogue. This formula is at least a decade old. They all use it.

 

For that they can pay me $14m a year. Unbelievable.....

Mon, 12/17/2012 - 23:31 | 3073689 disabledvet
disabledvet's picture

crazy...and without a doubt "as accurate as a double bull." i do take not given your age that you've been shorting Japan since the Yen hit...what was it...400 to a buck? that is a MASSIVE appreciation! talk about the contrarian call of all time...stay long the Yen in 1986 when James Baker "blew the buck away"...and just sit on that long position going on 25 years! amazing...http://en.wikipedia.org/wiki/Endaka...might want to tell your bears about this word. "Endaka." if you start with the catastrophic Plaza Accords...the first time America discovered "it could manage exchange rates"...well, let's just say the Nikkei at 10,000 is actually far higher in dollar terms than it was in 1985....granted it would peak at 40,000 in 1991 or so. still...that is a MASSIVE appreciation for a country that has a debt to GDP of over 300%. "stick that one in your textbooks and smoke it" Wall Street.

Mon, 12/17/2012 - 19:05 | 3072994 kaiserhoff
kaiserhoff's picture

Quite right about the time bomb, Bruce.

But there is also that other time bomb in the White House.  Which blows first?

Mon, 12/17/2012 - 23:51 | 3073726 disabledvet
disabledvet's picture

this Lanza kid has COMPLETELY obliterated the White House's ability to control the "news flow." (My apologies if this sounds cold hearted...but if i didn't here it with my own two ears i wouldn't believe such a thing was possible.) for all you Americans who are wondering "what the hell is going on" right now...here's the technical definition of a "news cycle": http://en.wikipedia.org/wiki/24-hour_news_cycle listen up Americans! this is NO JOKE! THE job of ANY administration is to "correctly manage the news flow." to give all you American neophytes a real world example...when Mikail Gorbachev was overthrown the "REAL PRO's" laughed because as they said famously "never have coup on Monday." (the coup quickly failed because it didn't have the weekend to sink in as "a big deal.') Amazingly this meant the FALL of not only Gorbachev...BUT THE WHOLE SOVIET UNION. In other words "the Lanza thing happened on a Friday." DURING CHRISTMAS NO LESS. To the totally oblivious American people "this is what it is" and they move on. But to the people who are managing a war effort...this is "as big as it gets." (Currently the Secretary of State is incapacitated, the third in line for the Presidency--Senate Pro-tem--has just died and the President and Vice President have suddenly had "discussions." The State of Connecticut is in shock. The stock market has soared seemingly "out of the blue" and if you talked to the average person in the street they wouldn't even know there was a war going on.) In other words "the news flow will now determine White House...and quite possibly...war policy itself." Hopefully "this just passes"...probably nothing...just me being me.

Mon, 12/17/2012 - 18:33 | 3072907 hannah
hannah's picture

...everything apple sells is made ina commie country that harvest organs from inmates put in prison on trumped up charges. how long til that society dissolves and apple has nothing to sell...

 

A COMPANY CAN GO TO ZERO....LOL

Mon, 12/17/2012 - 19:46 | 3073122 Freddie
Freddie's picture

Communist China also came out and said Americans need to be disarmed.  I guess they want to harvest our organs as well.  Jamie Foxx says he likes killing white people in movies....for now.

Mon, 12/17/2012 - 21:33 | 3073405 klockwerks
klockwerks's picture

And now they want us to give what up. I don't think so as that is what I would use against a tyranical gov

Mon, 12/17/2012 - 18:26 | 3072882 Cthonic
Cthonic's picture

5+% in fees!? I guess 'fiduciary duty' means something a little more perverse than I thought.

 

Mon, 12/17/2012 - 18:04 | 3072795 Careless Whisper
Careless Whisper's picture

Short Japan is a helluva drug.

 

Mon, 12/17/2012 - 20:21 | 3073203 Not Too Important
Not Too Important's picture

http://ex-skf.blogspot.com/        

Monday, December 17, 2012 Victorious Abe's Priority: Amend Constitution So That Only a Majority Vote Is Needed to Amend It

The LDP president who can fast-eat curry and rice with pork cutlet on top, who can steal a seat from a senior citizen on JR train and pretend he's asleep after scolding him for scolding him, and a third-generation politician whose grandfather, having been arrested as "Class-A war criminal" after the World War II, was somehow escaped execution and later became the prime minister of Japan, wants to change the Japanese Constitution.

Why? Because he wants his cabinet to be the one to break through the crisis. (Whatever that means.)

Why does that have anything to do with changing the Constitution? Who knows. Because he can, probably. With two-third majority in the Lower House, his party can override any objection from the Upper House which is dominated by the opposition.

Specifically, he wants to first change the Article 96 of the Japanese Constitution, which says (in original English, from Prime Minister's Office website; emphasis is mine):

Article 96. Amendments to this Constitution shall be initiated by the Diet, through a concurring vote of two-thirds or more of all the members of each House and shall thereupon be submitted to the people for ratification, which shall require the affirmative vote of a majority of all votes cast thereon, at a special referendum or at such election as the Diet shall specify.
Amendments when so ratified shall immediately be promulgated by the Emperor in the name of the people, as an integral part of this Constitution.

According to Yomiuri Shinbun (12/18/2012), Abe wants to ditch this, and make it so that only a simple majority is needed to amend the Constitution. If he wants, he can ditch the national referendum part with his party's two-third majority in the Lower House.

Good luck, Japan, because it's only the beginning. His pet plan for the Constitution reads like a horror story for those who believe there is something to be said about "fundamental human rights" and "inalienable rights" of citizens.

For a start, the proud ideal expressed in the Foreword that positions Japan to "occupy an honored place in an international society striving for the preservation of peace, and the banishment of tyranny and slavery, oppression and intolerance for all time from the earth" will be ditched in its entirety under Abe's plan.

The rest is too depressing for me to elaborate right now, but suffice to say Abe wants to reduce the Constitution to a mere LDP party manifest. His "amended" constitution reads just like one, an election manifest to be ditched as convenience dictates. More I read, it is not even an election manifest. It is more like an announcement by a municipal government to the residents, telling them their water may stop due to construction.

It may not be long that anyone who insists on adherence to the Constitution will be branded as "terrorists".

Tue, 12/18/2012 - 08:12 | 3074207 flattrader
flattrader's picture

>>>Good luck, Japan, because it's only the beginning. His pet plan for the Constitution reads like a horror story for those who believe there is something to be said about "fundamental human rights" and "inalienable rights" of citizens.<<<

This guy may have a better handle on the consequences of FUKU going forward and he is getting ready to handle the chaos when it ramps up for real.

Mon, 12/17/2012 - 22:14 | 3073511 SAT 800
SAT 800's picture

Did you notice that Obama's "offer" in the fiscal cliff talks includes him, the president, being able to change the debt ceiling; whenever he wants to. Why don't we just elect a dictator and be done with it?

Tue, 12/18/2012 - 00:58 | 3073872 NaN
NaN's picture

You mean Obama is game for the "McConnell Plan" proposed by Mitch McConnell (R-Ky.), wherein congress can reject a debt ceiling increase, but it ends up increasing anyway?  

Brilliant!

Indeed, it makes one think congress cares more about appearances and perceptions than effectiveness. 

 

Mon, 12/17/2012 - 21:29 | 3073399 klockwerks
klockwerks's picture

"It may not be long that anyone who insists on adherence to the Constitution will be branded as "terrorists".

Sounds like that is what we may see right here in the good old USA

Mon, 12/17/2012 - 21:24 | 3073383 oak
oak's picture

Is ,this Constitution amend by Abe, aiming at China, USA or both? Abe said he will visit US first. It would be interesting to watch what he will do after the trip.

Mon, 12/17/2012 - 18:00 | 3072776 nonplused
nonplused's picture

So let me see if I get this right:

Muni A sells bonds to fund pension

Said bonds become part of structure package bought by pension fund of Muni B

Muni B sell bonds to fund pension

Said bonds become part of structured package bought by pension fund of Muni A...

Is this how the finacial system works?  If so, I don't see the problem.  Just keep printing more bonds!

Mon, 12/17/2012 - 22:15 | 3073520 SAT 800
SAT 800's picture

well, yeah. that is the basic plan; I think. But I'm sure there's some kind of tiny little problem in there somewhere.

Mon, 12/17/2012 - 17:30 | 3072659 Don Levit
Don Levit's picture

From many articles I have read about municipal retirement plans, borrowing to fund pensions is very rare.

Typically, only those cities in big trouble financially take on this type of financing due to its high risks.

 

With interest rates so low these last several years, can someone explain how these cities, states, and private retirement plans can make money on bonds., enough to fund their obligations at an assumed 7% rate or higher?

Don Levit

 

Mon, 12/17/2012 - 18:40 | 3072897 Freddie
Freddie's picture

It is not a rare as you think.  A lot of cities/municipalities are doing this.  There are a lot in Florida and California.   They should have lowered their assumed rate to 5%.  Hope and ZIRP. 

Constant crisis aka Cloward Piven.

Mon, 12/17/2012 - 16:38 | 3072452 Zer0head
Zer0head's picture

enso?

Mon, 12/17/2012 - 16:37 | 3072448 idea_hamster
idea_hamster's picture

  "How's Towson going to make 7%+ in fixed income??"

By shorting JGBs, of course!  (That way, the IBs get to charge for the short carry on top of everything else!)  ;-)

Mon, 12/17/2012 - 19:00 | 3072948 Bruce Krasting
Bruce Krasting's picture

Hey! You're on to something I think.

Take it to the next level, package it up and put a big "name" in the middle (a AAA, something like AIG)

 

Then get Goldie to price the 10 year supercharged derivative. Towson (in this case) would take the bet that is SHORT EURYEN and SHORT JGBs and LONG Spanish 10-year.

The return potential given the 50 to 1 leverage is enormous. You get on a bus, go to Baltimore. You bring some slides, and talk to the county exec over steak and cocktails.

After the meal, the County signs a letter of intent to do a deal, and you go off the the races. All-in you take a $500k fee plus expenses, including the steak. The money to you comes from Goldie, cause they are getting rich on the deal and are happy to pay on the sly. Folks in Towson have no clue what just happened, won't figure it out for another five-years. Who gives a shit by then?

 

You think I'm just making this up? Been there, done that. Good luck!

 

 

Mon, 12/17/2012 - 22:14 | 3073517 Bruce Krasting
Bruce Krasting's picture

Actually, that would be Towson getting Long EURYEN. Not Short as I said.

Sort of a "cocktail" error, maybe. Anway, these things do happen in real life. Longs that are short or what have you.

Could really have screwed the citizens of Towson with that one. They still wouldn't have know what what they were signing for.......

Tue, 12/18/2012 - 01:03 | 3073885 idea_hamster
idea_hamster's picture

Honestly, that seemed to roll off so easily that it was funny at the start, but a bit terrifying by the end -- and I'm sure you're right on how this type of thing can play out.  The sad thing is that IIRC, some major pension funds are moving away from common exchange-based investments and more into PE and bespoke positions, which has "Potential for Disaster" written all over it.

As for the long/short issue, I always felt that the way they write the FX cross is mathematically backward, so I'm with you on that -- a mistake I make aaaaallll the time reading quotes.  Thank heavens I don't even dip my toe in that pool!

I wonder whether there's some way to get these funds short productive farmland....

Mon, 12/17/2012 - 21:10 | 3073340 ChanceIs
ChanceIs's picture

I always wanted to do Marla Singer.  Does she hang out at JA?????

Mon, 12/17/2012 - 16:36 | 3072444 I Am Not a Copp...
I Am Not a Copper Top's picture

No risk of that

Mon, 12/17/2012 - 16:32 | 3072418 NoTTD
NoTTD's picture

You had me going when you said, "Towson spent $14 in 2011 on fees". $14!! Holy Crap, I thought, they must be the hardest bargainers ever!!

 

Then I saw the next graphic.  Lost all my faith in Towson.

Mon, 12/17/2012 - 17:52 | 3072748 Bruce Krasting
Bruce Krasting's picture

What's an "m" here or there? Not much at all....

Tks. I fixed it.

Mon, 12/17/2012 - 16:09 | 3072282 otto skorzeny
otto skorzeny's picture

short the yen should replace NG as the widow-makers trade. I thought alot of pensions like CALPERS are also "expecting" 8% to keep the appearance of not being totally f'ed. and what if rates climb quickly on all of these muni debt obligations-do these municipalities think that rates are going to stay at rock bottom (ZIRP)4EVA-wait-don't answer that

Mon, 12/17/2012 - 15:34 | 3072078 Rainman
Rainman's picture

POB deals for 2011 totalled $ 4 billion. For the first 7 months of 2012, just 14 deals totalling $604 million ( lowest since 2001 )

http://www.reuters.com/article/2012/08/24/us-usa-pensions-bond-idUSBRE87N0HJ20120824

Mon, 12/17/2012 - 15:29 | 3072052 Big Ben
Big Ben's picture

Things look amazingly bad for Japan. But somehow the economy seems to stumble on. So while I continue to think that something bad is going to happen there eventually, I would be very leery about shorting the currency. The government owns lots of US Treasuries and if they get into trouble, they might start selling them, causing the yen to rise. I think Japan will break sooner or later, but it is difficult to predict how it will break.

The only trade that I might consider at this point would be to go long yen and short JGBs. That would allow someone to profit if Japanese interest rates go up regardless of what the yen does. I know, it seems impossible that Japanese interest rates will ever go up. Which is precisely why it might make sense to bet on it. But I haven't made this bet yet. I am waiting for a few more signs of distress from the government before testing the water.

Mon, 12/17/2012 - 18:59 | 3072977 kchrisc
kchrisc's picture

The funny but tragic thing about Japan is that they have borrowed mostly from their own people's savings to prop up the banksters and economy.

So the Japanese think that they have trillions saved up but it's been pissed away by their gov.

With the aging population retiring the chickens are looking for the roost "and it's gone."

They'll end up a protectorate of China which won't be good considering that the memories of the "Rape of Nanking" are still raw.

Tue, 12/18/2012 - 08:07 | 3074203 new game
new game's picture

it ends in death and destruction. period, no other outcome - brush up on your history...

usa going down the same road - debt induced destruction- thanks a quadrillion benjy, you highly educated

brilliant keynsian dumb fuck.

Mon, 12/17/2012 - 16:19 | 3072351 AGuy
AGuy's picture

"So while I continue to think that something bad is going to happen there eventually"

Just about everything bad that can happen to Japan has happened recently:

1. Thousands dead sweep up in a Tsunai

2. Melt Down of three Nuclear reactions that contaiminated more than a third of this land and probably 2/3 of its coastal sea. This will result in an epidemic of health issues in 4 to 10 years as the radiation takes it long term toll on its Population. And Japan still isn't out of the Woods since there is still danger of the spent Fuel Pool collapsing.

3. Loss of infrastructure caused be the destruction of the earthquake and shutdown of a many nuke powerplants

3. Soaring energy prices and steep margin compression from competiting Asian countries (ie China and Korea)

4. Negative exports (Japan now imports more than it export).

 

Nothing in the News suggest any sane reason to go long the Yen.

Tue, 12/18/2012 - 11:56 | 3074724 flattrader
flattrader's picture

>>>Just about everything bad that can happen to Japan has happened recently:<<<

Yes.  It has.  The reality just hasn't set in.  They still have that weird culurally based plausible deniability going for them.

When they can't ignore it any longer - another EQ at 7+ or 8+ - that brings down the spent fuel pools at FUKU and damages other nuke plants - it will change.

Japan isn't Belarus.  It's compact and crowded.  When people start dropping dead, children in particular, somebody is likely to notice.  Little kds with cysts, nose bleeds, diarrhea, fatigue etc...can only mean one thing.

>>>And Japan still isn't out of the Woods since there is still danger of the spent Fuel Pool collapsing.<<<

There's been no remediation of the reactors or fuel.  They are still spewing radiation...lots and lots of it.  The multiple spent fuel pools are a dangerous sideshow.  The main event is on-going.

From enenews.com aggregator-

Gov’t Experts: No knowledge of what state melted fuel is in at Fukushima plant — Don’t know where it’s located — Persistent danger surrounds reactors — Collapses of facilities a threat

Title: Fukushima plant situation ‘volatile,’ a year after cold shutdown declared
Source: AJW by The Asahi Shimbun
Author: NAOYA KON
Date: December 18, 2012

Workers are nowhere close to determining the state of melted fuel at the Fukushima No. 1 nuclear plant, a year after the government declared the damaged reactors were in a “cold shutdown” state.

[...] quake-induced collapses of plant facilities remain a threat.

[...] “Workers have been obliged to respond with highly stopgap measures,” [NRA Chairman Shunichi Tanaka] said. “Many devices, such as a purifier for radioactive water, have been installed with no time for sufficient design considerations and safety screenings.

“The situation surrounding the decommissioning process is volatile, so there is a need for constant reviews in securing safety.”

[...] TEPCO cannot determine the state of the melted fuel because cameras can only be inserted for a limited time period in the extremely hazardous environment.

[...] Fumiya Tanabe, a former chief research scientist at the now-defunct Japan Atomic Energy Research Institute, said persistent danger surrounds the plant’s reactors.

“Despite the (officially declared) cold shutdowns of the reactors, the cooling functions have been maintained there with no knowledge of where the melted fuel lies and in what state,” Tanabe said. “There is a risk of unforeseen circumstances arising if another major earthquake hits.”

 

And for the rest of the world  http://www.veteranstoday.com/2011/05/28/fukushima-how-many-chernobyls-is...

 

Mon, 12/17/2012 - 18:03 | 3072788 Big Ben
Big Ben's picture

Just about everything bad that can happen to Japan has happened recently:

But none of the things you mention have caused the yen to collapse or Japanese interest rates to soar. So for Japan (financially speaking), I think the worst is yet to come.

If you are long yen and short JGBs and the yen collapses, the gain in the JGB position offsets the loss in the yen position. So the value of the position is independent of the yen exchange rate. (Of course, you would need to rebalance if the yen makes a significant move in either direction.) The position only makes money if Japanese interest rates go up. Of course, it loses money if Japanese interest rates stay the same or go down. So best to wait until you start to hear cracking noises from the Japanese government before entering it.

Mon, 12/17/2012 - 18:47 | 3072943 AGuy
AGuy's picture

FWIW: I have no interest in the Yen or any FX trades. In my view they are all worthless, but irrational investing and manipulation prevents them from showing their two value: Zero.

Eventually when a correction does happen, its likely that the rest of major currencies will fall like dominos. In my opinion all of the major currencies lean against each other, proping each other up. It probably pointless to go long or short in a selected currency if the others end up collapsing shortly after. It like the prepper who saved up 3 months of food. After 3 months and his food is gone, he has just delayed his starvation by three months.

 

" So for Japan (financially speaking), I think the worst is yet to come."

I think I rather see my currency collapse then get cancer from consuming radioactive tainted food and water.  Japan has crawled through 25 years of QE and Cronyisum. Japan needs restructuring to fix its problems. While this will cause some pain, a economic reset is would be a blessing for Japan in the long term.

I also worry about a global war (WW3). I think TPTB would rather wipe out billions to keep their jobs. When they run out of options to kick the can they will turn to war. Hopefully I will be completely wrong. Currently the US is hedging its options by kicking the can, printing money and going to war all at the same time.

 

 

Mon, 12/17/2012 - 15:18 | 3071983 Orly
Orly's picture

You won't have to feel left out but for a few more weeks in the JA Club, Bruce.  The pattern the Weekly chart is making is the big one. If it makes you feel better, instead of inhaling the drug on this sell-off and then watching the yen bounce around for several weeks, driving you crazy and needing a deeper fix, just set yourself the mother of all buy stops at a level higher than the cup with handle formation.  You can watch the puppy soar from there for most of next year.

Set the buy at USDJPY @ 84.495  (or any other yen cross you care to watch fly away into heaven...same level...) and you can wait for it.

Trust me.  It will be therapeutic.  (And redemptive...)

:D

Tue, 12/18/2012 - 00:19 | 3073790 SAT 800
SAT 800's picture

that is nice looking chart; I sold one Mar. short@.011905 about the same as long 83.998, USD/JPY. Why is 84.495 supposed to be magic? Well, never mind, I don't care. I like the trend and my friend; every  power center in Japan is going to do everything they can to get that currency down; they'll probably succeed. I like it when you know your big friend is the central bank in question; like the famous 1.41CHF/USD. It doesn't seem likely they will fail to drive their currency down. so; thanks for calling attention to the chart; (which I never look at!). Probably, will now, tho.

Mon, 12/17/2012 - 18:07 | 3072796 smlbizman
smlbizman's picture

i live in baltimore county....our executive also forced the pension sytem to lend 25 mil. at almost 8% interest to finance a recyling facility...now we supposedly have a AAA rating...so i would think we could borrow alot cheaper than that ...and there is zero chance this will work...now he is going to borrow some alabama sewer money to save the pension...this is why i am selling both paid off properties and getting out of dodge....the homeowner is set up to take the most abuse from these incompetent fuckers...i for one know the shackles that real estate is today...it pisses me off to no end that i have to take these steps to protect my family.....but you have to do what you have to do.....i will remain liquid and rent for the last 20 30 yrs of my life.....you have to be insane to have any of your wealth locked up in anything with counter party risk currently...hopefully one day, in a land far far away we will get back to "right" ...maybe...

 

and one question i would ask everyone of these incompento's is...if 250 mil is good ..wouldnt 500mil be twice as good etc. etc..

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