en Please Don't Blame The Fed: Alan Greenspan Says "Bubbles Are A Function Of Human Nature" <p><em>Submitted by <a href="">David Stockman's </a></em><em><a href="">Contra Corner</a></em></p> <p><strong>C’mon Alan! Bubbles Are Caused By Central Bankers, Not “Human Nature” </strong></p> <p>Alan Greenspan just cannot give up the ghost. During his baleful 18-year reign, the Fed was turned into a serial bubble machine—and thereby&nbsp;became a&nbsp;clear and present danger to honest free market capitalism and an&nbsp;enemy of the 99% who do not benefit from the Wall Street casino and the&nbsp;vast inflation of financial assets which it has enabled.&nbsp; His legacy is a toxically financialized economy that has&nbsp;extracted huge windfall&nbsp;rents from main street, and left it burdened with overwhelming debts and sharply reduced capacity for gains in real living standards and breadwinner jobs.</p> <p><em><strong>Yet after all this time Greenspan still insists on blaming the people for the economic and financial&nbsp;havoc that he engendered from his perch in the Eccles Building.</strong></em> Indeed, posturing himself as some kind of latter day monetary&nbsp;Calvinist, he made it crystal clear in yesterday’s interview&nbsp;that the blame cannot be placed at his feet where it belongs:</p> <blockquote><p>I have come to the conclusion that bubbles, as I noted, are a function of human nature.</p> </blockquote> <p>C’mon. The historical record makes absolutely clear that Greenspan panicked time and again when speculation reached a fevered peak in financial markets. Instead of allowing the free market to cleanse itself and liquidate reckless gamblers employing too much debt and too many risky trades, he flooded Wall Street with liquidity and jawboned the speculators into propping up the casino.&nbsp; Within months of his August&nbsp;1987 arrival, for example, he panicked on Black Monday and not only inappropriately flooded with liquidity&nbsp;a Wall Street that was rife with rotten speculation and a toxic product called “portfolio insurance”, but also intervened directly to garrote the markets attempt at self-correction.</p> <p>In that context he sent his henchman, Gerald Corrigan who was&nbsp;head of the New York Fed, down to Wall Street to break arms and bust heads in an effort to insure that firms continued to trade with each other and extend credit where their own risk control managers appropriately wanted to cancel credit lines to insolvent counter-parties.&nbsp; Then and there, the Greenspan “put” was born, and the stock market was en&nbsp;route to becoming a Fed-driven casino rather than an honest venue for real price discovery. Indeed, the entire Greenspan-Corrigan mission in the wake of Black Monday was to force Wall Street firms and banks into price “undiscovery”.</p> <p>Incidentally, in yesterday’s interview Greenspan belatedly confessed that he had caused Goldman Sachs to “undiscover” that Continental Illinois was a bad credit risk, and that, instead of demanding payment,&nbsp;they needed to see it Corrigan’s way. Not surprisingly, Corrigan went on to become a Goldman partner in charge of hand-holding the New York Fed’s open market desk, which is to say, an exemplar of how crony capitalism is done.</p> <blockquote><p><em><strong>Goldman was contemplating withholding a $700 million payment to Continental Illinois Bank in Chicago scheduled for the Wednesday morning following the crash. In retrospect, had they withheld that payment, the crisis would have been far more disabling. Few remember that crisis because nothing happened as a consequence</strong></em>.</p> </blockquote> <p>Well, that’s just the point. Free markets correct their own excesses when two-way trading is permitted to run its course. At the time of Greenspan’s first panic, the financial markets were laboring under the pressure of Washington’s&nbsp;huge debt emissions owing to the giant Reagan deficits. In that context, interest rates wanted to soar in order to reflect the “crowding out” effect of Uncle Sam’s massive borrowing—a path that would have laid the stock market speculators low for years to come. And it would have also generated a fiscal clean-up package in Washington that would have nipped in the bud&nbsp;the lamentable Reagan era myth that&nbsp;“deficits don’t matter”.</p> <p>In short,&nbsp;owing to his Black Monday panic Greenspan let both the Wall Street gamblers and the&nbsp;Washington spenders off-the-hook, and launched the nation on the&nbsp;road toward the debt and speculation-riven crony capitalism that prevails today. So the claim that “nothing happened as a consequence” could not be farther from the truth. What happened was the onset of a historic calamity—that is, the official&nbsp;repudiation of free markets, fiscal rectitude and sound money.</p> <p>And there was more. As&nbsp;is also well known, on the next morning (Tuesday), the futures&nbsp;market in&nbsp;Chicago and stock exchanges in&nbsp;New&nbsp;York&nbsp;came to a dead stop and were heading for another cleansing free-fall, when suddenly massive buy orders came in from Fortune 500 companies to buy their own stock.&nbsp; That didn’t happen by accident. Ayn Rand’s former disciple was busy at work over-riding&nbsp;the free market and&nbsp;jaw-booning CEO’s into their first great foray into stock buybacks—-a speculative&nbsp;pursuit which has now become an institutionalized disease in the C-suites.</p> <p>In the years that followed the same pattern ensued at each point the markets attempted to rectify themselves. That includes 1994 when the bond market and mortgage back securities market went into a cleansing tailspin, but instead of allowing the money market rates to rise to market clearing levels, the Greenspan Fed panicked and capped the rise at just&nbsp;300 basis points. That is, at a fraction of what Volcker had permitted and far below what was needed to arrest the incipient&nbsp;financial bubble that was already then underway.</p> <p>Likewise, during the 1998 Russian and LTCM crisis, Greenspan panicked once again and slashed interest rates to save speculators in Russian securities and domestic hedge funds, and jawboned Wall Street into bailing out LTCM.&nbsp;Needless to&nbsp;say, the latter was a&nbsp;reckless gambling den that had been leveraged 100:1 by the&nbsp;very same Wall Street firms that Greenspan organized into a mafia-like cartel designed to prevent the free market from working its will, and to spare&nbsp;the offending Wall Street firms from taking their lumps.</p> <p>By now, therefore, the “Greenspan put” was deeply implanted in the casino.&nbsp;That became fully&nbsp;evident when the market soared in 1999 after Greenspan’s late 1998 panicked rescue of the speculators.&nbsp;The Wall Street gamblers now understood that&nbsp;shorting over-bought markets was dangerous and that buying the dips was the route to fabulous riches for fast money traders. The era of one-way markets had thus been launched.</p> <p>Yet by that point&nbsp;Greenspan had been crowned the “Maestro”, causing him to throw any remaining semblance of sound money and respect for market price discovery to the winds. Even as the NASDAQ and dotcom stocks soared to insane heights in the spring of 2000, Greenspan told a congressional committee that there was no evident financial bubble and that the Fed could not prevent one if there were. A noxious lies was thereby born.</p> <p>And then it got worse after the dotcom crash. Beginning on Christmas eve 2000 the Fed began to slash interest rates, and didn’t stop its&nbsp;meeting after meeting cuts&nbsp;until it had lowered the funds rate to an unprecedented 1% by the spring of 2003.&nbsp; By then, of course, the housing bubble was already galloping toward its eventual destructive demise, but the Greenspan Fed was oblivious.</p> <p>Even during the first bubble of the 1990s, the home mortgage market had been reasonably well-behaved and gross mortgage originations rarely exceeded $1 trillion annually until the end of the decade.<em><strong> But at the time that Greenspan made the final federal&nbsp;funds reduction to 1.0% in Q2 2003, the annualized run-rate of gross mortgage originations had soared to the outlandish sum of $5 trillion.</strong></em></p> <p>Indeed, the whole housing bubble finance mechanism of homeowners raiding their own&nbsp;ATM (i.e. equity in their homes) was underway, and a debt fueled boom in housing prices was entering its final lunatic phase.&nbsp; But Greenspan saw no bubbles at all. Nor did he have a clue that a&nbsp;giant financial crisis owing to his destruction of honest financial markets was just around the corner when he exited the Eccles Building&nbsp;early&nbsp;2006.</p> <p>Notwithstanding this sorry history, Greenspan did the world a large favor in yesterday’s interview while trying to justify his Calvinistic blame of “human nature” for financial bubbles. He claimed that the Fed tried to&nbsp;stop a bubble&nbsp;when it tightened in 1994, but that effort&nbsp;failed—thereby&nbsp;proving, apparently, that central banks are no match for human nature.</p> <p>Accordingly, bubbles needed to be allowed to run their course.&nbsp;Henceforth,&nbsp;the Fed&nbsp;would function&nbsp;as a clean-up brigade&nbsp;with a mission to flood the market with liquidity after the&nbsp;fact—that is, to operate the&nbsp;very kind of bubble finance policy that has now become deeply and destructively institutionalized.</p> <blockquote><p>&nbsp;The Fed tried in 1994 to defuse a bubble with monetary policy alone. We called it a boom back then. The terminology has changed, but the phenomenon is the same. We increased the federal funds rate by 300 basis points, and we did indeed stop the nascent stock-market bubble expansion in its tracks. But after we stopped patting ourselves on the back for creating a successful soft landing, it became clear that we hadn’t snuffed the bubble out at all. I have always assumed that the ability of the economy to withstand the 300-basis-point tightening revised the market’s view of the sustainability of the boom and increased the equilibrium level of the <span class="mandelbrot_refrag"><a class="mandelbrot_refrag" href="" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">Dow Jones Industrial Average</span></span></a></span>. The dot-com boom resumed.</p> <p>&nbsp;</p> <p>When bubbles emerge, they take on a life of their own. It is very difficult to stop them, short of a debilitating crunch in the marketplace. The Volcker Fed confronted and defused the huge inflation surge of 1979 but had to confront a sharp economic contraction. Short of that, bubbles have to run their course. Bubbles are functions of unchangeable human nature….</p> </blockquote> <p>No better indictment of monetary central planning and money market interest rate pegging could be delivered. Greenspan institutionalized macroeconomic management through rigid control of the funds rate and&nbsp; by an intolerance for money market&nbsp;movements of more than 25 basis points. In the process, “price discovery” was supplanted by “price administration”.</p> <p>More importantly, the single most important price in all of capitalism—-the price of hot money on Wall Street—-was shackled.&nbsp;The carry trades were soon off the races because cheap and predictable overnight funding costs are the mothers milk of financial speculation.</p> <p>Once upon a time, Wall Street would cure its own excesses when the “call money” rate soared by hundreds of basis points during a single day, and rates&nbsp;sometimes reached&nbsp;deep into double digits when speculation got overheated. Yet it was that vital market-clearing mechanism, that instrument of financial market self-correction, which Greenspan now admits he destroyed in 1994 when he capped the funds rate rise at 300 basis points.And then he&nbsp;became puzzled as to why just a short time later the mania reignited.</p> <p>It goes without saying, of course, that the free-market/sound money Greenspan of the days before he became head of the monetary politburo in Washington would not have been puzzled at all.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="89" height="90" alt="" src="" /> </div> </div> </div> Alan Greenspan Bond Central Banks Dow Jones Industrial Average Futures market Gambling Goldman Sachs goldman sachs Housing Bubble Housing Prices Illinois Main Street Monetary Policy NASDAQ New York Fed Fri, 25 Jul 2014 20:41:13 +0000 Tyler Durden 491751 at Stocks Slide, Gold Soars On Weak Earnings, Geopolitical Fears <p>Despite an impressive ramp by USDJPY in the last two hours of trading (thank you Nomura and BOJ) whose purpose was to get the DE Shaw and all other correlation algos to push spoos higher, today's trifecta of the ugly guidance by Visa (which dominated the DJIA), very ugly earnings by Amazon (which dominated the Nasdaq) and the CME ES margin hike just proved too much, and while Friday may have been the new Tuesday <a href="">following 11 "green" DJIA Fridays </a>in a row, today's 123 point drop stopped the trend before lucky 12 out of 12.</p> <p>As can be seen on the chart below, after hitting daily all time highs for several consecutive days, today's drop pushed the S&amp;P back to levels last seen during last week's MH17 scare. A tactical near-term downgrade of stocks by Goldman in the last few hours of trading (following David Kostin's upgrade to his S&amp;P price target two weeks ago) probably didn't help although (actually it helped since stocks rose since the time the Goldman report hit mailboxes) it is amusing that someone still thinks Goldman sellside research still has any sway (as opposed to merely indicating what the Goldman prop desk is <em><strong>not </strong></em>doing).</p> <p><a href=""><img src="" width="600" height="388" /></a></p> <p>&nbsp;</p> <p>And while today was otherwise a rather mundane day, what stood out was an impressive ramp in gold toward the end of trading, and especially in the minutes before the close, which we attribute to rising geopolitical fears as both the situation in Ukraine and in Israel are getting worse by the minute.</p> <p><a href=""><img src="" width="600" height="425" /></a></p> <p>In short, this week was largely a wash which makes sense ahead of next week's data slam when we get both the all important NFP and Q2 GDP prints. While NFP will almost certainly be a continuation of the part-time jobs soaring trend seen in recent months, the biggest question is whether Q2 GDP will print above or below 2.9%: if below, then the entire first half of 2014 will be negative, which according to some purists is equivalent to a technical recession. A bigger question is what climatic event will the scapegoat crew blame a collapse in Q2 GDP on, </p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="2087" height="1479" alt="" src="" /> </div> </div> </div> DE Shaw Israel NASDAQ Nomura Recession Ukraine Fri, 25 Jul 2014 20:15:31 +0000 Tyler Durden 491750 at Africa's Largest Refinery Finds 2.7 Tons Of Gold "Missing" After Computer System Upgrade <p>It's one thing to implicitly admit that there is a physical gold shortage and as a result nations - such as Germany - are unable to repatriate their physical gold held in the safe and trusted confines 90 feet below the NY Fed, gold which may or may not be there and has likely been leased out exponentially to cover paper shorts by virtually every BIS-overseen central bank (and the <a href="">BIS paper gold selling team </a>itself of course). It is something totally different to corzine, <strong><em>as in vaporize</em></strong>, 87,000 ounces of physical gold, some 2.7 tons, and blame it on a computer upgrade glitch. Which is precisely what Rand, Afrrica's largest refinery and processor of about a third of the world's gold since 1920, has done after it "discovered" that $113 million in precious metal was missing after "adopting a new computer system."</p> <p>Bloomberg reports that the refinery in Germiston, a town 20 kilometers east of Johannesburg, <strong>has 87,000 ounces of physical gold less than the amount present in its accounting records after “implementation difficulties” with the new system, the company said in a statement today. That’s worth about $113 million at today’s price of $1,296 an ounce</strong>. </p> <p>Taking a page out of China's infinite rehypothecation scheme, the South African refiner essentially told its investors, most of whom are gold miners, to step up and replenish the missing metal or else investors may come asking questions about their own reported gold holdings. And, it succeeded.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Rand Refinery’s shareholders, including AngloGold Ashanti Ltd. (ANG), Sibanye Gold Ltd. (SGL) and Harmony Gold Mining Co. (HAR), <strong>agreed to lend the company 1.2 billion rand to help make up the difference.</strong></p> </blockquote> <p>Laughable excuses aside, those curious where the gold may have gone should probably ask the former CEO: "Howard Craig resigned as chief executive officer in May and has been replaced by Mark Lynam, who is being assisted by management consultant Accenture Plc in sorting out the issue."</p> <p>However, just like in China, it appears nobody has any interest in actually digging deeper:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>The miners, customers of the refinery, have received the prices they were expecting, leading them to conclude it’s most likely an accounting problem rather than theft, James Wellsted, a spokesman for Sibanye Gold, said by phone. </strong></p> </blockquote> <p>Perhaps it is normal when nearly 3 tons of physical gold goes missing for nobody to care. Alternatively, perhaps it means that just like the entire financial Ponzi system, which can sustain the lies only as long as everyone agress not to "defect" and admit Janet Yellen is a "naked (and very much clueless) emperor", the rot within the gold space has now shifted away purely from the commercial and central banks and is now impacting the miners and refiners. If so, anyone who owns gold is encouraged to take physical possession of it asap because if, as this incident suggests, the Chinese rehypothecation experiment has gone global, when everyone does demand their deliverable be, well, delivered, it will be too late.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="102" height="91" alt="" src="" /> </div> </div> </div> Central Banks China Germany Janet Yellen Fri, 25 Jul 2014 19:38:09 +0000 Tyler Durden 491749 at Based on the Non-Massaged Data, the US is Back in Recession <p>Beneath all of the bogus economic data, the US economy is tanking again.</p> <p>&nbsp;</p> <p>One of the biggest games played by the bean counters in Washington in the US is the overstatement of GDP growth by understating inflation.</p> <p>&nbsp;</p> <p>Consider this simple example. Let&rsquo;s say that the US GDP grew by 10% last year. Now let&rsquo;s say that inflation also grew by 10%. In this scenario, <em>real</em> inflation adjusted GDP growth was ZERO. However, announcing ZERO GDP growth is a major problem politically.</p> <p>&nbsp;</p> <p>So what do the Feds do? They claim that inflation was just 8%, and BOOM you&rsquo;ve got 2% GDP growth announced for a year in which real GDP growth was actually zero.</p> <p>&nbsp;</p> <p>This game is played all the time via a metric called the GDP &ldquo;deflator.&rdquo; Technically what this is meant to do is remove the effects of inflation from the GDP growth numbers to show what <em>real</em> growth was.</p> <p>&nbsp;</p> <p>However, what it actually ends up being is an accounting gimmick that allows the numbers to <em>overstate</em> GDP growth.</p> <p>&nbsp;</p> <p>For this reason, when I look at the US economy&rsquo;s growth I prefer to use its nominal GDP numbers. These numbers <em>do not</em> include a deflator metric. As such they&rsquo;re much closer to showing the actual growth as opposed to the gimmicked &ldquo;real GDP&rdquo; numbers.</p> <p>&nbsp;</p> <p>With that in mind, take a look at the chart below:</p> <p>&nbsp;</p> <p><img alt="" src="" style="width: 500px; height: 301px;" /></p> <p>&nbsp;</p> <p>As you can see, the US economy is once again slowing down rapidly with a sub-4 reading. I&rsquo;ve circled all of the other times the US economy has registered a reading like this in the last 40 years.</p> <p>&nbsp;</p> <p>ALL of them were periods that were later identified as recessions.</p> <p>&nbsp;</p> <p>So the Fed is once again facing a recession&hellip; at a time when it has already cut interest rates to zero and engaged in just about every monetary loosening imaginable. To top it off, inflation is already appearing due to the Fed&rsquo;s previous actions.</p> <p>&nbsp;</p> <p>There is a term for slow growth and high inflation: it&rsquo;s stagflation. Sure it doesn&rsquo;t show up in the official data. But then again, when was the last time reality did show up there?</p> <p>&nbsp;</p> <p>This concludes this article. If you&rsquo;re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled <strong><em>Protect Your Portfolio</em></strong> at <a href=""></a>.</p> <p>&nbsp;</p> <p>This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.</p> <p>&nbsp;</p> <p>Best Regards</p> <p>&nbsp;</p> <p>Phoenix Capital Research</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> Nominal GDP Reality Recession Stagflation Fri, 25 Jul 2014 19:37:23 +0000 Phoenix Capital Research 491748 at No Inflation Friday: Dollarized Panama Issues Price Controls For Basic Goods <p><em>Submitted by Simon Black of <a href="">Sovereign Man</a></em><a href=""></a></p> <p><strong>Dollarized Panama Issues Price Controls For Basic Goods</strong></p> <p>Less than four weeks after starting his new job, Panama’s President Juan Carlos Varela already has a serious challenge to deal with: empty grocery shelves.</p> <p>This is largely a self-inflicted wound that was bound to happen. </p> <p>Fresh on the heels of his victory in May, the then President-elect announced that one of his first orders would be to regulate prices for staple food products.</p> <p>He followed through on his promise, establishing price controls on certain brands of roughly two dozen items like chicken, rice, eggs, and bread. </p> <p>And within a matter of weeks, many grocery store shelves are already empty, at least for the regulated items. </p> <p>It’s not quite Venezuela or Cuba where it can be downright impossible to buy a roll of toilet paper. But it’s more proof that price controls almost always backfire.</p> <p>The larger issue here is why the Panamanian government is controlling prices to begin with. The answer is simple: inflation.</p> <p>According to the Panamanian government, the price of basic foods rose 4.1% from April 2013 to April 2014. </p> <p>Over the last five years, in fact, food prices have risen more than 24%. </p> <p>And when average wages are little more than a few hundred dollars a month, a 24% increase in food prices really hurts.</p> <p>Now, inflation isn’t a particularly unusual phenomenon in Central America, or in developing countries in general. </p> <p>But what sets Panama apart is that the country is dollarized.</p> <p>In its entire 111-year history as a sovereign nation, in fact, Panama has never issued its own currency.</p> <p>Locals and foreigners alike pay US dollars for goods and services across Panama just as you would in Houston, Jacksonville, or Las Vegas.</p> <p>This means that the country is subject to all the whims and consequences of US monetary policy; when the Fed conjures money out of thin air, the negative effects are quickly exported to Panama.</p> <p>Yet while it suffers all of the downside of quantitative easing, Panama enjoys very little of the upside. </p> <p>Of the jobs that the Fed claims they have created by printing $3.7 trillion over the last few years, zero of those have ended up in Panama.</p> <p>Not to mention, the Panamanian government doesn’t have an endless supply of foreigners lining up to buy its debt.</p> <p>So to get a true sense of US dollar inflation… and where it’s headed in the Land of the Free… one only need look at dollarized countries like Panama.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="274" height="184" alt="" src="" /> </div> </div> </div> Las Vegas Monetary Policy Quantitative Easing Fri, 25 Jul 2014 18:55:45 +0000 Tyler Durden 491747 at High Yield Credit Market Flashing Red As Outflows Surge <p>As we have been highlighting for a few weeks, something is rotten in high-yield credit markets. This week, the mainstream media is starting to catch on as major divergences in performance (<strong>high-yield bond spreads are 30-40bps off their cycle tights from just prior to MH17 even as stocks rally to new record highs</strong>) and technicals weaken. However, as BofA warns, flows follow returns and this week saw the <strong>biggest outflows from high-yield funds in more than a year</strong>. Investment grade bonds saw notable inflows as investors chose up-in-quality, rather than reach-for-yield, for the first time in years: equity investors, pay attention.</p> <p>&nbsp;</p> <p><a href=""><span style="text-decoration: underline;"><strong>High yield credit markets have been overvalued for a record period of time</strong></span></a>...</p> <p><a href=""><img src="" width="600" height="355" /></a></p> <p>&nbsp;</p> <p>On Tuesday, analysts at Ned Davis Research recommended that investors begin to sell high-yield bonds, partly because they look pricey and partly because performance has been flagging. <strong>"Investors are no longer being compensated for the additional risk in high-yield bonds,"</strong> they wrote.</p> <p><span style="text-decoration: underline;"><strong>High yield credit markets are majorly diverging from stocks...</strong></span></p> <p><a href=""><img src="" width="600" height="363" /></a></p> <p><strong>"Geopolitical risk is causing a pause,"</strong> said Frank Ossino, senior portfolio manager at Newfleet Asset Management in Hartford, Conn., which oversees $12.9 billion. Investors tend to flee riskier assets during times of turmoil.</p> <p><span style="text-decoration: underline;"><strong>High yield credit markets are suffering major outflows...</strong></span></p> <p><a href=""><img src="" width="600" height="428" /></a></p> <p>&nbsp;</p> <p>Outflows from high yield funds and ETFs accelerated last week to $2.46bn following a sizable $1.85bn outflow in the prior week. <span style="text-decoration: underline;"><strong>Both of these outflows are the largest since the “taper tantrum”episode in the summer of last year.</strong></span></p> <p><strong>"We're not seeing massive outflows yet, but at some point that's going to change," </strong>warned Phil Blancato, chief executive at Ladenburg Thalmann Asset Management, which oversees about $2 billion.</p> <p>He said he is steering clear of high-yield exchange-traded funds in large part due to concerns about how they will fare in a downturn.<span style="text-decoration: underline;"><strong><br /></strong></span></p> <p>*&nbsp; *&nbsp; *</p> <p>Between a sudden shift to a preference for "strong" balance sheet companies over "weak" balance sheet companies (the end of the dash for trash trade), and this rotation from high-yield to investment-grade, it is clear that investors are positioning defensively up-in-quality ending the constant reach-for-yield trade of the last 5 years.</p> <p><strong>Why should 'equity' investors care?</strong> The last few years' gains in stocks have been thanks massively to record amounts of buybacks (juicing EPS and also providing a non-economic bid to the market no matter what happens). This financial engineering - for even the worst of the worst credit -&nbsp; has been enabled by massive inflows into high-yield and leveraged loan funds, lowering funding costs and allowing CFOs to destroy/releverage their firms all in the goal of raising the share price. </p> <p>Simply put - equity prices <strong>cannot</strong> rally for long without the support of high-yield credit markets - never have, never will - as they are both 'arbitrageable' bets on the same capital structure. There can be a divergence at the end of a cycle as managers get over their skis with leverage and the high yield credit market decides it has had enough risk-taking... but it only ends with equity and credit weakening together. <strong>That is the credit cycle... it cycles.</strong></p> <p><a href="">Jeff Gundlach was right.</a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="645" height="460" alt="" src="" /> </div> </div> </div> Bond Gundlach High Yield Investment Grade Jeff Gundlach Fri, 25 Jul 2014 18:22:01 +0000 Tyler Durden 491746 at Israel Cabinet Unanimously Rejects John Kerry's Gaza Truce Proposal <p>Over the past few days, John Kerry flew to Egypt, where among other things, he <a href=";or=1">proposed a weekling Gaza Truce</a>. Alas, that was one taxpayer funded trip for the Secretary of State flushed down the drain:</p> <ul> <li>ISRAEL CABINET UNANIMOUSLY OPPOSED KERRY PLAN: CHANNEL 1</li> <li>ISRAEL'S SECURITY CABINET HAS REJECTED GAZA CEASEFIRE PROPOSAL, SEEKS MODIFICATIONS -GOVT SOURCE</li> </ul> <p>AP had some more details:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Israel on Friday rejected a Gaza ceasefire proposal presented by US Secretary of State John Kerry, Israeli public television reported.</p> <p>&nbsp;</p> <p>"<strong>The security cabinet has unanimously rejected the ceasefire proposal of Kerry, as it stands</strong>," Channel 1 said, adding that ministers would continue discussing it.</p> </blockquote> <p>Or, largely just as was expected (because even Bloomberg is now reporting how the entire middle <a href="">east is mocking John Kerry</a>). But perhaps the reason why gold appears to have suddenly found a bid is the following:</p> <ul> <li>JOHN KERRY TO SPEAK FROM CAIRO LATER TODAY</li> </ul> <p>Because just when you thought things couldn't get any worse, John Kerry opens his mouth...</p> Israel Middle East Fri, 25 Jul 2014 18:01:10 +0000 Tyler Durden 491745 at Ebola Victim On The Run In West Africa Capital <p>It's gone from bad (<a href="">Mapping Africa's "Totally Out Of Control" Ebola Epidemic</a>)&nbsp; to worse, (<a href="">Head Doctor Fighting Africa's "Out Of Control" Ebola Epidemic Contracts The Virus</a>), to much worse (<a href="">Liberian Man Tested For Ebola In World's Fourth Most Populous City</a>), to having run out of comparaitves - although we are leery of using a superlative just yet as we have a feeling Africa's Ebola's epidemic will deteriorate before it gets better. But the latest news is bad enough: as <a href="">Reuters reported moments ago</a>, Sierra Leone officials <strong>appealed for help on Friday to trace the first known resident in the capital with Ebola whose family forcibly removed her from a Freetown hospital after testing positive for the deadly disease</strong>.</p> <p><a href=""><img src="" width="580" height="386" /></a></p> <p>How big is Sierra Leone's capital Freetown: just around 1 million inhabitants, so yes, things are suddenly very much <em><strong>un</strong></em>contained. </p> <p>More: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Radio stations in Freetown broadcast the appeal on Friday to locate a woman who tested positive for the disease that has killed 660 people across Guinea, Liberia and Sierra Leone since an outbreak was first identified in February.</p> <p>&nbsp;</p> <p>"Saudatu Koroma of 25 Old Railway Line, Brima Lane, Wellington," the announcement said. "<strong>She is a positive case and her being out there is a risk to all. We need the public to help us locate her</strong>."</p> <p>&nbsp;</p> <p>Koroma, 32, a resident of the densely populated Wellington neighborhood, had been admitted to an isolation ward while blood samples were tested for the virus, Health ministry spokesman Sidi Yahya Tunis. The results came back on Thursday.</p> <p>&nbsp;</p> <p>"<strong>The family of the patient stormed the hospital and forcefully removed her and took her away</strong>," Tunis said. "<strong>We are searching for her."</strong></p> </blockquote> <p>What is just as bad is that even without this latest shocking development, the death toll from the epidemic has already hit 660 according to the WHO, <a href="">cited by AFP</a>.</p> <p>And now we await news out of the world's fourth largest city, Nigeria's capital Lagos, where a man collapsed at the airport and is now being tested whether he too had Ebola, and we are confused how the market is not trading at fresh all time highs following what is now a recreation of the plot of the movie Outbreak. Just consider how much GDP was created or not destroyed there.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="283" height="178" alt="" src="" /> </div> </div> </div> Reuters Fri, 25 Jul 2014 17:45:53 +0000 Tyler Durden 491731 at Pentagon Says Russia Preparing To Transfer "Powerful Weapons" To Ukraine <p>No red lines, no YouTube clips, no "satellite images" of WMD this time: just more "straight to propaganda" speculation by the Pentagon. From Reuters:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The Pentagon said on Friday the transfer of heavy-caliber multiple-launch rocket systems from Russia to Ukrainian separatists appeared to be imminent with the arms close enough to the border they could be handed over "potentially today."</p> <p>&nbsp;</p> <p>"We have indications that the Russians intend to supply heavier and more sophisticated multiple-launch rocket systems in the very near future," said Army Colonel Steve Warren, a Pentagon spokesman, adding that the weapons were in the over-200mm range.</p> <p>&nbsp;</p> <p>Warren indicated the weapons had been seen getting closer to the border and the Pentagon believed a transfer was imminent and could happen "potentially today."</p> <p>&nbsp;</p> <p>"We believe that they are able to transfer this equipment at any time, at any moment," he said.</p> </blockquote> <p>So Russia "<em>could", </em>"<em>potentially today</em>" transfer rocket launchers to Ukraine. But wait, wasn't the same Pentagon reporting hours ago that Russia is now, with the entire world clearly watching, no longer even pretending to be not engaged and is firing at Ukraine forces directly from its own territory? Why would they stop now? And surely with every US spy satellite trained at east Ukraine, the moment this happens it will be blasted to every media outlet. Right?</p> <p>More:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>A multiple-launch rocket system is a wheeled or tracked vehicle mounted with multiple tubes capable of firing a half dozen or more guided or unguided rockets in quick succession at targets scores of miles (km) away. The rockets are generally 100mm to 300mm, with those over 200mm in the heavier-caliber category.</p> <p>&nbsp;</p> <p>"We're very concerned with the quantity and the capability of weapons flowing from Russia into the Ukrainian separatists' hands," Warren said.</p> <p>&nbsp;</p> <p>"There has been a continuous flow over the last several weeks of weapons and equipment from Russia to Ukraine," he said, noting that the "most egregious example" was a column of more than 100 vehicles crossing the border.</p> <p>&nbsp;</p> <p>The Pentagon's assessment that a transfer of heavy weaponry was imminent came as Russian authorities accused Ukraine of firing a volley of mortar rounds across the frontier into Russia on Friday while a group of investigators was in the area assessing reports of cross-border shooting.</p> <p>&nbsp;</p> <p>A Russian security official said up to 40 mortar bombs fired by Ukrainian forces fell in the Russian province of Rostov near the border where Ukrainian government forces are fighting pro-Russian separatists. There were no reports of injuries.</p> </blockquote> <p>Then there was this:</p> <ul> <li><strong>EARNEST SAYS U.S. TALKING WITH EU ABOUT MORE RUSSIA SANCTIONS</strong></li> </ul> <p>And then, just to hammer home the message that crazy Putin, the "West's Public Enemy Number One" is about to invade Ukraine, we get this from Reuters:</p> <ul> <li>MORE THAN 15K RUSSIAN TROOPS ON UKRAINE BORDER</li> </ul> <p>Ok, we get it: the former KGB spy is on full tilt and deserves every <em>#hashtag </em>the West can unleash. So please activate the sanctions already, those including Gazprom and not the purely theatrical ones to date, and let's all sit back and watch what happens to Europe's economy.</p> <p>In the meantime, due to popular demand, here is some cover art <a href="">courtesy of William Banzai</a>.</p> <p><img src="" width="594" height="772" /></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="646" height="514" alt="" src="" /> </div> </div> </div> Reuters SPY Ukraine Fri, 25 Jul 2014 17:33:28 +0000 Tyler Durden 491744 at David Einhorn On The M&A Bubble And "Dreams" As An Investment Thesis <p>Yesterday, we were <a href="">beyond amused </a>when we reported that the market's response to rumors of Zillow's $2 billion take over of Trulia was not only to push Trulia stock higher by $500 million but send the market cap of incomeless, EBITDAless Zillow higher by $1 billion. It appears we are not the only ones fascinated by the market's reaction to every M&amp;A announcement, which is to send not only the target but the acquiror stock soaring. One other such person is David Einhorn who laments precisely this bubblyness in his just released letter to investors, saying that "takeover season has returned and in a new twist, the buyers’ stock prices are also advancing in response to announced deals, enabling companies, including some of our shorts, to see gains as acquirers – even of other troubled companies."</p> <p>He proceeds to give several examples of how his shorts have worked against him, a trend which as we <a href="">reported first in 2012 </a>will continue indefinitely under a centrally-planned regime in which the Fed is the Chief Risk Officer of the market, and where no price declines are allowed, and thus the need to hedge (which means that going long the most hated, vile, worthless companies will, sadly, by and large continue to be a winning strategy). </p> <p>Still, with a return of 5.2% in Q2 and 7.1% YTD, at least Greenlight is only barely underperforming the market, something that 90% of his hedge fund peers can only dream about. </p> <p>Here are Einhorn's full thoughts on the M&amp;A bubble:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Costly takeovers of our shorts appear to be a cyclical phenomenon: We went from 1996-2003 without incurring a single material loss due to a takeover. <strong>Then in 2006-2007 we had a number of our shorts taken over in rapid succession, </strong>the most costly being Medtronic’s $4.2 billion acquisition of Kyphon at a 32% premium over Kyphon’s already lofty share price. In reviewing historical takeovers of our shorts where we lost money, almost none proved to be good deals for the acquirers.</p> </blockquote> <p>Well, yes: it's called forced capital misallocation for a reason.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Things got quieter again for a few years but now takeover season has returned and is again causing losses in our short portfolio. Companies we are short often have serious problems of which the boards and management are probably aware. This makes them more eager than usual to sell at any sort of premium. The prospective buyers ought to discover these problems during due diligence, which should make them walk away. <strong>But in the current environment, debt financing is so inexpensive that acquirers can pay premiums and have the deals be accretive to EPS, making them more willing to overlook or ignore any problems they discover</strong>.</p> </blockquote> <p>Bingo. </p> <p>And speaking of bubble, here is Einhorn on a topic near and dear to Yellen Capital Advisors, LLC: the tech bubble:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>In our last quarterly letter, we wrote about the bubble in momentum stocks, most of which are in the technology sector. The media latched onto a single sentence embedded in a lengthy discussion about ‘cool kid’ stocks and suggested that we were declaring all technology stocks to be in a bubble. Nothing could be further from the truth. Many of our largest long positions are in technology, and we are not holding them with a cynical view that we want to play a bubble. We believe that stocks including Apple, Lam Research, Marvell Technology and Micron Technology have strong prospects and are undervalued.</p> <p>&nbsp;</p> <p><strong>At the same time, there are a number of tech stocks that are caught up in a smaller version of the 1999-2000 internet bubble, and as we mentioned, we created a bubble basket to short them. </strong>At this year’s Sohn Investment Conference in May, David presented athenahealth (ATHN), a healthcare IT company, as an example of a bubble basket stock. In response to our assertion that the shares are absurdly overvalued, CEO Jonathan Bush summed things up perfectly a few days after the conference when he told Bloomberg TV, “And those who buy our stock should not be sort of bottom [line] watching value investors. They should be people who dream of a health care cloud.” <strong>At Greenlight, dreams do not form the basis of investment theses.</strong></p> </blockquote> <p>How about hope? We only ask, because that seems to be the most profitable and widespread investment strategy over the past 5 years.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="450" height="424" alt="" src="" /> </div> </div> </div> Apple David Einhorn Greenlight None Fri, 25 Jul 2014 17:04:00 +0000 Tyler Durden 491743 at