en The Greferendum Shocker: Tsipras "Intended To Lose" And Is Now "Trapped By His Success" <p>Call it <em>game theory</em> gone horribly <em>chaos theory.</em></p> <p>It all started with a report by the Telegraph's Ambrose Evans-Pritchard, whose release of <em>on the record </em>comments by Yanis Varoufakis (which <a href="">we noted was rather surprising</a>) that Greece was contemplating a parallel currency and potentially nationalizing Greek banks over the weekend, was supposedly the catalyst that got the Greek finmin fired. As a reminder, this is what Varoufakis <a href="">told AEP on Sunday night</a>: "<strong>If necessary... issue parallel liquidity and California-style IOU's, in an electronic form. We should have done it a week ago.</strong>" And this is what the <a href="">WSJ said </a>on Monday morning:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>... the premier decided to act after Mr. Varoufakis told a U.K. newspaper late Sunday that Greece might introduce a parallel currency and electronic IOUs similar to those issued previously in California. Mr. Varoufakis quickly backtracked on his comments to the Daily Telegraph, <strong>but his prime minister had had enough, the people familiar with the matter say.</strong></p> </blockquote> <p>That was the first indication that the wheels had officially come off the Greek wagon. </p> <p>Moments ago, we got confirmation of just that, when in another surprising twist it was again the Telegraph's Evans-Pritchard who reported that the Greek prime minister who decisively and unexpectedly pushed for a referendum on the last weekend of June, <strong>"never expected to win Sunday's referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.</strong>" </p> <p>He got just that, and in a landslide vote at that even though "<strong>he called the snap vote with the expectation - and intention - of losing it."</strong></p> <p>Also according to the Telegraph, "<strong>the plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25th "ultimatum" and suffer the opprobrium</strong>." </p> <p>He had good reason: according to another Varoufakis quote provided by AEP, "<strong>[the Troika] just didn't want us to sign. They had already decided to push us out."&nbsp; </strong>In other words, as we speculated in mid-June, the only question was who gets stuck with the blame, and when Tsipras called the referendum, he made it quite easy for Europe; it was even easier when Greece collectively voted "Oxi" to a referendum spun in Europe as one whether or not to remain in the Eurozone. </p> <p>There is more: with Tsipras having already checked out it was a case of "after me, the flood"</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>This ultimatum came as shock to the Greek cabinet. They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors' cartel of southern EMU states and had seriously misjudged the mood across the eurozone.</p> </blockquote> <p>But it is what happened next that took everyone by surprise: "<strong>Syriza called the referendum. To their consternation, they won, igniting the great Greek revolt of 2015, the moment when the people finally issued a primal scream, daubed their war paint, and formed the hoplite phalanx</strong>."</p> <p>Suddenly the stakes are even higher for Tsipras, who is "<strong>now trapped by his success." </strong>According to Costas Lapavitsas, a Syriza MP, "<strong>the referendum has its own dynamic. People will revolt if he comes back from Brussels with a shoddy compromise</strong>." </p> <p>Ironically, that is precisely why the market soared today after it tumbled early in the morning, because it appeared that the Greek finmin was doing just: accepting a shoddy compromise. Of course, it wouldn't be the first time: the Greeks had come home with "compromise" deals on many previous occasions only to have Syriza tear them apart. And this time the stakes are higher not only for Tsipras but the entire party, which realizes it faces a mutiny by the people, mostly the young ones, those with little to lose, if some 60% of them voted against a deal "at any cost" just to see the government fall back to just such an outcome.</p> <p>The Syriza MP Lapavitsas is correct when he says that&nbsp; "Tsipras doesn't want to take the path of Grexit, <strong>but I think he realizes that this is now what lies straight ahead of him.</strong>" </p> <p>In some ways Tsipras tried to backtrack: "The prime minister was reportedly told that the time had come to choose, either he should seize on the momentum of the 61pc landslide vote, and take the fight to the Eurogroup, or yield to the creditor demands - and give up the volatile Mr Varoufakis in the process as a token of good faith."</p> <p>What would happen if Tsipras did decide to stick it to Europe, launch a parallel currency, sack the legacy central banker and nationalize the insolvent banks? We already laid out the key points previously but here it is again:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>They would "requisition" the Bank of Greece and sack the governor under emergency national laws. The estimated €17bn of reserves still stashed away in various branches of the central bank would be seized. </p> <p>&nbsp;</p> <p>They would issue parallel liquidity and California-style IOUs denominated in euros to keep the banking system afloat, backed by an appeal to the European Court of Justice to throw the other side off balance, all the while asserting Greece's full legal rights as a member of the eurozone. If the creditors forced Grexit, they - not Greece - would be acting illegally, with implications for tort contracts in London, New York, and even Frankfurt. </p> <p>&nbsp;</p> <p>They would impose a haircut on €27bn of Greek bonds held by the ECB, and deemed 'odious debt' by some since the original purchases were undertaken by the ECB to save French and German banks, forestalling a market debt restructuring that would otherwise have have happened. </p> </blockquote> <p>None of that happened, instead Greece is now in full chaos mode.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Events are now spinning out of control. The banks remain shut. The ECB has maintained its liquidity freeze, and through its inaction is asphyxiating the banking system.</p> <p>&nbsp;</p> <p>Factories are shutting down across the country as stocks of raw materials run out and containers full of vitally-needed imports clog up Greek ports. Companies cannot pay their suppliers because external transfers are blocked. Private scrip currencies are starting to appear as firms retreat to semi-barter outside the banking system. </p> </blockquote> <p>However, it is not just Greece which is sliding into total chaos - so is Europe itself, where the splits are becoming so obvious none other than the head of the German Institute for Economic Research said "<a href="">What Is Happening Now Is A Defeat For Germany</a>." </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The entire leadership of the eurozone warned before the referendum that a 'No' vote would lead to ejection from the euro, never supposing that they might have to face exactly this. Jean-Claude Juncker, the European Commission's chief, had the wit to make light of his retreat. “We have to put our little egos, in my case a very large ego, away, and deal with situation we face,” he said.</p> <p>&nbsp;</p> <p>France's prime minister Manuel Valls said Grexit and the rupture of monetary union must be prevented as the highest strategic imperative. "We cannot let Greece leave the eurozone. Nobody can say today what the political consequences would be, what would be the reaction of the Greek people," he said.</p> <p>&nbsp;</p> <p>French leaders are working in concert with the White House. Washington is bringing its immense diplomatic power to bear, calling openly on the EU to put "Greece on a path toward debt sustainability" and sort out the festering problem once and for all.</p> <p>&nbsp;</p> <p>The Franco-American push is backed by Italy's Matteo Renzi, who said the eurozone has to go back to the drawing board and rethink its whole austerity doctrine after the democratic revolt in Greece. He too now backs debt relief for Greece. </p> </blockquote> <p>However, as if oblivious to these terminal developments within her own union, Merkel is already pushing onward and discussing plans for humanitarian aide and balance of payments support for the drachma: if there was any clearer indication that the Eurozone has been an abject failure, it would be the treatment of one of its member states as a 3rd world African banana republic even before it formally withdrew from its quasi-prison.</p> <p>Some within Syriza realize that it is all coming to an end, no matter if the can is kicked one more time (which it increasingly looks like it may be despite the referendum's landslide vote):</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Mr Lapavitsas said Europe's own survival as civilisational force in the world is what is really at stake. "<strong>Europe has not show much wisdom over the last century. It launched two world wars and had to be saved by the Americans," </strong>he said </p> <p>&nbsp;</p> <p><strong>"Now with the creation of monetary union it has acted with such foolishness, and created such a disaster, that it is putting the very union in doubt, and this time there will be no saviour. It is the last throw of the dice for Europe," </strong>he said. </p> </blockquote> <p>... and yet, in the very end, the Greek prime minister who bluffed and unexpectedly won, now appears willing to concede just about everything to Merkel:</p> <ul> <li><strong>TSIPRAS PLEDGES GREEK REFORMS AS PART OF ANY AID DEAL</strong></li> <li><strong>TSIPRAS SAYS GREECE SUBMITTED PROPOSALS TODAY</strong></li> <li><strong>TSIPRAS SAID MORE RESTRAINED IN REQUESTING DEBT RELIEF</strong></li> </ul> <p>And from the president of the European Council:</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">.<a href="">@atsipras</a> committed to present a new request for a programme within the framework set by the ESM Treaty, incl. strict policy conditionality</p> <p>— Donald Tusk (@eucopresident) <a href="">July 7, 2015</a></p></blockquote> <script src="//"></script><p>Because in the end money talks, in this case €120 billion in hijacked unsecured liabilities known "deposits" and politicians walk. As for those millions of Greeks who gave Europe the symbolic middle finger on Sunday, their reaction when they just find out they were sold down the river once again will be all that matters. </p> <p>Yet in the end, Varoufakis' line may again be the most important one: "<strong>they had already decided to push us out." </strong>If true, then as <a href="">Juncker threatened earlier </a>not only will the last day for the Greek government be Monday, but so will the last day for Greece in the Eurozone.</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="553" height="446" alt="" src="" /> </div> </div> </div> Creditors Eurozone Evans-Pritchard Germany Greece Newspaper None White House Tue, 07 Jul 2015 22:32:32 +0000 Tyler Durden 509419 at Why GM Is Back Below Its IPO Price - Pictures From GM's China "Parking Lot" <p>Despite <strong>broad and deep price cuts</strong> introduced earlier in the year, GM&#39;s sales in China were roughly flat in June continuing the streak of weakness since March (when GM changed its reporting to retail sales from wholesale delivery). This is the <strong>weakest start to a year for China auto sales since 2012</strong> and GM&#39;s share price is now back notably below its 2012 IPO price. Judging by the <strong>massive volume of cars &#39;parked&#39; in GM&#39;s Shenyang Liaoning lots</strong>, it is clear that automakers learned nothing from the last &quot;if we build it, they will come&quot; channel-stuffing inventory surging dysphoria that, among other things, led to their last bankruptcy... if only Chinese buyers would take up the credit terms like Americans.</p> <p>GM&#39;s stock is back below its IPO price...</p> <p><a href=""><img height="316" src="" width="600" /></a></p> <p>&nbsp;</p> <p>As sales in China slump... <a href=""><em>(as Reuters reports)</em></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>General Motors Co vehicle sales in China were roughly flat for June as broad price cuts introduced earlier in the year failed to boost demand.</p> <p>&nbsp;</p> <p>GM and its Chinese joint-venture partners <strong>sold 246,066 cars in June, virtually unchanged from the same month a year ago</strong>, the U.S. automaker said in a statement on Monday.</p> <p>&nbsp;</p> <p><strong>That compares with a 4 percent year-on-year drop in May sales and a 0.4 percent dip in April, when the <span style="text-decoration: underline;">automaker switched to reporting retail sales rather than wholesale data for China</span>.</strong></p> <p>&nbsp;</p> <p>GM has largely <strong>failed to counteract sluggish auto sales so far despite slashing prices on 40 models in May by up to 20 percent,</strong> as China&#39;s economy grows at its slowest rate in 25 years. The automaker also faces rapidly shifting tastes among Chinese consumers, now showing a pronounced preference for small, affordable sport-utility vehicles.</p> </blockquote> <p>As it appears there just is no more room to stuff inventories in its Shenyang, Lianing province parking lots&nbsp; (<a href=""><em>as China has become the new car graveyard over the last 3 years</em></a>)</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 387px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 377px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 450px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 395px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 601px; height: 373px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 404px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 601px; height: 449px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 403px;" /></a></p> <p><a href=""><img alt="" src="" style="width: 599px; height: 370px;" /></a></p> <p>*&nbsp; *&nbsp; *</p> <p>And with allthis inventory, sales are a problem...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>For the market overall, sales for January to May rose only 2.1 percent from a year earlier, giving 2015 the slowest start since 2012, </strong>according to the most recent statistics available from the China Association of Automobile Manufacturers (CAAM).</p> </blockquote> <p>And finally, there is an even bigger probelm...</p> <ul> <li><strong>*CHINA PASSENGER CAR SALES HIT BY STOCK-MARKET ROUT, CUI SAYS</strong></li> <li><strong>*CHINESE CANCELLING CAR PURCHASES ON STOCKS ROUT, PCA&#39;S CUI SAYS</strong></li> </ul> <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="802" height="495" alt="" src="" /> </div> </div> </div> Auto Sales China General Motors Reuters Tue, 07 Jul 2015 22:05:34 +0000 Tyler Durden 509413 at Disorderly Collapse - The Endgame Of The Fed's Artificial Suppression Of Defaults <p><a href=""><em>Submitted by Jeffrey Snider via Alhambra Investment Partners</em></a>,</p> <p>The Federal Reserve under Alan Greenspan and then Ben Bernanke has escaped, largely, responsibility for the panic in 2008 mostly because there is no direct link between monetary policy and the housing bubble. <strong>The most stinging criticism that comes out of the era is Greenspan&rsquo;s &ldquo;ultra-low&rdquo; interest rate setting for federal funds, but there is no smoking gun in the form of the &ldquo;printing press&rdquo; or bank &ldquo;reserves.&rdquo;</strong> In fact, bank reserves remain, somehow, the central focus of monetary policy even today when they should be taken for how big a mess the Fed created of the <em>prior</em> bubbles.</p> <p>There is no printing press in the basement of the Marriner Eccles building or even at the Open Market Desk of FRBNY in NYC. <strong>That does not mean, however, that monetary policy is absolved from the center of the biblical expansion of &ldquo;dollar&rdquo; reach and debasement (in both <a href="" target="_blank">definition</a> and scale).</strong> When you look at bank reserves, the immediate reaction, often more visceral than cerebral, is that there should be an enormous bout of inflation by now; that was, in fact, the first public and expressed criticisms of the QE&rsquo;s.</p> <p>That view of &ldquo;reserves&rdquo; conflates what they actually represent. In the operational format alone, reserves are only what the Open Market Desk is doing of monetary policy at that time. In terms of the serial asset bubbles, they represent the onboarding of immense &ldquo;money dealing&rdquo; that took place in the latter 1990&rsquo;s and early and middle 2000&rsquo;s under the <em>implicit</em>&nbsp;but never-tested promises of monetary policy. <u><strong>In other words, the rise in reserves now was only to make explicit, in arrears, what was expected from bank balance sheets during the bubbles themselves.</strong></u></p> <p><a href=""><img alt="ABOOK July 2015 Fed Bubble Reserves" class="aligncenter size-full wp-image-31315" src="" style="width: 601px; height: 355px;" /></a></p> <p><strong>In that respect, the increase in reserves post-crisis was not to unleash new inflation, consumer or asset, but rather to enumerate, and only partially, what it took to get<em> past</em> inflation going and maintaining. </strong>The Fed was only, through the QE&rsquo;s, taking belated ownership of that which it implicitly aided of past &ldquo;dollar&rdquo; existence. Linking monetary policy to that inflation was not just the federal funds rate, but how that &ldquo;communication&rdquo; (as Janet Yellen tells it) was used in actual &ldquo;money supply&rdquo; circumstances.</p> <p>In March 2007, Richard Claiden, CFO of Primus Guaranty, delivered a presentation at the Richmond Fed&rsquo;s <a href="" target="_blank">Credit Markets Symposium</a> that showed this monetary linkage in unequivocal detail. Credit spreads on the Dow Jones OTR 5-year CDX had fallen from near 80 bps in early 2003, at the bottom of the dot-com &ldquo;cycle&rdquo;, to almost 30 bps by early 2007.</p> <p><a href=""><img alt="ABOOK July 2015 Fed Bubble DJ CDX" class="aligncenter size-full wp-image-31314" src="" style="width: 601px; height: 382px;" /></a></p> <p><strong>The reason for that massive compression was what is familiar to any financial observer of the post-QE3 environment. </strong>Not only did Mr. Claiden refer to a &ldquo;reach for yield&rdquo; in March 2007 he also quantified what is perhaps the least appreciated aspect of wholesale monetary influence: clustering defaults.</p> <p><a href=""><img alt="ABOOK July 2015 Fed Bubble Fed" class="aligncenter size-full wp-image-31313" src="" style="width: 600px; height: 410px;" /></a></p> <p>In the attempt to diminish the influence of the business cycle, the Fed uses monetary policy to influence bank and bond investors with regard to liquidity and risk. <u><em><strong>One of the major expressions of that is to artificially induce default clusters; there was a massive default wave in the nascent wholesale finance industry out of the dot-coms but then a serious absence of persisting defaults despite a relatively weak recovery thereafter. </strong></em></u>That disparity is covered by monetary policy influence which, in addition to &ldquo;reach for yield&rdquo; via rate repression, keeps many weaker businesses afloat long past the point at which they &ldquo;should&rdquo; fail. That isn&rsquo;t, however, a permanent reduction of what orthodox economics perceives of a negative factor (when in fact it might rather be recognized, rightfully, as necessary creative destruction) only a temporary assuagement of defaults that instead cluster into the next cycle &ndash; which happened to be, not by coincidence, much, much bigger.</p> <p>Mr. Claiden and Primus were no outside observers to this problem, and his firm was expecting an uptick in spreads as mortgage problems grew somewhat more acute. The founder of Primus was the man who practically invented the swap, or at least the standardized version of it that became the bedrock of the entire derivatives industry. In May 2007, Tom Jasper, the CEO who in 1985 launched and became the first co-chairman of ISDA, was &ldquo;toasting&rdquo; <a href=";sid=aAqPKpl2zjkg" target="_blank">to wider credit spread</a>s and a much fatter return for Primus. The mortgage problems, he figured, would be grand for Primus&rsquo; main business which was <em>writing credit protection</em>.</p> <p><strong>Because spreads were so thin and had grown thinner throughout Greenspan&rsquo;s &ldquo;conundrum&rdquo;, Primus was forced (in their profit models) to lever up significantly. </strong>At the end of 2005, the company, which was a publicly-traded and listed stock, reported a total swaps portfolio of single name entities of $13.4 billion, a 28% increase over the end of 2004. That $13.4 billion came upon a base of just $69 million in cash and $560 million in available-for-sale securities. That was 21x leverage.</p> <p><strong>By the time Bear Stearns had failed, Primus had $24.3 billion in swaps and just $774 million in cash and assets; or 31x leverage.</strong> Since Primus only sold protection on &ldquo;high quality&rdquo; companies, in other words those with the highest ratings, there was little perceived risk even with spreads thought to be rising in 2007. In fact, a good proportion of the protection was written against financial firms, meaning the <em>largest banks including Lehman</em>. As you would expect, the firm nearly went bankrupt by October 2008 and the panic, but survived long enough to be finally and fully unwound last year (again, models and math that were no match for reality). Mr. Jasper left the firm in 2010.</p> <p><strong>While the current state of Primus&rsquo; liquidation gives us <a href="" target="_blank">another anecdote</a> about the eurodollar decay post-crisis, it was its buildup that turned monetary policy into actual money supply as it is/was understood and used in the eurodollar/wholesale model.</strong> Those credit default swaps that Primus was supplying at dirt cheap spreads allowed, artificially and mistakenly, other financial firms and banks to reduce risk in their credit portfolios &ndash; at least that was the way it was calculated in their models which translated directly into real financial power or what passes for money these days. That meant those firms, through the &ldquo;supply&rdquo; of risk absorption provided by Primus and others, could invest, warehouse and hold much more in terms of par and notional credit for a given &ldquo;capital&rdquo; base &ndash; the math became the means by which credit expanded so precipitously, traded as exchanged liabilities often in the form of derivative contracts.</p> <p><a href=""><img alt="ABOOK June 2015 BIS Gross Notional CDS" class="aligncenter size-full wp-image-31152" src="" style="width: 601px; height: 357px;" /></a></p> <p>Without that supply, including and especially during the panic, the Fed has been forced to take over money dealing more directly, turning out numerical bank reserves in place of what was before just unspecified and held off-balance sheet, but very real, balance sheet capacity. <strong>The more the Fed suppressed via its interest rate measure, the more leverage firms like Primus had to supply to be profitable (or as profitable as their models demanded) &ndash; at the end of 2005, that 28% increase in the swap portfolio was how the firm increased ROE to 15%. </strong>If spreads had been more in line with actual economic reality, Primus may not have &ldquo;needed&rdquo; to use as much leverage and the &ldquo;supply&rdquo; of risk absorption capacity may have instead been itself reduced, halting even somewhat the massive expansion of subprime and others (since Primus was offering a great deal of swaps on financial firms, especially the bigger banks, those CDS were likely used as hedges against credit structures, including subprime, that were offered/sponsored by those very same firms; in other words, there is a great likelihood that Primus risk capacity was <em>directly</em> related to the subprime mortgage blowout, both up and then down).</p> <p><strong>Nobody apparently learned much from the whole bubble-bust affair as banks and financial firms are at it again, this time in corporate debt.</strong> The artificial suppression of default, in no small part to <em>perceptions</em> of those bank reserves under QE (just like perceptions of balance sheet capacity pre-crisis), has turned junk debt into the vehicle of choice for yet another cycle of &ldquo;reach for yield.&rdquo; The supply, this time, is far less of the eurodollar variety and more through mutual funds &ndash; less banking, more personal sector. That may sound somewhat more comforting except that it is the weakened, perhaps fatally, eurodollar state that is, in the end, expected to support the whole corporate morass when the default cycle inevitably runs its course and the artificial cluster reappears. As retail investors might likely flee against expectations they never apparently conceived but should have given <em>recent</em> history, there won&rsquo;t be much, if any, balance sheet capacity to boost appetites toward an orderly transition.</p> <p><strong>In the past two bubble cycles, we see how monetary policy creates the conditions for them but also in parallel for their disorderly closure.</strong> It isn&rsquo;t money that the FOMC directs but rather unrealistic, to the extreme, expectations and extrapolations. Once those become encoded in financial equations, the illusion becomes real supply. <strong>In that way, it appears as if central banks hold great power but little responsibility. The pathology, however, is there and apparent to any and all inquiry. </strong>All that is required is a contemporary frame of reference, including what and where the printing press is and resides.</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="579" height="330" alt="" src="" /> </div> </div> </div> Alan Greenspan Bear Stearns Ben Bernanke Ben Bernanke Bond CDS Central Banks Credit Default Swaps default EuroDollar Fail Federal Reserve Finance Industry Housing Bubble Janet Yellen Lehman Monetary Policy Money Supply Primus ratings Reality recovery Richmond Fed Tue, 07 Jul 2015 21:40:00 +0000 Tyler Durden 509412 at When Does The Chinese Carnage Stop? (In 3 Charts) <p><strong>Chinese investor psychology has shifted. Period.</strong> The more the government intervenes to lift stock prices explicitly, the more local and professsional leveraged investors will use any strength to unwind their positions (profitably or unprofitably). The question is - <strong><em>when does this carnage stop?</em></strong></p> <p>&nbsp;</p> <p><strong>Exhibit 1 - Based on 'fundamentals', </strong>The Shanghai Composite has a long way to go...</p> <p><a href=""><img src="" width="600" height="316" /></a></p> <p>&nbsp;</p> <p><strong>Exhibit 2 - If Dr. Copper is right about the state of the world,</strong> The Shanghai Composite won't find support until it has fallen another 60%...</p> <p><a href=""><img src="" width="600" height="313" /></a></p> <p>&nbsp;</p> <p><strong>Exhibit 3 - Judging by historical analogs,</strong> The Shanghai Composite will need to destroy all gains in the last 2 years before 'value' is once again seen...</p> <p><a href=""><img src="" width="600" height="317" /></a></p> <p>&nbsp;</p> <p>But apart from that, this must be a buying opportunity, right?</p> <p><a href=""><img src="" width="600" height="317" /></a></p> <p>&nbsp;</p> <p> Because if you don't buy the dip, you're a f##king idiot...</p> <p><iframe src="" width="480" height="360" frameborder="0"></iframe></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="961" height="506" alt="" src="" /> </div> </div> </div> Copper Tue, 07 Jul 2015 21:15:00 +0000 Tyler Durden 509411 at Merkel Mocks Greece And The Referendum: There Is Money, But The Deal Is Much Harsher Now (And No Debt Haircut) <p>Another day came and went with no breakthrough in negotiations between Athens and Brussels as new Greek FinMin Euclid Tsakalotos&nbsp;reportedly showed up to Tuesday's Eurogroup with nothing to discuss.&nbsp;</p> <p>With the ECB tightening the screws on Greek banks and the German finance ministry as well as German lawmakers tightening the screws on Angela Merkel, the Chancellor is drawing a hard line toward the Greeks in the face of calls for debt writedowns from the IMF, Greek PM Alexis Tsipras and the Greek people.&nbsp;</p> <ul> <li><span style="font-size: 1em; line-height: 1.3em;">MERKEL SAYS IF GREEK REFORM PROPOSALS ARE SATISFACTORY AND PRIOR &nbsp;ACTIONS TAKEN, SHORT-TERM FINANCE CAN BE PROVIDED: RTRS</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">MERKEL SAYS SHORT-TERM GREEK FIX HINGES ON LONG-TERM PROPOSALS</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">MERKEL SAYS GREECE NEEDS MULTI-YEAR PROGRAM&nbsp;</span></li> <li><strong><span style="font-size: 1em; line-height: 1.3em;">MERKEL: GREEK PROPOSALS HAVE TO GO BEYOND WHAT BAILOUT INSTITUTIONS DEMANDED BEFORE REFERENDUM</span></strong></li> <li><span style="font-size: 1em; line-height: 1.3em;">MERKEL SAYS GREECE WILL NEED STRONGER MEASURES TO PLUG FINANCING GAP BECAUSE OF ECONOMIC DETERIORATION</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">MERKEL: EU TO DEAL WITH GREEK DEBT BURDEN AT END OF PROCESS</span></li> <li>MERKEL SAYS EURO LEADERS DIDN'T DISCUSS AID PACKAGE SIZE</li> <li><strong>MERKEL SAYS SHE ISN'T 'ESPECIALLY OPTIMISTIC' ABOUT GREECE</strong></li> <li><strong>MERKEL RULES OUT DEBT 'HAIRCUT'</strong></li> <li><strong>MERKEL SAYS ECB BRIEFING SIGNALED GREECE NEEDS SUNDAY DECISION</strong></li> </ul> <p>More from Reuters:&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>German Chancellor Angela Merkel said on Tuesday she hoped to have sufficient reform proposals from Greece this week to be able to ask the German parliament to approve negotiations on a new long-term aid programme for Athens.</em></p> <p>&nbsp;</p> <p><em>She said all 28 European Union leaders would meet next Sunday to discuss support for Greece provided Prime Minister Alexis Tsipras put forward detailed reform proposals along with a loan request by Thursday that were considered satisfactory.</em></p> <p>&nbsp;</p> <p><strong><em>If the reform list was adequate and Greece took some prior actions to enact first measures, Merkel said she was sure that short-term finance could be provided to help Athens over its immediate funding needs.</em></strong></p> </blockquote> <p>In other words, Merkel just told the Greeks yes, there is some money, but forget debt haircut, and the new deal is far harsher than what was on the table because the Greek economy is now imploding. Also, the deal will be 2-3 years at least to start, so even more austerity is on the table. So to all those who voted "Oxi", if you want your deposits unlocked well... tough.</p> <p>The headlines keep coming hot and heavy, in which we find that Europe now thinks it is Greece's god:</p> <ul> <li><strong>MALTA'S MUSCAT SAYS `SUNDAY IS JUDGMENT DAY'</strong></li> </ul> <p>As <a href="">Bloomberg reports</a>, "Sunday now looms as the climax of a five-year battle to contain Greece’s debts, potentially splintering a currency that was meant to be irreversible and throwing more than a half-century of economic and political integration into reverse. “We have a Grexit scenario prepared in detail,” European Commission President Jean-Claude Juncker said, using the shorthand for expulsion from the now 19-nation currency area.</p> <p>And just so it is clear who is calling the shots, here is Juncker explaining:</p> <ul> <li><strong>JUNCKER: LAST MOMENT FOR GREEK GOVT WILL BE MONDAY MORNING</strong></li> </ul> <p>What happens then?</p> <p><strong>"Our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system,”</strong> European Union President Donald Tusk said. “<strong>If someone has any illusions that it will not be so, they are naive."</strong></p> <p>And just in case Greece decides to disobey, Europe is ready to treat Greece as an African nation:</p> <ul> <li><strong>JUNCKER: EU COMMISSION HAS HUMANITARIAN PLAN FOR GREECE IF NEED</strong></li> </ul> <p>The only good news for Greece, which was just clearly reduced to a vassal nation state of Europe, is that Merkel did not demand Tsipras' head on a silver platter. Then again, if he does indeed fold, it may be the Greek people themselves who ask for it instead...</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="505" height="315" alt="" src="" /> </div> </div> </div> European Union Greece headlines Reuters Tue, 07 Jul 2015 20:52:19 +0000 Tyler Durden 509410 at Thoughts On Greece ... From Zimbabwe <p>Late last month, after Greek PM Alexis Tsipras’ announcement that a referendum would be held on the terms of the country’s bailout, <a href="">we noted</a> that sadly, the supermarkets in Greece were beginning to resemble those of Venezuela as Greeks, anticipating an impending shortage of imported goods, stocked up on food staples:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Many of the visuals and stories that emanate from Venezuela are to be expected, and are generally in line with the transformation of any normal nation to a socialist utopia. None however, are more poignant than the images of supermarkets and grocery stores that have been ransacked empty as a result of the collapsing currency, devastated supply chains and soaring inflation (supermarkets which have since imposed fingerprint scanners in what is no longer capital but food controls). <strong>We are sad to announce that what was once a Venezuela trademark has now transitioned to a country that until recently was among the most developed nations in the west: Greece.</strong> In clear rejection of Tsipras' plea for calm, the Greek population stormed (now empty) ATMs, grocery stores and gas stations as they scrambled to obtain, or convert, paper currency into tangible products.&nbsp;</em></p> <p>&nbsp;</p> <p><em><img src="" width="365" height="258" /><br /></em></p> </blockquote> <p>Now, with a depositor bail-in looking more likely by the day, and with redenomination risk rising materially, Greece is drawing unflattering comparisons to another country which knows the depths of economic despair all too well: Zimbabwe.&nbsp;</p> <p>Presented below is <a href="">a letter from writer, blogger, and Zimbabwean Cathy Buckle</a>.</p> <p>* &nbsp;* &nbsp;*</p> <p>Dear Family and Friends,</p> <p>Seeing pictures of hundreds of people crowded around banks in Greece desperate to withdraw their own money from the banks has sent cold but sympathetic shivers down our spines here in Zimbabwe. <strong>Greek banks closed for a week, cash withdrawals from ATM’s restricted to a limited amount per person per day is all too familiar to Zimbabweans. We know exactly how this feels: the fear, anger, despair and disbelief that goes with watching your life savings evaporating and knowing there’s nothing you can do to save it.</strong> &nbsp;How well we remember standing for hours at the banks and then only being able to draw out enough money to buy a single bar of soap.</p> <p>Zimbabwe has the dubious honour of being able to say “been there, done that” to almost every bad governance and economic crisis you can think of. &nbsp;It’s been six years since Zimbabwe discontinued using the Zim dollar and began trading in the US dollar &nbsp;and a few other international currencies but for the last few weeks we’ve been doing all the sums again, counting the zeroes and seeing if there’s anything we can salvage from our lost life savings. &nbsp;</p> <p>When an announcement came in June that the old Zimbabwe dollar was to be demonetized there was a frenzy of rumours that this meant a new Zimbabwe dollar was going to be introduced. A return to the Zim dollar, old or new, is still probably the biggest fear of all Zimbabweans. As bad as things are for people now, at least we have an internationally accepted currency in our pockets and not a worthless currency which isn’t backed by gold reserves, which can be printed at will by an unaccountable government.&nbsp;</p> <p>People outside of Zimbabwe have never really understood how we woke up one morning in February 2009 and found that all our bank balances had been reduced to zero. Regardless of whether we had millions, billions, trillions, &nbsp;septillions or even octillions of Zim dollars in our accounts, it had all gone. Suddenly our bank balance was just ZERO and we were told to reactivate our accounts by depositing US dollars. Exactly the same thing applied to the huge piles of Zim dollars we had in boxes and bags in our homes : it had all become valueless paper, eroded to almost nothing by super-hyper-inflation and then suddenly worth ZERO.</p> <p>It’s taken six years for the government of Zimbabwe to put a value on the money that turned to ZERO in 2009 and frankly for most people, who had become paupers through hyperinflation anyway, it’s a pointless exercise. The Central bank announced that bank accounts with balances up to 175 quadrillion Zimbabwe dollars will be paid a flat amount of five US dollars; yes, just five US dollars. Bank balances of over 175 quadrillion will be paid at what we are told is the UN exchange rate of US$1 for every 35 quadrillion Zim dollars. <strong>(That’s US$1 ; Z$1,000,000,000,000,000 ) Cash customers can apparently walk into banks with their old Zim dollar notes and will, with “no questions asked,” &nbsp;get US$1 for Zim$250 trillion. &nbsp;For most of us the cost of the taking old notes to the bank will be more than the US cents we get back in our pockets.</strong></p> <p>There is a “demonetization window” from the 15th June to the 30th September to exchange every 35 quadrillion Zim dollars we have into one US dollar and after that the Zim dollar will be officially dead, no longer legal tender.</p> <p>The Central Bank announcement says : “Demonitization is not compensation for the loss of value of the Zim $ due to hyper inflation, it is an exchange process.” &nbsp;Compensation is a dirty word in Zimbabwe’s governance system &nbsp;and it doesn’t apply at any level from farm seizures to compulsory 51% indigenization shareholdings to loss of life savings and pensions in hyper inflation.</p> <p>Looking at the conversion chart and seeing that I can get 0.04 US cents for every 10 trillion dollar note that I have, leaves my head swirling as lines of zeroes mount up on the page. &nbsp;Is that a trillion, quadrillion or octillion I ask myself? <strong>I decide I’d rather keep the old bank notes in the cupboard so that I never forget what my government reduced me to after they’d stolen my farm and declared my Title Deeds null and void.</strong> So that I’d never forget what bad governance could do to a nation of &nbsp;ten million people or how many thousands died needlessly while trying to survive Zimbabwe’s collapse.</p> <p>Until next time, thanks for reading, love cathy.&nbsp;</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="500" height="318" alt="" src="" /> </div> </div> </div> Greece Hyperinflation None Z.1 Tue, 07 Jul 2015 20:29:48 +0000 Tyler Durden 509409 at Dow Swings 670 Points In V-Shaped-Hope-Recovery Despite Commodity Carnage <p>Dude....</p> <p><iframe allowfullscreen="" frameborder="0" height="315" src="" width="560"></iframe></p> <p>*&nbsp; *&nbsp; *</p> <p><strong>This happened... </strong>Remember Greece doesn&#39;t matter...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 340px;" /></a></p> <p>&nbsp;</p> <p>The Dow dropped 350 points from its overnight highs to stop almost perfectly at the close of Europe (1130ET) and then abruptly rallied a stunning 320 points back...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 357px;" /></a></p> <p>&nbsp;</p> <p>The S&amp;P tested Sunday night&#39;s lows and the 200DMA before exploding higher...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 445px;" /></a></p> <p>&nbsp;</p> <p>Who could have seen that coming?</p> <blockquote class="twitter-tweet" lang="en"><p dir="ltr" lang="en">&quot;Greek deal&quot; rumors upcoming, rejections imminent</p> <p>&mdash; zerohedge (@zerohedge) <a href="">July 7, 2015</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>&nbsp;</p> <p>On the day, cash indices reversed perfectly on Europe&#39;s close...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 516px;" /></a></p> <p>&nbsp;</p> <p>Leaving stocks mixed on the week, with Nasdaq underperforming...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 509px;" /></a></p> <p>&nbsp;</p> <p>It appears that Oil was the momo igniter for stocks...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 320px;" /></a></p> <p>&nbsp;</p> <p>And VIX briefly hit a 15 handle - well below Thursday&#39;s closing levels...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 732px;" /></a></p> <p>&nbsp;</p> <p>Bear in mind that Greek stocks did not partake in the idiocy... but once US stocks astrted to roll, Greece caught up (so now we are seeing US equities lead Greek stocks fundamentally higher!!!)</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 314px;" /></a></p> <p>&nbsp;</p> <p>As US Stocks ramp was all EURJPY-driven once again (just like yesterday)</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 337px;" /></a></p> <p>&nbsp;</p> <p>Note that post-Tsipras&#39; &quot;Greferendum&quot; announcement, Bonds remain the big winners...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 469px;" /></a></p> <p>&nbsp;</p> <p>Treasury yields plunged early as shorts squeezed and safety was bid but once Europe closed... sell sell sell...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 315px;" /></a></p> <p>&nbsp;</p> <p>The US Dollar collapsed into the close as EURUSD surged (for now good reason) and as we noted above EURJPY was running stocks today...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 317px;" /></a></p> <p>&nbsp;</p> <p>It&#39;s pretty clear what (or who) was helping things along...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 316px;" /></a></p> <p>&nbsp;</p> <p>Commodity prices plunged early on (led by crude and silver)</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 317px;" /></a></p> <p>Oil prices carnaged early on, then bounced after EIA data suggested higher demand and chatter that the Irtan deal talks were falling apart (and Europe&#39;s close)...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 431px;" /></a></p> <p>&nbsp;</p> <p>As a reminder, shale stocks have been collapsing since Einhorn tried to bury PXD... (but they all v-shape recovered today)</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 518px;" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></p> Crude Greece Momo NASDAQ Tue, 07 Jul 2015 20:05:10 +0000 Tyler Durden 509408 at Faber: “Wake Up, People of the World! Greece Will Come to You …Very Soon” <p><strong><a href="">Faber: “Wake Up, People of the World! Greece Will Come to You …Very Soon”</a></strong></p> <p><strong>- World is “over-indebted”, Mark Faber tells Bloomberg</strong><br /><strong>- “Defaults will follow or they will have to create very high inflation rates”</strong><br /><strong>- Greece will leave EU or Troika will take 50% “haircut”</strong><br /><strong>- Leaving EU may be Greece’s best option</strong><br /><strong>- Anti-Austerity groups in other countries will be bolstered by Greek defiance – may have negative impact on bonds</strong><br /><strong>- Recent stock market weakness due to weak global economy rather than Greece</strong><br /><strong>- Chinese economy weak, markets could fall further</strong><br /><strong>- Central banks to use Greece and China as excuse to maintain loose policy</strong><br /><strong>- Faber is long-time advocate of holding physical gold</strong></p> <p><a href=""><img src="" alt="goldcore_chart2_07-07-15" width="600" height="357" /></a></p> <p>“Wake up, people of the world and investors! Greece will come to your neighbourhood very soon, maybe not this year but next year or whenever…because the world is over-indebted and defaults will follow or they’ll have to create very high inflation rates”.</p> <p>This was Mark Faber’s message to Bloomberg viewers in an interview yesterday.</p> <p>In the course of the interview the editor of the Gloom, Doom and Boom report said that if Greece were to leave the EU it would “suffer badly for a few months, maybe longer” due to a shortage in cash but that ultimately it might be in its interest to do so because they would be “basically debt free”. The economy would crash “but the economy has already plunged as a result of the measures and the over indebtedness they have”.</p> <p>The alternative, as he sees it, is that the Troika will have to make a significant compromise. “Tsipras has proposed a haircut of something like 30%. I don’t think that’s enough, i think they will need a haircut of at least 50%”, he said. He believes that there should be debt forgiveness but the “bloated” Greek government needs to be trimmed or the problem will resurface in the future.</p> <p>Bonds of weaker nations in Europe have weakened following the Greek referendum because it is believed anti-austerity groups in Spain, Italy and Portugal will be emboldened by the Greek display of defiance. “Greece may be the first country to actually oppose the measures imposed on them by the ECB, by the EU and also by the IMF and more countries may follow”. He points out that “where you have a borrower you also have a lender” and criticises the ECB’s reckless lending to Greece “partly to bail out its own banks”.</p> <p>He also points out that he thinks recent stock market weakness is more a function of a weakening global economy, particularly in China, than events in Greece. Chinese markets have plunged over 30% since June 12th having doubled in the preceding year. Faber predicted a 40% correction prior to the crash and still holds that view. He believes export figures from its local trading partners into China indicate that Chinese economic growth is now around 4% – “but that’s the maximum”.</p> <p>He believes that the Fed and the ECB will use the problems in Greece and China to delay raising rates and to print “even more money” respectively although he does not see their actions as having any benign effect on the real economy.</p> <p>Marc Faber is a long-time advocate of owning physical gold which action he describes as being “your own central bank”. If his predictions are correct – that defaults and/or very high inflation are on the horizon globally an allocation to gold is academically proven to serve as vital financial insurance.</p> <p><strong>Must-read guide:&nbsp;<a href="">Gold Is A Safe Haven Asset</a></strong></p> <p>&nbsp;</p> <p><strong>MARKET UPDATE</strong></p> <p>Today’s AM LBMA Gold Price was USD 1,166.25, EUR 1,063.22 and GBP 752.10 per ounce.<br />Yesterday’s AM LBMA&nbsp;<a href="">Gold Price</a>&nbsp;was USD 1,164.25, EUR 1,053.43 and GBP 748.43 per ounce.</p> <div id="attachment_3370"><a href=""><img src="" alt="Gold in USD - 5 Day" width="610" height="389" /></a> <p><em>Gold in USD – 5 Day</em></p> </div> <p>Gold climbed $3.30 or 0.28 percent yesterday to $1,168.90 an ounce. Silver rose $0.04 or 0.26 percent to $15.69 an ounce.</p> <p><a href="">Gold in Singapore</a>&nbsp;for immediate delivery edged down 0.1 percent to $1,168 an ounce near the end of the day.</p> <p>Gold remained firm in spite of the lack of strong safe haven bids despite the Greek “no” vote.</p> <p>Greece will be given yet another chance to propose new reforms to their creditors today in Brussels.</p> <p>A failure to meet an agreement means an exit from the euro.</p> <p>German Chancellor Angela Merkel has stated that time is running out for the Greeks.</p> <p>In late morning trading gold is down 0.35 percent at $1,165.23 an ounce. Silver is down 0.70 percent at $15.60 an ounce and platinum is also down 0.75 percent at $1,053.00 an ounce.</p> <p><strong>Breaking News and Research&nbsp;<a href="">Here</a></strong></p> <p><strong style="font-family: 'Lucida Grande', Verdana, sans-serif; font-size: 13.3333330154419px; line-height: 17.3333320617676px;"><span style="font-size: 1em; line-height: 1.3em;">Follow GoldCore on&nbsp;</span><a href="" style="font-size: 1em; line-height: 1.3em;">Twitter</a><span style="font-size: 1em; line-height: 1.3em;">,&nbsp;</span><a href="" style="font-size: 1em; line-height: 1.3em;">Facebook</a><span style="font-size: 1em; line-height: 1.3em;">,&nbsp;</span><a href="" style="font-size: 1em; line-height: 1.3em;">LinkedIn</a></strong></p> Central Banks China Creditors Global Economy Greece Italy Marc Faber Portugal Twitter Twitter Tue, 07 Jul 2015 20:03:14 +0000 GoldCore 509407 at Is It Really Different This Time? <p><a href=""><em>Submitted by Lance Roberts via STA Wealth Management</em></a>,</p> <div class="highslide-gallery"> <p>This morning, as I settled in to begin my morning research routine, I was greeted by an email containing a speech delivered at the University of California. The opening paragraph immediately grabbed my attention:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;The stock market has been advancing with only one significant setback throughout the decade...It has thus established a new record for the length of its rise, although it has not equaled the extent of the record advance of the 1920&#39;s: 450 percent from 1921-1929.</p> <p>&nbsp;</p> <p>What does this phenomenal upward movement portend for investors and speculators in the future? There are various ways of approaching this question. To answer it, I shall divide the question into two parts. <strong>First, what indications are given us by past experience? Second, how relevant is past experience to the present situation and prospects?&quot;</strong></p> </blockquote> <p>The issue of past experience, known as &quot;<a href="">recency or anchoring bias,</a>&quot; is one of the primary factors that has the greatest effect on investor returns over time. As stated in the speech:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;However, in order to judge today&#39;s market level, it is desirable, perhaps essential, to have clear picture of its past behavior. <strong>Speculators often prosper through ignorance;</strong> it is a cliche that in a roaring bull market knowledge is superfluous and experience a handicap. <strong>But the typical experience of the speculator is one of temporary profit and ultimate loss.&quot;</strong></p> </blockquote> <p>The importance of that statement is that most individuals extrapolate past performance indefinitely into the future. This tendency is what leads investors to <em>&quot;buy high and sell low.&quot;</em> This psychology is displayed in the following chart.</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Investor-Psychology-Cycle-082814"><img alt="Investor-Psychology-Cycle-082814" class="i_want_img5" src="" style="height: 345px; width: 600px;" /></a></p> <p>The two questions that must be answered are whether this is just a bull market or some sort of <em>&quot;new market&quot;</em> that will defy all previous experiences?</p> <p>If this is just a bull market, then the term itself suggests that it is just the first half of a full-market cycle and that eventually a bear market will follow. The chart below shows the history of full market cycles going back to 1900.</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Full-Market-Cycles"><img alt="Full-Market-Cycles" class="i_want_img5" src="" style="width: 601px; height: 382px;" /></a></p> <p>Historically, full market cycles have finished when prices complete a <em>&quot;mean reverting&quot;</em> process by falling well below the long-term mean. Since the beginning of the secular bull market in the 1980&#39;s that full &quot;mean reverting&quot; process has not yet been completed due to the artificial interventions by Central Banks to prop up asset prices.</p> <p>There is an argument to be made that this is could indeed be a <em>&quot;new market&quot;</em> given the continued interventions by global Central Banks in a direct effort to support asset prices. However, despite the coordinated efforts of Central Banks globally to keep asset prices inflated to support consumer confidence, <strong>there is plenty of historic evidence that suggest such attempts to manipulate markets are only temporary in nature.</strong></p> <p><a href="">Beijnath Ramraika and Prashant Trivedi </a>recently discussed this topic showing a chart of the rate of change for the S&amp;P 500 index over a 75-month period which is the length of time of the current market advance from the financial crisis lows. I have reproduced the chart below with some modifications. I have used a 72-month rolling rate of change of the real, inflation-adjusted, return of the S&amp;P 500 index from 1900 to present. I have also overlaid that with the actual real S&amp;P 500 index (log-2 basis). This more clearly shows that from current peaks of the long-term rate of change in the index, forward market returns have become less desirable.</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="SP500-Real-72mth-ROC-070715"><img alt="SP500-Real-72mth-ROC-070715" class="i_want_img5" src="" style="height: 328px; width: 601px;" /></a></p> <p>Their conclusion is simple:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;Clearly, the current rate of change is in extreme territory and is exceeded only by three other market up-moves: the roaring bull market of twenties leading into the Great Depression, the bull market of the fifties and the technology boom. Further, the trajectory of the up-move is similar to that of the market leading into the highs of 1929 and the highs in 1983.</p> <p>&nbsp;</p> <p>We have had a market on potent steroids.&quot;</p> </blockquote> <p>Such extreme movements in prices over a relatively short period, regardless of underlying circumstances, have all had similar outcomes. Consequently, investors should expect a similar outcome in the future. However, in the short-term psychology tends to overtake more logical thought processes as the &quot;need for greed&quot; keeps investors at the table long after the <em>&quot;cards have turned cold.&quot;</em></p> <p>Valuations also provide similar evidence that the current market is most likely no different than previous bull market cycles. <a href=";utm_medium=feed&amp;utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29">Sam Ro at Business Insider</a> recently posted the following bit of analysis:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;The forward price/earnings (PE) ratio &mdash; the price of the S&amp;P 500 divided by the expected earnings of those S&amp;P 500 companies &mdash; is probably the most popular way to measure value in the stock market.</p> <p>&nbsp;</p> <p>In theory, it tells us if the market is cheap or expensive relative to some long-term average.</p> <p>&nbsp;</p> <p>Unfortunately, it is horrible at signaling where the market will go in the near-term, like in the next year. This is not news.&quot;</p> </blockquote> <p>Sam is correct. In the very short-term, valuations are a horrible market timing metric due to the psychological impact of investor behavior on the markets.</p> <p>However, as shown in the series of charts below <strong>(compiled by my colleague Nan Lu)</strong>, valuations can tell us much about what we should expect as investors over the longer term. The charts below are the total dividend reinvested returns of the inflation adjusted S&amp;P 500 index.</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Valuation-ForwardReturn-10yrs-070715"><img alt="Valuation-ForwardReturn-10yrs-070715" class="i_want_img5" src="" style="height: 366px; width: 601px;" /></a></p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Valuation-ForwardReturn-15yrs-070715"><img alt="Valuation-ForwardReturn-15yrs-070715" class="i_want_img5" src="" style="height: 366px; width: 600px;" /></a></p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Valuation-ForwardReturn-20yrs-070715"><img alt="Valuation-ForwardReturn-20yrs-070715" class="i_want_img5" src="" style="height: 368px; width: 600px;" /></a></p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Valuation-ForwardReturn-25yrs-070715"><img alt="Valuation-ForwardReturn-25yrs-070715" class="i_want_img5" src="" style="height: 365px; width: 600px;" /></a></p> <p>Not surprisingly, the expected total inflation-adjusted returns from currently high levels of valuation have historically been disappointing relative to what investors had witnessed previously.</p> <p>Importantly, the charts above <strong>DO NOT mean that EVERY year will be a low return.</strong> What history suggests is that <strong>forward returns will be much more volatile with periods of significant drawdowns</strong> that will comprise a total long-term return at lower levels. Unfortunately, most investors will not survive to see that outcome.</p> <p>This was a point made within the speech:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;Now, what can past experience tell us about the validity and dependability of this rosy view as to the future of business and common stocks? Its verdict cannot be conclusive, because NO prediction, whether of a repetition of past patterns or of a complete break with past patterns, can be proved in advance to be right.</p> <p>&nbsp;</p> <p>Nevertheless, past experience does have some things to say that are at least relevant to our problem. <strong>The first is that optimism and confidence have always accompanied bull markets; they have grown as the bull market advanced, and they had to grow, otherwise the bull market could not have continued to their dizzy levels; and [secondly] they have been replaced by distrust and pessimism when the bull markets of the past collapsed.&quot;</strong></p> </blockquote> <p>So, who was this mysterious speech giver? <strong>It was delivered by Benjamin Graham</strong> at the University of California, Los Angeles on <strong>December 7th, 1959.&nbsp;</strong><em>(The speech can be <a href="">found here</a>.)</em></p> <p>As the evidence suggests, the current bull market is likely not a <em>&quot;new market&quot;</em> but just the first half of a full market cycle. Eventually, the cycle will complete itself as price goes through a mean reverting event. <strong>This is not a BEARISH prognostication but a simple reality</strong>. Nothing more. Nothing less.</p> <p>In there near term, over the next several months or even couple of years, markets could very likely continue their bullish trend as long as nothing upsets the balance of investor confidence and market liquidity. However, of that there is no guarantee.</p> <p>As Ben Graham concluded:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;&#39;<strong>The more it changes, the more it&#39;s the same thing.&#39;</strong> I have always thought this motto applied to the stock market better than anywhere else. Now the really important part of the proverb is the phrase, &#39;the more it changes.&#39;</p> <p>&nbsp;</p> <p>T<strong>he economic world has changed radically and will change even more. Most people think now that the essential nature of the stock market has been undergoing a corresponding change.</strong> But if my cliche is sound,&nbsp; then the stock market will continue to be essentially what it always was in the past, <strong>a place where a big bull market is inevitably followed by a big bear market.</strong></p> <p>&nbsp;</p> <p>In other words, <strong>a place where today&#39;s free lunches are paid for doubly tomorrow.</strong> In the light of recent experience, <strong>I think the present level of the stock market is an extremely dangerous one.&quot;</strong></p> </blockquote> </div> <p>&nbsp;</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="597" height="303" alt="" src="" /> </div> </div> </div> Bear Market Ben Graham Central Banks Consumer Confidence Great Depression Market Cycles Market Timing Rate of Change Reality University of California Tue, 07 Jul 2015 19:43:58 +0000 Tyler Durden 509406 at Obama Calls Merkel, Reinforces IMF Case Of Debt Haircut <p>Just a few short hours after Tsipras called Obama, the US president in turn called the German chancellor and told Merkel to get a "durable" deal done asap (or else the stock market "wealth effect" for the 1% may promptly evaporate). More importantly was Obama's insistence to support the IMF sticking point, namely to "achieve debt sustainability", which of course is ludicrous, but it means that both Lagarde and Obama are now pressuring Germany to haircut Greek debt. </p> <p>From the White House:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Readout of the President's Call with Chancellor Angela Merkel of Germany</strong></p> <p>&nbsp;</p> <p>The President and German Chancellor Angela Merkel spoke by phone this morning about Greece. The leaders agreed it is in everyone's interest to reach a durable agreement that will allow Greece to resume reforms, return to growth, and <strong>achieve debt sustainability within the Eurozone</strong>. The leaders noted that their economic teams are monitoring the situation in Greece and remain in close contact.</p> </blockquote> <p>And moments ago the White House also reported that Obama told Tsipras that a deal is in "everyone's interest" by which he, of course, means everything should be done to avoid a market collapse. </p> <p>So will Obama save the day?&nbsp; Or, like the case of IMF, will the mere specter of a forced debt haircut spook the Eurogroup (i.e., Merkel) who know that if Greece gets a concession then all the other PIIGS will promptly line up? </p> <p>Tune in tomorrow to find out if today's session of late day hopium fizzles or actually transforms into an actual deal. </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="279" height="181" alt="" src="" /> </div> </div> </div> Eurozone Germany Greece White House Tue, 07 Jul 2015 19:26:44 +0000 Tyler Durden 509405 at