None

Let’s cut the BS here. The Fed has maintained a more than highly accommodative stance for three years now and U-16 unemployment, food stamp usage, home prices, and virtually every other economic metric indicate that they’ve done little to boost the US economy in any meaningful way. QE has and always will be about boosting asset prices in the hope that the Fed can stimulate a recovery by getting the S&P 500 to some level.

The fear of 'turning-Greek', which is now apparently worse than 'turning-Japanese', is the anchoring bias that seems to be driving more and more countries to dramatically adjust their fiscal affairs. However, Nomura's Richard Koo (whose blood pressure was already elevated last week at the ignorance of many nations to his balance sheet recession diagnosis and treatment protocol) points out in a note this week that Greece's problems stem from fiscal profligacy, a lack of domestic savings, and dishonest reporting by the government (it does kind of ring a bell). His point being that the rest of the eurozone - not to mention Japan, US, and the UK - are suffering balance sheet recessions (unlike Greece), which occur when the collapse of an asset price bubble drives sharp increases in private savings. His problem is that traditional economists are not taught of a situation in which private sector deleveraging (which we discussed last week also) leaves fiscal stimulus as the only way to stabilize an economy and in the currrent environment of deficits being watched and denigrated by any and all politician, market participant, and talking head, Koo's borrow-and-spend 'all deficits are good deficits' medicine is hard to swallow. Koo believes that the post-Lehman world was saved by fiscal stimulus, that Greece is different, and that the anti-Koo austerity actions have 'thrown a large wrench into the works of many world economies' and while the UK is coming around to the notion that austerity is not working, he worries on recent actions in the US and Japan at a time of excess private saving. It seems to us that his argument boils down to - given the system's fragility - an Austrian solution to the broken Keynesian problem is unworkable (without depression), and he hopes that the growing doubts (recessions popping up left, right, and center) about an overriding focus on fiscal consolidation will bring people back to Keynesian (Kooian) fold. He concludes with a worrying reflection on his countrymen in the MoF that seem to have learnt none of his lessons as they look to raise the consumption tax and Japan's rising sun sets.

Markets have become far less volatile than last year, but many investors remain focused on the Credit Markets for signs and cues as to the next move.  With so many people looking to moves in credit markets and trying to determine how successful an auction has been, we thought it would make sense to go through some examples of how credit trades.  At one extreme you have a real market like for the E-mini S&P futures.  That trades from Sunday at 6pm EST until Friday at 4:15 EST.  It is virtually continuous and at any given time you can see the bids and offers of the entire market.  Then you have credit trading, which has almost nothing in common with ES futures and their incredible liquidity and transparency.

SOTU Post Mortem:

The best news possible: "Nothing will get done this year, or next year, or maybe even the year after that." Barack Hussein Obama
The worst news: Everything else.

Here is the text of President Barack Obama’s State of the Union Address as prepared for delivery at 9 p.m. ET. "Jobs" 33 vs. "Fat Cats" 0, Rich 3 vs Poor 1, Hope 2 vs Unicorns 0, Change 9 vs Tooth-Fairy 0, Mortgages 5 vs Apple 0, Main Street 1 vs Wall Street 3, China 4 vs Europe 1; DEBT CEILING 0

With over 150 million registered users, the file sharing site MegaUpload.com is one of the most popular on the Internet. At least, it was.  The site has now been seized by the US government and its homepage converted to an FBI anti-piracy warning. Its founder, a high tech entrepreneur named Kim Dotcom (yes, he had it legally changed), was arrested in New Zealand after his homes were raided and assets seized. These actions were all at the behest of the US government. And it's just the latest example of Big Brother overextending its authority across the entire world. Last week, we discussed the grassroots efforts to stop passage of the SOPA/PIPA legislation that would give the US government jurisdiction over the Internet. Wikipedia blacked out its English language pages to raise awareness of the issue, and people went completely nuts. Congress subsequently withdrew the bills amid popular outcry, and the public rejoiced that their efforts successfully thwarted further encroachment on their liberty. Or so they thought. On the exact same day that everyone was celebrating victory over SOPA/PIPA, the US government simply used another set of regulations to nab Dotcom and seize his assets. The fact that SOPA was scrapped turned out to be completely irrelevant, they just found other rules to apply (or break).

Round up for ZH readers ...

Yesterday, Reuters' blogger Felix Salmon in a well-written if somewhat verbose essay, makes the argument that "Greece has the upper hand" in its ongoing negotiations with the ad hoc and official group of creditors. It would be a great analysis if it wasn't for one minor detail. It is wrong. And while that in itself is hardly newsworthy, the fact that, as usual, its conclusion is built upon others' primary research and analysis, including that of the Wall Street Journal, merely reinforces the fact that there is little understanding in the mainstream media of what is actually going on behind the scenes in the Greek negotiations, and thus a comprehension of how prepack (for now) bankruptcy processes operate. Furthermore, since the Greek "case study" will have dramatic implications for not only other instances of sovereign default, many of which are already lining up especially in Europe, but for the sovereign bond market in general, this may be a good time to explain why not only does Greece not have the upper hand, but why an adverse outcome from the 11th hour discussions between the IIF, the ad hoc creditors, Greece, and the Troika, would have monumental consequences for the entire bond market in general.

The spread differential between Japan sovereign CDS and UK sovereign CDS (both denominated in USD) is near its widest on record (Japan 55bps wider than UK). Furthermore, Japan's CDS trades notably wider (101bps in 5Y) than its bond's yields (which are the domestically held and subdued by local savings unlike the USD-denominated CDS market) while UK CDS trades 24bps inside its Gilts 5Y yield - quite a difference. Flows have surged into both the Japanese and British markets as AAA safe havens 'were' in demand (until the all-clear appears to have been signaled recently?). The critical point here is that these two nations have devastatingly unsustainable debt/GDP ratios (which show no sign of deleveraging - unlike the US - ignoring unfunded liabilities) with both at just about 500% in total debt/GDP,  and yet in general UK trades far better than Japan. McKinsey's 'Debt and Deleveraging' note today points to significant increases in leverage for Japan, Spain, and France (and UK in the middle ground of rises in leverage for now). Of course none of this matters as clearly this debt will never be paid back and/or interest coverage will approach 100% of GDP (and perhaps that is the 100bps premium in CDS for JPY devaluation probability?).

Folks, just a few months ago, no less than the IMF, Bank of England, and others warned that we were facing a global meltdown and the worst financial crisis in history. Do you really think a few liquidity programs have solved all of this?

While the chief baddy on SOPA – Lamar Smith – is a Republican, it is really the Democrats who are the ones still trying to censor the web

To many walking the planet, fracking has a seriously bad reputation. Thanks to hyperbole and misinformation, fracking opponents have convinced a lot of people that the operators who drill and then hydraulically fracture underground rock layers thumb their noses at and even hate the environment. Anti-fracking claims may be twists on reality – for example, that a legislative loophole makes fracking exempt from the America's Safe Drinking Water Act, when really this federal legislation never regulated fracking because it is a state concern. Then there's the completely absurd, such as the idea that frac operators are allowed to and regularly do inject frac fluids directly into underground water supplies. We decided to set the record straight by using facts, not playing on emotion like many of the frac-tivists do. It's important because unconventional oil and gas constitute an increasingly pivotal part of the world's energy scene. In the United States, where shale gas abounds but imported energy rules the day, this is especially true.

While the news that Mitt Romney has joined Warren Buffet in the "my secretary makes more than me" 15% tax club has come and gone, even as America appears largely confused or dismissive that Romney, at least on paper appears to be precisely the puppet that Wall Street wants put in charge, we are not so sure how it will react to discovering that in addition to all of the above, Romney also holds a substantial of his assets deep offshore, in the much maligned recently Cayman Islands. As a reminder, it has long been Obama's "tax-policy" to force repatriation of virtually all individual tax holdings held abroad, both legally and illegally, much to the detrimental collapse in the UBS business model. Yet apparently when it comes to potential future presidents, loopholes are quite welcome. Especially when as ABC reports, "the offshore accounts have provided him -- and Bain -- with other potential financial benefits, such as higher management fees and greater foreign interest, all at the expense of the U.S. Treasury." As a reminder: "Rebecca J. Wilkins, a tax policy expert with Citizens for Tax Justice, said the federal government loses an estimated $100 billion a year because of tax havens." But who needs taxes when America can just print all the money it will need to fund its deficit in perpetuity. Just ask the Neo-Keynesians. Perhaps all these are questions that the candidate that so hard is trying to channel Ronald Reagan and so far failing, can finally address once and for all, before he moves into one of his patented Obama bashing subject changing routing.

Amid the best start of the year for the S&P 500 since 1987, Nic Colas of ConvergEx offers some deep thoughts on how behavioral finance concepts can help us understand the dichotomy between last year's derisking and this year's rerisking in terms of market participant psychology. Between delving into whether a short-sharp or long-slow colonoscopy is 'preferable' Nic reflects (antithetically) on 10 bullish perspectives for the current rally and how the human mind (which still makes up maybe 50% of cross-asset class trading if less in stocks) processes discomfort in very different ways. Critically, while it sounds counter-intuitive to him (and us), focusing on the pain of recent volatility is actually more conducive to investors' ability to get back on the horse especially when the acute pain is ended so abruptly (intervention). As studeis have found, "subjects who actually focus on a painful experience while it is happening are more willing to immediately undergo further pain than those who performed some distracting task"

The Greek PSI is once again (still) hitting the headlines. Here is what we think the most likely scenario is (80% likelihood). Some form of an agreement will be announced.  The IIF will announce that the “creditor committee has agreed in principle to a plan.”  That plan will need to be “formalized” and final agreement from the individual institutions on the committee and those that weren’t part of the committee will need to be obtained.  The headline will sound good, but will leave a month or so for details to come out.  In the meantime every European and EU leader (or employee) with a press contact will say what a great deal it is.  That it confirms that Europe is on the path of progress and that they are doing what they committed to at their summits. That will be the hype that will drive the market higher (or in fact has already done so). However, the reality (as we noted earlier in Einhorn's market madness chart) is that this still leaves hedge funds to acquiesce (unlikely) and furthermore focus will switch to Greece's actual debt sustaianability post-default (yes the d-word) and as we are seeing recently, Portugal will come into very sharp focus. If they cannot bribe and blackmail and threaten their way into something they call PSI, then we will see Greece stop making payments, and then the markets will get very ugly in a hurry.

First we learn the LTRO may be €1 trillion, then €10 trillion, now the IMF tells us it has misplaced $1 trillion. The world may be going totally broke but at least it does in style - in perfectly round 12 digit numbers.

• IMF SAID TO SEE POTENTIAL 2-YEAR FINANCING GAP AT $1 TRILLION
• IMF SAID TO SEEK RAISING LENDING RESOURCES BY $500 BLN

In other words, even after it "miraculously" procures this money, the IMF will still be half a trill short. But, with everyone broke, just who will "fund" the IMF shortfall? Hm, could the fact that stocks are rising indicate that the ultimate buyer will be none other than the global central banking cartel. In other news, with every passing day we learn just how correct our thesis has been for the past 3 years: the it is not a liquidity crisis, it is all about solvency. Or rather insolvency. Global insolvency.