After little more than a year of legitimate revaluation of equities following the 2007-2009 credit crisis, and more than three years of what will likely turn out to be wholly impermanent – if dazzling – Fed-induced speculation, investors have again pushed the stone to the top of the mountain. Despite the devastating losses of half the market’s value in 2000-2002 and 2007-2009, investors experience no fear – no suffering as a result of present market extremes. There is no suffering because at every step, as Camus might have observed, “the hope of succeeding” upholds them. As we discussed several months ago, that hope of succeeding rests on what economist J.K. Galbraith called “the extreme brevity of the financial memory.” Part of that brevity rests on ignoring the forest for the trees, and failing to consider movements further up the mountain in the context of how far the stone typically falls once it gets loose. The charts below display various journeys of Sisyphus - a chronicle of multi-year, increasingly speculative market advances that terminated in the same set of conditions that we presently observe.
Geithner Confirms Mafia-Linked Berlusconi's Forced Ouster, But Says US Did Not "Have Blood On Our Hands"Submitted by Tyler Durden on 05/14/2014 22:38 -0400
Silvio Berlusconi - ironically nicknamed "The Teflon Don" - has been found to have done business with the Sicilian Mafia for nearly two decades, according to Italy's Supreme Court of Cassation in Rome. Having attacked the "biased judges" who called his actions "a continuous crime," Berlusconi wriggled out from under this result since the link to the Cosa Nostra was, as The Independent reports, via his conduit and former senator Marcello Dell’Utri who was sentenced to 7 years for mafia association. While this confirms as fact yet another conspiracy theory, the bigger story was the confirmation of a broad-based bloodless coup to ouster the Italian Prime Minister at the peak of the credit crisis. "At one point that fall, a few European officials approached us with a scheme to try to force Italian Prime Minister Silvio Berlusconi out of power," Tim Geithner writes in his new book, and after telling the President about "this surprising invitation," they decided not to get involved (publicly): "We can't have his blood on our hands."
"Everybody knows interest rates are going to rise." Whether you agree with this premise, or not, is largely irrelevant to this discussion. The current "bullish" mantra is the "great bond bull market is dead, long live the stock market bull." However, is that really the case? When the bond bubble ends this means that bonds will begin to decline, potentially rapidly, in price driving interest rates higher. This is the worst thing that could possible happen.
China is coming under close scrutiny these days, as the leadership scurries to find new sources of economic growth and control its debt. Some analysts have reassured China watchers that the Chinese government can simply write off its bad debt, at least within the major banks, and pass it on to the asset management companies that handle that resale of distressed debt (or have it later purchased by the Ministry of Finance). Others have warned that some of the debt is serious, such as that incurred by local government financing vehicles, and are dubious about the sustainability of these entities. To worry or unwind? How much debt can China really absorb?
The Idiot Savant has had more than enough. BDI has unequivocally decided to prick Big Bad Ben Bernanke's Bloviated Bubble Butt. I have outlined below seven fine needles and six sharp scalpels that I shall use to slice and slay his sorry sagging ass:
The situation with Russia should give investors and traders a reason to brush up on their history, as current events take root in things that happened 50, 100, and 200 years ago. To understand this, can provide perspective, during an information war, where it's not easy for some to separate facts from beliefs and propoganda (on both sides). The relationship between US and Russia has always been interesting, as we shall explore.
The cultural divide
At the onset of the derivatives collapse in 2007/2008 it would have been easy to assume that most of America was receiving a valuable education in normalcy bias. As much as we are for people waking up to the nature of the crisis, there comes a point when those who are going to figure it out will figure it out, and the rest are essentially hopeless. The cultism surrounding the U.S. economy and the U.S. dollar is truly mind boggling, and by “cultism” we mean a blind faith in the fiat currency mechanism that goes beyond all logic, reason and evidence.
Prem Watsa's 9 Observations Why There Is A "Monstrous Real Estate Bubble In China Which Could Burst Anytime"Submitted by Tyler Durden on 03/09/2014 18:12 -0400
In the last few years we have discussed the huge real estate bubble in China: "Real estate bubbles never end with soft landings. A bubble is inflated by nothing firmer than expectations. The moment people cease to believe that house prices will rise forever, they will notice what a terrible long term investment real estate has become and flee the market, and the market will crash." Amen! As they say, it is better to be wrong, wrong, wrong and then right than the other way around! In case you continue to be a skeptic, here are a few observations...
According to the stock markets in the US and in Europe, the world’s economy is not just in good shape, but is in the best shape it’s ever been. The S&P 500 hit an intraday new record high of 1,858.71 on Feb 24, 2014, and is now 18.6% above the peak it hit in 2007, a moment everybody now recognizes was heavily overvalued. An almost 19% gain above the prior all time high is an enormous and unusual event. Surely, you are thinking, there must be an equally compelling story and loads of fundamental data to support such a bull market?
Well, there really isn’t.
The "most shorted" stocks have quadrupled the performance of the broad market this week as the dash-for-trash remains the best-performing strategy under the premise of an ever-rising strike Yellen put. The ammo for this latest rampapalooza, as we noted here, was hedge fund specs the 'shortest' in over a year which were then squeezed by an ever-present visible hand willing to sell JPY against any and everything in the world (or smash VIX - which ever works best). But as one more skeptical manager noted, "I’ve been a non-believer for so long that I just am not believing yet."
"There is a big flight to quality," warns one trader as the spread between interest rate swaps (implicitly bank risk) and government bonds soared to a record high. This "crisis gauge" flashing red is also followed by 3 month SHIBOR (short-dated interbank lending rates) surging to an 8-month high. China's CDS have jumped 30bps since the Fed taper and as Bloomberg reports that billionaire investors like George Soros and Bill Gross have drawn uncomfortable parallels between the situation in China now and the US before 2008 (when this crisis gauge was key in spotting the carnage to come). Simply put, the banks don't trust each other...
Chinese non-financial companies held total outstanding bank borrowing and bond debt of about $12 trillion at the end of last year - equal to over 120 percent of GDP - according to Standard & Poor's estimates.
Wall Street Trader: "My Lying Is Part Of Making Deals Although I Generally Consider Myself A Truthful Person"Submitted by Tyler Durden on 02/25/2014 12:13 -0400
The story of former Jefferies MBS trader Jesse Litvak, who is currently on trial in New Haven federal court accused of defrauding investors of $2 million by lying on trades of mortgage-backed securities, is well known to regular readers: it was summarized previously in "We Are Doneski Gorgeous!" - How Bond Trading On Wall Street Really Works. In that article we showed, more than just an isolated case of alleged fraud, that when it comes to OTC trades which do not transact on an exchange but instead take place over the phone between a salesman and a buyer, it is all a game of lies, fraud and misinformation... however one which both it is a game of lies, fraud and misinformation. Today, Mr. Litvak confirmed as much when he said, quoting Bloomberg, "My lying is part” of making deals, he said, “although I generally consider myself a truthful person."
As we warned last week, stockpiles of iron-ore have reached record levels in China as end-demand slumps but, as Bloomberg notes, this is potentially creating massive dislocations in other markets. Record imports of iron ore and copper, driven by traders who use them as loan collateral, risk repeating the vicious cycle of repayment difficulties and falling prices already seen in the steel-trading market. A stunning 40 percent of the iron ore at China’s ports are part of finance deals (having replaced copper after China's last shadow-banking crackdown) and with the glut, prices drop (driving down the value of collateral on loans) and "borrowers, forced by their bankers to repay loans or to top up collateral, will have to sell the metals, sinking market prices even further and begetting a vicious cycle."
The bailing out of the much-watched 'Credit equals Gold #1' wealth management product and safe liquidity-strewn (CNY375 billion from the PBOC) survival of the lunar new year liquidity crunch has many believing the worst is over. Though we discussed this fallacy in great depth here, the following chart of the total collapse in the largest Chinese coal producers says this is far from over. Trading at or below book values, investors are clearly signaling concerns about the quality of assets summed up perfectly by one local analyst - China's coal industry (whose loans back a massive amount of the wealth management products) is "dead."