Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).
"After six years of declines, lending for so-called Helocs will rise 30 percent to $79.6 billion in 2012, the highest level since the start of the financial crisis in 2008, according to the economics research unit of Moody’s Corp. Originations next year will jump another 31 percent to $104 billion, it projected."
The recent market sell-off has not been about the re-election of President Obama but rather the repositioning of assets by professional investors in anticipation of three key events coming between now and the end of this year - the "fiscal cliff", the debt ceiling and the expiration of the Transaction Account Guarantee (TAG). Each of these events have different impacts on the economy and the financial markets - but the one thing that they have in common is that they will all be battle grounds between a divided House and Senate. While there has been a plethora of articles, and media coverage, about the upcoming standoff between the two parties - little has been written to cover the details of exactly what will be impacted and why it is so important to the financial markets and economy. We remain hopeful that our elected leaders will allow cooler heads to prevail and that they will begin to work towards solutions that alleviate some of the risks of economic contraction while setting forth logical plans for fiscal reform. However, while we are hopeful of such progress, "hope" is not an investment strategy to manage portfolios by. If we are right things are likely to get worse before a resolution is reached - but maybe that is why the "investment professionals" have already been heading for the exits.
Perhaps those sage English philosophers 'The Vapors' were on to something 32 years ago when they asked if we were "Turning Japanese" for it seems the following charts from Nomura certainly suggest the US bond market is heading in that direction. From demographics to monetary policy; from investor allocations to flows; and from bond bubbles and volatility to long-term interest-rate paths, it seems we share a lot more than a love for sushi and pachinko with our neigbours across the ocean as we seem to be chasing after many Japanese models (of asset allocation and macro-economics).
We will have much more to say on the grandiose return of CLOs in the next few days (those who were not in high school during the peak of the credit crisis, so most of today's "traders", recall these peak credit bubble contraptions quite well) but for now we just wanted to bring to our readers' attention that yet another $625 million CLO has just priced, this time from Sankaty, courtesy of Morgan Stanley. Anyone needing confirmation that the credit bubble is back with a bang, need look no further than the table below. We look forward with amusement once the confused peanut gallery, aka CTRL-C/V majoring "financial media" (where even the somewhat more qualified are about to be "synergized" following news that the FT is pushing hard with a sale), realizes that Sankaty is Bain Capital's $20 billion credit affiliate hedge fund, especially if the election goes for Romney, and goes all aflutter googling what a CLO is and what it means for the flood surge level of liquidity in the market (but, but, Bernanke is printing it all for the children... and housing).
Hedge Fund "gating", or the forced administrative limit on how much money hedge fund investors can redeem at any given moment, is one of those bad memories that most wish could remain dead and buried with the peak of the credit crisis, when virtually every hedge fund was swamped with redemption requests as impatient LPs couldn't wait to get what was left of their money back. However, the problem for hedge funds, in addition to underperforming the market substantially for a 5th year in a row, with almost all hedge funds now returning far less than the broader market (which continues to successfully defend the 1400 barrier every day) especially after October when the two biggest hedge fund darling stocks GOOG and AAPL finally reincountered gravity, is that their LPs have once again gotten restless and are now again actively seeking their money back from underperformers. Sadly, it was thus only a matter of time before the "gates" returned. As of this weekend they have.
A cyber attack does not have to be limited to a single country and its networks. It could be used to strike multiple countries and fuel a global firestorm of systems failures. Globalists need a macro-crisis, a world-wide catastrophe, in order to present their “global solution” to the desperate masses. This solution will invariably include more dominance for them, and less freedom for us. A global crisis can also be used to manipulate various cultures to forget concerns of sovereignty and think in terms of one-world action. Surely, a worldwide breakdown can only be solved if we “all work together and all think alike”, right...? Without a doubt, a cyber attack serves the interests of elitist entities and banking monstrosities like nothing else in existence. Set off a nuke, start WWIII, turn the U.S. dollar into stagflationary dust; a cyber attack tops them all, because a cyber attack can lead to them all while maintaining deniability for the establishment. The fact that whispers of cyber threats have turned into bullhorn blasted propaganda should concern us all. Are we being conditioned for a cyber event in the near future? That remains to be seen. However, none of us should be surprised if one does occur, especially in light of the many gains involved for globalists, and all of us should be ready to dismantle and expose any lies surrounding the event before the American public is whipped into a 9/11 style frenzy yet again
IMF Cuts Global Growth, Warns Central Banks, Whose Capital Is An "Arbitrary Number", Is Only Game In TownSubmitted by Tyler Durden on 10/08/2012 18:05 -0400
"The recovery continues but it has weakened" is how the IMF sums up their 250-page compendium of rather sullen reading for most hope-and-dreamers. The esteemed establishment led by the tall, dark, and handsome know-nothing Lagarde (as evidenced by her stroppiness after being asked a question she didn't like in the Eurogroup PR) has cut global growth expectations for advanced economics from 2.0% to only 1.5%. Quite sadly, they see two forces pulling growth down in advanced economies: fiscal consolidation and a still-weak financial system; and only one main force pulling growth up is accommodative monetary policy. Central banks continue not only to maintain very low policy rates, but also to experiment with programs aimed at decreasing rates in particular markets, at helping particular categories of borrowers, or at helping financial intermediation in general. A general feeling of uncertainty weighs on global sentiment. Of note: the IMF finds that "Risks for a Serious Global Slowdown Are Alarmingly High...The probability of global growth falling below 2 percent in 2013––which would be consistent with recession in advanced economies and a serious slowdown in emerging market and developing economies––has risen to about 17 percent, up from about 4 percent in April 2012 and 10 percent (for the one-year-ahead forecast) during the very uncertain setting of the September 2011 WEO. For 2013, the GPM estimates suggest that recession probabilities are about 15 percent in the United States, above 25 percent in Japan, and above 80 percent in the euro area." And yet probably the most defining line of the entire report (that we have found so far) is the following: "Central bank capital is, in many ways, an arbitrary number." And there you have it, straight from the IMF.
Modern Portfolio Theory (MPT) is broken. That is how we interpret Niels Jensen's (Absolute Return Partners) latest missive as he draws a concerning line between the number of managers who rely sheep-like on the diversifying 'artifacts' of MPT in a new normal world of undiversifiable systemic risks. The shifts in intra- and inter-asset class correlations (both long- and short-term) have been incredible both in terms of direction change and magnitude - for example (as Nielsen notes) - In the 2000-03 bear market commodities were an excellent diversifier against equity market risk with the two asset classes being virtually uncorrelated (+0.05). Nowadays, the two are highly correlated (+0.69). This shift to a risk-on / risk-off world, fed by central bankers, makes the empirical Sharpe ratios of olde and track records of your favorite balanced-fund manager entirely useless for any investor seeking protection from not just volatility risk but ultimate risk - the permanent loss of capital.
We have in the past attempted to take on the gargantuan task of exposing the multi-trillion Chinese Shadow Banking system (not to be confused with its deposit-free, rehypothecation-full Western equivalent), most recently here. Alas, it is has consistently proven to be virtually impossible to coherently explain something as decentralized and as pervasive as an entire country's underground economy, especially when the country in question is the riddle, wrapped in a mystery, inside an enigma known as China. Today, however, courtesy of AsiaFinanceNews we get a report as close as possible to the most comprehensive overview of what may soon be (especially if rumors of tumbling Chinese municipal dominoes are correct) the most talked about subject in the financial world: China's Shadow Banking empire.
- Europe’s crisis will be followed by a more devastating one, likely beginning in Japan. (Simon Johnson)
- Porsche, Daimler Indicate Europe’s Car Crisis Spreading (Bloomberg)
- No progress in Catalonia-Madrid talks (FT)
- Hilsenrath speaks: Fed's Kocherlakota Shifts on Unemployment (WSJ) - luckily QEternity made both obsolete
- Lenders Reportedly Consider New Greek Haircut (Spiegel)
- Fed Officials Highlight Benefits of Bond-Buying (WSJ)
- ESM to Launch without Leverage Vehicle Options (WSJ)
- Japanese companies report China delays (FT)
- Borg Says Swedish Taxes Can’t Go Into Ill-Managed European Banks (Bloomberg)
- Greek Leaders Struggle With Spending Reductions (Bloomberg)
- Asian Stocks Rise as iPhone 5 Debut Boosts Tech Shares (Bloomberg)
- China government's hand seen in anti-Japan protests (LA Times)
- Obama, Romney tiptoe around housing morass as they woo voters (Reuters) ... just as ZH expected
- Poll Finds Obama in Better Shape Than Any Nominee Since Clinton (Bloomberg)
- Romney on Offense, Says Obama Can’t Help Middle Class (Bloomberg)
- Fed’s Fisher Says U.S. Inflation Expectations Rising (Bloomberg)
- Citigroup Warns Irish Investors to Plan for Losses (Bloomberg)
- Central Banks Flex Muscles (WSJ)
- China says U.S. auto trade complaint driven by election race (Reuters)
- Brussels sidesteps China trade dispute (FT)
- How misstep over trading fractions wounded ICAP's EBS (Reuters)
- Ex-CME programmer pleads guilty to trade secret theft (Reuters)
- Income squeeze will persist, says BoE (FT)
- South African miners return to work, unrest rumbles on (Reuters)
- Deposit Flight From Europe Banks Eroding Common Currency (Bloomberg)
- BOJ eases monetary policy as global slowdown bites (Reuters)
- Stalled Rally Puts Pressure on Spain (WSJ)
- Missed Chances Stoke Skepticism Over EU’s Crisis Fight (Bloomberg)
- Germany's big worry: China, not Greece (Reuters)
- Goldman names new CFO, heralding end of an era (Reuters)
- Russia Demands U.S. Agency Halt Work (WSJ)
- Fed’s Dudley Says Easing Vital to Spur Too-Slow Growth (Bloomberg)
- Romney under fire from all sides (FT)
- Poland cuts red tape to spur growth (FT)
- IMF to Put Argentina on Path to Censure Over Inflation Data (Bloomberg)
Since 2007 our analysis has suggested the likelihood of economic outcomes that most have considered unlikely: significant and ongoing monetary inflation, policy-administered currency devaluation, substantial global price inflation, and an eventual change in how the forty year old global monetary system is structured. Most observers have viewed such outlooks as tail events – highly unlikely, unworthy of serious consideration or a long way off. We remain resolute, and believe last week’s movements in Frankfurt and Washington towards perpetual quantitative easing confirmed and accelerated the validity of our outlook. With QBAMCO's view that $15,000 - $19,000 Gold is possible, timing of the catch-up phase is impossible - though they suspect last week's events may be the catalyst that begins to raise public awareness of the link between monetary inflation and price inflation.
Global financial markets are awash in hundreds of trillions of dollars worth of derivatives. By some estimates, the total amount exceeds one quadrillion. Derivatives played a central role in the 2008 credit crisis, as they had a brutal multiplying effect on the magnitude of the carnage. As a bad asset was written down, oftentimes there were derivative contracts written against it that resulted in total losses 10x greater than the initial write-down. But what exactly are derivatives? How do they work? And have we learned to treat these "weapons of mass financial destruction" (as Warren Buffet colorfully coined them) any more carefully in the aftermath of the global financial crisis? Not really, claims Janet Tavakoli, the danger behind derivatives doesn't lie in their existence, she stresses, but when abused, derivatives can create massive damages. So at the root of the "derivatives problem" is control fraud - the rampant unchecked criminal action by influential players on Wall Street.