Rosie’s Must Read On A Hope-Based Rally Now, Followed By Shock Therapy Later
by ilene - December 3rd, 2010 3:56 pm
Tyler Durden presents Rosie’s Must Read On A Hope-Based Rally Now, Followed By Shock Therapy Later. This is practically in answer to Joshua Brown’s depiction of a lonely, frustrated bear searching the world for negative data. Frustrated, perhaps; lonely, not so fast. – Ilene
Courtesy of Zero Hedge
Now that his relentless skepticism, following today’s abysmal data release (orchestrated or not), has been fully validated, much to the chagrin of top ticking flippers such as Goldman and other sundry blog sites, Rosenberg comes out with a must read essay on the state of the economy now versus later, entitled very appropriately "Hope-Based Rally Now, Shock Therapy Later." This is certainly one Rosie’s better pieces out there and a must read for those who refuse to be led by the propaganda machine into believing lies and manipulation: "This has become such a hope-based market that the Dow jumped over 100 points earlier this week on a Reuters news story in Brussels, which reported that the U.S.A. would back an even greater financial commitment to Europe! Quick — get Sarah Palin on the line." Incidentally, if there is any confusion where Zero Hedge stands, we suggest rereading our post from last night which made it all too clear that we still refuse to drink the hopium (and self-aggrandizement) that seems to have gotten straight to the head of such a broad (literally and metaphorically) cross-section of the financial punditry.
HOPE-BASED RALLY NOW, SHOCK THERAPY LATER
I’m on the way back from a two-day business trip in London, U.K. with a few of my Gluskin Sheff colleagues. It’s been a good year-and-a-half since I was last there (the next best thing to old New York), and the first time I can remember it snowing this early — a few centimetres almost shut down the city (enough to make a Torontonian chuckle).
While we continue to refrain from hyperventilating as others throw in the towel, it is completely understandable that investor sentiment has improved. Moreover, the incoming economic data, at least when benchmarked against the double-dip fears that prevailed in July and August, currently look “green shooty” in nature. But is the U.S. economy really out of the woods? Hardly.
The recovery is obviously still so fragile that the Fed felt the need to expand its balance sheet by an additional…
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DiggHey, Since When Is The Dirty Fed In The Loan Sharking Business?
by ilene - December 2nd, 2010 1:31 pm
Courtesy of Jr. Deputy Accountant
The Dirty Fed has been forced to open its books and, not surprisingly, data reveal that money managers capitalized nicely on the Fed’s intentions, as I suppose they well should have seeing as how our friends at 20th and Constitution are so f**king transparent about doing whatever it takes.
Grab the barf bag, you might need it.
HuffPo tells us that some familiar names made a quite awesome profit frontrunning the Fed, something not at all illegal but completely questionable in these troubled times. Is this the transparency you wanted?
The Fed effectively telegraphed its intentions to the Street before buying the bonds. Legendary money manager Bill Gross, who oversees more than $1.2 trillion at Pacific Investment Management Co. said last month during a television interview that part of his success over the last 18 months was due to buying securities in front of the Fed, and selling them to the Fed at a premium, allowing him to profit handsomely. Gross runs PIMCO’s $252.2 billion Total Return Fund.
Morgan Stanley sold the Fed more than $205 billion in mortgage securities from January 2009 to July 2010, while it’s [sic] much bigger rival, Goldman Sachs, sold $159 billion. Citigroup, the nation’s third-largest bank by assets, sold the Fed nearly $185 billion in mortgage bonds. Merrill Lynch/Bank of America sold about $174 billion.
It’s not clear how much these firms profited by engaging in the kind of activity that allowed Gross to profit so well, known as "front running." However, it’s abundantly clear that they did turn a profit.
JPMorgan Chase, the nation’s second-largest bank by assets, sold the Fed about $153 billion worth of mortgage securities.
Other foreign banks with extensive Wall Street operations also profited from the program.
Barclays, the British firm that took over failed investment bank Lehman Brothers, sold about $123 billion in mortgage bonds. UBS, a Swiss lender, sold about $94 billion. BNP Paribas, a French bank, sold about $67 billion.
That’s not all. The data also reveal that the Fed shoved fake money at everyone including McDonald’s, Verizon and Harley-Davidson. McDonald’s still laid off 700 in an attempt to "restructure", leaving any reasonable person to wonder how many they’d have cut if they hadn’t gotten a nice fat Zimbabwe Ben handout. Since when is the Fed in the business of loan sharking to anyone but the…
“Sell the News” Bearish Flattening of Yield Curve Continues; Reflections on “Relative Value”
by ilene - December 1st, 2010 7:16 pm
Continuing on the theme of stock market prices vs. real fundamental value, Mish writes: "This is what happens when investors chase "relative value" instead of asking if there is any real value at all…[This] applies to those chasing the stock market at these lofty levels on the basis ‘stocks are cheap relative to treasuries’ or some other nonsensical reason to justify valuations." – Ilene
Courtesy of Mish
Curve Watchers Anonymous notes a continuing bearish flattening of the yield curve as shown in the following chart.
click on chart for sharper image
A bearish flattening occurs when the curve tightens with yields generally rising. Conversely, a bullish flattening occurs when the curve tightens with yields generally falling.
Since early November, 5-year treasury yields have risen about 60 basis point, 10-year yields about 45 basis points, and 30-year treasury yields have risen perhaps 5 basis points.
Once again we can see the results in today’s action with thanks to Bloomberg.
Buy the Rumor Sell the News
Note the continued unwind of the "sure-thing" treasury bet, with the Fed concentrating its purchases in the 3-to-7-year range hoping to drive down rates, and everyone front-running the trade. That trade is now unwinding.
Clearly this reaction is not what Bernanke wanted at all.
Reflections on "Relative Value"
Check out that .81 yield on 3-year treasuries. On October 18, investors scarfed up $750 million of 3-year Walmart Bonds yielding .75% for the stupid reason they yielded more than treasuries. Now treasuries are yielding more.
This is what happens when investors chase "relative value" instead of asking if there is any real value at all.
The same idea applies to those chasing the stock market at these lofty levels on the basis "stocks are cheap relative to treasuries" or some other nonsensical reason to justify valuations.
There is no value, only unwarranted bullishness.
Originally published at Mish’s Global Economic Trend Analysis, "Sell the News" Bearish Flattening of Yield Curve Continues; Reflections on "Relative Value".
20 Statistics That Prove That Global Wealth Is Being Funneled Into The Hands Of The Elite – Leaving Most Of The Rest Of The World Wretchedly Poor
by ilene - November 30th, 2010 10:07 am
Michael Snyder provides "20 Statistics That Prove That Global Wealth Is Being Funneled Into The Hands Of The Elite – Leaving Most Of The Rest Of The World Wretchedly Poor." He argues that what we have now is a world dominated by a small group of ultra-wealthy elitists. The larger group of "middle managers" do their bidding and are paid well for it. Then we have workers, a larger group, but by far the largest group is the several billions of "useless eaters." - Ilene
Courtesy of Michael Snyder at Economic Collapse
Today global wealth is more highly concentrated in the hands of the elite than it ever has been at any other point in modern history. Once upon a time, the vast majority of the people in the world knew how to grow their own food, raise their own animals and take care of themselves. There weren’t many that were fabulously wealthy, but there was a quiet dignity in having land you could call your own or in having a skill that you could turn into a business. Sadly, over the past several decades an increasingly growing percentage of agricultural land has been gobbled up by big corporations and by corrupt governments. Hundreds of millions of people have been pushed off their land and into highly concentrated urban areas.
Meanwhile, it has become increasingly difficult to start a business of your own as monolithic global corporations have come to dominate nearly every sector of the world economy. So more people than ever around the world are forced to work for "the system" just to make a living. At the same time, those at the very top of the food chain (the elite) have spent decades rigging the system to ensure that increasing amounts of wealth will continue to flow into their pockets. So now in 2010 we have a global system where a few elitists at the top are insanely wealthy while about half the people living on earth are wretchedly poor.
There are very few nations around the world that have not been almost entirely plundered by the global elite. When the elite speak of "investing" in poor countries, what they really mean is taking control of the land, water, oil and other natural resources. In dozens of nations around the world today, big global corporations are stripping fabulous amounts of wealth out of the…
Terms of Enslavement; Irish Citizens Say “Default”; Agreement Violates EU and Irish Laws; 50 Ways to Leave the Euro
by ilene - November 29th, 2010 3:06 pm
Mish writes about selling Ireland down the river in Terms of Enslavement; Irish Citizens Say "Default"; Agreement Violates EU and Irish Laws; 50 Ways to Leave the Euro. - Ilene
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Courtesy of Mish
ANY Ireland bailout terms are onerous given that it is not Ireland that is bailed out but rather banks in the UK, Germany, US, and France (in that order).
Moreover and unfortunately, the exact deal foolishly agreed to by Irish Prime Minister Brian Cowen is not only amazingly bad for Ireland, but one of the provisions violates EU and Irish law.
Terms of Enslavement
Please consider these terms as outlined in EU agrees on $89 billion bailout loan for Ireland
- Ireland gets Euro 67.5 billion ($89.4 billion) in bailout loans
- The 16-nation eurozone, the full 27-nation EU, and the global donors of the International Monetary Fund each commit euro 22.5 billion ($29.8 billion).
- Interest rates on the loans would be 6.05 percent from the eurozone fund, 5.7 percent from the EU fund and 5.7 percent from the IMF.
- Ireland will have 10 years to pay off its IMF loans.
- The first repayment won’t be required until 4 1/2 years after a drawdown.
- Prime Minister Brian Cowen said Ireland will take euro 10 billion immediately to boost the capital reserves of its state-backed banks
Comparison to Greece
For comparison purposes Greece has three years to repay its loans at an interest rate of 5.2 percent.
Debt Slave Entrapment
The key to understanding how quickly Ireland is made a debt slave can be found in this not so innocuous paragraph.
Ireland first must run down its own cash stockpile and deploy its previously off-limits pension reserves in the bailout. Until now Irish and EU law had made it illegal for Ireland to use its pension fund to cover current expenditures. This move means Ireland will contribute euro 17.5 billion to its own salvation.
The last sentence in the above paragraph should read "Ireland will contribute euro 17.5 billion to its own destruction"
Moreover, once all of its own funds have been deployed, Ireland would be dependent on the IMF for life.
Salt Onto Open Wounds
Like pouring salt onto an open wound, the EU finance ministers agreed on a permanent mechanism, starting in 2013, that would allow a country to restructure its debts once it has been deemed insolvent.
One aspect of that
…
WHAT EVER HAPPENED TO THAT DOLLAR CRASH?
by ilene - November 29th, 2010 2:55 pm
The Pragmatic Capitalist asks, WHAT EVER HAPPENED TO THAT DOLLAR CRASH? As a reminder, Pragcap does not view QE2 as inflationary. – Ilene
Back in October the economic buzzwords had become “money printing” and “debt monetization”. Of course, at the time, the Fed was initiating their policy of QE2 and you’d have been hard pressed to find someone in this country (and around the world for that matter) who wasn’t entirely convinced that the USA was about to send the dollar into some sort of death spiral. QE2 was about to set off a round of inflation that would make Zimbabwe look like a cakewalk. And then something odd happened – the dollar rallied as QE2 set sail and hasn’t looked back since.
Just days before the dollar rally started I said the market was excessively confident in the Fed’s ability to create inflation and misinterpreting the impacts of QE2:
“If my theories prove correct it is likely that the dollar is well oversold and equities have become overextended on false hopes of a Fed driven economic recovery. This means the market is excessively concerned about inflation and we are likely to move closer towards our economic reality of disinflation with a higher risk of deflation than high inflation. If this is correct it means there is a fairly sizable air pocket beneath risk assets currently. Warren Buffett once said it is better to be greedy when others are fearful and fearful when others are greedy. I am currently fearful.”
Since then we’ve seen a 7%+ move in the trade weighted dollar and the smallest 12 month increase in the history of the CPI report. In other words, inflation remains non-existent. For the minority who understood how QE was actually going to impact the economy this was an obvious inefficiency at work (yes Eugene Fama, you are still wrong and this was real-time evidence of it). QE2 wasn’t inflationary and it never was going to be inflationary because it merely alters the term structure of outstanding government debt and nothing more. It is not
This was just one more opportunity for the fear mongering hyperinflationists to latch onto something. Even as Ben Bernanke himself explained that he was not printing money we continued to see aspiring Presidential candidates, talking heads and even bunny rabbits explain to millions how the Fed was destroying the value of the dollars…
The Key to Understanding “Recession” and “Recovery”: The Wealth Pyramid
by ilene - November 24th, 2010 9:46 am
Charles Hugh Smith, Of Two Minds discusses "The Key to Understanding "Recession" and "Recovery": The Wealth Pyramid."
pic credit: Thomas Hawk via Flickr (H/t Jr. Deputy Accountant)
The top 20% are prospering and spending money; the bottom 80% are not, but thanks to vast wealth disparity, the top slice of households can keep consumer spending aloft. This provides an illusion of "recovery" that masks the insecurity and decline of the bottom 80%.
There is statistical and anecdotal evidence supporting both a "we never left recession" and "the economy is recovering" interpretation. The key to making sense of the conflicting data is to understand that there are Two Americas.
Roughly speaking, we can divide the U.S. economy into "Wall Street"--the financialized part of the economy which encompasses the FIRE (finance, insurance and real estate) economy and its bloated partner in predation, the Federal government--and "Main Street," the looted, overtaxed remainder of the "real economy" which isn’t a Federally supported corporate cartel (i.e. the military-industrial sector, the "healthcare"/sickcare sector, Big Agribusiness, etc.)
Main Street is small business, entrepreneurs, shopkeepers, small property owners (independent motels, vineyards, truck farms, etc.) and local service providers (dentists, accountants, etc.). This class of small business and their employees is in decline: Few Businesses Sprout, With Even Fewer Jobs (WSJ.com)
Needless to say, the Federal/financialized/corporate cartel tranch of the economy is doing very, very well, thank you. The number of Federal employees pulling down $150,000 annually is skyrocketing, hundreds of billions in revenues slosh into National Security and sickcare cartels, and Wall Street bonuses are in the tens of billions.
A thin, overhyped tranch of the tech economy is also doing well--Google employees just got a 10% raise, for example--but this overhyped tranch includes a razor-thin share of the 130 million person U.S. workforce. Google’s global workforce is about 23,000, Twitter has a staff of roughly 300 and Facebook employs about 1,500 people.
There are two Americas in terms of wealth and income: In terms of income, the top 10% earn about half the total income, and in wealth, the top 5% own roughly 70% of all financial wealth.
I have prepared a Wealth and Income Pyramid of the U.S. to illustrate this reality. Notice that the "middle class" is mostly a…
Bernanke Is Making the Crisis Worse
by ilene - November 23rd, 2010 7:10 pm
Bud Conrad of Casey Research delivers some more harsh criticism to Ben Bernanke regarding QE2, foreign relations and currency devaluation. – Ilene
Courtesy of Casey Research
The Fed is a corrupt and powerful institution, and Chairman Bernanke is making the global crisis worse. His new speech given last week in Europe was terribly misguided and will upset markets as the Chinese and Germans won’t ignore his challenges. Bernanke’s interpretations of the markets have been wrong since before he was appointed to head the Fed, and his actions are doing nothing but aggravating the situation.
In this seminal speech, titled “Rebalancing the Global Recovery,” Bernanke not only defended QE II as the right policy, but also attacked the monetary policy of China, the biggest holder of U.S. debt, an action that must be understood for how misdirected it is.
Here are a few excerpts from the speech:
On our "tepid" recovery
- In sum, on its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years.
Indeed, although I expect that growth will pick up and unemployment will decline somewhat next year, we cannot rule out the possibility that unemployment might rise further in the near term, creating added risks for the recovery.
On China
- The strategy of currency undervaluation has demonstrated important drawbacks, both for the world system and for the countries using that strategy.
… For large, systemically important countries with persistent current account surpluses, the pursuit of export-led growth [i.e., China and its strategy] cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account.
On defending QEII as the right policy
- Following up on this earlier success, the Committee [i.e., the Federal Open Market Committee] announced this month that it would purchase additional Treasury securities. In taking that action, the Committee seeks to support the economic recovery, promote a faster pace of job creation, and reduce the risk of a further decline in inflation that would prove damaging to the recovery.
Fully aware of the important role that the dollar plays in the international monetary and financial system, the Committee believes that the best way to continue to deliver
…
WHAT’S REALLY BEHIND QE2?
by ilene - November 23rd, 2010 2:44 am
Ellen Brown, taking a uniquely positive view of QE2, argues that it is not about saving the banks, in WHAT’S REALLY BEHIND QE2? - Ilene
Courtesy of Ellen Brown
The deficit hawks are circling, hovering over QE2, calling it just another inflationary bank bailout. But unlike QE1, QE2 is not about saving the banks. It’s about funding the federal deficit without increasing the interest tab, something that may be necessary in this gridlocked political climate just to keep the government functioning.
On November 15, the Wall Street Journal published an open letter to Fed Chairman Ben Bernanke from 23 noted economists, professors and fund managers, urging him to abandon his new “quantitative easing” policy called QE2. The letter said:
We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. . . . The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.
The Pragmatic Capitalist (Cullen Roche) remarked:
Many of the people on this list have been warning about bond vigilantes while also comparing the USA to Greece for several years now. Of course, they’ve been terribly wrong and it is entirely due to the fact that they do not understand how the US monetary system works. . . . What’s unfortunate is that these are many of our best minds. These are the people driving the economic bus.
The deficit hawks say QE is massively inflationary; that it is responsible for soaring commodity prices here and abroad; that QE2 won’t work any better than an earlier scheme called QE1, which was less about stimulating the economy than about saving the banks; and that QE has caused the devaluation of the dollar, which is hurting foreign currencies and driving up prices abroad.
None of these contentions is true, as will be shown. They arise from a failure either to understand modern monetary mechanics (see links at The Pragmatic Capitalist and here) or to understand QE2, which is a different animal from QE1. QE2 is not about saving the banks, or devaluing the dollar, or saving the housing market. It is about saving the government from having to raise taxes or cut programs, and saving Americans from the austerity measures crippling the Irish and the Greeks; and for that, it…
Robert Prechter Explains The Fed, Part I
by ilene - November 19th, 2010 3:19 pm
Robert Prechter, Elliott Wave theory expert, examines the Federal Reserve. – Ilene
Via Elliott Wave International, Robert Prechter Explains The Fed, Part I
The ongoing financial crisis has made the central bank’s decisions — interest rates, quantitative easing (QE2), monetary stimulus, etc. — a permanent fixture on six-o’clock news.
Yet many of us don’t truly understand the role of the Federal Reserve.
For answers, let’s turn to someone who has spent a considerable amount of time studying the Fed and its functions: EWI president Robert Prechter. Today we begin a 3-part series that we believe will help you understand the Fed as well as he does. (Excerpted from Prechter’s Conquer the Crash and the free Club EWI report, "Understanding the Federal Reserve System.") Here is Part I.
Money, Credit and the Federal Reserve Banking System
Conquer the Crash, Chapter 10
By Robert PrechterAn argument for deflation is not to be offered lightly because, given the nature of today’s money, certain aspects of money and credit creation cannot be forecast, only surmised. Before we can discuss these issues, we have to understand how money and credit come into being. This is a difficult chapter, but if you can assimilate what it says, you will have knowledge of the banking system that not one person in 10,000 has.
The Origin of Intangible Money
Originally, money was a tangible good freely chosen by society. For millennia, gold or silver provided this function, although sometimes other tangible goods (such as copper, brass and seashells) did. Originally, credit was the right to access that tangible money, whether by an ownership certificate or by borrowing.
Today, almost all money is intangible. It is not, nor does it even represent, a physical good. How it got that way is a long, complicated, disturbing story, which would take a full book to relate properly. It began about 300 years ago, when an English financier conceived the idea of a national central bank. Governments have often outlawed free-market determinations of what constitutes money and imposed their own versions upon society by law, but earlier schemes usually involved coinage. Under central banking, a government forces its citizens to accept its debt as the only form of legal tender. The Federal Reserve System assumed this monopoly role in the United States in 1913.
What Is a Dollar?
Originally, a dollar was defined as a certain
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