"...Geithner: "If you allow people to start to doubt whether the U.S. can pay its obligations - that would be catastrophic. And the leadership understands that."
Jamie Dimon also said recently that the results would be "catastrophic."
Dimon told the Chamber of Commerce, "If anyone wants to [cap the debt ceiling], which I think would be catastrophic and unpredictable, I think they're crazy."..."
at http://www.businessinsider.com/tim-geithner-debt-limit-2011-4?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29#ixzz1JoGkjAUW
Sunday, April 17, 2011
IMF: Greek Debt Unsustainable
"Getting closer to default ...
From the WSJ: IMF Believes Greece Should Consider Debt Restructuring By 2012
From the WSJ: IMF Believes Greece Should Consider Debt Restructuring By 2012
The International Monetary Fund believes Greece's debt is unsustainable and has told European government and centralat http://www.calculatedriskblog.com/2011/04/imf-greek-debt-unsustainable.htmlbank officials that Athens should consider restructuring by next year, three people familiar with the situation said Saturday.
... The scenario to be examined first will involve extendingdebt repayments by as much as 30 years, the first official said, where private bondholders could be offered new bonds in exchange for old bonds with the same coupon, but with a longer maturity. Another scenario could involve reducing Greece's coupon payments and extending maturity dates...
Joseph Stiglitz on a global reserve currency
"Joseph Stiglitz is a Nobel Prize winning economist, Columbia University professor, and former Senior Vice President and Chief Economist of the World Bank. In this interview at INET's Bretton Woods conference in New Hampshire he explains why he thinks the US dollar as the reserve currency is hurting the entire world economy
Joseph Stiglitz : What I've argued for is a creation of a global reserve currency. Reserve currencies are, you might think of a store value and the dollar has been very unstable , understandable given the difficulties of the American economy, our performance was not a stellar. But the fact that in a modern globalized economy, 21st Century, it is an anachronism that a single currency would play the pivotal role that the dollar has played. What I argue in my book "Making Globalization Work" is that the dollar reserve currency system contributes to inequality ... and it actually contributes to the weakening of the global economy, because countries are setting aside literally hundreds of billions of dollars, you might say, of precautionary savings. That's money not spent..."
Joseph Stiglitz : What I've argued for is a creation of a global reserve currency. Reserve currencies are, you might think of a store value and the dollar has been very unstable , understandable given the difficulties of the American economy, our performance was not a stellar. But the fact that in a modern globalized economy, 21st Century, it is an anachronism that a single currency would play the pivotal role that the dollar has played. What I argue in my book "Making Globalization Work" is that the dollar reserve currency system contributes to inequality ... and it actually contributes to the weakening of the global economy, because countries are setting aside literally hundreds of billions of dollars, you might say, of precautionary savings. That's money not spent..."
Friday, April 15, 2011
QUESTION OF THE DAY: Why Does The Bond Market Not Care At All About The Debt?
"We have our own thoughts on this, but we thought we'd throw this out to everyone since so many people are budget obsessed...
Why does the bond market not care at all? Why are interest rates at record lows, with everyone screaming until their blue about how broke we are? And why is the relationship between government debt (the red line) inverse to interest rates?
And don't say "QE2" because as we've been discussing, rates rise during QE2. They don't fall.
Have at it..."
at http://www.businessinsider.com/question-of-the-day-how-2011-4?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29#ixzz1JcLzF8eK
Why does the bond market not care at all? Why are interest rates at record lows, with everyone screaming until their blue about how broke we are? And why is the relationship between government debt (the red line) inverse to interest rates?
And don't say "QE2" because as we've been discussing, rates rise during QE2. They don't fall.
Have at it..."
at http://www.businessinsider.com/question-of-the-day-how-2011-4?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29#ixzz1JcLzF8eK
Here's The Setup For The Con Of The Decade
"The Con is being set up right now, and the outlines are clearly visible. The Con works like this:
1. The Financial Elites/Oligarchy raked in billions in private profit from the orgy of leverage, credit expansion, fraud, embezzlement and misrepresentation of risk that resulted in the Housing Bubble.
2. The losses were transferred to the public (Federal government, i.e. The central State) or its proxy, the Federal Reserve (i.e. the central bank), via bailouts, backstops, guarantees, the Fed's purchase of taxic assets, and an open window for the financiers to borrow billions at zero interest (ZIRP) for further speculations.
3. The Treasury now borrows $1.6 trillion every year, fully 11% of the nation's GDP, as the Central State has replaced private demand and credit expansion with its own borrowing and spending.
4. Non-U.S. central banks have largely ceased to support this unprecedented scale of borrowing, so the Federal Reserve now buys most of the Treasury's issuance of debt via QE2 (quantitative easing, the direct purchase of $600 billion in Treasury bonds).
5. Unlike Japan, the U.S. cannot self-fund its own government borrowing: while U.S. investors, banks and insurance companies do own a significant chunk of Treasuries, the U.S. savings rate (capital accumulation) is still abysmally low, around 4%, which is half the historical average savings rate.
This is the result of the Keynesian Cult's One Big Idea, which is to pull demand forward and encourage borrowing and spending now by any means necessary, and thus sacrifice capital formation/saving.
So the basic outline of the Con is that private losses from the financialization of the U.S. economy were shifted to the public. Now to keep the Status Quo and Financial Plutocracy from imploding, the public is on the hook for $1.6 trillion in additional borrowing every year until Doomsday (around 2021 or so)..."
at http://www.zerohedge.com/article/guest-post-heres-setup-con-decade?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
1. The Financial Elites/Oligarchy raked in billions in private profit from the orgy of leverage, credit expansion, fraud, embezzlement and misrepresentation of risk that resulted in the Housing Bubble.
2. The losses were transferred to the public (Federal government, i.e. The central State) or its proxy, the Federal Reserve (i.e. the central bank), via bailouts, backstops, guarantees, the Fed's purchase of taxic assets, and an open window for the financiers to borrow billions at zero interest (ZIRP) for further speculations.
3. The Treasury now borrows $1.6 trillion every year, fully 11% of the nation's GDP, as the Central State has replaced private demand and credit expansion with its own borrowing and spending.
4. Non-U.S. central banks have largely ceased to support this unprecedented scale of borrowing, so the Federal Reserve now buys most of the Treasury's issuance of debt via QE2 (quantitative easing, the direct purchase of $600 billion in Treasury bonds).
5. Unlike Japan, the U.S. cannot self-fund its own government borrowing: while U.S. investors, banks and insurance companies do own a significant chunk of Treasuries, the U.S. savings rate (capital accumulation) is still abysmally low, around 4%, which is half the historical average savings rate.
This is the result of the Keynesian Cult's One Big Idea, which is to pull demand forward and encourage borrowing and spending now by any means necessary, and thus sacrifice capital formation/saving.
So the basic outline of the Con is that private losses from the financialization of the U.S. economy were shifted to the public. Now to keep the Status Quo and Financial Plutocracy from imploding, the public is on the hook for $1.6 trillion in additional borrowing every year until Doomsday (around 2021 or so)..."
at http://www.zerohedge.com/article/guest-post-heres-setup-con-decade?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
20 Signs That A Horrific Global Food Crisis Is Coming
"The following are 20 signs that a horrific global food crisis is coming....
#1 According to the World Bank, 44 million people around the globe have been pushed into extreme poverty since last June because of rising food prices.
#2 The world is losing topsoil at an astounding rate. In fact, according to Lester Brown, "one third of the world's cropland is losing topsoil faster than new soil is forming through natural processes".
#3 Due to U.S. ethanol subsidies, almost a third of all corn grown in the United States is now used for fuel. This is putting a lot of stress on the price of corn.
#4 Due to a lack of water, some countries in the Middle East find themselves forced to almost totally rely on other nations for basic food staples. For example, it is being projected that there will be no more wheat production in Saudi Arabia by the year 2012..."
at http://theeconomiccollapseblog.com/archives/20-signs-that-a-horrific-global-food-crisis-is-coming
#1 According to the World Bank, 44 million people around the globe have been pushed into extreme poverty since last June because of rising food prices.
#2 The world is losing topsoil at an astounding rate. In fact, according to Lester Brown, "one third of the world's cropland is losing topsoil faster than new soil is forming through natural processes".
#3 Due to U.S. ethanol subsidies, almost a third of all corn grown in the United States is now used for fuel. This is putting a lot of stress on the price of corn.
#4 Due to a lack of water, some countries in the Middle East find themselves forced to almost totally rely on other nations for basic food staples. For example, it is being projected that there will be no more wheat production in Saudi Arabia by the year 2012..."
at http://theeconomiccollapseblog.com/archives/20-signs-that-a-horrific-global-food-crisis-is-coming
Thursday, April 14, 2011
Interest rate risk and the Fed
"Is borrowing short and lending long a risky strategy for the Fed?
The Federal Reserve today is holding $1.4 trillion in U.S. Treasury securities, which is $600 billion more than it held four years ago. The maturity of those securities has also increased significantly. In April 2007, more than half of those securities were one year or shorter. Today, the fraction is down to 8%.
Since 2007, the Fed has also acquired $132 billion in debt from Fannie Mae, Freddie Mac and the Federal Home Loan Bank, and $937 billion in mortgage-backed securities guaranteed by Fannie, Freddie, or Ginnie Mae. Where did the Fed get the money to buy all this stuff?
The answer is, whenever somebody sold these items to the Fed, the Fed credited an account that the seller's bank maintains with the Fed in the form of new Federal Reserve deposits. At the moment, most of those new reserves are just sitting there at the end of each day on some bank's balance sheet. Reserve balances with Federal Reserve banks have gone from $9 billion in April 2007 to almost $1.5 trillion today.
The Fed is currently paying banks 0.25% interest on those reserves, and is collecting an average interest rate of 4% on its long-term securities. That netted the Fed a healthy profit of $80 billion in 2010, which it returned to the U.S. Treasury. In effect, the Fed is borrowing short and lending long, making a huge profit on the difference, and handing it back to the Treasury.
But of course, that only works in your favor when the short rate is below the long rate. At the moment, the short rate is well below the long rate, and historically that has been the average relation. But if short rates rise, is the Fed exposed to a loss on its portfolio?..."
at http://www.econbrowser.com/archives/2011/04/interest_rate_r.html
 |
Since 2007, the Fed has also acquired $132 billion in debt from Fannie Mae, Freddie Mac and the Federal Home Loan Bank, and $937 billion in mortgage-backed securities guaranteed by Fannie, Freddie, or Ginnie Mae. Where did the Fed get the money to buy all this stuff?
The answer is, whenever somebody sold these items to the Fed, the Fed credited an account that the seller's bank maintains with the Fed in the form of new Federal Reserve deposits. At the moment, most of those new reserves are just sitting there at the end of each day on some bank's balance sheet. Reserve balances with Federal Reserve banks have gone from $9 billion in April 2007 to almost $1.5 trillion today.
The Fed is currently paying banks 0.25% interest on those reserves, and is collecting an average interest rate of 4% on its long-term securities. That netted the Fed a healthy profit of $80 billion in 2010, which it returned to the U.S. Treasury. In effect, the Fed is borrowing short and lending long, making a huge profit on the difference, and handing it back to the Treasury.
But of course, that only works in your favor when the short rate is below the long rate. At the moment, the short rate is well below the long rate, and historically that has been the average relation. But if short rates rise, is the Fed exposed to a loss on its portfolio?..."
at http://www.econbrowser.com/archives/2011/04/interest_rate_r.html
Interest rate risk hurts — hurts like a 9 per cent market value loss
"The mortgage market — lurching from one risk to another, right?
No sooner had Fitch Ratings gotten more comfortable with credit losses than it starts warning on interest rate risk. It’s kind of back to the future for the Mortgage-Backed Securities (MBS) industry too. Because before the financial crisis, rate shifts were really the things keeping investors up at night.
Here’s Fitch’s macro credit team with a worked example in their latest report:
at http://ftalphaville.ft.com/blog/2011/04/14/546576/interest-rate-risk-hurts-hurts-like-a-9-per-cent-market-value-loss/
No sooner had Fitch Ratings gotten more comfortable with credit losses than it starts warning on interest rate risk. It’s kind of back to the future for the Mortgage-Backed Securities (MBS) industry too. Because before the financial crisis, rate shifts were really the things keeping investors up at night.
Here’s Fitch’s macro credit team with a worked example in their latest report:
To take a practical example of the potential risks to MBS investors from higher interest rates, an unhedged Fannie Mae MBS (collateralized by 30-year fixed rate conventional mortgage loans) with a 3.5% pass-through rate incurred an approximately 9% price loss over the course of a few months, as Treasury yields increased 130 basis points (bp) between mid-October 2010 and mid-February 2011. By comparison, traditional, high-quality prime mortgages originated between 2000 and 2004 are expected to experience roughly 0.25% in cumulative credit losses, realized over the remaining life of the mortgage pools (e.g. up to 30-year term). Indeed, this 9% market value loss is nearly twice the cumulative expected credit loss of 5.0% for traditional prime mortgages originated between 2005 and 2008, the worst credit performance on record. Further exacerbating the risks to MBS investors in a rising rate environment is the potential for slowing prepayment rates, with many borrowers either unable (because of negative equity and/or tighter underwriting standards) or unwilling (because of escalating mortgage rates) to refinance..."
at http://ftalphaville.ft.com/blog/2011/04/14/546576/interest-rate-risk-hurts-hurts-like-a-9-per-cent-market-value-loss/
Could ETFs Become the Next Toxic Assets?
"Weird ice cream flavors have in recent years spread like mad and now include such inviting types as raw horseflesh or sardines and brandy. Is something similar happening in the world of ETFs, or Exchange Traded Funds?
Mario Draghi, chairman of the Financial Stability Board, hinted as much last week. On Monday, the FSB delivered a more detailed report on the matter, noting that these once “plain vanilla” investment products have taken a “disquieting” turn and have tacked on “new elements of complexity and opacity.”
The new flavors of ETFs pose new challenges regarding counterparty and collateral risks and could even cause liquidity problems for large asset managers and banks, the FSB said. That’s rather a mouthful compared to the original idea of ETFs, which, as the FSB notes, was to add some flexibility and cost-efficiency on top of the diversification benefits that standard mutual funds already offered.
To be sure, ETFs have been under a constant barrage of criticism from John Bogle, the legendary founder of Vanguard and the investor of index funds..."
at http://blogs.wsj.com/economics/2011/04/14/could-etfs-become-the-next-toxic-assets/?mod=WSJBlog
Mario Draghi, chairman of the Financial Stability Board, hinted as much last week. On Monday, the FSB delivered a more detailed report on the matter, noting that these once “plain vanilla” investment products have taken a “disquieting” turn and have tacked on “new elements of complexity and opacity.”
The new flavors of ETFs pose new challenges regarding counterparty and collateral risks and could even cause liquidity problems for large asset managers and banks, the FSB said. That’s rather a mouthful compared to the original idea of ETFs, which, as the FSB notes, was to add some flexibility and cost-efficiency on top of the diversification benefits that standard mutual funds already offered.
To be sure, ETFs have been under a constant barrage of criticism from John Bogle, the legendary founder of Vanguard and the investor of index funds..."
at http://blogs.wsj.com/economics/2011/04/14/could-etfs-become-the-next-toxic-assets/?mod=WSJBlog
Strauss-Kahn: The Real Problem With Europe Is It Will Have Weak Growth For As Many As 10 Years
"IMF managing director Dominique Strauss-Kahn spoke to Bloomberg Television today about the situation in Europe, pointing out the difficulty in the region's banking system, the lack of a comprehensive approach to dealing with the problem, and the underlying low growth problem facing Europe.
From his comments:
at http://www.businessinsider.com/strauss-kahn-european-growth-2011-4?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29#ixzz1JWZcD6LV
From his comments:
"The problem is, [European growth] is stable at the low level. The real problem is…a rather long period of low growth in Europe. Even in Germany where growth is at the higher level, but not that high. So the real problem that the Europeans are facing is..a sluggish recovery and low growth for maybe five, six, seven, maybe 10 years..."
at http://www.businessinsider.com/strauss-kahn-european-growth-2011-4?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29#ixzz1JWZcD6LV
The Liquidation of Government Debt
"Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. A subtle type of debt restructuring takes the form of “financial repression.” Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks. In the heavily regulated financial markets of the Bretton Woods system, several restrictions facilitated a sharp and rapid reduction in public debt/GDP ratios from the late 1940s to the 1970s. Low nominal interest rates help reduce debt servicing costs while a high incidence of negative real interest rates liquidates or erodes the real value of government debt. Thus, financial repression is most successful in liquidating debts when accompanied by a steady dose of inflation. Inflation need not take market participants entirely by surprise and, in effect, it need not be very high (by historical standards). For the advanced economies in our sample, real interest rates were negative roughly half of the time during 1945–80. For the United States and the United Kingdom our estimates of the annual liquidation of debt via negative real interest rates amounted on average to 3 to 4 percent of GDP a year. For Australia and Italy, which recorded higher inflation rates, the liquidation effect was larger (around 5 percent per annum). We describe some of the regulatory measures and policy actions that characterized the heyday of the financial repression era..."
30 Year Auction Prices At 4.531%, Bid To Cover Dips
"The Treasury just priced the last of its three auctions (for a total of $66 billion) in the current week, in the form of a $13 billion in 30 Year Bond reopening. The auction came in strong compared to a when issued trading 3 bps wide, although the Bid To Cover did see a dip from last month's record 3.02, with $2.83 in bids tendered for every dollar allotted. More importantly, the dramatic drop in Indirect takedown seen yesterday in the 10 Year reopening, was not repeated with 47.2% of the auction granted to foreign investors. This was the second highest Indirect take down in almost two years, with just December 2010's 49.5% higher. Primary Dealers took a respite with 42% of orders allotted to the banks (which will flip a bulk of this bond back to the Fed shortly) , and Direct taking the rest or 10.8%. With this auction, and following $19.19 billion in maturities when all of this week's action settles over the weekend, will bring total debt subject to the ceiling to just $27.2 billion away from breaching the constitutional maximum. Prepare for that to be big news on Monday when the Mainstream Media finds the batteries for its calculator..."
at http://www.zerohedge.com/article/30-year-auction-prices-4569-bid-cover-dips?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
at http://www.zerohedge.com/article/30-year-auction-prices-4569-bid-cover-dips?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
The Federal Reserve Sent Billions In Bailout Aid To Millionaires and Billionaires In The Cayman Islands
"In a new article for Rolling Stone (which is a must read), Matt Taibbi exposes some of the folks that the Federal Reserve has been sending money to....
The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. "Our jaws are literally dropping as we're reading this," says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. "Every one of these transactions is outrageous."..."at http://theeconomiccollapseblog.com/archives/corrupted-5-shocking-examples-of-government-corruption-that-will-blow-your-mind
Wednesday, April 13, 2011
Rising economic nationalism
"I read a very good piece on the psychology of economic nationalism by SocGen 's Dylan Grice earlier today. Because of some relevant thoughts from a reader regarding austerity, I wanted to pass on my thoughts on what he wrote in the context of the present economic situation.
This is going to be more a 'political economy' post than an economics or financial one. I take an extremely negative view on economic nationalism; and it would probably take too long to explain why here. But I will lay out the arguments as neutrally as I can so you can see what is happening.
Here's what Grice wrote that I found insightful (hat tip Scott):
This is going to be more a 'political economy' post than an economics or financial one. I take an extremely negative view on economic nationalism; and it would probably take too long to explain why here. But I will lay out the arguments as neutrally as I can so you can see what is happening.
Here's what Grice wrote that I found insightful (hat tip Scott):
Many smaller eurozone countries have seen extreme political parties now either on the fringes of – or set to enter – coalition governments (e.g. the Netherlands, Austria and Finland). But the trend is growing. A recent article in 'The Economist' reported that a Catalonian politician, Xavier Garcia Albiol who is running for mayor in Badalona, just north of Barcelona, is gaining local support and national notoriety for his hard-line stance. He told the newspaper, "Wen people stop me in the street, 80% of the time it is to do withLet's see how this plays out in the laboratory. Grice writes:immigration or crime."
['In-group bias' researcher Henri Tajfel's] most famous experiment demonstrates how easy it is to create real divisions within groups where none previously existed and how those divisions can soon lead to discriminating behavior. Bristol schoolboys from the same year in the same school were given sheets of paper with dots on them and asked to guess how many dots were on each sheet. The boys were told the test was intended to assess their visual abilities and that they’d be split into groups according to performance. In fact, the schoolboys were split randomly.When times are tough, people start looking for someone to blame. This is a universal truth. And usually it is not the In-group which gets the blame but out-groups like minorities, immigrants and foreigners. The case against immigration in the U.S. during the Great Depression is instructive:
Tajfel then asked each schoolboy to independently allocate rewards to other schoolboys. But the other schoolboys were to remain anonymous, and the allocator was told only which group the other schoolboy belonged to. Famously, Tajifel discovered that the vast majority of subjects allocated significantly more reward to their in-group, at the expense of the out-group. His theory that discrimination against outsiders was to do with hardwired systematic processing errors rather than a few rogue personality types was vindicated.
When the United States last experienced an economic downturn greater than the present day depression, immigrants were often seen as a problem more than a solution because of high unemployment. As a result, Herbert Hoover authorised the Mexican Repatriation Program, which was the removal - by force if necessary - of both American Citizens of Mexican descent and Mexican immigrants from American soil..."at http://www.creditwritedowns.com/2011/04/rising-economic-nationalism.html#ixzz1JQxAdiUE
Now the IMF is warning about ETFs
"International regulator conspiracy? Unfortunate coincidence for the ETF industry? Or are regulators finally on to something via the power of group think?
We ask because hot on the heels of the Financial Stability Board’s warning about exchange traded funds on Tuesday comes “Annex 1.7″ of the IMF’s latest Global Financial Stability report, entitled ETF Mechanics and Risks.
Here goes the summary (our emphasis):
We ask because hot on the heels of the Financial Stability Board’s warning about exchange traded funds on Tuesday comes “Annex 1.7″ of the IMF’s latest Global Financial Stability report, entitled ETF Mechanics and Risks.
Here goes the summary (our emphasis):
Exchange-traded funds (ETFs) have become increasingly popular over the past few years. They give investors increased access to emerging market assets while also offering flexibility and leverage to specialized investors. Traditionally, ETFs have physically held underlying assets, but a new breed of ETFs have emerged in Europe that use synthetic replication techniques and derivatives to reduce costs and thereby boost returns. A small percentage of these funds also use leverage to cater to the hedging needs and speculative positions of their nonretail client base.at http://ftalphaville.ft.com/blog/2011/04/13/545351/now-the-imf-is-warning-about-etfs/
While these enhancements have reduced costs, they add a layer of complexity and increase counterparty and liquidity risks. The disproportionately large size of some ETFs compared with the market capitalization of the underlying reference indices poses a risk of disruptions in some markets from heavy ETF trading. This annex surveys the growth and mechanics of ETFs and highlights some of the key risks pertaining to synthetic replication and the use of leverage and derivatives in ETFs..."
Bullish Sentiment Stampede
"I have mentioned several times recently that bullish sentiment is extreme. If anything, "extreme" seems like an understatement as noted in Bullish Sentiment: Turning into a Stampede?
The latest Elliott Wave Theorist reports that a "bullish consensus" has also crystallized among a wide range of investors and financial professionals:
· "Individual investors (AAII poll)—most bullish in six years
· Newsletter advisors (II poll 20-week average)—most bullish in seven years
· Futures traders (trade-futures.com poll)—most bullish in four years
· Mutual fund managers (% cash)—most bullish ever
· Hedge fund managers (BoAML survey)—most bullish ever
· Economists (news-org polls)—unanimously bullish
· Top global strategists (three national year-ahead panels)—unanimously bullish
· Even most 'bears' on the economy are bullish on stocks because of inflation!"
Patterns of investor psychology are not new. In fact, they repeat themselves. Consider this quote in 1960 from Richard Russell of Dow Theory Today:
"Psychology during bear market rallies seems to follow a fairly consistent pattern. 'During secondary reactions [upward] in bear markets,' wrote [Robert] Rhea, 'it is a fairly uniform experience for traders and market experts to become very bullish.'"
Those words are as true today as they were 50 years ago..."
Treasury Sells $21 Billion in Ten Year Bonds As Indirect Interest Drops
"The Treasury just sold $21 billion in a 10 Year reopening (9 year 10 months), at a high yield of 3.494%, just below last month's 3.499%. Overall the auction turned out weak pricing outside of the when issued, confirming that the butterfly-ES correlation (which is primarily driven by the 10 Year) is working. And just as the market dipped into the auction the natural response would be a pick up following the placement. The internals were weak: Primary Dealers were forced to take down more than half (51.7%) of the auction (with every intention to flip to the Fed in a week or so), the highest Primary Dealer takedown since February 2010. In return, Indirect Bidder interest slumped to 42.4%, the weakest showing since October of last year, and the balance, or 5.9% was filled by Directs. The low Bid To Cover completed the weak picture, coming at 3.13, the lowest since December, but in line with a one year average. More importantly, with this $21 billion and yesterday's $32 billion, US debt is now $53 billion higher than the unsettled total disclosed yesterday of $14.268, or $14.321. This is far above the debt limit. It also means that the debt actually subject to the limit is now $14.269 billion, or $25 billion below the ceiling. And keep in mind there is another $13 billion in 30 Years to be auctioned off tomorrow (granted offset by $19.2) billion in maturities. Will the Treasury last through July without a debt ceiling increase at a rate of issuing $125 billion in net debt per month? Not a chance in hell..."
at http://www.zerohedge.com/article/treasury-sells-21-billion-ten-year-bonds-indirect-interest-drops?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
at http://www.zerohedge.com/article/treasury-sells-21-billion-ten-year-bonds-indirect-interest-drops?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
JOHN TAYLOR: PREPARE FOR THE COMING RECESSION
"The world’s largest FX hedge fund manager doesn’t mince words in this CNBC interview. Taylor says the economy will be back into recession by the end of 2011. He believes the recovery has been entirely artificial and once the Fed lifts the veil from QE2, government spending slows and high oil prices hit the consumer, the weak economy will be exposed again. From an investment perspective Taylor views the world as follows:
- Turkey is attractive
- Europe is weaker than the USA
- The Euro is justified at $1.45
- Asian economies remain very strong.
- Commodities should continue to correlate with Asian growth.
- US stocks are “fully priced”.
- He would be US bullish on stocks after a 20% decline..."
Tuesday, April 12, 2011
Stiglitz: Of the 1%, By the 1%, and for the 1% and the Downward Spiral Into the Abyss
" As we can see, the 'crisis' of the US budget impasse was averted, and the theater came to an end. Now the real work of creating a sustainable budget can begin.
The pigmen are going to be unrelenting in their attacks on the middle class and the poor. The attacks are threefold:
2. blaming the victims, and compelling them to take the greatest pain of the bailouts, and continuing bailouts and subsidies to the financial class through spending reallocations. The bailouts and spending on the military industrial complex are crowding out the public functions of government. There are even people trying to justify the theft of the Social Security Trust. Look, the funds are gone, we've taken them and given them to the banks! So no use crying over spilt milk, suck it up, and let's move on and take your cuts.
3. shifting the impulse to reform from financial reform to 'tax reform' that further supports the monied interests. Cut taxes for the wealthiest as your primary agenda using a variety of deceptive means like promoting a consumption tax, or a flat income tax but with offshore havens and loopholes, so the burden falls most heavily on those who spend the greatest percentage of their labor on subsistence, their basic needs..."
The pigmen are going to be unrelenting in their attacks on the middle class and the poor. The attacks are threefold:
1. resisting financial and political reform which caused the crisis in the first place. Three years after the crisis and no major player has even been indicted, the bonus system is flourishing again, and politicians are taking many millions in funds from the bankers and wealthy elite to promote their agendas.
2. blaming the victims, and compelling them to take the greatest pain of the bailouts, and continuing bailouts and subsidies to the financial class through spending reallocations. The bailouts and spending on the military industrial complex are crowding out the public functions of government. There are even people trying to justify the theft of the Social Security Trust. Look, the funds are gone, we've taken them and given them to the banks! So no use crying over spilt milk, suck it up, and let's move on and take your cuts.
3. shifting the impulse to reform from financial reform to 'tax reform' that further supports the monied interests. Cut taxes for the wealthiest as your primary agenda using a variety of deceptive means like promoting a consumption tax, or a flat income tax but with offshore havens and loopholes, so the burden falls most heavily on those who spend the greatest percentage of their labor on subsistence, their basic needs..."
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