Copper and FCX Showed Us The Path
Copper and the benchmark stock for copper, Freeport McMoran ($FCX, FCX) have led the way much lower. FCX alone has dropped 40% since August. The other precious metals have followed suit, with gold and silver grabbing more headlines. We can attribute some of that weakness due to over all strength in the US Dollar, as the dollar index has risen 10% (give or take) during this same period. However, that isn't the entire story.
Government Fiat Is On Trial, and Losing. Big Time.
Gold has been used as a type of anti-governmental stimulus mechanism. Simple really. Don't believe in the credit of a nation, or believe that additional stimulus will lead to a path of hyperinflation/deflation, gold was perceived to be the safe haven. Within limits, that perception has been widely held, and as a result gold has appreciated a great deal. However, that run has been dominated by a more powerful force. In short, we are well beyond the limits when precious metals serve their purpose as a hedge against governmental fiat.
Correlation Isn't Your Friend, and There is No Hedge (almost)
When the panic button is hit, then you will be able to tell because the correlation of ALL RISKY ASSETS approaches 1. That is what you have now. This is a major tell: managers of risky assets are liquidating, even the assets with handsome gains, in order to get into the safest assets (the US Dollar, and US Treasuries). In short, gold and other precious metals isn't safe either.
What then could be seen as a hedge for risky assets? Financials ($XLF/$FAS/$FAZ)
Financials are the only potential hedge. Even beyond the weak fundamentals, the lingering balance sheet problems, and flattening yield curve, a short financials could be seen as a hedge to the correlation of other assets. Only a short financials position addresses all of the ills that exist, plus offer a correlation hedge of sorts. Experienced persons in financial markets know that there is no hedge, per se, to correlation. That is the challenge of risk managers everywhere. The scenarios cannot be measured when correlations converge to 1. That is what we see right now. That said, a short financials position isn't risk free, and short $FAS / long $FAZ are full of structural problems due to the daily rebalancing of the instruments. However, a short $XLF position may be the best position until the correlations recede.
Friday, September 23, 2011
Tuesday, September 20, 2011
Let's Remove the Names and You Decide ($NFLX)
What If This Was an HBS Case Study? Let's see. UPDATED
Acme Inc:
Doesn't control access to supply of inputs necessary to distribute.
Doesn't control pricing to supply of inputs neceesary to distribute.
Potential competitors have greater power to influence access and pricing of inputs than Acme Inc.
Potential competitors have MUCH greater access to capital, and a far wider range of related products.
One last thing, Acme Inc's real name? Netflix (NFLX)
Insert whatever industry you want, the facts above are true, and the conclusion would be that Acme Inc is doomed. When, not if, unless there is a game-changing event (like M&A).
That doesn't mean that you can't make lots of money trading NFLX. The Acme Inc summary above tells you that extreme caution is necessary in doing so. You cannot predict the movements because (presumably) there are more people with more money pushing around the prices for their own reasons. However, if you are long, then you must remember that the facts regarding Acme Inc are incontrovertible until proven otherwise.
We can talk all about momentum and technicals, which are fine when there is a conflict of information regarding the Acme Inc's of the world. In the short run, those factors may certainly dominate the price action for a day, or a week, or even longer. My only point: when the fundamentals are THIS negative, then be quicker than usual and close your position (long or short) if you are proven wrong, given your timeframe.
That all said, feel free to click on the left, where an advertisement is almost certain to appear, compliments of Google AdSense, for your free trial. How Yahoo! (YHOO) missed click advertising is beyond imagination. That it has survived that colossal mistake is no small achievement, I guess. Perhaps that is the subject of another post. Nah. Nothing much more to say than that.
UPDATE: Splitting up the company into two individual parts, one which is dvd/video game delivery and one which is streaming is the best solution among a number of bad alternatives. The dvd/video game can be seen as a commodity, whose competition will include Blockbuster kiosks, GameStop, et al. The streaming business, however, is built to be sold. Its subscriber base can be sold to any number of parties, from the media creators to Amazon to cable companies to TV manufacturers. That is the shareholder-maximizing move. That doesn't necessarily mean that it will be easily sold, but it is clearly an exit path. Management should be applauded for this move, since it does present an alternative. Assigning a multiple, however, is another matter. The issue now will be what multiplier gets assigned to the streaming business. So unless the streaming business gets sold to Apple, which along with an actual TV, could be the entire back-to-front delivery package, the other potential bidders may have large misgivings because of the pricing of access to media. That leaves Google, Apple, or a partnership with Hulu and studios. The issue is that the pricing of the streaming business is highly contingent on the quality of the potential buyer. Absent a buyer, all of the original post remains true, and Netflix ($NFLX) could see much lower prices, even from here.
Acme Inc:
Doesn't control access to supply of inputs necessary to distribute.
Doesn't control pricing to supply of inputs neceesary to distribute.
Potential competitors have greater power to influence access and pricing of inputs than Acme Inc.
Potential competitors have MUCH greater access to capital, and a far wider range of related products.
One last thing, Acme Inc's real name? Netflix (NFLX)
Insert whatever industry you want, the facts above are true, and the conclusion would be that Acme Inc is doomed. When, not if, unless there is a game-changing event (like M&A).
That doesn't mean that you can't make lots of money trading NFLX. The Acme Inc summary above tells you that extreme caution is necessary in doing so. You cannot predict the movements because (presumably) there are more people with more money pushing around the prices for their own reasons. However, if you are long, then you must remember that the facts regarding Acme Inc are incontrovertible until proven otherwise.
We can talk all about momentum and technicals, which are fine when there is a conflict of information regarding the Acme Inc's of the world. In the short run, those factors may certainly dominate the price action for a day, or a week, or even longer. My only point: when the fundamentals are THIS negative, then be quicker than usual and close your position (long or short) if you are proven wrong, given your timeframe.
That all said, feel free to click on the left, where an advertisement is almost certain to appear, compliments of Google AdSense, for your free trial. How Yahoo! (YHOO) missed click advertising is beyond imagination. That it has survived that colossal mistake is no small achievement, I guess. Perhaps that is the subject of another post. Nah. Nothing much more to say than that.
UPDATE: Splitting up the company into two individual parts, one which is dvd/video game delivery and one which is streaming is the best solution among a number of bad alternatives. The dvd/video game can be seen as a commodity, whose competition will include Blockbuster kiosks, GameStop, et al. The streaming business, however, is built to be sold. Its subscriber base can be sold to any number of parties, from the media creators to Amazon to cable companies to TV manufacturers. That is the shareholder-maximizing move. That doesn't necessarily mean that it will be easily sold, but it is clearly an exit path. Management should be applauded for this move, since it does present an alternative. Assigning a multiple, however, is another matter. The issue now will be what multiplier gets assigned to the streaming business. So unless the streaming business gets sold to Apple, which along with an actual TV, could be the entire back-to-front delivery package, the other potential bidders may have large misgivings because of the pricing of access to media. That leaves Google, Apple, or a partnership with Hulu and studios. The issue is that the pricing of the streaming business is highly contingent on the quality of the potential buyer. Absent a buyer, all of the original post remains true, and Netflix ($NFLX) could see much lower prices, even from here.
Friday, September 16, 2011
75% Agree to Greece Bailout: Welcome to Multi-Party Prisoners' Dilemma
Only 75%? Are You Kidding Me?
According to CNBC (take that with a grain of salt), 75% of private sector banks have agreed to the Greek bailout. Many people have heard of the simulation called the Prisoners' Dilemma. For those who haven't, an explanation is here. If you Google "prisoners dilemma," you will find many academic papers describing it, as well as simulations that predict the most favorable outcomes.
The problem with that analysis is that it presumes multiple interactions, where you have the experiment over and over. However, in the case of Greece bailout, this is not necessarily the case.
What Does This Mean?
To agree means taking a haircut, maturity extension, etc of existing Greek debt. If anything, what you probably have is that 25%, who dissented, have not properly marked their Greek debt holdings to market. Acceptance of the Greek bailout will crystallize these losses. The French banks (Soc Gen, BNP) have seen their equity prices decline, and their credit ratings cut as a result of the instability caused due to suspicions that they have too much Greek debt. Who knows if this is true, but it is clear that the banking system has restricted funding to French banks due this suspicion. It is now also clear that the ECB and the Federal Reserve, along with other central banks, have basically turned the faucet to "full on" in order to provide the financial system with dollar liquidity. Also clear: these central banks knew full well that the acceptance rate was much lower than the 90% required for the bailout.
Dissent also implies that these banks believe that their survival is at stake, or that they believe that the ECB et al will cave, and provide the bailout in any case. If the bailout is not granted, then the dissenting banks must believe that they will not survive. Otherwise, they would have agreed to the terms as they were originally set. In short, this is mutually agreed destruction from the Cold War days, because if a bank fails (or 25% of them do), then the systematic risk would be catastrophic. However, each dissenting bank must believe that either a) they will perish anyway, or b) the Troika will bailout Greece in any case.
Variations
The reason that this case is so interesting is that it is difficult to ascertain just who is playing. Let's presume that the 25% represent one side. The question is, just who is on the other? The Troika? The other 75% of the banks? Both at the same time? That is why this situation doesn't exactly fit the Prisoners' Dilemma scenario, but it is instructive because the 25% of banks that dissented may, themselves, not agree on who is the other side of this.
Dear Timmy, Ever Hear of the Glass Houses and Stones Thingy?
One thing that Europeans seems to unilaterally agree upon: Mr Geithner's opinion was not, is not, and won't be welcomed. Now that has implications for the entire system, especially since the US has more than shouldered its share of the burden (failure?) of keeping the system afloat. Untold billions have been lent to the US branches of foreign banks, so in a way, it is peculiar indeed that Mr Geithner is receiving the cold shoulder from the Europeans. Perhaps, there is yet another dimension to this particular instance of the Prisoners' Dilemma, with very nationalistic overtones. Yikes indeed.
According to CNBC (take that with a grain of salt), 75% of private sector banks have agreed to the Greek bailout. Many people have heard of the simulation called the Prisoners' Dilemma. For those who haven't, an explanation is here. If you Google "prisoners dilemma," you will find many academic papers describing it, as well as simulations that predict the most favorable outcomes.
The problem with that analysis is that it presumes multiple interactions, where you have the experiment over and over. However, in the case of Greece bailout, this is not necessarily the case.
What Does This Mean?
To agree means taking a haircut, maturity extension, etc of existing Greek debt. If anything, what you probably have is that 25%, who dissented, have not properly marked their Greek debt holdings to market. Acceptance of the Greek bailout will crystallize these losses. The French banks (Soc Gen, BNP) have seen their equity prices decline, and their credit ratings cut as a result of the instability caused due to suspicions that they have too much Greek debt. Who knows if this is true, but it is clear that the banking system has restricted funding to French banks due this suspicion. It is now also clear that the ECB and the Federal Reserve, along with other central banks, have basically turned the faucet to "full on" in order to provide the financial system with dollar liquidity. Also clear: these central banks knew full well that the acceptance rate was much lower than the 90% required for the bailout.
Dissent also implies that these banks believe that their survival is at stake, or that they believe that the ECB et al will cave, and provide the bailout in any case. If the bailout is not granted, then the dissenting banks must believe that they will not survive. Otherwise, they would have agreed to the terms as they were originally set. In short, this is mutually agreed destruction from the Cold War days, because if a bank fails (or 25% of them do), then the systematic risk would be catastrophic. However, each dissenting bank must believe that either a) they will perish anyway, or b) the Troika will bailout Greece in any case.
Variations
The reason that this case is so interesting is that it is difficult to ascertain just who is playing. Let's presume that the 25% represent one side. The question is, just who is on the other? The Troika? The other 75% of the banks? Both at the same time? That is why this situation doesn't exactly fit the Prisoners' Dilemma scenario, but it is instructive because the 25% of banks that dissented may, themselves, not agree on who is the other side of this.
Dear Timmy, Ever Hear of the Glass Houses and Stones Thingy?
One thing that Europeans seems to unilaterally agree upon: Mr Geithner's opinion was not, is not, and won't be welcomed. Now that has implications for the entire system, especially since the US has more than shouldered its share of the burden (failure?) of keeping the system afloat. Untold billions have been lent to the US branches of foreign banks, so in a way, it is peculiar indeed that Mr Geithner is receiving the cold shoulder from the Europeans. Perhaps, there is yet another dimension to this particular instance of the Prisoners' Dilemma, with very nationalistic overtones. Yikes indeed.
Netflix or RIMM: Which is Worse? Its Close
Comparing Netflix ($NFLX) to Research in Motion ($RIMM) Isn't Quite Right
Both stocks had very bad days yestereday. Netlfix' bad day started before the market opened and Research in Motion's bad day started after the market closed. However, that is where the similarities end.
Netflix' troubles have been highlighted here.
Netflix Has a Brand Name, Research in Motion Doesn't
There is hope for Netflix at some level, i.e. it can still form partnerships with media companies in exchange for equity. It can try to secure licensing agreements for content in international markets (unlikely, since the blueprint already exists). In other words, Netflix has a brand name which needs to be levered into returns for equity holders. Fast.
Research in Motion, however, is in a huge amount of trouble. It is rapidly becoming irrelevant in the smartphone market, as it gets dominated by Android phones and of course, the iPhone. Enterprise email/server infrastructure? Being bypassed although it will be a while for the largest companies to entirely shift this infrastructure away from Blackberry due to security issues. If this gets moved to the cloud in a viable way, it will mean the death knell for RIMM.
Worse: RIMM is Running Outta Cash
It has been widely publicized that the RIMM tablet is a disaster, and that the marketshare of RIMM's smartphones is dropping. Perhaps most telling is the fact that RIMM itself used 50% of its cash in the last quarter, including something like $750 million on Nortel's patents. The return on those bids better come quickly, because management has lost the faith of the investing community.
RIMM's backers suggest that the enterprise franchise and patents make RIMM a value play. Granted, the enterprise franchise could be worthwhile but the problem is that users don't want to use Blackberrys, other than the 60 year olds who have been using them for 10 years.
Patents is another matter. People mistakenly believe that these are very valuable. Well, lets like the courts decide. Has Apple launched lawsuit after lawsuit attempting to block the sale of the Playbook? No. Apple has its sights set on the Samsung Galaxy Tab. Apple knows that Samsung is Apple's only viable competitor, with not only design but production capabilities as well. RIMM? Not worth of Apple's attention. That is all you need to know about the value of RIMM's intellectual property.
Correction: Netflix and RIMM Do Have Something in Common
Both are sells, and while you can daytrade or do whatever you would like in the very short term, and will remain so until any of the facts above are proven to be wrong. VWAP, EMA, SMA, Bollinger, MACD: all of them will merely be numbers that get sliced through unless something dramatic occurs, and soon.
Both stocks had very bad days yestereday. Netlfix' bad day started before the market opened and Research in Motion's bad day started after the market closed. However, that is where the similarities end.
Netflix' troubles have been highlighted here.
Netflix Has a Brand Name, Research in Motion Doesn't
There is hope for Netflix at some level, i.e. it can still form partnerships with media companies in exchange for equity. It can try to secure licensing agreements for content in international markets (unlikely, since the blueprint already exists). In other words, Netflix has a brand name which needs to be levered into returns for equity holders. Fast.
Research in Motion, however, is in a huge amount of trouble. It is rapidly becoming irrelevant in the smartphone market, as it gets dominated by Android phones and of course, the iPhone. Enterprise email/server infrastructure? Being bypassed although it will be a while for the largest companies to entirely shift this infrastructure away from Blackberry due to security issues. If this gets moved to the cloud in a viable way, it will mean the death knell for RIMM.
Worse: RIMM is Running Outta Cash
It has been widely publicized that the RIMM tablet is a disaster, and that the marketshare of RIMM's smartphones is dropping. Perhaps most telling is the fact that RIMM itself used 50% of its cash in the last quarter, including something like $750 million on Nortel's patents. The return on those bids better come quickly, because management has lost the faith of the investing community.
RIMM's backers suggest that the enterprise franchise and patents make RIMM a value play. Granted, the enterprise franchise could be worthwhile but the problem is that users don't want to use Blackberrys, other than the 60 year olds who have been using them for 10 years.
Patents is another matter. People mistakenly believe that these are very valuable. Well, lets like the courts decide. Has Apple launched lawsuit after lawsuit attempting to block the sale of the Playbook? No. Apple has its sights set on the Samsung Galaxy Tab. Apple knows that Samsung is Apple's only viable competitor, with not only design but production capabilities as well. RIMM? Not worth of Apple's attention. That is all you need to know about the value of RIMM's intellectual property.
Correction: Netflix and RIMM Do Have Something in Common
Both are sells, and while you can daytrade or do whatever you would like in the very short term, and will remain so until any of the facts above are proven to be wrong. VWAP, EMA, SMA, Bollinger, MACD: all of them will merely be numbers that get sliced through unless something dramatic occurs, and soon.
Thursday, September 15, 2011
The PPT Weighs In
The Fed and the ECB Support 50% of the Equation
In a joint announcement, The Federal Reserve and the ECB basically announced the "massive force" measure needed to protect liquidity problems striking European banks. 3 month liquidity, all at one price, for basically as much as you need, is their offer. More than the largest, well-known stories, Societe Generale and BNP, this helps those that have no other alternative sources of liquidity.
Now For the Hard Part
The question, of course, is solvency. The question is still bank balance sheets, and what losses can be taken, if moved from unrealized to realized. This presumes that not all unrealized losses are properly marked to market, which is almost certainly a problem.
Until Then, It's Safe
Don't fight the Fed, etc: apply all of the rules here. Get outta the way, ride the longs, which mean: DB, CS, ING, STD if you must. These are swings, but for now, it will be fine. XLF? No, except that shorts will have to cover but that will be secondary to the European bank ADRs mentioned here.
In a joint announcement, The Federal Reserve and the ECB basically announced the "massive force" measure needed to protect liquidity problems striking European banks. 3 month liquidity, all at one price, for basically as much as you need, is their offer. More than the largest, well-known stories, Societe Generale and BNP, this helps those that have no other alternative sources of liquidity.
Now For the Hard Part
The question, of course, is solvency. The question is still bank balance sheets, and what losses can be taken, if moved from unrealized to realized. This presumes that not all unrealized losses are properly marked to market, which is almost certainly a problem.
Until Then, It's Safe
Don't fight the Fed, etc: apply all of the rules here. Get outta the way, ride the longs, which mean: DB, CS, ING, STD if you must. These are swings, but for now, it will be fine. XLF? No, except that shorts will have to cover but that will be secondary to the European bank ADRs mentioned here.
Precious Metals: Lower
Scenarios for Gold and Silver Are Both Bad
Gold is down about $120 from the all-time nominal highs. Where now?
Scenario #1: Governmental Fiat Failure
Let's say that Greece defaults and pressure builds on Ms Merkel and the ECB to issue Eurobonds. It is the view of the LTZ Vortex that Ms Merkel, at the end of the day, will have to cave. One potential solution: partially gold-backed bonds. Germany and France reach a compromise by telling the PIIGS: you want liquidity, put up the nation's assets that have a firm price, i.e. gold. Greece, Italy, Spain, Portugal hit the sell button on Gold to fund the backing. That would satisfy the rest of the Eurozone who don't want to bail out the weak, and avoid the Lehman scenario (maybe). Result: gold lower.
Scenario #2: Kick the Can, and the World Buys It
Risky assets get a huge bid because the world is convinced that governments will succeed. Those investors using gold as the safe haven sell gold to buy riskier assets. Simple, and well-known scenario. Actually, risky assets need not appreciate, they just need to stop whipping around 2% a day in order for this to occur. Result: gold lower.
Recommendation: Sell the rips in gold against your long equities/risk-on assets.
Silver: Only If Fundamentals Change
The worst trade of all is the gold/silver ratio trade. That is a total punt. Silver is part industrial metal, and part precious metal. Which one dominates is anyone's guess, unless you know something VERY specific about the supply/demand equation that isn't reflected in the market prices.
If you want a hedged position with volatility, I'd prefer Gold/Copper, or Freeport McMoran ($FCX). It is very, very interesting that FCX hasn't participated in the recent 70 handle increase in the S&P. The experts call that "divergence," ie when there are conflicting signals. The all-out green light will be if FCX starts to run, but if it starts to drop (and XLF stays muted), then it could be time for a reversal and more volatility ahead.
Gold is down about $120 from the all-time nominal highs. Where now?
Scenario #1: Governmental Fiat Failure
Let's say that Greece defaults and pressure builds on Ms Merkel and the ECB to issue Eurobonds. It is the view of the LTZ Vortex that Ms Merkel, at the end of the day, will have to cave. One potential solution: partially gold-backed bonds. Germany and France reach a compromise by telling the PIIGS: you want liquidity, put up the nation's assets that have a firm price, i.e. gold. Greece, Italy, Spain, Portugal hit the sell button on Gold to fund the backing. That would satisfy the rest of the Eurozone who don't want to bail out the weak, and avoid the Lehman scenario (maybe). Result: gold lower.
Scenario #2: Kick the Can, and the World Buys It
Risky assets get a huge bid because the world is convinced that governments will succeed. Those investors using gold as the safe haven sell gold to buy riskier assets. Simple, and well-known scenario. Actually, risky assets need not appreciate, they just need to stop whipping around 2% a day in order for this to occur. Result: gold lower.
Recommendation: Sell the rips in gold against your long equities/risk-on assets.
Silver: Only If Fundamentals Change
The worst trade of all is the gold/silver ratio trade. That is a total punt. Silver is part industrial metal, and part precious metal. Which one dominates is anyone's guess, unless you know something VERY specific about the supply/demand equation that isn't reflected in the market prices.
If you want a hedged position with volatility, I'd prefer Gold/Copper, or Freeport McMoran ($FCX). It is very, very interesting that FCX hasn't participated in the recent 70 handle increase in the S&P. The experts call that "divergence," ie when there are conflicting signals. The all-out green light will be if FCX starts to run, but if it starts to drop (and XLF stays muted), then it could be time for a reversal and more volatility ahead.
Monday, September 12, 2011
Dramatically, the S&P 500 Recovers, and The Chinese Excuse
Technicals Are Driving The Boat If Fundies Don't Interfere
Today, the market looked into the abyss yet again overnight, with the S&P mini trading in the 1120s. However, by the US regular trading hours, every lunge lower was parried away, and technicals starting taking over as the downward channels held and bounced.
Ludicrous Rumour Triggers Follow-Through
After meandering, there was a blurb in the FT that Italy was reaching out to China. Where there are a few problems with that. First, the Chinese have said aloud that they wouldn't if the ECB wasn't. Actually, that isn't that convincing either, since the ECB is buying Italian bonds. However, second, you need to ask yourself: why would the Chinese sink more of their foreign reserves in Euro-denominated Italian bonds when it has loudly criticized the U.S. and its budget difficulties? Does this make any sense whatsoever? As as a wise man once said, "Just because we don't understand Mandarin doesn't make the Chinese stupid." We attach all sorts of illogic simply because we don't understand the Chinese, their culture, their customs, or pretty much anything else either. We simply shrug our shoulders and attribute any 'ole reason to the Chinese. Inane.
Next Up: 10B Eur of Italian Bonds for Sale
Now THIS bears watching. Given that the main buyers of Euro-denominated bonds are European banks, which are riddled with Greek issues, and proposed regulatory restraints, the question must be: who exactly will be buying these bonds? That, we will see soon enough.
Today, the market looked into the abyss yet again overnight, with the S&P mini trading in the 1120s. However, by the US regular trading hours, every lunge lower was parried away, and technicals starting taking over as the downward channels held and bounced.
Ludicrous Rumour Triggers Follow-Through
After meandering, there was a blurb in the FT that Italy was reaching out to China. Where there are a few problems with that. First, the Chinese have said aloud that they wouldn't if the ECB wasn't. Actually, that isn't that convincing either, since the ECB is buying Italian bonds. However, second, you need to ask yourself: why would the Chinese sink more of their foreign reserves in Euro-denominated Italian bonds when it has loudly criticized the U.S. and its budget difficulties? Does this make any sense whatsoever? As as a wise man once said, "Just because we don't understand Mandarin doesn't make the Chinese stupid." We attach all sorts of illogic simply because we don't understand the Chinese, their culture, their customs, or pretty much anything else either. We simply shrug our shoulders and attribute any 'ole reason to the Chinese. Inane.
Next Up: 10B Eur of Italian Bonds for Sale
Now THIS bears watching. Given that the main buyers of Euro-denominated bonds are European banks, which are riddled with Greek issues, and proposed regulatory restraints, the question must be: who exactly will be buying these bonds? That, we will see soon enough.
Sunday, September 11, 2011
More News From Europe (Hint: None Good)
It's Sunday, Markets Will Open Soon
Unlike 2008, when the Fed actually tried to do something, the silence of their European counterparts in 2011 is deafening and troubling.
Bloomberg: Greek ‘Orderly’ Default Can’t Be Ruled Out, Roesler Tells Welt
Reuters: Euro seen under pressure on lack of G7 support
Are Gold-backed EUR bonds Inevitable?
Perhaps the only answer is to require the PIIGs to sell their familysilver gold or use it to partially collateralize EUR-denominated bonds (and no tranching, please). Is there any other solution that actually works? Stabilize the EUR, keeps the unity, and thereby stabilizing global equity markets. Not sure why this hasn't been floated more strongly. Guess we will see.
Unlike 2008, when the Fed actually tried to do something, the silence of their European counterparts in 2011 is deafening and troubling.
Bloomberg: Greek ‘Orderly’ Default Can’t Be Ruled Out, Roesler Tells Welt
Reuters: Euro seen under pressure on lack of G7 support
Are Gold-backed EUR bonds Inevitable?
Perhaps the only answer is to require the PIIGs to sell their family
Saturday, September 10, 2011
Euros For Nothing, Greek Islands for Free
Maybe Europe Should Outlaw Weekends Altogether
The G7 is meetings, and the blurbs are coming out, slowly. Highlights isn't really the right word, but...
Reuters: Marseille lays bare G7 differences and lack of policy room
Guardian: Greece on verge of default as doubt grows over €8bn bailout
Of course, BHO is golfing, so it cannot be all that bad.
Soon, we will be able to afford to travel to Europe again (at least southern Europe).
I doubt this is what The Vapors meant by "Turning Japanese."
The G7 is meetings, and the blurbs are coming out, slowly. Highlights isn't really the right word, but...
Reuters: Marseille lays bare G7 differences and lack of policy room
Guardian: Greece on verge of default as doubt grows over €8bn bailout
Of course, BHO is golfing, so it cannot be all that bad.
Soon, we will be able to afford to travel to Europe again (at least southern Europe).
I doubt this is what The Vapors meant by "Turning Japanese."
Wednesday, September 7, 2011
Everyone (?) Back in the Pool
Let's See if the Dog Swims This Time
One reason for pause: this NY Times article, largely unsubstantiated, which suggests a large European will face imminent danger. Nice that they get a free option to get Pulitzer consideration if they are right, and no penalty if they are wrong.
The German court ruled that the EFSF is constitutional. Let's restate more accurately: The German court ruled that the EFSF is not un-constitutional. That tells you all you need to know: a non-negative equals a positive, even if fleeting.
As posted two days ago, we were looking 1120 as a destination point, but the buyers stepped in, defended 1138, and with the news, voila! Back in the pool...and so with it you can expect the dogs (European banks) to be the leaders for this nanosecond. Barclays, Deutsche and Credit Suisse, this means YOU. UBS, Santander: we will need a lot more market cooperation for those dogs to swim.
As posted two days ago, we were looking 1120 as a destination point, but the buyers stepped in, defended 1138, and with the news, voila! Back in the pool...and so with it you can expect the dogs (European banks) to be the leaders for this nanosecond. Barclays, Deutsche and Credit Suisse, this means YOU. UBS, Santander: we will need a lot more market cooperation for those dogs to swim.
One reason for pause: this NY Times article, largely unsubstantiated, which suggests a large European will face imminent danger. Nice that they get a free option to get Pulitzer consideration if they are right, and no penalty if they are wrong.
Tuesday, September 6, 2011
My Currency is Weaker Than Your Currency: Japan vs Switzerland
The Swiss National Bank (SNB) has entered with unprecedented force
Just wow. The SNB has pegged its currency to the EUR at a 1.2 level and then issued a statement to the world basically saying that they were gonna defend it. We can debate free-market mechanisms blah blah all you want, the fact is that the world will accept this policy without putting up a fight whatsoever. The SNB deserves respect in that it has made its policy clear and unequivocal: the Bank of Japan may need to do the same, and soon.
National Sovereignty Trumps Economic Theory
We cannot create a list that is long enough to sufficiently describe all of the times that governments have intervened in the national interest. France, S Korea, China, Japan, you name it. When it occurs, people put up half-hearted arguments, to no avail, largely because every government doesn't want to throw away a card that it may need to use at some point in the future.
Governmental Fiat on Trial
The issue here is that currency intervention is dicey at the minimum, highly suspect at the mean, and a guaranteed disaster at worst. There are two "safe haven" currencies at the moment, CHF and JPY. The world has flocked out of every other currency into those two. Both the SNB and Bank of Japan have intervened, in size, to no avail, by attempting to talk the market down, and by intervening in markets on a sporadic basis.
In the past this has worked to some degree. However, that presumed that government policies were not ridiculed as they are now. The US and European Community has cemented that fate, as their policies have proved to be ineffective, or worse, have been the subject of endless political wrangling. The result: governmental fiat itself is challenged. Thus, the endless demand for gold, the sovereign-less currency (sorry Ben, if it walks like a currency and talks like a currency, it's a currency), persists. Put it this way, the most volatile credit derivatives position on Wall Street is now developed nations' sovereign credit, due to the sheer size x volatility. That should tell you all you need to know.
Dear Asian Neighbors: Strengthen Your Currencies or ELSE, Love BOJ
The real untold story at this point is the fact that the Bank of Japan shouldn't be buying US dollars. It should go around to the other regional currencies and start buying all of them. In size. That would be far more effective in improving Japan's competitive position. Toyota and Honda aren't getting beat by Ford/GM. They are getting absolutely CANED by Hyundai. The competition for Japan Inc doesn't come from the US: it comes from Singapore, Taiwan, South Korea, Thailand, Malaysia, etc. Maybe these countries will protest. However, it is more likely that they will fold, given the fact that none of their track records allow them to complain too loudly. In short, Japan should take a page out of the SNB playbook, get on the phone, and call the Asian central banks. That would be a far better use of the Japanese Yen.
Just wow. The SNB has pegged its currency to the EUR at a 1.2 level and then issued a statement to the world basically saying that they were gonna defend it. We can debate free-market mechanisms blah blah all you want, the fact is that the world will accept this policy without putting up a fight whatsoever. The SNB deserves respect in that it has made its policy clear and unequivocal: the Bank of Japan may need to do the same, and soon.
National Sovereignty Trumps Economic Theory
We cannot create a list that is long enough to sufficiently describe all of the times that governments have intervened in the national interest. France, S Korea, China, Japan, you name it. When it occurs, people put up half-hearted arguments, to no avail, largely because every government doesn't want to throw away a card that it may need to use at some point in the future.
Governmental Fiat on Trial
The issue here is that currency intervention is dicey at the minimum, highly suspect at the mean, and a guaranteed disaster at worst. There are two "safe haven" currencies at the moment, CHF and JPY. The world has flocked out of every other currency into those two. Both the SNB and Bank of Japan have intervened, in size, to no avail, by attempting to talk the market down, and by intervening in markets on a sporadic basis.
In the past this has worked to some degree. However, that presumed that government policies were not ridiculed as they are now. The US and European Community has cemented that fate, as their policies have proved to be ineffective, or worse, have been the subject of endless political wrangling. The result: governmental fiat itself is challenged. Thus, the endless demand for gold, the sovereign-less currency (sorry Ben, if it walks like a currency and talks like a currency, it's a currency), persists. Put it this way, the most volatile credit derivatives position on Wall Street is now developed nations' sovereign credit, due to the sheer size x volatility. That should tell you all you need to know.
Dear Asian Neighbors: Strengthen Your Currencies or ELSE, Love BOJ
The real untold story at this point is the fact that the Bank of Japan shouldn't be buying US dollars. It should go around to the other regional currencies and start buying all of them. In size. That would be far more effective in improving Japan's competitive position. Toyota and Honda aren't getting beat by Ford/GM. They are getting absolutely CANED by Hyundai. The competition for Japan Inc doesn't come from the US: it comes from Singapore, Taiwan, South Korea, Thailand, Malaysia, etc. Maybe these countries will protest. However, it is more likely that they will fold, given the fact that none of their track records allow them to complain too loudly. In short, Japan should take a page out of the SNB playbook, get on the phone, and call the Asian central banks. That would be a far better use of the Japanese Yen.
Monday, September 5, 2011
OK, So She's (Merkel/DAX) a Dog...
Europe Wakes Up, Looks at Screens, and Starts Hitting Bids
Well, that was resolved quickly. The DAX hit a new 3-month low, as Europe returns from its August-long holiday, takes in the information, and eureka! Nothing has changed, except that in the U.S., employment numbers are woefully below the +500,000 jobs necessary to turn the ship around.
As long as the DAX continues lower, and the issues in Europe remain unresolved, the S&P 500 has little hope of sustainable upside. Closet technicians look at the daily charts and say...no meaningful support until 1120, another 30 handles lower.
Well, that was resolved quickly. The DAX hit a new 3-month low, as Europe returns from its August-long holiday, takes in the information, and eureka! Nothing has changed, except that in the U.S., employment numbers are woefully below the +500,000 jobs necessary to turn the ship around.
As long as the DAX continues lower, and the issues in Europe remain unresolved, the S&P 500 has little hope of sustainable upside. Closet technicians look at the daily charts and say...no meaningful support until 1120, another 30 handles lower.
Sunday, September 4, 2011
Drumbeat Against the Euro Banging Loudly
The populist popular press is out early today
FT: The worst of the euro crisis is yet to come
Reuters: Euro bond would get member's weakest rating (S&P)
Of course, bloggers/FX advisory sites are out, en masse
FX Daily: EURUSD: Hold short as selling accelerates
Zero Hedge: Merkel Loses Big, See Ya (ok, so i summarize)
3-day weekends have not been good for global equity markets (Federal Reserve Bank announced emergency liquidity measures, Soc Gen, October 1987, all occurred on a Tuesday following a long weekend).
S&P Futures down only 5, gold up (of course). Just a bunch of screen jockeys playing poker with each other, and some irrelevant babble about a lower Aussie Dollar can be ignored for now. We will see when Europe opens. More as it comes in.
FT: The worst of the euro crisis is yet to come
Reuters: Euro bond would get member's weakest rating (S&P)
Of course, bloggers/FX advisory sites are out, en masse
FX Daily: EURUSD: Hold short as selling accelerates
Zero Hedge: Merkel Loses Big, See Ya (ok, so i summarize)
3-day weekends have not been good for global equity markets (Federal Reserve Bank announced emergency liquidity measures, Soc Gen, October 1987, all occurred on a Tuesday following a long weekend).
S&P Futures down only 5, gold up (of course). Just a bunch of screen jockeys playing poker with each other, and some irrelevant babble about a lower Aussie Dollar can be ignored for now. We will see when Europe opens. More as it comes in.
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