Baltic Dry Index. 808 -09
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
"When it becomes serious, you have to lie"
Jean-Claude Juncker. Luxembourg Prime Minister and president of the Euro Group of Finance Ministers. Confessed liar.
The big question today is, are Bank of America and
Goldman ringing a bell at the top of the bond bubble? At first sight it would
appear that they are. Or are they merely following Jean-Claude Juncker’s lead,
and herding their Muppets into their next new product line as part of God’s
work? A product line that seems to be equities.
Bank of America issues `bond crash' alert on Fed tightening fears
The return of confidence and healthy growth in the US risks setting off a “bond crash” comparable to 1994 and triggering a string of upsets across the world, Bank of America has warned.
The US lender said investors face a treacherous moment as central banks start fretting about inflation and shift gears, threatening a surge in bond yields.This happened in 1994 under Federal Reserve chief Alan Greenspan when yields on US 30-year Treasuries jumped 240 basis points over a nine-month span, setting off a “savage reversal of fortune in leveraged areas of fixed income markets”.
A similar shock this year is “likely” if the US economy continues to gather strength. “The moment we hear the first rhetorical talk of exit strategies by central banks this could turn,” said chief investment strategist, Michael Hartnett. There was already a whiff of this in the most recent Fed minutes.
“The period of Maximum Liquidity is close to an end. Yes, the Japanese reflation is gaining steam in 2013 but we regard this as the last of the great reflations. The big picture is a transition from deflation to normal growth and rates,” he said.
The 1994 bond shock - and seared in the memories of bond-holders - ricocheted through global markets. It bankrupted Orange Country, California, which was caught flat-footed with large bond positions. It set off the Tequila Crisis in Mexico as the cost of rolling over `tesobonos’ linked to the US dollar suddenly jumped.
----Bank of America said the “Great Rotation” under way from bonds into equities closely tracks the pattern of 1994, with bank stocks leading the way.
Over the
past seven years US investors have pulled $600bn from US equity funds and
poured $800bn instead into bond funds. This process is going into reverse.
Equity funds have drawn $35bn over the last 13 trading days alone, creating the
risk of an unstable “melt-up” in stocks over coming months.
Credit Bubble Seen in Davos as Cohn Warns of Repricing
By Christine Harper & Michael J. Moore - Jan 24, 2013 11:01 PM GMT
Debt markets that have seen junk-bond yields drop to record lows may face a “substantial repricing” if interest rates spike or investors begin pulling money out of fixed income, Cohn, 52, said in an interview yesterday with Bloomberg Television’s Erik Schatzker at the World Economic Forum in Davos, Switzerland.
The Spanish government attracted record demand for its 7 billion-euro ($9.4 billion) sale of 10-year bonds this week and Portugal sold five-year debt for the first time in two years. The Standard & Poor’s 500 Index (SPX) topped 1,500 yesterday for the first time since 2007.
“Markets are really giving the sign that progress has been made,” Martin Senn, chief executive officer of Zurich Insurance Group AG, said in an interview after a meeting of bankers and policy makers including Italian Prime Minister Mario Monti and Bank of Canada Governor Mark Carney. Senn said that he and his colleagues have to avoid becoming “complacent.”
----Buyers of fixed-income products must be told that “just because it is a bond doesn’t mean that it trades at par,” Cohn said yesterday.
“At some point, interest rates will go higher again, and all of the money that has piled into fixed income over the past three years, some of it will come out,” Cohn said. “We will clearly be there to facilitate, we will clearly be there to provide balance sheet and liquidity to our clients, but ultimately, we can’t be the buyer of last resort.”
The 13 largest investment banks have announced plans to cut $1.03 trillion in risk-weighted assets, consulting firm McKinsey & Co. said in a Jan. 23 report. Inventory holdings of corporate bonds by top dealers have dropped about 40 percent from two years ago and are less than a quarter of their 2007 peak, according to data compiled by Bloomberg.
More
http://www.bloomberg.com/news/2013-01-24/credit-bubble-seen-in-davos-as-cohn-warns-of-repricing.html
To me it seems that
we are far from a sustainable recovery, neither in America, nor Europe, nor
Japan, nor China. America is dependent on the Fed’s 85 billion a month in
quantitative easing, were it to stop, America’s recovery would end in a split
second. Europe is dependent on the ECB buying up sovereign debt, mostly via the
back door. Japan is in deflation just about to start manipulating its currency
setting off a new currency war. Only China just might be embarking on a
sustainable recovery, though the jury’s still out, and the figures highly
questionable. While bonds are undoubtedly in an epic bubble, that bubble seems
to me to have further to go. This might not be a top merely more of a a plateaux.
While it’s never wrong to get out early, before the panicked crowd tries to
rush for the exit, why are BOA and the Goldmanites setting out to fight the
Fed? Why are they willing to bet on the
Fed repeating fallen guru Greenspan’s February 1994 error? Are the High
Frequency Trading programs tired of just stealing each other’s dollar? Is it
time to hustle the public again?
Next Japan says it’s not manipulating its currency lower, honest it isn’t. That’s just a happy coincidental by-product of ending deflation. Given that it will steal exports from American, European, and other Asian exporters, the next G-20 meeting ought to be fun.
Japan brushes aside forex manipulation claims ahead of G20
TOKYO |(Reuters) - Japan brushed aside criticism that aggressive easing by the Bank of Japan could trigger competitive currency devaluations, saying the central bank is trying to end nearly 20 years of deflation, not manipulate the yen.
Japanese Prime Minister Shinzo Abe's calls for aggressive action by the Bank of Japan (BOJ) has raised alarm in Europe and concern it could contribute to a "currency war" as other central banks adopt similar policies.
Japan may have to defend its actions at a Group of 20 meeting next month to stem the criticism of its grand plan to revive the country's economic fortunes.
---- The yen skidded to a 2 1/2 year low of 90.695 against the dollar on Friday after the release of the consumer price data reinforced expectations for more monetary easing.
Last year the yen flirted with record highs versus the dollar, a big concern for Tokyo given the economy's heavy reliance on exports.
Since early November, the yen has slumped 11 percent versus the dollar as Abe stormed to an election victory with bold promises to end decades of stop-start growth with unlimited monetary easing, a weaker yen and big fiscal spending.
"Considering the dollar was around 110 yen when the first G20 meeting was held after the Lehman Brothers crisis, the excessive yen strength is being corrected," Aso said.
Abe took the first step in overhauling Japanese monetary policy earlier this week when the BOJ said it will start next year open-ended purchases of assets, mostly government debt, to meet the inflation target agreed with the government.
Since the global financial crisis five years ago, central banks in the United States and Britain have engaged in aggressive monetary easing, which can help support economic growth by lowering interest rates but also tends to weaken the domestic currency.
The BOJ has also been purchasing government debt since the financial crisis, but the rapid slide in the yen has sparked concern among policymakers abroad.
German Chancellor Angela Merkel waded into the currency debate on Thursday, singling out Japan as a source of concern following the BOJ's moves.
More
http://www.reuters.com/article/2013/01/25/us-japan-economy-currency-idUSBRE90O07320130125
There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.J. K. Galbraith
At the Comex silver depositories Thursday final figures were: Registered 38.01
Moz, Eligible 112.94 Moz, Total 150.95 Moz.
Crooks and
Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Today, the case for
a British EU exit. If so many European “pubic troughers” are wild at the
prospect of the UK leaving the sinking European Titanic, it must be time to
leave in the UK lifeboat. There’s no future for Britain, or any other country,
remaining in a German run, wealth destroying, high food costs, austerity union.
If Europe wants to turn itself into a high tax, low productivity, youth
emigrant, United States of Europe, Great Britain can’t stop them. But we shouldn’t
join them, nor do anything to encourage them in such foolishness. Such a
European poverty union, is unlikely to last once Europeans see their living
standards falling as the rest of the world’s rise.
"The most puzzling development in politics during the last decade is the apparent determination of Western European leaders to re-create the Soviet Union in Western
Europe."
Mikhail Gorbachev
Fog in Channel, Cameron Cut Off
By Tim Judah Jan 24, 2013 4:00 PM GMT
While Prime Minister David Cameron was making his long-awaited speech on the
future of the U.K.’s relationship with the rest of Europe this week, Brussels
was shrouded in fog. Inevitably, a number of European newspapers recalled the
old joke on British insularity, allegedly from a 1930 Daily Mirror headline:
"Fog in Channel: Continent Cut Off."Cameron, in his speech, tried to play it both ways: He wants a new relationship with Europe and is at the same time determined that the U.K. should remain inside the European Union. Legislation will be prepared for a referendum to put the issue to the people, and after the next election in 2015, assuming a Conservative victory, Britons will vote in the first half of the next four-year to five-year parliament.
Leaders across Europe gave the speech a cool reception. Sweden is generally sympathetic to the U.K.'s position in Europe, but a pithy tweet by Foreign Minister Carl Bildt, widely quoted in today’s newspapers, seems to crystallize what most European opinion makers think of the Cameron speech: "Flexibility sounds fine, but if you open up to a 28-speed Europe, at the end of the day there is no Europe at all. Just a mess." (It is 28 because Croatia should join in July.)
This morning’s papers across Europe reflect a mix of irritation and anger with Cameron, as well as some sadness. Les Echos, the French business daily, runs a front-page headline: "The Great Britain of David Cameron provokes Europe." It also has a column by Nicolas Madelaine titled "Double or Quits," indicating the sense that Cameron is gambling with the EU.
Cameron, according to Madelaine, is betting that his new policy will keep his party together over Europe, and that even if he can't get what he wants in any new negotiation, he'll still be able to persuade the British public to vote yes -- and to prevent a referendum from being transformed into a vote to punish the government of the day. "He has not found a winning formula," says Madelaine.
Italy’s Corriere della Sera runs a front-page commentary by Franco Venturini titled "The Impatient English." He thinks Cameron’s threat of a divorce is motivated less by political calculations than by culture and history. Of course, he argues, an attempt will be made to find an "anti-divorce compromise." He does not sound very optimistic:
Within reasonable limits, Europeans will seek an agreement with London. But the task is up to Cameron, now that the game has begun, to explain to the English that, with or without fog, they will remain isolated (even from the USA) if they vote "out."
Cameron's speech doesn't rate the front page in France's right-leaning daily Le Figaro, which is running a piece by researchers Thierry Chopin and Jean- Francois Jamet on exactly how Britain could leave and yet stay in Europe’s single market -- which is what many legislators in Cameron's Conservative party want.
They argue, as does Cameron in his speech, that leaving the EU but staying in the single market, similar to Norway's position, is a nonstarter for the U.K., because Norway has no say in how the rules are made. So they suggest giving votes to non-EU members when it comes to the working of the single market:
For the United Kingdom, leaving the EU but maintaining a key role at the heart of the single market would constitute a reasonable compromise. Such a statute would not prevent the United Kingdom from participating on a case-by-case basis in other EU initiatives (for example in matters of defense or foreign policy.) But it would be a guarantee of participation based on mutual interest, avoiding frustration on either side of the Channel.
In this way, they argue, the euro-zone countries could integrate closer, both politically and financially, but at the same time non-EU members would have a say in the running of the single market. Implicit here is another idea. This two-level Europe might accommodate not just the U.K., but problematic potential members such as Turkey and Ukraine.
More
The trouble with socialism is that eventually you run out of other people’s money.
Margaret Thatcher.
Another weekend, and not so great and not so good Lords of the Universe
descend from Mount Davos in their thousands, to start to order around the six
and a half billion hoi-poloi, aka plebs, riff raff, scum, us. In much of
continental Europe, I suspect, the “us” will not take kindly to the new round
of mandated austerity. Have a great weekend everyone.
People of the same trade seldom meet
together, even for merriment and diversion, but the conversation ends in a
conspiracy against the public, or in some contrivance to raise prices.
Adam Smith. The Wealth of Nations. 1776.
The monthly Coppock Indicators finished December:
DJIA: +100 Down. NASDAQ: +123 Unch. SP500: +129 Up.
All three indexes are giving different
signals. A time for caution.
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