Tag: finance

This picture explains our QE

The Fed pouring out some Chablis

Elites get their fill

The rest – a blue pill

That makes sheeple think they are free

The Limerick King

.

.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/bTMqn4EQ4Zk/story01.htm williambanzai7

This picture explains our QE

The Fed pouring out some Chablis

Elites get their fill

The rest – a blue pill

That makes sheeple think they are free

The Limerick King

.

.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/bTMqn4EQ4Zk/story01.htm williambanzai7

With just over two weeks left in 2013, here is a reminder, via AFP, of the main technological developments of the year.

Source: AFP

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/376V6azTVtM/story01.htm Tyler Durden

Submitted by Mark Spitznagel via The Daily Reckoning blog,

A major issue is the growing disparity between rich and poor, the 1% versus the 99%. While the president’s solutions differ from Republicans, they both ignore a principal source of this growing disparity.

The source is not runaway entrepreneurial capitalism, which rewards those who best serve the consumer in product and price. (Would we really want it any other way?) There is another force that has turned a natural divide into a chasm… dun, dun, dun… the Federal Reserve. The relentless expansion of credit by the Fed creates artificial disparities based on political privilege and economic power.

David Hume, the 18th-century Scottish philosopher, pointed out that when money is inserted into the economy (from a government printing press or, as in Hume’s time, the importation of gold and silver), it is not distributed evenly but “confined to the coffers of a few persons, who immediately seek to employ it to advantage.”

In the 20th century, the economists of the Austrian school built upon this fact as their central monetary tenet. Ludwig von Mises and his students showed that an increase in money supply is beneficial to those who get it first and is detrimental to those who get it last. Monetary inflation is a process, not a static effect. To think of it only in terms of aggregate price levels (I’m looking at you Ben Bernanke) is to ignore this pernicious process and the imbalance and economic dislocation that it creates.

As Mises protégé Murray Rothbard explained, monetary inflation is akin to counterfeiting, which necessitates that some benefit and others don’t. After all, if everyone counterfeited in proportion to their wealth, there would be no real economic benefit to anyone. Similarly, the expansion of credit is uneven in the economy, which results in wealth redistribution. To borrow a visual from another Mises student, Friedrich von Hayek, the Fed’s money creation does not flow evenly like water into a tank, but rather oozes like honey into a saucer, dolloping one area first and only then very slowly dribbling to the rest.

The Fed doesn’t expand the money supply by uniformly dropping cash from helicopters over the hapless masses. Rather, it directs capital transfers to the largest banks (whether by overpaying them for their financial assets or by lending to them on the cheap), minimizes their borrowing costs, and lowers their reserve requirements. All of these actions result in immediate handouts to the financial elite first, with the hope that they will subsequently unleash this fresh capital onto the unsuspecting markets, raising demand and prices wherever they do.

The Fed, having gone on an unprecedented credit expansion spree, has benefited the recipients who were first in line at the trough: banks (imagine borrowing for free and then buying up assets that you know the Fed is aggressively buying with you) and those favored entities and individuals deemed most creditworthy. Flush with capital, these recipients have proceeded to bid up the prices of assets and resources, while everyone else has watched their purchasing power decline.

At some point, of course, the honey flow stops—but not before much malinvestment. Such malinvestment is precisely what we saw in the historic 1990s equity and subsequent real-estate bubbles (and what we’re likely seeing again today in overheated credit and equity markets), culminating in painful liquidation.

The Fed is transferring immense wealth from the middle class to the most affluent, from the least privileged to the most privileged. This coercive redistribution has been a far more egregious source of disparity than the president’s presumption of tax unfairness (if there is anything unfair about approximately half of a population paying zero income taxes) or deregulation.

Pitting economic classes against each other is a divisive tactic that benefits no one. Yet if there is any upside, it is perhaps a closer examination of the true causes of the problem. Before we start down the path of arguing about the merits of redistributing wealth to benefit the many, why not first stop redistributing it to the most privileged?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/oR0JxCpS9kU/story01.htm Tyler Durden

Submitted by Mark Spitznagel via The Daily Reckoning blog,

A major issue is the growing disparity between rich and poor, the 1% versus the 99%. While the president’s solutions differ from Republicans, they both ignore a principal source of this growing disparity.

The source is not runaway entrepreneurial capitalism, which rewards those who best serve the consumer in product and price. (Would we really want it any other way?) There is another force that has turned a natural divide into a chasm… dun, dun, dun… the Federal Reserve. The relentless expansion of credit by the Fed creates artificial disparities based on political privilege and economic power.

David Hume, the 18th-century Scottish philosopher, pointed out that when money is inserted into the economy (from a government printing press or, as in Hume’s time, the importation of gold and silver), it is not distributed evenly but “confined to the coffers of a few persons, who immediately seek to employ it to advantage.”

In the 20th century, the economists of the Austrian school built upon this fact as their central monetary tenet. Ludwig von Mises and his students showed that an increase in money supply is beneficial to those who get it first and is detrimental to those who get it last. Monetary inflation is a process, not a static effect. To think of it only in terms of aggregate price levels (I’m looking at you Ben Bernanke) is to ignore this pernicious process and the imbalance and economic dislocation that it creates.

As Mises protégé Murray Rothbard explained, monetary inflation is akin to counterfeiting, which necessitates that some benefit and others don’t. After all, if everyone counterfeited in proportion to their wealth, there would be no real economic benefit to anyone. Similarly, the expansion of credit is uneven in the economy, which results in wealth redistribution. To borrow a visual from another Mises student, Friedrich von Hayek, the Fed’s money creation does not flow evenly like water into a tank, but rather oozes like honey into a saucer, dolloping one area first and only then very slowly dribbling to the rest.

The Fed doesn’t expand the money supply by uniformly dropping cash from helicopters over the hapless masses. Rather, it directs capital transfers to the largest banks (whether by overpaying them for their financial assets or by lending to them on the cheap), minimizes their borrowing costs, and lowers their reserve requirements. All of these actions result in immediate handouts to the financial elite first, with the hope that they will subsequently unleash this fresh capital onto the unsuspecting markets, raising demand and prices wherever they do.

The Fed, having gone on an unprecedented credit expansion spree, has benefited the recipients who were first in line at the trough: banks (imagine borrowing for free and then buying up assets that you know the Fed is aggressively buying with you) and those favored entities and individuals deemed most creditworthy. Flush with capital, these recipients have proceeded to bid up the prices of assets and resources, while everyone else has watched their purchasing power decline.

At some point, of course, the honey flow stops—but not before much malinvestment. Such malinvestment is precisely what we saw in the historic 1990s equity and subsequent real-estate bubbles (and what we’re likely seeing again today in overheated credit and equity markets), culminating in painful liquidation.

The Fed is transferring immense wealth from the middle class to the most affluent, from the least privileged to the most privileged. This coercive redistribution has been a far more egregious source of disparity than the president’s presumption of tax unfairness (if there is anything unfair about approximately half of a population paying zero income taxes) or deregulation.

Pitting economic classes against each other is a divisive tactic that benefits no one. Yet if there is any upside, it is perhaps a closer examination of the true causes of the problem. Before we start down the path of arguing about the merits of redistributing wealth to benefit the many, why not first stop redistributing it to the most privileged?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/oR0JxCpS9kU/story01.htm Tyler Durden

Hot on the heels of JPMorgan’s “web cash” developments in the virtual currency arena, the CEO of Russia largest bank – Sberbank – appears to be looking for alternatives…

• *SBERBANK CEO GREF SAYS FUTURE BELONGS TO VIRTUAL CURRENCIES
• *GREF SAYS DEVELOPMENT OF VIRTUAL CURRENCIES ‘CAN’T BE STOPPED’
• *SBERBANK CEO CALLS FOR GREATER REGULATION OF VIRTUAL CURRENCIES
• *SBERBANK MAY FORM OWN VIRTUAL CURRENCY ON BASIS OF YANDEX MONEY

When a pseudonymous ‘Japanese’ coder creates a crypto-currency that gains acceptance among thousands of vendors, it’s dismissed by the powers-that-be and called a ponzi scheme by the MSM. One wonders what happens when the largest banks of the US and Russia sanction the ‘idea’ of a decentralized, unregulated, ‘money’ transfer system.

Via Bloomberg,

“We are at a new stage of technological development. I can’t imagine how it can be stopped,” Sberbank CEO Herman Gref tells reporters in Moscow.

 

Gref says virtual currencies need greater regulation

 

“These experiments must end in one or two crashes” before virtual currencies become firmly established, Gref says

 

Says Yandex Money isn’t “a currency but it’s a first step in that direction”

Of course, the difference is – the banks want to own it…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/etc5q9NHbLE/story01.htm Tyler Durden

Hot on the heels of JPMorgan’s “web cash” developments in the virtual currency arena, the CEO of Russia largest bank – Sberbank – appears to be looking for alternatives…

• *SBERBANK CEO GREF SAYS FUTURE BELONGS TO VIRTUAL CURRENCIES
• *GREF SAYS DEVELOPMENT OF VIRTUAL CURRENCIES ‘CAN’T BE STOPPED’
• *SBERBANK CEO CALLS FOR GREATER REGULATION OF VIRTUAL CURRENCIES
• *SBERBANK MAY FORM OWN VIRTUAL CURRENCY ON BASIS OF YANDEX MONEY

When a pseudonymous ‘Japanese’ coder creates a crypto-currency that gains acceptance among thousands of vendors, it’s dismissed by the powers-that-be and called a ponzi scheme by the MSM. One wonders what happens when the largest banks of the US and Russia sanction the ‘idea’ of a decentralized, unregulated, ‘money’ transfer system.

Via Bloomberg,

“We are at a new stage of technological development. I can’t imagine how it can be stopped,” Sberbank CEO Herman Gref tells reporters in Moscow.

 

Gref says virtual currencies need greater regulation

 

“These experiments must end in one or two crashes” before virtual currencies become firmly established, Gref says

 

Says Yandex Money isn’t “a currency but it’s a first step in that direction”

Of course, the difference is – the banks want to own it…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/etc5q9NHbLE/story01.htm Tyler Durden

While the good times are about to end for the Japanese Bond Market (as shown in yesterday in Counting Down To Japan’s D-Day In Two Charts), the reality is that anyone who bet on an surge in Japanese bond yields in the past few years has been carted out feet first. Which is also why shorting the Japanese bond market has been widely known as the “Widowmaker” trade in the investing community. However, according to Charles Gave, another “Widowmaker” has emerged in the past year: “It looks like the euro is competing to grab title for itself. Many traders have been shorting the currency, with poor results so far.”

Paradoxically, ever since Mario Draghi’s “whatever it takes” speech in July of 2012 when redenomination risk (i.e., the collapse of the Eurozone and the end of the Euro) was the biggest threat for the Eurozone, the Euro has risen by a staggering 1700 pips against the dollar. It has gotten so bad that not only are European corporate profits getting crushed on the back of the strong currency, but despite the ECB’s repeated attempts to talk down the Euro, they consistently achieve the opposite.

So what explains the persistent strength of the Euro? Here are some perspectives by Charles Gave of Evergreen Gavekal.

How to explain the strange and irrepressible strength of the euro? Let’s start with a simple idea: if the euro is going up, it is probably because we have more buyers than sellers. Armed with this profound knowledge, we can start to try to identify who these buyers are. In my opinion, the largest buyers fall into two categories:

1. German companies. Contrary to popular opinion, Germany is not struggling against the burden of an overvalued currency. In fact, as the chart below shows, for Germany the euro is basically as undervalued as the dollar. For France, however, the euro is 11% overvalued against the dollar; and for Italy and Spain, the single currency is 11% overvalued. Ergo, Germany is undervalued against these countries by the same amounts. And as a result of Germany’s global currency competitiveness, it has moved from a current account deficit (ex-Europe) in 2005, to an annual surplus with the world (ex Europe) which is now around €125bn.

 

Now, most of the German exports outside of Europe must be billed in US dollars—let’s estimate about €100bn annually worth. Since the net costs incurred by Germany in producing these exports have to be paid in euros, then it means that German companies must buy roughly that same amount of euros per year (unless German FDI was also this high, but is not). If the deutschmark still existed as an independent currency, this would push the unit higher. Instead, it pushes the euro higher, which leads to the French, Italian or Spanish companies becoming even less competitive against their German competitors, which leaves the markets wide open for the said German companies. Needles to say, the Germans are willing to fight up to the last French or Italian soldier.

 

 

2. Japanese retail investors. As we all know, France has a major budget deficit and close to 70% of its government debt is owned by foreigners. In the last 12 months, Mrs Watanabe has in effect financed the €75bn French budget deficit. As Japanese investors pile into euro-denominated debt (with gross purchases of nearly €400bn year to date!), they are obviously putting upward pressure on the euro, and downward pressure on the yen.

 

Of course, Japanese are not the only foreigners buying French debt (so are the Middle Easterners, Russians, etc). But if we add up just these two categories alone—an approximation of euro purchases by German corporates and Japanese financing of the French deficit—we get €175bn in the past year. No wonder the euro has been going up.

 

* * *

 

What could stop this relentless drive? Two things: i) the German current account surplus ex-euroland starts to fall—this should start to happen given the restored competitiveness of Japan (the German and Japanese product mix are 90% similar); or ii) foreigners decide they have enough of French debt, or even worse, that the time has come to take profits.

 

The funny thing is that in both cases one discovers that Japan, and not the US, will be prominent on the other side of these transactions. The time to short the euro will eventually come, but when it does investors will have to short it against the yen, and not against the dollar. Given the monetary policy in Japan right now, this time is probably not imminent. In the meantime, instead of shorting the euro, one could short the French, Italian or Spanish industrial companies, or perhaps the German financials

Well, there’s all that. A far simpler reason is that capital flows away from where central banks are wantonly devaluing their currency, in this case the US and Japan both monetizing 70% of gross Treasury issuance every month. Furthermore, with the ECB still largely unable to enact outright monetization (not only over Germany’s stern refusal but due to the legal structure of the Eurozone, where the primary beneficiaries of such monetization would ironically be German Bunds), and with excess liquidity materially declining every week with LTRO repayments by northern European banks (today’s €22.7 billion LTRO repayment for example was the largest since February and pushed the ECB’s excess liquidity to the lowest level since December 2011), it is no surprise why the latest New Normal carry trade involves either shorting the USD or JPY and offseting these with a long EUR leg.

Whatever the reason, the trade will continue making widows until something radically changes in the global central bank arrangement in which the Fed and BOJ are injecting copious amounts of liquidity, while credit creation in Europe continues to decling at a record pace.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/XsgvKX7rtwE/story01.htm Tyler Durden

While the good times are about to end for the Japanese Bond Market (as shown in yesterday in Counting Down To Japan’s D-Day In Two Charts), the reality is that anyone who bet on an surge in Japanese bond yields in the past few years has been carted out feet first. Which is also why shorting the Japanese bond market has been widely known as the “Widowmaker” trade in the investing community. However, according to Charles Gave, another “Widowmaker” has emerged in the past year: “It looks like the euro is competing to grab title for itself. Many traders have been shorting the currency, with poor results so far.”

Paradoxically, ever since Mario Draghi’s “whatever it takes” speech in July of 2012 when redenomination risk (i.e., the collapse of the Eurozone and the end of the Euro) was the biggest threat for the Eurozone, the Euro has risen by a staggering 1700 pips against the dollar. It has gotten so bad that not only are European corporate profits getting crushed on the back of the strong currency, but despite the ECB’s repeated attempts to talk down the Euro, they consistently achieve the opposite.

So what explains the persistent strength of the Euro? Here are some perspectives by Charles Gave of Evergreen Gavekal.

How to explain the strange and irrepressible strength of the euro? Let’s start with a simple idea: if the euro is going up, it is probably because we have more buyers than sellers. Armed with this profound knowledge, we can start to try to identify who these buyers are. In my opinion, the largest buyers fall into two categories:

1. German companies. Contrary to popular opinion, Germany is not struggling against the burden of an overvalued currency. In fact, as the chart below shows, for Germany the euro is basically as undervalued as the dollar. For France, however, the euro is 11% overvalued against the dollar; and for Italy and Spain, the single currency is 11% overvalued. Ergo, Germany is undervalued against these countries by the same amounts. And as a result of Germany’s global currency competitiveness, it has moved from a current account deficit (ex-Europe) in 2005, to an annual surplus with the world (ex Europe) which is now around €125bn.

 

Now, most of the German exports outside of Europe must be billed in US dollars—let’s estimate about €100bn annually worth. Since the net costs incurred by Germany in producing these exports have to be paid in euros, then it means that German companies must buy roughly that same amount of euros per year (unless German FDI was also this high, but is not). If the deutschmark still existed as an independent currency, this would push the unit higher. Instead, it pushes the euro higher, which leads to the French, Italian or Spanish companies becoming even less competitive against their German competitors, which leaves the markets wide open for the said German companies. Needles to say, the Germans are willing to fight up to the last French or Italian soldier.

 

 

2. Japanese retail investors. As we all know, France has a major budget deficit and close to 70% of its government debt is owned by foreigners. In the last 12 months, Mrs Watanabe has in effect financed the €75bn French budget deficit. As Japanese investors pile into euro-denominated debt (with gross purchases of nearly €400bn year to date!), they are obviously putting upward pressure on the euro, and downward pressure on the yen.

 

Of course, Japanese are not the only foreigners buying French debt (so are the Middle Easterners, Russians, etc). But if we add up just these two categories alone—an approximation of euro purchases by German corporates and Japanese financing of the French deficit—we get €175bn in the past year. No wonder the euro has been going up.

 

* * *

 

What could stop this relentless drive? Two things: i) the German current account surplus ex-euroland starts to fall—this should start to happen given the restored competitiveness of Japan (the German and Japanese product mix are 90% similar); or ii) foreigners decide they have enough of French debt, or even worse, that the time has come to take profits.

 

The funny thing is that in both cases one discovers that Japan, and not the US, will be prominent on the other side of these transactions. The time to short the euro will eventually come, but when it does investors will have to short it against the yen, and not against the dollar. Given the monetary policy in Japan right now, this time is probably not imminent. In the meantime, instead of shorting the euro, one could short the French, Italian or Spanish industrial companies, or perhaps the German financials

Well, there’s all that. A far simpler reason is that capital flows away from where central banks are wantonly devaluing their currency, in this case the US and Japan both monetizing 70% of gross Treasury issuance every month. Furthermore, with the ECB still largely unable to enact outright monetization (not only over Germany’s stern refusal but due to the legal structure of the Eurozone, where the primary beneficiaries of such monetization would ironically be German Bunds), and with excess liquidity materially declining every week with LTRO repayments by northern European banks (today’s €22.7 billion LTRO repayment for example was the largest since February and pushed the ECB’s excess liquidity to the lowest level since December 2011), it is no surprise why the latest New Normal carry trade involves either shorting the USD or JPY and offseting these with a long EUR leg.

Whatever the reason, the trade will continue making widows until something radically changes in the global central bank arrangement in which the Fed and BOJ are injecting copious amounts of liquidity, while credit creation in Europe continues to decling at a record pace.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/XsgvKX7rtwE/story01.htm Tyler Durden