French Malaise; Negative Real Interest Rates and Inflation; Junk Bond Issuance Surges

April 3, 2012

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“Facts are stubborn, but statistics are more pliable.” ~ Mark Twain

"I have deceived even your very eyes: what your wisdoms could not discover, these shallow fools have brought to light.” ~ William Shakespeare

survivorship bias: concentrating on people or things that survived a process, overlooking those that didn’t because of lack of visibility.

Research:

"90% of lottery winners go bankrupt within 5 years" – wish i could buy $puts on them – idea: find lotto winners, buy CDS on their mortgages, automobiles, and credit cards  – HS

"Between 1901 and 2000, there was a banking crisis started in one or more countries in more than half of the 100 years $USDX" – R&R

Edison’s creative thinking lessons: question premises, examine mistakes, create minimum idea quotas, and document psychology today

Once an expert, "the curse of knowledge kicks in, and we start to forget what it’s like not to know what we know" ~ study from Farnam Street

Book Recommendations from #NassimTaleb ~ Farnam Street

Central Banking:

Notice negative real yields earlier in the decade and a similar devaluation in the dollar versus gold to what Bernanke has accomplished, preceded 14% interest rates in 1980.

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"Burgeoning government debt levels are leading to ever more measures to influence market pricing" – expect more/pace to escalate – Citi $TLT

"Without capital controls, most sovereigns can only repress domestic actors – foreign investors just head for the exits." – Citi not for $USDX,yet

Junk Bond issuance surges $Fed operationnewbubble Market Montage (not portfolio managers are at a near record over-weighting) ~ a theme oft mentioned in this space. Bank of America shows portfolio managers are near record overweighting in junk bonds. #operationnewbubble

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ToDo create a mirror of Bernanke’s trading screens. $MBS, 5/5yr BEs, $RUS, $TLT, $USDX, PCE,etc

Great article on the perversity of crises: state cause crisis, use bust to seize power. “Argentina’s Kirchner Grabs the Central Bank” ~ WSJ

"Some policy makers follow the absorption rate of excess reserves into required reserves" as loan growth / inflation indicator ~ Cumberland Advisors $FED

  • Fed’s exit plan will try to avoid realizing losses, avoid loans from creating inflationThis will not work. Bernanke can’t push up interest rates, because he’ll lose $200 billion per 1% rise. At best, he’ll wait until he’s showing a profit on his garbage subprime position, letting the bulk roll off in 2014-2015.  Given the long and variable lag between monetary policy and inflation – five-to-ten years according to one BOE study – the inflation genie will already be out of the bottle.  (Chart from Financial Times, who plucked it from the BOE)

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“US faces a shortage of people with deep analytic skills” ~ $FED @federalreserve. Printing money will surely solve this. 

‘Fed’s Bullard tells Beijing: Tie currency to $USDX risks importing inflation’ – djfxtrader. our policy will be to devalue the dollar

New rule lets Argentinian government borrow reserves from central bank; no need for this in the US, as Bernanke funds the US government voluntarily. #bananarepublic

US:

Double whammy of inflation and 10,000 new people a day getting SS checks is causing costs to soar at SS" BarbarianCap ~ suggests more printing and some sort of hedonic adjustment to the SS inflation adjustment. As suggested by Jared Bernstein, this solution has been discussed by the Obama Administration. It’s difficult to be overly sympathetic given current Social Security recipients are estimated to extract $21 trillion more than they paid, which comes at the expense of the youth, who will never see equivalent benefits.

Police Tracking of Cellphones by Local Police Forces Becoming Ubiquitous NY Times

Obama shady solar dealings The Daily corruption originates with big government power and purse. let’s corrupt silicon valley too

IBD 50′s Five Best For Sales Growth $QCOR $UBNT $AAPL $EC $KORS IBD Investors

$PUTS against $SPY plunged 64% last two quarters Bloomberg. This is not bullish, the “Fiscal Cliff” could to create a different much different fall environment.

World:

Government suppression of volatility, creates volatility #hymanminsky #nasimtaleb $EURUSD $USDX twitter

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The True French Debt To GDP: 146% ~ zerohedge

Sarkozy Sketches Plan to Eliminate French Budget Deficit by 2016: 75% cuts, 25% tax hikes ~ bloomberg . The upcoming election with a Socialist candidate Hollande has important ramifications for the budget. Tax hikes have historically failed to reduce debt when more than 15% of the package, says this study by the AEI

Sarkozy’s recent gain on Holland the socialist (more socialist) losing racist anti islamic votes to 3rd party.

David R. Henderson, How Property Rights Solve Problems Library of Economics and Liberty

John Pilger’s with Julian Assange. ‘computer parsing of war data show Afghan kill count of in 100s of thousands.’Axis of Logic

Swearing helps co-workers build relationships say researchers businessinsider unless Carol Bartz is your coworker

Correlation between $DJIA and $USDJPY increasing. blackswantrading 

Look how negative real yields preceded the Stagflation and 14% interest rates in 1980 – chart from Citi $TLT inflation twitter

China:

Passport’s Burbank Sees U.S. Recession on China bloomberg: research shows only 6% of S&P 500 earnings come from Asia, mostly concentrated in the Semiconductors $SMH, Materials $XLB, General Motors $GM, Whirlpool $WHR, and others unlikely to be impacted to a significant degree: Proctor and Gamble $PG, Yum Brands $YUM, Coca Cola $KO, and Starbucks $SBUX.

Exposure China as determined by percentage of exports: Taiwan 37.1%, Australia 27.4%, Korea 26.6%, Japan 22.6%, Brazil 17.3%, Malaysia 16.9%…..US 7.6%

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China’s trade surplus has fallen from 9% of GDP to 3.3% since 2007 – Goldman Sachs.

How Casinos in Macau, China Made Siu Yun Ping Rich ~ New Yorker  ~ expect a huge shakeout here like las vegas 2008 $WYNN, at some point. Political risk is substantial as well, such as a sudden crack down in passports.  

China Manufacturing Gain Masks Exporters’ Woes Bloomberg 

Chinese government is the world’s biggest buyer of gold (a 2000-year-old story) WSJ

How to Properly Use Statistical Models, by Paul Wilmott ~ HistorySquared

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