That was the week... 19 August 2011

[yoganmahew]

…that was…

A thread for thoughts related to the events of the week, questions about stuff that happened and competing answers to those questions.

Note for long-established posters - be kind to new posters and their questions…

My starter for ten:
nakedcapitalism.com/2011/08/ … d-day.html

Yves Smith
Thursday, August 18, 2011
Mr. Market Had a Really Bad Day

You know things are not normal when a 4%-5% movement in equity markets looks routine.

I’ve been a bit surprised that it has taken investors this long to get the memo that the prospects for the economy (both domestically and internationally) are lousy. The stunning US GDP revisions of last month should have been a wake-up call, but they seemed to be swamped by the deficit ceiling/S&P downgrade theatrics.

In case anyone managed to miss it, advanced economies have decided to put on the austerity hairshirt, which assures near or actual deflation. The concern re the uptick in consumer inflation figures excludes the biggest input into goods costs, namely wages. Commodities inflation seems to be driven by a combination of speculative inflows (which is believed to include hoarding of storable materials, such as metals in China) and emerging economies, particularly China, running at over potential and being too slow to increase interest rates to cool off demand.

The US program of using monetary stimulus as a fix for a failure to reform the banking system, write down bad debts, and apply generous stimulus as an offset isn’t working out very well. The notion was to have the wealth effect of higher stock prices and hopefully stabilizing and improving housing prices restart consumer spending. But consumers were in retrenchment mode as a result of being overlevered, and the lousy job market is keeping them correctly very cautious. So QE-induced optimism goosed asset prices, like stocks and subprime debt, without doing much for the real economy.

But even though investors got ahead of themselves in the US, the real trouble spot is Europe.

[discostu]

right riddle me this, the dow has fallen more in the last hour than the previous 3 why?? Still comparitively small at 123 pnts but why now its what 3pm in New York surely they should be all thinking of heading to the Hamptons or where ever the equivalent of the RCYC is

[yoganmahew]

@discostu

right riddle me this, the dow has fallen more in the last hour than the previous 3 why?? Still comparitively small at 123 pnts but why now its what 3pm in New York surely they should be all thinking of heading to the Hamptons or where ever the equivalent of the RCYC is

Unwillingness to hold positions into the weekend?

edit: plus possibly the euro is paring back gains against the USD. I presume there is a long euro/long US equity trade? (What they are short, I don’t know!). What I see is that when the euro falls against the dollar, the US markets fall.

edit2: Um, a long euro would probably be a short dollar position, wouldn’t it
So the theory of the trade is that either the euro will do well (Peter Schiff’s thesis) or the US equity markets will do well. As the euro rises, your automated trading machine-thingy sells US equity and buys the euro - front-running (acting ahead) of the rest of the market. As the euro falls, your maching-thingy sells euro and buys US equity. See en.wikipedia.org/wiki/Long-Term_ … Management .

[Coles2]

Link to QuadG’s blog, Major Market Movements

[jmc]

@discostu

right riddle me this, the dow has fallen more in the last hour than the previous 3 why?? Still comparitively small at 123 pnts but why now its what 3pm in New York surely they should be all thinking of heading to the Hamptons or where ever the equivalent of the RCYC is

Maybe we should ask the guys who are tweaking the battling bots.

Its summer volume, the bots account for 80% plus of trades, there is rampant quote stuffing, front running and crop circle pinging and the movements of the last few weeks are those of a fully degenerate large variable system on the point of a non-linear phase change.

The only markets that seem to be functioning at the moment are the dark pools. And they are, well, dark.

Yeah, screw that, time to head to the beach…

[yoganmahew]

Okay, something else to ponder, a little bit of politics this time. What Goes Up… linked to this Namawinelake post:
namawinelake.wordpress.com/2011/ … borrowers/ on debt forgiveness.

When the IMF and EU/ECB troika are next in town for a review in October 2011, I do hope they are vigorously quizzed by the media as to their view on the pace of progress in reforming our backward bankruptcy laws, given that such reform is mandated as part of the bailout programme.

Many here had the hope that the arrival of the troika would lead to real changes in aspects of Irish life other than the changes that austerity is going to bring. In many cases, it would be possible for the government to introduce reforms that provide a feel-good, even in the current climate. So far, so little…

[What_Goes_Up]

This is aimed at being a generic thread that deals with those niggly headscratchers or those “I really wish I knew the answer but don’t want to sound like a dummy” questions.

For those who would like to have their questions answered but don’t feel happy to post them openly (yet!) - then a suggestion…

You can send a “Private Message” (PM) to myself or “yoganmahew”.

At the bottom of a post is the “pm” icon - https://www.thepropertypin.com/styles/thepin/imageset/en/icon_contact_pm.gif

Click on this in any of “yoganmahew”'s or my posts and you’ll be able to send us a private message. Tell us what question you’d like to have voiced and we’ll do it by proxy.

[BrendanG]

If the sky is falling, who is it going to land on?

Or more importantly who will escape and not get a severe blow to the head?

[yoganmahew]

And a topic from the past - what’s crunchy and liquid? A liquidity crunch!

The FT has a post ( ft.com/intl/cms/s/0/e285f5ce … z1V7d4a4UN ) that contains the following quotes:

“At the centre of the problems in the market is the growing probability being [factored] into the market of a global banking crisis,” said Jeffrey Gundlach, chief executive at Doubleline, a money manager.

“Banks are lending money to other banks and other countries, and the markets are thinking about whether those loans and bonds are going to be paid back.”

The broader situation is nowhere near as severe or as unstable as in 2008 – US and European central banks have in place more emergency facilities and are prepared to use them. But there are some deeply ominous signs.

Another worrying sign is the growing use of the ECB’s overnight “deposit facility” – with banks depositing liquidity back with the central bank, rather than lending it to other banks because of concerns about counterparty risk.

More than €90bn was parked overnight on Thursday, slightly higher than earlier this week – and much higher than was typical before the escalation of the eurozone debt crisis. But it is still significantly below the €145bn peak earlier this month.

The ECB is concerned about the surge. “We take the signal seriously,” Jürgen Stark, an ECB board member, told a German newspaper. “The situation is, however, not comparable with that at the outbreak of the financial crisis after the collapse of Lehman Brothers.”

The problem with comparing now and after Lehmans is that we haven’t yet had a Lehmans-type event. What people should be looking at is whether conditions now are as bad as they were in August 2008. By then, of course, Bear Stearns has gone bust and Northern Rock was a year old…

So here’s a pointers to the mood in August 2008

- YouTube

[yoganmahew]

@BrendanG

If the sky is falling, who is it going to land on?

Paul Krugman, probably. With aliens in it. He was just on the RTE 9 news saying it is now likely that Greece and “other countries” will leave the euro (i.e. more likely than not). David Murphy talked about a “second credit crunch” (actually, it’ll be the third of fourth, they don’t all end in disaster, depending on whether there are wolves circling weak members of the flock and whether the shepherd notices).

Or more importantly who will escape and not get a severe blow to the head?

Or indeed how?

[discostu]

Quote:
Or more importantly who will escape and not get a severe blow to the head?

Or indeed how?

Gold mine owners ??

[discostu]

Dow closed down 173 or 1.57%

[Kate_P]

How ‘real’ is any of this if the US is still printing money (is it?) and changing the goalposts and now pissing off the Chinese?

[yoganmahew]

@Kate P

How ‘real’ is any of this if the US is still printing money (is it?) and changing the goalposts and now pissing off the Chinese?

Quantative easing part 2 sort of ended a while ago. What the Fed said they’d so is continue to buy stuff with the interest they were earning from treasuries and agency paper that they bought in the big QE.

The arguments rage as to whether what the Fed is doing really is printing, I don’t believe it is.

The Chinese have a conflicted position. As the biggest holders of US debt, they want the US government to be responsible in debt issue to confirm repayment - they were most upset by the US debt downgrade. On the other hand, fiscal austerity at the current time seems to guarantee a second recession (part of the reason for the stock market sell-offs in the US), which will damage Chinese exports.

[jabaar]

Anyone see any coverage of how China will save us all this week??? Nope, that frivilous hope is gone and it was the last big hope for the 1st world, i.e. that China would provide sufficient rapid internal consumption gain to carry the US and Europe while they sorted out their banking liquidity, banking solvency, and sovereign deficit issues.
Guess what, China is not a consumer after all, it’s people like to own stuff but not to consume it. And guess what else, labor cost appreciation in that environment is not beneficial to anyone other than the poor worker getting a few sheckles more to SAVE, not to spend on consumption.
The financial system got it’s support in 2008, the big boys were bailed out en masse, were kept on life support, were given a free ride, the losses passed on to the masses. Only it did’nt work because the true losses were never realized, the true pain was never felt.

Manufacturing is in the toilet in the US, China, everywhere, some people don’t know it or don’t see it but IMO a brutal Christmas season awaits in the US, 3 day weeks, short time, layoffs, you name it are all there ahead, the false hope of the past 12 months is fading away. Corporate profits are up because costs were slashed followed by a nice uptick in business, the uptick is going away fast and costs cannot be cut much more, profits will suffer harshly IMO.
Credit is drying up again, but really drying up for the long haul me thinks, businesses are unable to renew LOCs, unable to factor recievables as before, unable to secure cash for capital spend, it is getting ugly out there again.
Gold at an all time high, likely will go higher, other commodities strong in the face of a recession, it’s just all funny money, everyone waiitng for inflation, afriad of cash or deposits, or shares, probably right too.

And all thats just the week that was, Ha! Twill be an interesting next 12 months, that’s for sure.

[discostu]

Another probably dumb question I read during the week that Hugo Chavez has ordered that something like $ 11bn of the countryrse gold reserves are to be re patriate. So is there physically gold to be moved from the US and UK and would other countries do the same ??? do the UK and Us actually have any of this gold to start with

[The_Unwelcome_Guest]

@yoganmahew

Many here had the hope that the arrival of the troika would lead to real changes in aspects of Irish life other than the changes that austerity is going to bring. In many cases, it would be possible for the government to introduce reforms that provide a feel-good, even in the current climate. So far, so little…

You hardly want my opinion on this…

@jabaar

profits will suffer harshly IMO

Good.

First secondary markets, then profits… Then finally some realism.

[hydra]

@discostu

Another probably dumb question I read during the week that Hugo Chavez has ordered that something like $ 11bn of the countryrse gold reserves are to be re patriate. So is there physically gold to be moved from the US and UK and would other countries do the same ??? do the UK and Us actually have any of this gold to start with

I guess were about to find out
bloomberg.com/news/2011-08-1 … ustry.html

[discostu]

Venezuela’s 365.8 metric tons of gold reserves makes it the 15th-largest holder of the precious metal in the world, according to an August report from the World Gold Council. Venezuela’s gold holdings accounted for about 61 percent of the nation’s international reserves, according to the report.

Jeez thats very interesting, I wonder if Chavez doesnt get his gold what will happen. ON a side note I always thought that the Americans would take him out but he is still hanging in there

[The_Unwelcome_Guest]

Now you have learnt about military overreach… Whatever next…