Thursday, 29 September 2011

Quack quack - Financial-media pours on the oil!

Influencing the human psyche in times of financial stress is fairly straightforward. It's not science or an acquired skill. Get the right people saying the right / wrong things and short-term markets react accordingly.

You might say that unique to the markets in recent months is the prevalence of unsubstantiated emotional opinion voiced publicly which, in some cases, has had draconian implications for targeted industries. By way of example, the narrowly averted french interbank lock-out arose, largely, from individuals /institutions with opportunistic intent and given access to visual-media. At face value, very few level-headed investors discount the brevity of the situation in Europe. Nevertheless, analysis free of bias and or emotion is uniquely the global commodity in least supply... Who will ever forget the slack-jawed, dazed confusion of Biggs, a respected big-star 'regular' on Bloomberg?

Now, more than ever, we are hostage to media-channeled emotive influence.

Tuesday, 27 September 2011


The markets are poised for another volatile week this week ahead of the EU and IMF reports on Greek-solvency and Thursday’s German vote on an EU stability fund. It’s a disheartening prospect for most. Even so, sifting through the financial jargon, speculative volatility and political impasse is possible if you ignore the emotive pull of FEAR. (Net equity outflows suggest that’s more easily said than done).

Faced with this political turned banking turned economic-growth turning political turned banking turned…. crisis it’s easy to understand why investors have lost confidence in the system. Without understating the brevity of the EU/global crisis most of the recent stock-market declines have been self-inflicted by investors susceptible to an emotive press. It’s usually costly as history will show.

As a reminder and working backwards: - Biggest weekly stock-market declines since Lehman and the financial crisis in 2008;  commodity prices collapse on adjusted forecast growth prospects; Bernanke predicts ‘significant’ risk to the downside; ECB commits to three-month funding for EU banks locked out of the interbank funding market; EU banks stock-prices collapse on exposure to Greece and other potential EU-member delinquents; Greece faces default; euro strength threatens EU-member nations unable to export; German growth exceeds expectations on exports to a captive duty-free eurozone market; EU banks encouraged/compelled to lend to member nations favourably; France and Germany push for a common economic union.

So what did we expect? Surely we should not be too surprised by the latest turn of events in Europe? The structural inequity in the 'common-union' was manifest at inception. One more thing whilst we're on the subject of economic imbalance; only an eternal optimist or a fool would suggest that China's phenomenal growth does not carry with it some interesting socio-economic issues still to manifest. Legislated economic subjugation ALWAYS has a shelf-life...

Nevertheless, emotively speaking, you might conclude that the latest stock-market crisis is a FEAR-contrived response to failing confidence in the system. Until we see evidence otherwise, liquidity-confusion will stay systemic.

Thursday, 22 September 2011

Boehner's amazing technicolour dreamcoat

The amazingly arrogant letter penned by Boehner & his Fellows-of-the-IQ-deficient association (FIDA) and delivered to Chairman Bernanke interrupted, rudely, whilst in the chair at the FED's two-day monetary-policy meeting, demanded no further monetary-policy action...?? Anecdotally it's the blind who with a skip & a chuckle and grappling in the dark for the hand of the sighted attempts to lead the sighted safely through the global economic traffic-snarl...

Flying in the face of expectation, America's politicians continuously dredge the sludge of incompetence in bewildered drudgery without coming up for breath. Just how they do it so consistently well remains a modern Congressional - vocation understood by few, if any, non-political 2-legged hominids.

Drunk on the life-juices of ordinary American men and women these jesters of the political court continue to nuzzle the trough for more. The ghosts of leaders-past, grim-faced and humourless, stride the dung-speckled halls of Congress weighed low in chains of shame. America's obituary shall read 'We knews dem 2 be fools but we's failed 4 we's 2 foolish 2 be better'.

Tuesday, 20 September 2011

'Operation Twist' is QE3 by any other name

A divided US Federal Reserve gathers this week in a market-anticipated drive to realign monetary policy in the face of high unemployment and rising inflation. A third round of bond-buying or quantitative easing (QE) has its critics both from within the FED and from Congress. It has been claimed that QE2 was largely to blame for significantly higher commodity and food prices...Seemingly out of arrows the FED may consider the implementation of the failed 1960s plan colloquially dubbed 'Operation Twist' as a short-term boost for the US economy.

The idea is to use FED funds to lower longer-term interest rates by selling short-term government securities (or by letting them mature) and buying longer-term government bonds. 

The FED's increased demand for long-dated bonds would drive down the interest rate payable to find willing buyers. The falling long-term interest rate at the expense of higher shorter rates would alleviate the debt-burden of struggling home-owners and at a stretch also boost business spending.

That's all good and dandy but in case you've forgotten, this crisis is the result of policy indecision, poor judgement and political ineptitude.

Thursday, 15 September 2011

Beware BRICS bearing gifts..

BNP Paribas
4, rue d'Antin
750002 Paris

Attention The Board of Directors

Dear Sirs / Madam

I'm a tax-paying son-of-a-BRIC and by now you will have read in your Les Echos our (the BRICS) collective intention to extend your access to additional credit facilities in what can only be described as a selfless act of mercy before you suffer the Coup de Grace.

Now, after some careful soul-searching and studied consideration, I too feel your plight sufficiently dire and in need of urgent redress. Therefore, I'm thrilled (avec plaisir), ecstatic even, to confirm, given your hitherto impeccable financial standing, that you have been selected & pre-qualify for an additional $1000 away-from-the-window funding. Now, I realise that this must come as quite a shock. Even so, I can imagine your relief. There are however and this is important, two caveats. Firstly, I will require appropriate security and as a start might I suggest the Arc-de-Triomphe de lEtoile? Perhaps, given your generosity in Athens, you would, contrary to what would be considered prudent business practice, volunteer additional security? I'll leave you to your deliberations; exhausitive, no doubt. Secondly, if you celebrate the generosity of my offer by going to the press, the deal is off. It is not my intention to move global markets on the news. Notwithstanding, it would, however, be disingenuous to hold your board accountable for a leak stemming from any unauthorised activity ie: board-room phone-tapping and or other clandestine eavesdropping irregularities, by the mainstream press.

Fondly, yours in rescue.


PS: I'm going out into the garden now to mine more gold. Demand, it seems, is quite robust. 

Wednesday, 14 September 2011

Save the Euro

For the love of all things financial LET GREECE DEFAULT. Please! It's insignificant; a speed-bump, if you like. Bailing Greece once more defers the risk of contagion and fosters more uncertainty. I submit that this is a political impasse rather than a financial issue and Merkel and puppy-dog Sarkozy are at the forefront of the facade. This politically contrived European 'banking crisis' provides ideal fodder for the current 'leadership' to ride to the market's rescue, elevate their individual status in the eyes of the pathetically grateful duly wrenched from the jaws of deprivation and in so doing, save-the-day! In the interim adequately capitalised, credible institutions like Socgen and BNP pay the piper... You only have to listen to honest line-by-line commentary from the CEO of Socgen to find the truth.

By the way, if the uncertainty persists, one or all of DB, Socgen or BNP will end up wearing the donkey's tail on assigned (contrived) counterparty-risk and get shut out of the funding markets facilitating another Bear Sterns-like collapse, the consequences of which are well-documented from the last financial crisis. 

The markets WANT Greece to default. That will confirm and clarify the logic behind the common union and the enforcement of the regulations that govern it. It solidifies the eurozone as a functional economic region and lends credibility to the euro which diminishes in stature each and every day. At the same time it will also send a CLEAR message to the other PIGS to get their house in order, quickly. One more thing, if countries want to leave the EU to enjoy the benefits of a weaker currency let them do so, voluntarily. It will cost too much to do so anyway..

An orderly default? What a crock of the purest political pap imaginable..

Monday, 12 September 2011

The layman's solution - Part 2 Regulation

This is my Simple Layman's hArd-line, Common-sense [SLAC] three-tiered solution to our current malaise. Each tier revisits perception; planning & implementation. Let's leave the economics, which is nonscience, to the economists and the politics to the cleverly-polished..

JPMorgan's Dimon has labeled BASEL III as unduly restrictive, particularly for US banks which in his words is 'anti-american', whatever that means. Amusingly, this is the same individual who called for an international set of regulatory rules post the financial crisis. BASEL III purports exactly that ie: an international set of regulatory rules applicable to ALL banks, eastern banks included. For interest, a cynic might illustrate the need for more transparent regulation citing, in illustration, Dimon's chameleon-like propensity to camouflage self-interest with the well-being of society at large. 

However which way you slice it, the financial services industry needs effective, rather than restrictive, regulation. Conversely, retaliatory bank-bashing is equally ridiculous. The markets face the prospect of unrelenting, uncapped civil claim against US banks by delinquent US mortgage-holders wronged or otherwise in unlawful lending practice. This sword of Damocles hanging over the banking industry will, no doubt, have a profoundly negative impact on US banks in the future already evidenced in the mooted retrenchment of thousands of employees. In an already stressed jobs-market there are no winners here...

SLAC proposes:
  1. Intangibly difficult to quantify or legislate against selectively, US authorities must limit civil suits against the banking industry arising out of the housing-market collapse. If they don't the destabilizing effect on the US banking system and the commensurate industry contagion worldwide will limit any chance of economic recovery. As a concession to dispel capital adequacy fatigue, if you like, level the regulatory playing field across the global sphere and expel, immediately, any bank from international financial markets for material breach.
  2. Make regulatory authorities jointly responsible for financial loss arising out of a material breach of regulatory stipulations. 

Friday, 9 September 2011

The layman's solution - Part 1 Leadership

This is my Simple Layman's hArd-line, Common-sense [SLAC] three-tiered solution to our current malaise. Each tier revisits perception; planning & implementation. Let's leave the economics, which is nonscience, to the economists and the politics to the cleverly-polished..

At the heart of our troubles [Tier 1 of SLAC] lies the notion of competent leadership

You could try and argue that our problems are rooted in economics but that, for me, falls a long way short. Condense any of the 'events' since Lehman's demise and the crux of the problem is always poor leadership. In illustration you might remember mad-man Madoff? He's a convicted liar & a cheat, right? It's also why investors lost $50 billion or so, yes? NO. That's only half the story. His scheme flourished because the SEC leadership structures failed in their basic mandate. Investors incorrectly, as it turned out, assumed the SEC's competence.. How about the ratings-agencies and their collective (some say collusive) miscalculation of the risks associated with securitised mortgage debt? That too was a cracker, not so? You can't blame Wall St. They'd wrap, securitise and hawk a crock of dung if they could get away with it. It's the nature of the beast; can't be helped. Here again leadership was exposed for what it was ie: blatantly untrustworthy. Investors were under the misconception that both regulators and ratings agencies had sufficiently competent leadership structures to ensure their basic mandates. Clearly that perception was wrong. You could say the same for the US government. Partisan petty-politics [PPP] still holds sway. As a non-American it's difficult to accept that the US, a country with a proud economic and cultural heritage, has failed to deliver competent 'people-bias' leadership. Amazing. Clearly my perception that the US could lead from within, is wrong. Across the waters, some time ago, EU-incorporation-rules were debated, agreed and then not-applied. Simplistically, you could point fingers at specific sovereign leadership parties from within member countries and claim that as the root-cause of the Eurozone's problems but where was Brussels? Perceptions that the EU had cohesive competent leadership structures to ensure complicity are wrong and so on & so on.. You could apply the same disappointment in leadership world-wide.

To convert negative impressions into positive perceptions takes some planning. Even so, good planning means little without delivery. So, only when the planning process is transparently representative and the plans rigidly applied ie: compliance becomes non-negotiable, will leadership be considered effective. Only effective leadership will change the perception and so on..

As an opening salvo SLAC theory suggests the following:

  1. Dissolve the US Federal government and impeach the president because no-he-can't. Neither are functional. Reread The US Constitution, understand that one-man-one-vote means one-man-one-vote. Elect, by majority vote, one individual who is undisputed leader responsible for the appointment of a Presidential Panel of EXPERTS in their field with proven, exceptional skill drawn from the real world. Reduce the presidential term to two years or when performance measurables, clearly defined and non-negotiable, aren't met, whichever comes first. Federal states remain autonomous BUT subject to the Presidential Panel.
  2. In Europe demand tangible security for currently overly-indebted member countries and expel, out of the eurozone, any delinquent countries still in flagrant disregard of recognised EU regulations. If the EU is still viable and BTW. the jury's still out on the point, elect from within the EU a panel responsible for the formulation and rigid implementation of a regionally comprehensive economic plan. Restructure regional economic efficiencies and cross-pollinate the skills base. Raise regional funding through a single conduit via the issue of EU-guaranteed bonds.
  3. Collapse the Big 3 rating-agencies monopoly and open the market to improve competition. Scrap the current product-originator / ratings agency compensation model and introduce a transparent cost-levy specific to the product. This levy is paid on purchase of the product by the investor, collected by the product-originator on the ratings agency's behalf and then paid over to the ratings agency. 
  4. Transfer risk of securities reg. non-compliance to the SEC. Investors have punitive claim against the leadership of the SEC arising out of third-party & counter-party non-compliance of securities regulations within the SEC's mandate.
In this way current leadership misconceptions may evolve into perceptions of competence.

*In Part 2 SLAC looks at infrastructure and the jobs market

Thursday, 8 September 2011

Everything's on the table...

So we anticipate tonight's Obama-jobs-speech. Don't hold your breath and don't expect too many surprises. It's forecast to include a few tax cuts and a $300 billion jobs plan. Anything less would fall short. Even so, it's not bad but probably isn't enough. Fed Chairman Bernanke due to speak this afternoon might throw us a bone ahead of the next scheduled Federal Reserve meeting on September 20. Over in Europe markets hope against hope that Trichet will change his mind and soften his stance on monetary policy. The G7 Fin. Ministers meet over the weekend to discuss a coordinated move to reignite the global economy...

The lunatic-fringe somewhere in the bowels of UBS has us believe that Europe is on a war-footing. More precisely, any delinquent country or otherwise wishing to leave the EU faces the prospect of economic Armageddon and since the people will have nothing better to do other than apportion blame among themselves, civil war's a certainty. Guru Soros tells us that the crisis in Europe is 'worse than the crisis around the collapse of Lehman Bros'. I suppose you could add Deutsche bank's 'money-market funds are under stress..' and things look pretty grim all round.

If you listened to Bernanke at Jackson Hole you'll remember the most important bit. He applied his thoughts to the US economy. Even so, it's equally applicable globally. Paraphrased simply, Bernanke pointed out that it wasn't the function of central banks to reignite the global economy but rather the responsibility of government to implement long-term fiscal policy change. Therein lies the rub.. The 21st century enjoys a LEADERSHIP VACUUM.

Why are the world's leaders not locked-up in conference, without the prospect of deferral, to discuss a tangible, acceptable solution to resolve the systemic or structural inefficiencies in the global economy once and for all? *

The mindless criticism of the status quo by disenfranchised politicians, intellectually-diminished economists and confused traders or worse-still, yesterday's hedge-fund heroes doesn't improve your or my prospects much, not so?

* My global economic solution in tomorrow's blog

Wednesday, 7 September 2011

9/11 & The Patriot Act

It's almost that time of the year when we recall the events that led to the 9/11 tragedy. An act of violence on America specifically but mourned around the world by ALL decent men & women. It's a sensitive issue but no matter the motive, innocent blood was spilled. Our thoughts and prayers go out to the victims' families and friends.

Without abrogating from the tragedy of the act there remain a few unanswered questions. Ten eventful, some would say 'spiteful', years have past and countless other lives have been lost in retaliatory strikes in open or clandestine conflict. Religious beliefs have been questioned and extremists eliminated in seek & destroy missions. All the while the indoctrination continues... Exceptionalism, a term loosely used to describe superior motive and good intention, is 'The American Way'. Conversely, little boys & girls from other walks of life, geographically removed mostly and sometimes incorrectly associated with Islam are taught from their beginning that 'death to America' is a divine edict! It's difficult to fathom and almost impossible to stop. Even so, I for one, would like to see a change. Without taking sides for neither is justified and as an aside, who can forget the haunting pictures of the US president & his aids whilst they watched on live TV the retaliatory strike in Pakistan?

These then are a few of my questions:

  1. How was it possible logistically, to introduce, understand, debate and vet The USA Patriot Act (300 pages) written in 'response' to 9/11 a mere three days after the tragedy? The Patriot Act doesn't stand-alone but is read in conjunction with the Constitution, a task clearly beyond the competencies of the average congressman or woman read over three years.. Three days?? For those who don't know, the Patriot Act reduced / eliminated restrictions on law-enforcement agencies to search your email, telephone, medical and other records. More importantly, it expanded transparency and financial regulation on foreign individuals and families. Quite clearly a departure from the terms of the US Constitution itself which, until then, guaranteed liberty..
  2. Rumours surrounding the discovery process at ground-zero post the attack are all too easily dismissed as conspiracy theory most of which, to this day, have NOT been adequately dispelled, quelled or disproved. Some of the more obvious queries include the discovery of a large number of explosive caps found on the scene immediately after the attack and the subsequent removal of all steel girders prior independent examination. 
  3. If the US holds the moral ground in Iraq why was Darfur, just a skip to the south, completely ignored?
  4. - and my final question: Why is the US defence-budget equal to the COMBINED defence-budgets of every other country on the planet when millions of Americans live in insecure, fearful poverty...?

One last thought: - If the USA is really just a conglomerate bent on global domination for financial gain, then it's a stock I wouldn't want to own for two fundamental reasons. Firstly, who would openly want to profit from corporations blatantly engaged in immoral activities (The Patriot Act in a convoluted way, specifically prohibits that very thing....) and secondly who would want to own a stock where its executive team hasn't the faintest care for the well-being and motivation of its employees. You might even claim that the executive team couldn't fight their way out of a paper bag, they're that stupid..

Friday, 2 September 2011

The market paradox - The 'Bernanke Put'

Perversely, bad economic data is driving equity markets higher which at face value doesn't make much sense and yet in the shadow-world of trading it makes a 'whole-bunch' of sense..

I think it's safe to say that the developed world teeters on the precipice. Recalling last month's events that led to the market sell-off you'll remember Boehner vs Obama and the subsequent political impasse which led to the, now infamous, S&P-downgrade. Whether S&P got their sums right or wrong doesn't matter much. Apart from highlighting the structural inefficiencies in Europe and the US it settled the debate once and for all that too-big-to-fail as applied to even the most advanced countries / economies is a concept now, at last, consigned to history. IT'S A BIG WAKE-UP CALL. Whether the US goes into double-dip or not or even if, as some will claim, it hasn't emerged from the last recession is not important. What is important is the following:

  1. The world is bankrupt.
  2. Global leadership as evidenced in the US is fatally flawed.
  3. Reliance on emerging markets to sustain global growth is naive.
  4. Banking models are outrageous. Lending the same deposit-dollar 60 times or more is not sustainable..
  5. Wall St sold us rubbish and we swallowed it all hook, line & sinker.
Failing to address / redress the systemic problems means kicking the financial-can down the road. Even so, paradoxically, if the economic data gets any worse the FED will give us QE3 or some other form of stimulus, which: - kicks-the-can-down-the road but like QE2 will send markets higher. Like other junkies looking for a quick-fix with little or no regard for the long-term damage, so too the equity markets. It's the so-called Bernanke-put we crave. Damn the consequences! 

Thursday, 1 September 2011

Credit markets lead - period.

Deciphering today's economic data with any confidence is almost impossible. It's frustrating, contradictory and open to subjective interpretation on book-bias dependencies. The violent swings in the VIX confirms the confusion. That said, short-term trade-direction is simplistically a function of one overriding factor - money flow. Following the flows of cash is key. Unusually for this time of the year, investors are carrying excess cash relative to the traditional asset allocations. Asset-price change then becomes a function of liquidity. Less liquidity or volume in the markets exacerbates the price change.

Liquidity, certainly in the month of August was unusually thin. The only true indicator for traders in these circumstances is an understanding of the credit markets which professionals use to gauge strengths or weaknesses of an economy. For interest in the month of August US credit markets fell off a cliff to levels last seen in late 2008.... Speaks volumes..