May

5

It looks like a new currency awaits.

There's lots of assertions about what happens to Greece in case of a Grexit given that the resulting drachma would probably quickly lose value. What if Greece were to tie itself to bitcoins or some other cryptocurrency?

anonymous writes: 

The first step will be capital controls. The second step will likely be some form of domestic IOU's and or default. Those IOU's may or not morph into a New Drachma, etc. depending on both domestic and international factors. Very good chance they default and remain in the Euro as well. The Greek populace has made it clear they don't want to leave the Euro and want some sort of compromise. The bridge to cross between the two sides, however, has proven to be too far to cross. Further, the Greek economy is collapsing and all targets are moving faster than "shoot the freak" on Coney Island.

-primary budget now at best deficit of 1.5% of GDP, target was 1.5% surplus

-so need 3% of fiscal tightening in middle of this recession

-Greek constitutional court now talking of reversing some pension reform

-watch the bank deposit and financial market flows for keys to whether capital controls will be implemented

May

5

BAD NEWS

Wall street leading analyst calls for major crash of 35% decline to start now.

GOOD NEWS

The son of a gun has never been correct.

May

5

One notes the chart on page 65 of the May 2-8th edition of The Economist magazine detailing selected MXN bond yields over almost the past 200 years. (required a log scale clearly)

The recently over subscribed 100 year issue puts into perspective just how desperate the market is for yield, come what may and history be dammed.

May

5

 I thought some might find this clip interesting "Remarkable HD Footage of Berlin from July 1945".

The video quality is astonishing. Fascinating HD color video shows the situation of the city in summer 1945, just after the Second World War and the capitulation of Germany.

Daily life after years of war. Pictures from the destroyed city, the Reichstag, Brandenburger Tor, Adlon, Führerbunker, Unter den Linden, rubble women working in the streets, the tram is running again.

May

5

 Seventy Years Later, I Still Remember….

The scene of the liberation, as an inmate in the concentration camp of Mauthausen, Germany on May 5th, 1945

"It was early afternoon, and lying on the topmost bunk, I saw through a tiny window, on the top of the hill, grim buildings of the camp administration surrounding the Appellplatz, the square where prisoners were counted before going to work. For days now there was only deep silence there: no more labor troops. The Appellplatz seemed totally deserted.

"Suddenly, on the winding road a jeep appeared, followed by an armored car with a soldier at the machine gun mounted on it. They moved very, very slowly, cautiously uphill. The buildings on top were separated by a steel barrier from the rest of the camp. Today it was not the usual SS guard; the soldiers wore a different uniform. The two strange-looking vehicles reached the barrier. They stopped, and for a while the two sides eyed each other. Then the German guard raised the barrier without any resistance. Just as slowly as they came, the vanguard moved forward and stopped again in the middle of the square. Two giant-looking American soldiers got out.

"A minute later, the eerie silence was shattered by an earthquakelike rumble. Humanlike shapes, clad in striped prison pajamas, crawled forth from nowhere, moving grotesquely, seemingly senseless, stumbling, falling, and getting up again, trying to approach the Americans. All the while, they were shouting and screaming inarticulately; the sounds emitted were hardly human. They threw themselves at the Americans, who stood there in shock and disbelief, taking in the apocalyptic scene. Tripping over each other, they kissed their hands, their feet, their uniforms, wherever they could touch them. Many crawled around the vehicles convulsively, in hysterics.

"If man ever cried out from the depths, here was the nadir. These were the victims of the great German empire. All the enslaved, humiliated, down-trodden people of Europe.

"This moment remains indelibly set in your memory. Very few lived through such a scene and survived to bear witness. This is an experience during which you know, right when it happens, that the rest of your life can produce nothing like it. And perhaps time ought to come to a stop here.

For a brief moment it seemed that justice prevailed after all: the innocent is set free, and the evil is punished.

"Lying on the bunk, all that crossed my mind. But I didn't cry. I had run out of tears long ago."

May

5

One has ascertained two regularities highly applicable today for bonds. As of 1030. One has 10 observations 100% up to 1300, the other has 10 observations 100% down to 1300. Magnitudes very similar also. Right out of Gilbert and Sullivan.

May

4

Topic #1 at investor conferences is always: "When will the Fed raise interest rates?".

Here are some expert views on when it will happen and what it will mean for investors.

May

4

This is a big deal: US Supreme Court agrees to hear case about FERC's Order 745.

FERC Order 745 is about regional grids' ability to offer market-based incentives to reduce demand. In a word, it's about demand-response.

Generating utilities hate demand-response. It represents new competition. It dramatically alters supply-side economics. It reduces generating revenues and margins.

To fight expansion of demand-response programs, generating utilities argue that the federal government (FERC) lacks authority to regulate demand. They argue that demand represents retail consumers, which are traditionally within the domain of individual states.

It's a rich question. It touches many other issues, including new authorities granted to NERC. It affects the future value of batteries (TSLA) and transmission lines (ITC, AEP)

It's also an academic argument. If the Supreme Court knocks down FERC's presumed authority, many states will implement demand-response programs on their own. In fact, some already have.

May

4

 Any man who plays tennis knows how great a good, men's doubles match can be, with pace and at the net — a fight involving of four where you don't feel the punches.

In November 1996, I had a regular game with three others in a club I belonged to every week, at about 530 a.m. It was worth getting up for. One of those days, I would have a flight later that day to Newark, and from there a taxi or car into the city to do a class at New York Institute of Finance late afternoon, back out to Newark for a red eye flight to Amsterdam, where I was to speak at an IFTA conference the following morning.

One of the staff came out, midway during our game, to tell me I had a phone call.

I took the call, and they were telling me that my 96 year-old grandad had passed away that night. Realizing I couldn't bail on the commitments I made, I got on the plane, did what I committed to do so no one got stood up, managed to get a ticket off the street in Amsterdam (since the airline wouldn't change my ticket) for a flight, out of Brussels the following night to JFK. I got into JFK late, rented a car, drove the 11 or so hours, and showed up at the old man's funeral.

We were quite close, though our horns were always locked. He was a gritty guy who spoke with a Southern Ohio/ Kentucky accent ("I see you on the fourth of Joo-Lie") not unlike the old cartoon rooster Foghorn Leghorn. He played and coached in the early days of pro football ("The worst was that day in Detroit, the wind was cold, the field was cinders, not grass, and every time you went down you gotcha self scuffed"). I used to describe him as "Tougher than catshit."

He was.

But he was gregarious, and fun, and we used to go down to Lou-vull for the Derby quite frequently. It was a big deal every year– it was the culture he was from.

Every year on Derby day, I can;t help but think about him, and how now, now that I am older and slower don't care about a lot of things I once did, I realize how right he was about so many things.

The following May, I had to go without him, and it was more of habit than anything else (and it is not a glamorous place, contrary to the depiction on television, quite the contrary, there is a pervasive seediness to the whole area).

Hemingway describe The Derby as "the most exciting two minutes in sports, an explosion, an emotion."

That Derby
, that one, with my Silver Charm - Captain Bodgett Box, I got it, I got Hemingway. Absent the old man, it wasn't the best Derby I could remember — but it was certainly the most exciting for me.

May

4

 Courage to write freely comes in many forms and only some are proper.

This article contains the latest list of those writers who require that any First Amendment bravery be "fastidiously exercised for the good of humanity."

"204 PEN WRITERS (THUS FAR) HAVE OBJECTED TO THE CHARLIE HEBDO AWARD – NOT JUST 6"

May

4

 Perfectionists have trouble doing things because they want everything to be perfect. It never is. They often focus in on small inconsequential details and lose sight of the bigger picture. They have trouble prioritizing and seek detail. Certain things benefit from this, but trading is not one of them.

In focusing on small details, larger macro cycles can be ignored. It's important even when studying small time frames to look at the larger cycles at work. I saw a trading idea once called "Framesync" where the trader looked for bullish signals on three different time frames to pull the trigger. I always thought that was a good idea and generally follow that thinking.

Dan Grossman writes: 

I know Jim is right that one should avoid perfectionist tendencies when buying and selling. But I must say I get great pleasure when it turns out that I have sold a stock at the highest price of the day (ie, to the exact penny), or have bought a stock at the lowest price of the day. And I admit that this psychological pleasure sometimes outweighs that of the actual dollar gain. I am curious how many other Specs experience the same.

May

4

 Give me the place to stand, and I shall move the earth."

This is the translation from the Greek of what Archimedes is quoted as saying about the power of the lever. (Pappus of Alexandria, Synagoge, Book VIII, c. AD 340; Chiliades (12th century) by John Tzetzes, II.130.)

Since 2008 the predictions of doom by the goldistas have all been wrong. There has been no hyperinflation among any of the countries whose currencies can be cleared in large amounts through the central banks of the world. Gold has proven to be no more reliable a "store of value" than any other investment, even if you go all the way back to Nixon's cutting the last feeble fetter in 1971. (Yes, over that 4+decades gold ownership has been wonderfully rewarding for those early investors but no more so than ownership of the shares of Philip Morris, for example. As in the past tobacco has proven to be a more than adequate pseudo-money.)

The best explanation for why fiat money has not utterly failed is the simplest: currency itself no longer counts towards leverage. In a U.S. banking system with nearly 3 Trillion $ in "excess" reserves, vault cash on hand has become a footnote to any reserve accounting. Even the amount of money in circulation in the country becomes an inert variable compared to the volume of credit card transactions. (One suspects that even the traditional #1 users of dollar bills - those in the U.S. illegal drug trade - have moved on the debit cards.) So, we are in a new world where John Law's experiment has succeeded, where credit is the means for all transactions and the form of all savings. Law's system failed because gold was still the ultimate unit of account, and foreign exchange dealings remained in private hands. The livre could be traded for coin, and the governments, for all of their monarchical tyrannies, lacked the mechanisms to prevent people from taking their specie and running over the border. But, in the new world of central bank mercantilism, that is not a problem; the players at the table cannot cash in their chips. They can only exchange them for a differently colored legal tender IOU.

"Monetary policy" has been based on the assumptions that (1) banks wanted to lend to consumers for transactions and real estate asset purchases, (2) consumers wanted to borrow to buy now and would pay for the privilege, and (3) interest rates would control how much lending took place. But what if the consumers decide that they, too, want to hold "excess" reserves in the credit system? In a world of debit cards both consumers and banks may have discovered that they have less need or use for hassle of short-term leverage. The Fed has already hinted that it will be frowning on the uses of credit that are not "investments" - i.e. loans to existing members of the Fed club. "(W)e will use the rate of interest paid on excess reserves (IOER) as our primary tool to move the federal funds rate into the target range. This action should encourage banks not to lend to any private counterparty at a rate lower than the rate they can earn on balances maintained at the Fed, which should put upward pressure on a range of short-term interest rates."

If the Fed is going to keep its promise to draw down the assets on its balance sheet while tugging upward on the IOER, won't its interest rate policies necessarily be drawing private credit balances from consumption to savings? How else can they help create the necessary customers for the issuances of fresh Treasury paper; there has to be someone out there to do the buying so that the Treasury can actually send principal back to its best old customer. There are only two alternatives to that dreadful scenario of higher interest rates and lower consumer spending: (1) the Fed continues to be the Treasury's best new customer, or (2) the U.S. Treasury issues further regulations under the Trading with the Enemy Act outlawing "private counterparty" (sic) interest-bearing bank accounts.

But who can imagine the Fed breaking its word or the U.S. Treasury outlawing the private holding of money - er, credit?

May

4

 I have been thinking about the ability of snakes to see in the dark. What players in the market have abilities beyond the norm to see their prey no matter the chaos?

"The ability to sense infrared thermal radiation evolved independently in several different families of snakes. Essentially, it allows these animals to "see" radiant heat at wavelengths between 5 and 30 μm to a degree of accuracy such that a blind rattlesnake can target vulnerable body parts of the prey at which it strikes.

It was previously thought that the organs evolved primarily as prey detectors, but recent evidence suggests that it may also be used in thermoregulation and predator detection, making it a more general-purpose sensory organ than was supposed.

May

4

 What is the real significance of this? Is the sage that clueless that you can't short something riskless and that treasury bonds the second biggest market in world? Or does it relate to waning support for cattle trading?

Buffett Says He'd Short 30-Year Bond If He Had Easy Way to Do It

By Doni Bloomfield (Bloomberg) — Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., reiterated his belief that it's not worth buying long-term bonds at current interest rates and said he expects the value of the securities to fall. "If I had an easy way, and a non-risk way, of shorting a whole lot of 20- or 30-year bonds, I'd do it," Buffett said Monday on CNBC. "But that's not my game, and it can't be done in the kind of quantity that would make sense for us. But I think that bonds are very overvalued, I'll put it that way."

anonymous writes:

"If I had an easy way, and a non-risk way, of shorting a whole lot of 20- or 30-year bonds, I'd do it," Buffett said Monday on CNBC. "But that's not my game, and it can't be done in the kind of quantity that would make sense for us. But I think that bonds are very overvalued, I'll put it that way."

One recalls that his track record included some rather gigantic bets made on the long side in treasury strips.

The notion of not being able to figure it out seems clownish. 

anonymous writes:

A few Monday morning thoughts:

1. Next month will be the 11th anniversary of the beginning of the last Fed tightening cycle. That tightening cycle last 24 months and ended in June 2006. So, it has been 9 years since the last fed rate hike to 5.25%. Do you remember the world before Facebook, Twitter, HFT, ETF's, Barack Obama, Windows 7, and a few other things? Do you realize that Steve Jobs unveiled the iphone to the public on January 9, 2007? Is it imaginable that EVERY iPhone in existence has never experienced a Fed rate hike?

Remember: Plus ca change, plus c'est la meme chose.

2. There was an interesting Bloomberg news story for German bond bears over the weekend — and the unintended consequences of negative nominal interest rates. In a nutshell, if you short German bunds, you receive cash (if you are not leveraged). You then must invest the cash in overnight money markets. But, oops, there are negative interest rates in the cash markets too. So you are paying to hold onto the cash. And if you do the trade in the repo market, you still need to post margin in Euros — and that margin gets paid a negative interest rate. All of these moving parts (eventually) get arb-ed out into the derivative markets — for swaps and esoterics wise-guy trades. The bottom line: If you are good, short/intermediate term trader, you can make money trading bonds/bunds/jgb's etc on the short-side; but unless a central bank is tightening, unless there is a sovereign default fear/currency crisis, setting up structural shorts in fixed income is a very difficult game — due to the negative carry that exists despite negative interest rates. This is probably what Buffett means when he says that there is "no easy way" to short long bonds.

May

4

 Is one that puts the liar in a somewhat but much reduced negative light while hiding the real gravament of major culpability? A good example is Cole Porter saying that he was a member of the French Legion and that the reason that they took him was that they wanted an American to be in it for public relations. But he really wasn't in it at all as he had gone to France to avoid the Draft. And Gross's upside down thing that the secular in stocks and bonds, is over is an example of that perfect lie, although one would guess that he is not aware he is lying and just would not ever say anything good about stocks because that would hurt allocations to his fixed income activities. And he's been calling for the end of the rally in stocks since Dow 1000 or so.

Stefan Jovanovich writes:

"In July of 1917, he set out for Paris and war-engulfed Europe. Paris was a place Cole flourished socially and managed to be in the best of all possible worlds. He lied to the American press about his military involvement and made up stories about working with the French Foreign Legion and the French army. This allowed him to live his days and nights as a wealthy American in Paris, a socialite with climbing status, and still be considered a "war hero" back home, an 'official' story he encouraged throughout the rest of his life."

From Cole Porter's bio on coleporter.com

Draft registration began June 5, 1917.

To justify the enslavement of American citizens, the Supreme Court looked not to the Constitution but to "the law of nations" - i.e. what the Europeans had always done.

May

4

DoubleLine Capital's Jeffrey Gundlach said he's considering making an amplified bet against German bonds to join a growing group of top money managers wagering against the debt after some yields turned negative…

Since September last year, the pool of European bonds that essentially charge investors to own them has almost tripled to 2.8 trillion euros ($3.1 trillion) from 1 trillion euros, according to Bank of America Corp. data. The increase has been driven by central banks buying bonds to stimulate economies and has sent yields on German two-year notes to minus 0.273 percent, according to data compiled by Bloomberg.

When you short negative yielding bonds you have a positive carry.

If German 2s yield -0.20%, shorting them produces a positive carry, which when amplified by 100 equals a 20% return.

May

4

Journo's are said to be getting the word and are calling for a rate hike. However it does not appear "things have changed substantially" from last month on the aussie dollar, employment, cpi and growth. Nor has the tone of the governor himself. However markets have run off with the newsmen who "have the word", presenting opportunities (and only that) for those brave souls who look to position counter to the herd.

May

3

 "Calvin Peete, golfer, obituary: American golfer who came late to the game and overcame physical limitations to become a top player"

.

.

May

1

Well Gartman is in print for a big decline "we've all been waiting for" and Faber says 40% down.

Where's Prechter?

anonymous writes: 

The prechter alert is only given at extreme lows for full contrary buy action. He will be wheelbarrowed up to a CNBC camera on the day of the low, if not the hour of the low. 

May

1

 Cantillon got his start by doing the accounts for the exiled Irish money from Kerry that landed in Daniel Arthur's hands. He got his real boost from becoming the agent in Spain for James Brydges, who got rich as the Paymaster for the British Army during the War of Spanish Succession. In both cases finance was ecumenical; no one complained about the Catholics negotiating bills of exchange for the Anglican sovereign.

Until recently, the same generosity of spirit had governed current financial matters involving Ireland and the continent. But, as the Apple disclosure about tax liabilities noted, the EU is not happy that American companies have used Ireland's intellectual property laws to such extreme advantage. Even more important is the fact that the most recent Irish budget seems to have decided that 12.5% is to be a real and not fictional rate on trading profits, even those made elsewhere.

For some people this could be a nasty scissor between U.S. recapture which takes effect in 2017 (just in time for a possible Republican Secretary of the Treasury to take office) and the Irish desire to clip the virtual coins that have already passed through their jurisdiction.

May

1

 Our late friend Mr. E placed some significance on global natural phenomenon, because human hubris aside, they do affect mankind. There are a number of large volcanoes. I saw some pictures of big ones in Chile shooting up to the stratosphere, and some satellite pics of huge ones, and they all seem to be going off big time now. Even Kilauea Crater in Hawaii is overflowing for the first time since 1964. These shoot particulates in the air. When Krakatoa went off, the following summer was cold due to the ash blocking the sun. I suspect the volcanism will cause a similar effect in this following year and the temperatures may be somewhat cooler again. This may affect crops, productivity and GDP in various ways.

May

1

I wonder what the parameters of the globex trade matching program are for changing the price. One consideration would be to change price to encourage the maximum number of trades. A normal auctioneer calls a price to sell and if there are zero bids after three requests will drop the price. Or if the price is lifted will offer a new lot. Globex does not wait until all the bids are gone before dropping the price. Sometimes it will get stuck with just a few offers. There must be a counter for the number, or frequency of trades and whether they are at bid or ask, and if there is not enough trades, the price will move. There must be a different algo for regular market hours and after market. There probably are fast market programs that kick in also. Seems like an astute counter could reverse count what is going on, and I'm sure some do.

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