If Anyone's Interested

[Crash Buyer]

Cameron attacking anyone who criticises the warped incentives, the cartels, the skimmers and scammers, the socialisation of losses, the multi-million bonus pools, the destruction of real wages, the criminality, the phone hacking, the slave labour and so on

A very shabby attempt to change the narrative by attacking those who dare hold the corporates to account.

He's completely out of step on this, and if he cared to read Andy Haldane's papers on the banks and their warped incentives he'd realise this. One must conclude he's being very badly advised (or attempting to placate idiots like Redwood and Fox).

http://www.bbc.co.uk...litics-17136069

You'd think Cameron would save this rubbish for the inevitable swing to the right, during the inevitable second term for the Tories.

Just watching Newsnight with a round table of CEOs defending business along the Cameron lines. Amongst other things, they were talking about the merits of capping CEO pay at 75x lowest pay. 75x!!!

Oh, and they spend all their time donating to charity too. And corporation tax is "too high".

Out of touch hardly even begins to describe it.

Great chart.

Perhaps Cameron meant to say 'it's time for corporates to stop this snobbishness and get behind nation states'

What is their purpose?

Why do they have a hegemony afforded to them in the tax system, limited liability, actual or pseudo monopolistic power, Prime Ministers at their beck and call, exemption from criminal prosecution, and so on.....

Perhaps it's time to dispense with this silly notion of nation states and democracy altogether and instead replace it with a global model of Corporate States, with periodic elections by the demos to determine their boards, annual budget setting, annoint their Chairmen as Heads of Corporate States and redefine the map of the world not around national boundaries but around corporate resources.

Then Cameron and Osborne would be better aligned with their constituencies.

A few years ago, the West used to criticise "crony capitalism" in places like Russia and the third world. It was "their" problem. Now it's doing rather well over here too. The facade has been destroyed not only by the bailout, but first the blatant lies used to justify the Iraq war. IMO this was a defining point for the (population of the western) world realising what the US-led political and economic system is really about.

Now the corporate elites have a problem, which could be resolved by accommodation (if they feel like sharing the money) or an authoritarian response. Good thing their elected reps spent the past few years taking away civil liberties, eh?

[pl1]

Very good, thanks. I really must watch the entire film sometime.

Me too, only ever seen bits of it. Groundbreaking film.

edit: Film is Network; "I'm mad as hell...."

Edited February 23, 2012 by pl1

[Crash Buyer]

which film is it?

It's this one

http://en.wikipedia.org/wiki/Network_(film)

[Crash Buyer]

Anyone interested in Dow Theory?

http://www.bespokeinvest.com/thinkbig/2012/2/21/dow-transports-diverge-from-industrials.html

[R K]

One cannot overstate the centrality of The Surplus Recycling Mechanism to this postwar Grand Plan which was responsible for the longest, most stable, balanced growth period in the history of industrial societies. Essential to that success were the constant transfusions of capital by the US to support Germany’s and Japan’s economies and, moreover, its efforts to create and support vital zones around German and Japanese industries that could absorb German and Japanese surpluses. The EEC would have never had been established otherwise. And when Mao Ze Dong prevented a similar vital zone to be created in China for Japan’s surpluses, Washington turned the US market over to Japan’s industry, at great cost to its own.

This was no act of philanthropy toward Europe and Japan. It was rather a clear vision that hegemony requires that the hegemon recycles its surpluses so as to maintain its own industry’s aggregate demand. If only Germany understood that simple macroeconomic truth as well today, Europe’s problems would evaporate in a jiffy!

The US had to make a choice: One option was to tighten their belt and, in puritanical fashion, cut down their small but rising twin deficits: The trade deficit and the government deficit. Instead the US opted for something rather different, something quite audacious. For what Paul Volcker, the former Fed Chairman, called: The controlled disintegration of the world economy. This is what they did: They turned the Grand Plan on its head: Rather than having a trade surplus, the US would now allow both its current account and its government accounts to go deeper and deeper into the red. And who would pay for the red ink? The rest of the world!

The idea was pure brilliance: Combine a twin (trade and government) deficit with a strong capital account surplus. Suck into the US other people’s exports and a tsunami of other people’s capital. Thus my term for the period after 1971: The Global Hoover: From the late 1970s until 2008 the US acted as a gargantuan vacuum cleaner that sucked in the trade surpluses of Germany, Japan and, later, China while, at the same time, attracting into Wall Street something in the order of $3 to $5 billion net on each working day.

http://yanisvaroufakis.eu/2010/12/07/varoufakis-brisbane-talk-crisis-us-europe/

Nothing new, but a decent summary and implicit solution.

[R K]

Jeremy Grantham's latest newsletter (24/2)

https://www.gmo.com/...NrBswke7RZhJGf0

Believe in history. In investing Santayana is right: history repeats and repeats, and forget it at your peril. All bubbles break, all investment frenzies pass away. You absolutely must ignore the vested interests of the industry and the inevitable cheerleaders who will assure you that this time it’s a new high plateau or a permanently higher level of productivity, even if that view comes from the Federal Reserve itself. No. Make that, especially if it comes from there. The market is gloriously inefficient and wanders far from fair price but eventually, after breaking your heart and your patience (and, for professionals, those of their clients too), it will go back to fair value. Your task is to survive until that happens. Here’s how.

Edited February 26, 2012 by Red Knight

[Crash Buyer]

Jeremy Grantham's latest newsletter (24/2)

https://www.gmo.com/...NrBswke7RZhJGf0

Thanks RK. Seems to support the view that we can run up a fair bit higher in the short term. Adam Hamilton discussed this in this week's article.

http://zealllc.com/2012/spx2012.htm

So what is likely to happen? A couple weeks ago I wrote an essay on the state of the SPX’s current cyclical bull market and the latest upleg within it. For a variety of technical reasons on several time scales, today’s rally is likely to persist until late spring at least. Summer is even a possibility, depending on how high the SPX gets relative to its secular-bear resistance of 1500 before that. Soon after 1500, we are due for either a major correction or possibly a new cyclical bear market.

The flagship S&P 500 only has to rally another 10% or so from here to hit its decade-old secular-bear resistance of 1500. And that would make for an easy and gradual ascent into late spring, no sharp surges sparking upleg-killing excessive greed, before the stock markets’ usual May seasonal peak.

By mid-May this latest SPX upleg would be about 7.5 months old, and would have powered 37% higher in total if 1500 is indeed achieved. And the stock markets naturally tend to grind sideways in the summer anyway, when anxiety gradually builds for big selloffs that are most likely in autumn. Interestingly this year, politics and the stock markets will interact to gradually ramp anxiety heading into the next major selloff.

[R K]

Thanks RK. Seems to support the view that we can run up a fair bit higher in the short term. Adam Hamilton discussed this in this week's article.

http://zealllc.com/2012/spx2012.htm

I read GMO's projections as more nuanced and (as he points out himself) they depend on the timeframe considered. So they use rolling 7 year projected real returns by major asset class based upon mean reversion and differentiate between US large caps, US small caps, and US high quality. They have 'high quality' showing by far the better projected outcome over the period.

But this newsletter is packed with other goodies too I think. I admit to being a fan.

Edit: Interesting divergence on your DOW theory industrials/trannies chart thanks. They mirror technical divergences which have been building for several weeks now. For most of February in fact. In '10 as those divergences built up into April they eventually resolved into the so called 'flash crash'. Interestingly the FTSE has only put on about 150 points since its October highs. Way off the US and some other indeces.

Edited February 27, 2012 by Red Knight

[R K]

http://blogs.ft.com/beyond-brics/2012/02/27/step-away-from-the-merc-minister-china-to-ban-foreign-cars-for-official-use/?utm_source=ft.com/beyondbrics&utm_medium=twitter

China bans foreign cars for official use

[scepticus]

Guess who [snip]

sigh

[R K]

Worth a read

'The increase in household debt prior to the crisis is not a moral issue'

What we find is that the entire increase in household leverage after 1980 can be attributed to the non-borrowing... — what we call Fisher dynamics. If interest rates, growth and inflation over 1981-2011 had remained at their average levels of the previous 30 years, then the exact same spending decisions by households would have resulted in a debt-to-income ratio in 2010 below that of 1980, as shown in Figure 2. The 1980s, in particular, were a kind of slow-motion debt-deflation, or debt-disinflation; the entire growth in debt relative to earlier periods (17 percent of household income, compared with just 3 percent in the 1970s) is due to the slower growth in nominal income as a result of falling inflation. In other words, there is no reason to think that aggregate household borrowing behavior changed after 1980; indeed households reduced their borrowing in the face of higher interest rates just as one would expect rational agents to. The problem is that they didn’t, or couldn’t, reduce borrowing fast enough to make up for the fact that after the Volcker disinflation, leverage was no longer being eroded by rising prices. In this respect, the rise in debt-income ratios in the 1980s is parallel to that of 1929-1931. ...

An important point to note ...[is] that in the period of the housing bubble — 2000 to 2006 — the conventional story is right: during this period, the household sector did run very large primary deficits (averaging 3.3 percent of income), which explain the bulk of increased leverage over this period. But not all of it: even in this period, about a third of the increase in debt was due to ... mechanical effects... And in the following four years, households reduced consumption relative to income by nearly as much as they increased it in the bubble years. But these large primary surpluses barely offset the large gap between interest and (very low) growth and inflation over these four years. In the absence of the headwind created by adverse debt dynamics, the increase in household leverage in the bubble would have been effectively reversed by 2011.

We draw two main conclusions. First, as a historical matter, you cannot understand the changes in private sector leverage over the 20th century without explicitly accounting for debt dynamics. The tendency to treat changes in debt ratios as necessarily the result in changes in borrowing behavior obscures the most important factors in the evolution of leverage. Second, going forward, it seems unlikely that households can sustain large enough primary deficits to reduce or even stabilize leverage. ... As a practical matter, it seems clear that, just as the rise in leverage was not the result of more borrowing, any reduction in leverage will not come about through less borrowing. To substantially reduce household debt will require some combination of financial repression to hold interest rates below growth rates for an extended period, and larger-scale and more systematic debt write-downs. ...

http://economistsview.typepad.com/economistsview/2012/02/the-increase-in-household-debt-prior-to-the-crisis-is-not-a-moral-issue.html?

[Crash Buyer]

I read GMO's projections as more nuanced and (as he points out himself) they depend on the timeframe considered. So they use rolling 7 year projected real returns by major asset class based upon mean reversion and differentiate between US large caps, US small caps, and US high quality. They have 'high quality' showing by far the better projected outcome over the period.

But this newsletter is packed with other goodies too I think. I admit to being a fan.

Edit: Interesting divergence on your DOW theory industrials/trannies chart thanks. They mirror technical divergences which have been building for several weeks now. For most of February in fact. In '10 as those divergences built up into April they eventually resolved into the so called 'flash crash'. Interestingly the FTSE has only put on about 150 points since its October highs. Way off the US and some other indeces.

Yep, I just selected the short term aspect as it relates to trading. But as you say, this comes near the end of the letter, following more serious concerns regarding long term mis-allocation of resources that most other "market experts" seem oblivious to.

An example is this ode to capitalism from Samuel Brittan, which is typical of the narrow, orthodox way of looking at the current economic system.

http://www.samuelbrittan.co.uk/text416_p.html

Notably:

My central case for competitive capitalism is that it is that it promotes personal and political freedom.

Well only if you exclude industrial democracy, a lack of which renders political freedom essentially pointless. As a citizen you can vote for a political party but as a worker you work in a dictatorship. The narrow financial goals of the organisation result in the massive mis-allocation of resources Grantham refers to.

Elsewhere in the article Brittan argues that worker-owned enterprises could be sort-of OK, but he clearly thinks you shouldn't encourage that sort of thing. IMO isn't that the logical extension of providing market incentives? Wouldn't a bottom up economic system be better than the top-down approach of both capitalism & communism? Maybe the average Joe running the company wouldn't be so greedy as Blankfein and co, and therefore might give a sh1t about his grandchildren too.

Above all the individual is free to use his abilities in line with his or her own choices. He or she can concentrate on personal pleasure, social service at home, the relief of poverty abroad or any combination of these and numerous other activities.

Oh yes, the freedom to starve - always a good one, that.

Markets:

I was just noting the same lack of progress that you mention in FTSE vs S&P today; FTSE oscillators have unwound somewhat as a result of the lack of continued upward progress whilst S&P still overbought (for a couple of months now). My own reading of the cycles is that a low is not due for another month as I'm measuring from the late Nov lows (of course this is all very subjective). This would allow time for the put/call ratio & sentiment to get further stretched until we get the "snap" you are referring to. I've been lightening up on longs as we go; although it's frustrating to see S&P continue to march on upwards, I think from a risk/reward perspective it's correct.

[R K]

[/url]

DJ FX Trader ‏ @djfxtrader Swiss 91-Day Treasury Bill Yield -0.099%

[Georgia O'Keeffe]

ahhhh inflation

[R K]

Yep, I just selected the short term aspect as it relates to trading. But as you say, this comes near the end of the letter, following more serious concerns regarding long term mis-allocation of resources that most other "market experts" seem oblivious to.

An example is this ode to capitalism from Samuel Brittan, which is typical of the narrow, orthodox way of looking at the current economic system.

http://www.samuelbri.../text416_p.html

Notably:

Well only if you exclude industrial democracy, a lack of which renders political freedom essentially pointless. As a citizen you can vote for a political party but as a worker you work in a dictatorship. The narrow financial goals of the organisation result in the massive mis-allocation of resources Grantham refers to.

Elsewhere in the article Brittan argues that worker-owned enterprises could be sort-of OK, but he clearly thinks you shouldn't encourage that sort of thing. IMO isn't that the logical extension of providing market incentives? Wouldn't a bottom up economic system be better than the top-down approach of both capitalism & communism? Maybe the average Joe running the company wouldn't be so greedy as Blankfein and co, and therefore might give a sh1t about his grandchildren too.

Oh yes, the freedom to starve - always a good one, that.

Markets:

I was just noting the same lack of progress that you mention in FTSE vs S&P today; FTSE oscillators have unwound somewhat as a result of the lack of continued upward progress whilst S&P still overbought (for a couple of months now). My own reading of the cycles is that a low is not due for another month as I'm measuring from the late Nov lows (of course this is all very subjective). This would allow time for the put/call ratio & sentiment to get further stretched until we get the "snap" you are referring to. I've been lightening up on longs as we go; although it's frustrating to see S&P continue to march on upwards, I think from a risk/reward perspective it's correct.

+ 1 re Brittan.

He really represents 'establishment' groupthink propaganda. If there was such a thing as 'capitalism' then the Queen (as an example of the ultimate establishment) would have seen competitors come in to the market, finding better uses for her land and assets, forcing the price down and ultimately many new 'Queens'. Since she is the ultimate owner of all the land in the country (and some other countries) we clearly cannot have capitalism. I think Brittan's spin can thus be safely ignored. A John Lewis 'monarchy' seems to make more sense.

I'll feel a great deal happier once (if!) we've had a decent sell off. I don't much care for these over-runs. Some markets are making slightly more sense - India for example (INP here as proxy). But we may end up with a very mild sell off this cycle instead with a largely sideways move as the overbought unwinds.

http://stockcharts.com/h-sc/ui?s=INP&p=D&b=5&g=0&id=p56940898200

[R K]

re that bit RK.

Turning this on its head, it is clear that it was very much in the interests of financial centres to encourage their governments to run huge twin deficits. Indeed London and the UK was actually the second largest net importer in the world after the USA for many years.

The surpluses recycled back into our economies aided the battle between London and New York for global dominance to rage on.

The greater the debts and the greater the mirror image of wealth, the happier and wealthier the intermediaries are. You can't help but think this was a key factor in the adoption of policy. Like pretending that trade balances or fiscal balances no longer mattered...we were into 'new paradigm' territory,

Indeed.

The 'logical' next move then might be for those financial centres to move to large surplus countries (or at least control them) and repeat the process. But to do so requires a currency(ies) capable of global reserve status and deep credit/debt markets. The BRICS might be obvious candidates in time. China is clearly some way off. Germany could do it on a smaller scale but for obvious reasons it isn't politically acceptable.

Which appears to leave us with something of a problem unless the model changes.

[R K]

More on the impact of higher oil prices on Asian equities. Asia ex Japan now the worlds largest consumer ahead of US and EU. (This bifurcation in Western deflation and Asian inflation is of course part of the rebalancing process imho).

http://blogs.ft.com/beyond-brics/2012/02/28/morgan-stanley-oil-approaching-danger-levels-for-asian-equities/?utm_source=ft.com/beyondbrics&utm_medium=twitter

[R K]

Gross on the zero bound and defensive investing

http://www.pimco.com...March-2012.aspx

Low yields, instead of fostering capital gains for investors via the magic of present value discounting and lower credit spreads, begin to reduce household incomes, lower corporate profit margins and wreak havoc on historical business models connected to banking, money market funds and the pension industry. The offensively oriented investment world that we have grown so used to over the past three decades is being stonewalled by a zero bound goal line stand. Investment defense is coming of age.

Insurance companies, for instance, whether they be life insurance with their long-term liabilities, or property/casualty insurance with more immediate potential payouts, have modeled their long-term profitability on the assumption of standard long-term real returns on investment. AFLAC, GEICO, Prudential or the Met – take your pick – have hired, staffed, advertised, priced and expensed based upon the assumption of using their cash flows to earn a positive real return on their investment. When those returns fall from 7% positive to an approximate 1% negative, then assumptions – and practical realities – begin to change

I must admit these large insurance companies worry me greatly in this environment. 'Return of' v 'return on' etc etc

Edited February 28, 2012 by Red Knight

[scepticus]

I must admit these large insurance companies worry me greatly in this environment. 'Return of' v 'return on' etc etc

yes, very little attention has been given to how zirp (and nirp) invalidate the foundations of the insurance industry. Pension and banking models have had a lot more attention.

The future has to be dis-intermediation of insurance, achieving the same by simpler mutual insurance pools that @ChrisJCook at FTAV is always going on about.

[R K]

yes, very little attention has been given to how zirp (and nirp) invalidate the foundations of the insurance industry. Pension and banking models have had a lot more attention.

The future has to be dis-intermediation of insurance, achieving the same by simpler mutual insurance pools that @ChrisJCook at FTAV is always going on about.

It's looking that way isn't it. I'll keep an eye out for him. Ta.

[R K]

DJ FX Trader ‏ @djfxtrader #Ireland PM Kenny Says To Hold Referendum On EU Treaty [Dow Jones]

Irish referendums are always good for a laugh.

[/url]

Angela Merkel ‏ @Angela_D_Merkel Sending a tray of beers.

Spoof Merkel is increasingly becoming more credible than real Merkel.

https://twitter.com/#%21/Angela_D_Merkel' rel="external nofollow"> Edited February 28, 2012 by Red Knight

[Crash Buyer]

I'll feel a great deal happier once (if!) we've had a decent sell off. I don't much care for these over-runs. Some markets are making slightly more sense - India for example (INP here as proxy). But we may end up with a very mild sell off this cycle instead with a largely sideways move as the overbought unwinds.

http://stockcharts.com/h-sc/ui?s=INP&p=D&b=5&g=0&id=p56940898200

I also think we'll get a very shallow correction. Similar to the run up in spring 2010 & 2011; just rising relentlessly. Beyond that, this analysis suggests further limited upside is highly likely over the next 3 months (probability of being higher is 77% against 62% for all 3 month periods).

http://www.bespokeinvest.com/thinkbig/2012/2/27/sp-500-15-gains-in-three-months.html

Edit: Link added

Edited February 28, 2012 by Crash Buyer

[R K]

I also think we'll get a very shallow correction. Similar to the run up in spring 2010 & 2011; just rising relentlessly. Beyond that, this analysis suggests further limited upside is highly likely over the next 3 months (probability of being higher is 77% against 62% for all 3 month periods).

http://www.bespokein...ree-months.html

Edit: Link added

Cheers - I think you could legitimately remove the high returns off the 1933, '75 and '09 lows which were off bear market cycle lows i.e. completely different point in the cycle and probably also '35. I've not worked out where that leaves the average return but it will be flat to possibly even negative.

[R K]

'India's growth hitting bottom?'

http://blogs.ft.com/beyond-brics/2012/02/29/indias-gdp-growth-hitting-bottom/?utm_source=ft.com/beyondbrics&utm_medium=twitter

Wonder if Vince Cable still thinks all our young people should move to India for work

[R K]

'The next big financial crisis will be made in China' Martin Wolf via CNBC

http://www.cnbc.com//id/46564626

China’s gross savings are running at an annual rate of well over $3 trillion, which is more than 50 per cent larger than the gross savings of the U.S.. Full integration of these vast flows is sure to have huge global effects. China’s financial institutions, already enormous, are also almost certain to become the biggest in the world over the next decade. One need only think back to Japan’s integration in the 1980s and subsequent financial implosion to recognize the possible dangers. We should be pleased, therefore, that China is taking a cautious approach.

The world has a huge interest in a shift of China’s economy towards more balanced growth. It has a parallel interest in the way China manages its domestic reform and opening up of the financial system. A whole range of policies need to be co-ordinated, particularly over financial regulation, monetary policy and exchange rate regimes. If this is done well, today’s high-income countries’ crisis will not be promptly followed by the “China crisis” of the 2020s or 2030s. If it is done badly, even the Chinese might lose control, with devastating results.The PBoC suggests a timetable of reforms that would fit with China’s and the world’s needs. But if this is to happen, thorough discussion of all the implications must now occur. China’s policies do not matter for the Chinese alone. That is what it means to be a superpower — as the U.S. should note.

Good luck with that!