He shut his fund last year, but still manages his own money, some 2.5 billion Usd, he does not give interviews (except now, he is concerned) and he is the man who brought down the Sterling. Meet Stanley Druckenmiller, ex manager of Soros’s Quantum Fund. WSJ interview;

‘A financial crisis is surely going to happen as big or bigger than the one we had in 2008 if we continue to behave the way we’re behaving,” says Stanley Druckenmiller, the legendary investor and onetime fund manager for George Soros. Is this another warning from Wall Street that Congress must immediately raise the federal debt limit to prevent the end of civilization?

No—Mr. Druckenmiller has heard enough of such “clamor and hyperbole.” The grave danger he sees is that politicians might give the government authority to borrow beyond the current limit of $14.3 trillion without any conditions to control spending.

One of the world’s most successful money managers, the lanky, sandy-haired Mr. Druckenmiller is so concerned about the government’s ability to pay for its future obligations that he’s willing to accept a temporary delay in the interest payments he’s owed on his U.S. Treasury bonds—if the result is a Washington deal to restrain runaway entitlement costs.

Mr. Druckenmiller is puzzled that so many financial commentators see the possible failure to raise the debt ceiling as more serious than the possibility that the government will accumulate too much debt. “I’m just flabbergasted that we’re getting all this commentary about catastrophic consequences, including from the chairman of the Federal Reserve, about this situation but none of these guys bothered to write letters or whatever about the real situation which is we’re piling up trillions of dollars of debt.”

He’s particularly puzzled that Mr. Geithner and others keep arguing that spending shouldn’t be cut, and yet the White House has ruled out reform of future entitlement liabilities—the one spending category Mr. Druckenmiller says you can cut without any near-term impact on the economy.

http://online.wsj.com/article/SB10001424052748703864204576317612323790964.html?KEYWORDS=druckenmiller

Remember the debt ceiling? It is to be (b)reached this coming week. The Emperor is naked, but what would happen if Us defaulted? Better think about it, than rule out the possibility. From Reuters;

* Treasury bonds would lose their aura of safety, leading to a half-point increase in their interest rates. That would push up the U.S. government borrowing cost once lending activity resumed, leading to a $10 billion increase in annual budget deficits over the short term.

* The higher interest rates would ripple through the economy, causing gross domestic product to decrease by 1 percent and employers to shed 640,000 jobs.

* Banks would curtail lending. Small businesses would have a harder time expanding and credit-card interest rates would rise. Student loans and car loans would become more expensive.

* The S&P 500 stock index would lose 6.3 percent in value over three months, causing retirement portfolios to shrink, the report said, citing research by financial services firm Janney Montgomery Scott.

* The U.S. dollar’s status as the world’s reserve currency could be threatened as investors move cash to Swiss francs, Japanese yen, or Euros. That could boost U.S. exports but raise the cost of consumer goods like gasoline and electronics.

* Home mortgage rates, which are tied to U.S. Treasury rates, would rise. Homebuyers taking out an average mortgage for a new home, currently $221,900, would pay an extra $24,738 over the life of the loan, dealing another blow to an already struggling housing market.

http://www.reuters.com/article/2011/05/13/us-usa-budget-default-idUSTRE74C4TW20110513

We have argued that asset prices are a little too crowded trade for the time being. Usd getting rather strong this week, is telling us something is going on. Even though the extremely longs positions in Eur, have been cut during this week’s squeeze (fresh statistics out Friday evening), people are caught by surprice. We are waiting for the commodity flash crash version 2.0. Too much short term capital is overly exposed to these risk trades, and the exit is tight. Many “sophisticated” hedge funds, that have been riding the trend, won’t be able to sell out, mainly due to their love with these risk on trades. Another sudden price drop in oil, silver or equities, will leave people scratching their heads, while paralyzed. Let’s see if the market is ready for a pull back. We are getting some signs of the risk on trade loosing steam;

Small and mid-cap stocks, which typically lead a strong market, have started to see their relative outperformance to large caps wane. Meanwhile, momentum indicators show the strength in S&P 500 is starting to decline as well.

There are also signs of fatigue in the IPO market after a flood of Chinese IPOs and leveraged buyouts at the start of the year.

Shares of Chinese dating website Jiayuan.com (DATE.O) fell in their Nasdaq debut, while social networking site Renren (RENN.N), dubbed China’s Facebook, reversed all its gains on its market debut and traded below its offer price.

Goldman argues stocks have been driven further than economic fundamentals justify by heightened risk appetite. Sentiment indicators are elevated but off highs earlier in the year, while the CBOE Volatility Index, or Vix .VIX ,is at pre-financial crisis levels, signs investors may be getting complacent.

Small and mid-cap stocks, which typically lead a strong market, have started to see their relative outperformance to large caps wane. Meanwhile, momentum indicators show the strength in S&P 500 is starting to decline as well.

There are also signs of fatigue in the IPO market after a flood of Chinese IPOs and leveraged buyouts at the start of the year.

Shares of Chinese dating website Jiayuan.com (DATE.O) fell in their Nasdaq debut, while social networking site Renren (RENN.N), dubbed China’s Facebook, reversed all its gains on its market debut and traded below its offer price.

Goldman argues stocks have been driven further than economic fundamentals justify by heightened risk appetite. Sentiment indicators are elevated but off highs earlier in the year, while the CBOE Volatility Index, or Vix .VIX ,is at pre-financial crisis levels, signs investors may be getting complacent. (Reuters)

http://www.reuters.com/article/2011/05/13/us-usa-stocks-weekahead-idUSTRE74C76320110513

The original diagnosis of Greece was wrong. Its fiscal malaise was too profound to be sorted out by a bridging loan. The same mistake may well be being made with the bail-outs of Ireland and Portugal: the salve of temporary liquidity support does not necessarily help countries with deeper fiscal weaknesses. (Economist)

http://www.economist.com/node/18681704