Market is not worth trading, as volumes are run by juniors on the desks. For all those who have forgotten what they learnt at Econ 101, here is a great year end piece by the Economist.
Warren Mosler, an innovative carmaker, a successful bond-investor and an idiosyncratic economist, moved to St Croix in 2003 to take advantage of a hospitable tax code and clement weather. From his perch on America’s periphery, Mr Mosler champions a doctrine on the edge of economics: neo-chartalism, sometimes called “Modern Monetary Theory”. The neo-chartalists believe that because paper currency is a creature of the state, governments enjoy more financial freedom than they recognise. The fiscal authorities are free to spend whatever is required to revive their economies and restore employment. They can spend without first collecting taxes; they can borrow without fear of default. Budget-makers need not cower before the bond-market vigilantes. In fact, they need not bother with bond markets at all.
The neo-chartalists are not the only people telling governments mired in the aftermath of the global financial crisis that they could make things better if they would shed old inhibitions. “Market monetarists” favour more audacity in the monetary realm. Tight money caused America’s Great Recession, they argue, and easy money can end it. They do not think the federal government can or should rescue the economy, because they believe the Federal Reserve can.
While all pundits try making the correct 2012 outlook during the last trading days, the HFT machines, churning some 70% of all traded volumes, still trade in a highly unregulated fashion.
Below interview with NYSE COO. Presented without comments. Wonder just how much HFT firms pay the Exchange?
Must read guest post by Saxo Bank’s Sten Jakobsen. Don’t forget reviewing the Stress Chart Indicator.
‘If the debtor is in a difficulty, grant him time till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew’. – Qur’an: 2.280’
There is not much to cheer about for 2011 and looking into 2012.
It is remarkable that the US was able to sustain a positive – barely – year again – now two years of near zero performance. Impressive? Hardly – The FED and US government has been throwing everything at this market – low interest, Operation Twist, QE 1 through 5, easier regulation for banks (In house models vs. harsh gross regulation).
A different story is Europe minus 20 pc is not a good year, and as we close the year economic activity is collapsing in Asia, moving towards major deflation in Europe, and slowing/maintaining low growth in the US. This creates environment/outlook for:
1. Major risk of ECB moving towards QE in Q1 of 2012. Europe will “fall of the cliff” in economic growth terms in Q1 – forcing German yield towards zero – but….. the initiation of QE could medium-term mean higher rates. I remain of the idea that early 2012 will be long-term low in interest rates in Europe, but also globally. The low interest rate environment have created negative impacts on spending, investment and savings which only can be solved through more market less government intervention.
2. We coined Q4-2011 the “Maximum Intervention” in our Outlook Report and it clear became an almost idiotic list of initiatives which all of them really only created more of the “extend-and-pretend” concept. This is overview of “measures” involving ECB in Q4. Joke! Q1-2012 could be the critical test of this fractional economy
As people soon will realize, the Italian bond auction is not a success, as rates again trade above 7% and very close to record levels, let’s take a look back at what actually happened to Europe. What caused the mess, and who are the people trying to get us out of this mess. Europe is geting more “de united” by the day, or do you want to pay for the stupidity?From WSJ;
Greece, the country that triggered the euro-zone debt crisis, would need a much bigger bailout than planned, Mr. Strauss-Kahn said. Unless Europe coughed up extra cash, the IMF, which a year earlier had agreed to share the burden with European countries, wouldn’t release any more aid for Athens.
The warning prompted a split among the euro zone’s representatives over who should pay to save Greece from the biggest sovereign bankruptcy in history. European taxpayers alone? Or should the banks that had lent Greece too much during the global credit bubble also suffer?
The IMF didn’t mind how Europe proceeded, as long as there was clarity by summer. “We need a decision,” said Mr. Strauss-Kahn.
The secrecy of the non regulated “shadow banking” market which is larger than the regulated “deposit based” market makes it difficult to find real time information as to the stress within the credit markets. A few charts below do support some recent dislocations within the market while highlighting the move to safety within investment grade debt.
Commercial Paper Markets Falling
An article has been surfacing showing how the non collateralized commercial paper form of lending is now being replaced with collateralized lending. In commercial paper a debtor can borrow from a creditor based solely on their credit worthiness with no collateral pledged in case of default. Such funding is used for activities like financing inventory to accounts receivable.
With growing counterparty risk associated with the ongoing credit event it seems collateral is now being asked to be pledged to offset such perceived risk. The chart below of financial commercial paper shows a sharp drop off in rates as a sign of lack of borrowing (supply and demand).