More stuff worth reading as the market grinds nowhere. From Crooked Timber.
“The notion of infinite debt comes in when this logic slams up against the Absolute, or, one might perhaps better say, against something that utterly defies the logic of exchange. Because there are things that do. This would explain, for instance, the odd urge to first quantify the exact amount of milk one has absorbed at one’s mother’s breast, and then to say that there is no conceivable way to repay it.” – David Graeber, Debt
“Could all of this be thought ‘a normal upbringing’? Everyone seemed to think so and my parents, bless them, paid for it. So much that my father proudly presented me with a complete set of receipts on my twenty-first.” – Derek Jarman, At Your Own Risk
As the European mess situation has been unfolding, people have moved cash out of the imploding Med countries into the stable German banking system. From Bloomberg;
Money is leaking out of banks in southern Europe as customers scoop deposits out of Greece, Spain and Italy to move cash to less indebted nations such as Germany.
Greece (TODETOGR)’s total deposits plunged 28 percent from the peak in June 2009 to 169 billion euros ($225 billion) at the end of December, according to data compiled by Bloomberg. In Spain (TODETOES), deposits slid 5 percent in the five months through November to 934 billion euros, the least since April 2008. Italian (TODETOIT) banks held 974 billion euros in November, the lowest in 18 months.
“The biggest systemic risk is if people lose confidence in keeping their euros in Spain, Portugal or Italy,” Perkins said. “It makes sense to put your cash into Germany just to be safe and that’s where the real systemic danger lies. That contagion isn’t priced in, and bank deposits are the place we’d spot it.” (Full reading here).
Quick update of the Spanish IBEX index. The IBEX is down 4,5% in three days. The new “leader” of European problems could possibly be showing us the way. As we have stated earlier, focus should be shifting towards Spain, the real elephant in the European room. Below, chart update.
The market has been on a steady rise, volatility has collapsed, and we are getting all those new “smart” longs. Geopolitical risk is certainly not priced in the equity space. Oil, on the other hand (apart from the QE factor) is factoring in a possible geopolitical heat up in the Middle East. What if Israel provoked a war between the US and Iran? Meanwhile, the oil price continues the rise. Bloomberg video below.
Guest post by D Short.
Of the many risks facing the US economy, the one I find most immediately concerning is the rapidly increasing rise in gas prices. My latest weekly gasoline update showed a 36-cent rise in gas prices, regular and premium, over the past nine weeks. In fact, it was about nine weeks ago that I filled the tank on our Prius at $2.98 a gallon just south of Myrtle Beach. Today the best price I can find in this area is $3.42.
Will prices continue to rise? Most assuredly they will. The news today was filled with items on the rapid rise in the price of oil. West Texas Intermediate Crude (WTIC) hit an intraday high of 108.05. Priced in euros, Brent futures hit an all-time high, beating the previous record set on July 3, 2008. WTIC also hit its all-time high that day, and gasoline prices also peaked the same week.
Unlike the situation in July 2008, which was in the midst of an ongoing recession with miles-drivenplummeting and was shortly before the market crash that accelerated the consumer flight to frugality, February 2012 has an air of optimism. The S&P 500 is 0.01% away from setting a new interim high, currently dating from April 29, 2011, and reports are circulating that retail investors are returning to the market.
We have written on the HFT subject for some time. The Economist joins the debate;
ON FEBRUARY 3RD 2010, at 1.26.28 pm, an automated trading system operated by a high-frequency trader (HFT) called Infinium Capital Management malfunctioned. Over the next three seconds it entered 6,767 individual orders to buy light sweet crude oil futures on the New York Mercantile Exchange (NYMEX), which is run by the Chicago Mercantile Exchange (CME). Enough of those orders were filled to send the market jolting upwards.
A NYMEX business-conduct panel investigated what happened that day. In November 2011 it published a list of Infinium’s alleged risk-management failures and fined the firm $350,000. Infinium itself neither admits nor denies any violation of the exchange’s rules. It takes the same line on a $500,000 fine it was given at the same time for alleged transgressions on the CME itself in 2009. (Full article here.)
Rise of the Machine chart below.
Remember the stimulus introduced three years ago? Did it produce what it promised? By de Rugy From Mercatus Center;
The Stimulus bill is turning three today. The main argument for enacting a $787 billion stimulus bill was that if government spends money where it is the most needed, that expenditure would create jobs and trigger economic growth. It also assumed that in a good Keynesian fashion, the money would be spent in a timely manner, and would be temporary. Finally, the reason why the returns on government spending would be so high is that the administration assumed that for every dollar spent, the economy would grow potentially by $1.57 (that’s what economists call the multiplier and it was estimated to be 1.57).
The result, we were told would be 3.5 million jobs “created or saved” over the next two years, mostly in the private sector and the promise that unemployment wouldn’t go up beyond 8.25 percent, and that, by the end of 2010, unemployment would have dropped to 7.25 percent. (Full article here).