Another day of great moves in these manodepressive markets. As we outlined yesterday “Our short term targets are approaching, and despite our negative views on the economy of those countries (Europe), we feel that the short term probabality of further declines is getting somewhat limited. If you have been short these markets as we advised, it is time to cover those shorts/try a small long at these extremely oversold levels.”
Today was the day of the “new smart shorts” to start sweating. With every newspaper joining the Spanish collapse theory the market had to bounce, despite all the negative news, including Paulson revealing his short Europe trade. Review the charts from yesterday (below), and trade accordingly.
Good reading on facts and theory by Bill Mitchell.
I was reading a working paper from the Bank of International Settlements the other day – The “Austerity Myth”: Gain Without Pain? (published November 2011) and written by Roberto Perotti. The author can hardly be described as non-mainstream and has collaborated with leading mainstream authors in the past. His work with Harvard’s Alberto Alesina in the 1990s has been used by conservatives to justify imposing fiscal austerity under the guise that it would provide the basis for growth. In this current paper, Roberto Perotti tells a different story – one that has been ignored by the commentators who still wheel out his earlier work with Alesina as being the end statement on matters pertaining to fiscal austerity. In his current work, we learn that the conditions that allowed some individual nations in isolation to grow are not present now and that his current research casts “doubt on … the “expansionary fiscal consolidations” hypothesis, and on its applicability to many countries in the present circumstances”. Why don’t the conservatives quote from that paper?
While JPM’s Blythe is taking over the commodities space and ruling the markets together with a few dominant players, it is time to ask yourself if a bubble is occurring in the commodities market. Bubbles come and go, and just like the end of the 90′s tech bubble, the commodities space is showing similar signs. From the Atlantic.
As playwright Arthur Miller once observed, “An era can be said to end when its basic illusions are exhausted.” Most of the illusions that defined the last decade — the notion that global growth had moved to a permanently higher plane, the hope that the Fed (or any central bank) could iron out the highs and lows of the business cycle — are indeed spent. Yet one idea still has the power to capture the imagination of the markets: that the inexorable rise of China and other big developing economies will continue to drive a “commodity supercycle,” a prolonged upward rise in the prices of commodities ranging from oil to copper and silver, to textiles, to corn and soybeans. This conviction is the main reason for the optimism about the prospects of the many countries that live off commodity exports, from Brazil to Argentina, and Australia to Canada.
A Rogue mathematicians search for answers. From Tripple Helix.
How do you measure the rough and jagged coastline of the United Kingdom? Or the sharp, seemingly arbitrary rise and fall of a stock-price? To the layperson, the answer to the first question might seem a straightforward matter of getting on a boat and making a trip. 1 The answer to the second question might be observing the markets for long periods of time and trying to discern patterns within the graphs (much like technical analysts do today). However, mathematicians aren’t known for their love of fieldwork. This is the story of a rogue mathematician’s search for an answer to questions like these, questions which have to do with how we measure ‘roughness’ in the world around us: from the sharp edges of a stock price graph to the uneven surface of a cauliflower. 1 It tells the story of how different kinds of ‘roughness’ can be described by different kinds of statistical distributions, and how we may have been using the wrong distribution to price our bonds and derivatives all along.
Must watch video by BOE’s Haldane on information assymetry, risk, HFT and much more.
Must see video from the Black Swan Master.
Merkel is continuing advising the aggressive austerity medicine with regards to Spain. Apparently Krugman, Soros and others have all misunderstood the European Union, as their views diverge from Merkel’s. German banks helped fuel the Spanish property boom, and now they will probably end up buying cheap assets at fire sale prices as Spain falls further into the abyss. From Bloomberg.
“It’s partly about still being able to shape our own future,” Merkel said late yesterday at a rally in the city of Muenster in North Rhine-Westphalia. Countries in Europe that have run up debt “are so tightly in the hands of the financial markets that they can’t make independent decisions anymore. We have to watch out that high interest rates on our debt don’t lead to the point where we can’t decide and shape anything anymore” in Germany.
Merkel’s comments underscore a focus on her government’s record of tackling debt and deficits as a core campaign theme as her Christian Democratic Union fights elections in two German states next month. The ballots will offer a snapshot of her crisis handling as the turmoil resurfaces in Spain.