DimonD
With JPM shockingly unfolding the massive “mishedged” positions, let’s review how these things actually work.
Volcker rule futures soaring on this, along with the QE prospects. Full explanatory video of how synthetics work.
“Ask not what Greece can do for you, but what you can do for Greece”?
Guest post by Peter Tchir of TF Market Advisors.
The ECB seems to be quite happy to comment on Greece, and most of the comments seem to say that Greece isn’t doing their part. Well, what about the ECB? What have they been doing for Greece? So far, not very much and I think they need to start to play nicely with their holdings. If the ECB just plays nicely, at no cost to the ECB, the situation in Greece would improve quickly and dramatically. The ECB must go from being a lender of last retort to a bona fide contributor to Greece and a true lender of last resort.
The ECB’s Current Holdings:
| Maturing | Notional |
| 2012 | 6,468,223,000 |
| 2013 | 8,291,338,630 |
| 2014 | 10,036,732,913 |
| 2015 | 6,679,680,000 |
| 2016 | 2,307,870,000 |
| After 2016 | 18,088,018,732 |
| Total | 51,871,863,274 |
So the ECB currently holds almost €52 billion of Greek fixed rate debt (from Bloomberg data).
€24 billion of that debt comes due in the next 3 years, right when Greece needs all the help it can get to turn around the economy. I think about €10 billion of debt has already been repaid at par, including a whopping €4.6 billion in March. Before going further, just think about the current situation. The markets are on tenterhooks about whether Greece will receive €5.3 billion or not this month, and once again, most of that money is going right back to the ECB. It seems like a shockingly poor way to help Greece through its problems. Demanding payment at par, and forcing Greece to borrow that money so the ECB can book a profit, is just bizarre in my opinion.
Accumulation/Distribution Trends in Gold and Silver
Guest post by Jessie.
The accumulation trends seem rather steady despite the recent volatility in price and protracted sawtooth downtrend.
I have included GLD and SLV in case the futures calculations had induced some distortions.
On the last chart I include the Chalkin Money Flows for GLD which are remarkably positive except for the year end selling we saw at the end of 2011.
Someone had mentioned this phenomenon to me earlier today, but I did not think about it until I read Harvey Organ’s futures analysis in which he noted his surprise that in the recent price smackdown’s the Open Interest of gold and silver were steady or even went UP.
That seems to imply short selling into demand, rather than long liquidation as the cause of the price declines. From this evening’s commentary by Harvey:
“The total gold comex open interest baffled everyone as instead of falling badly surprisingly it rose by 3906 contracts. The raid orchestrated by the bankers somehow did not cause any gold leaves to fall from the gold tree. The May delivery month surprisingly saw its OI rise from 64 contracts to 173. How on earth will the regulators explain this as we witnessed no liquidation of metal of any kind in a huge price downfall and yet more stood for delivery?
…The total OI for silver was even more baffling to our bankers. With silver falling on its sword to finish in the low 29′s one would have thought that many silver longs would throw in the towel. Nope!! The total OI actually rose by 1410 contractions from 112,139 to 113,549. Both Ted Butler and I agree that some strong entity is after physical silver. There is no other explanation for this. The front delivery month of May also shocked our bankers. The OI actually rose by 3 contracts (from 406 to 409 contracts) despite the huge downfall in the silver price. Nobody liquidated. I wish the regulators can explain this phenomena to us.”
‘Don’t Panic, Stocks are Safe!’
Just a reminder. Economist Professor Irving Fischer explains that the stock market crashed due to high expectations- not high stock prices. Too many speculators were playing the stocks with borrowed money, resulting in a run on the banks. 80 years later, the banks are speculating with borrowed money and investors are running away from them.
Historic video below.
Don’t Fight the Last War: Lessons from the Battlefields of Risk Management
Some common sense thinking regarding risk management and how majority perceive risk. By Nielsen via Credit Writedowns.
The point I want to make here is that our brains are not calibrated to deal with the unexpected. Most of us believe we are good risk managers but in reality we are not. Most of us trust that risk can always be quantified and expressed through some fancy modelling whereas, often, it cannot. When I went to lunch on the 11th September, 2001, little did I know – or expect – that less than an hour later I would get a call from my assistant suggesting that it was probably best if I came back to my desk as quickly as I possibly could.
The world is not normal, yet universities continue to teach our young students the wisdom of Markowitz and Sharpe which brought us modern portfolio theory and, more specifically, the capital asset pricing model. Garbage In, Garbage Out, as they say. One of the fundamental assumptions behind modern portfolio theory is that asset returns are normally distributed random variables. I suggest you take a glance at chart 1 below. The bright (smooth) blue line depicts a perfect normal distribution. The darker (uneven) blue line represents actual equity market returns over the past couple of decades. Even the untrained eye can see that the return profile of US equities fairly closely matches that of a normal distribution with the exception of large negative returns. They have come about more frequently than one would or should expect[1].
Austerity is Bad
Biderman on austerity.
Austerity is becoming a dirty word. Nobody wants austerity. Wikipedia says austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. Really, I am shocked to learn that Europeans who have been getting something for nothing want to keep getting that something; particularly since Europes future under the combination of austerity and no growth policies is very, very bleak and dark.
I think it is useful to remember how we got to where there is a revolt against austerity. For 25 years starting in 1983 there was a rip roaring bull market and huge economic growth powered by first the Reagan tax cut, second personal computers, third the internet and fourth broadband. Video below.
The Pain in Spain: A Turn for the Worse
Guest post by Dough Short.
Last month I posted an overlay of Spain’s benchmark index, the IBEX 35 and the S&P 500. Today’s news that the Spanish 10-year yield closed north of 6% prompted me to take another look at the IBEX. The index closed the day with a loss of 2.77%, setting a new low, 57.28% off its 2007 high — fractionally below the -57.25% trough on March 9, 2009.
Here is an update of the overlay.
Growth Scares
Stephen Roach on the problems facing Spain and the other European PIIGS.
News That Matters
All you need to read and some more below.
Latest comments