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Posts Tagged ‘deleveraging’

2011/11/15: Quick Post: Cycles Accelerating: Hippies to OWS to Europe to US

November 15, 2011 2 comments

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The first media seer, Marshall McLuhan (who essentially invented the science of media’s influence on culture), famously noted back in the 1960’s that electronic media would destroy established social structures. And all he had to guide his perceptions was incipient developments in cable TV. Wonder what he would have said if the development and ubiquity personal computers was anything more than futuristic bit of imagination. [Although in the Dick Tracy comic strip they actually had wrist radios and TVs; forerunners of the PDA?]

But now we have an entire galaxy of information whizzing across everyone’s screens at the speed of light. And while the social structures of the 1960’s were reduced to rubble, society will always be reborn because it is a necessary cycle. However, there is little doubt the only real constant remains ‘change’, and it does seem to be accelerating.

Consider the turn of the cycle from the height of the Hippies to the end of that attempted utopian solution. After the 1967 San Francisco ‘Summer of Love’ it took two years to degenerate into the Manson murders and the Weather Underground. For the uninitiated that last group is a faction in the previously aggressive yet peaceful SDS (Students for a Democratic Society) which shifted to the pursuit of violent revolution. They had given up on peaceful pursuit of change and reverted to violence, because it seemed obvious to them that nothing was going to change. (Hence the group’s name, from the Bob Dylan lyric, “You don’t need a weatherman to know which way the wind blows.”)

Fast forward to Occupy Wall Street and what do you get?

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2011/09/20: Operation ‘Twisted’ …Does Fed Matter When Risk Model Now Greece-On/Greece-Off? Does Greece?

September 20, 2011 3 comments

It seems an awful lot of attention has been focused on whether the Fed is going to either announce or actually initiate Operation Twist in its post-interest rate (non-)decision statement on Wednesday. Certainly there are some forms of ‘twist’ that matter. Chubby Checker helped destroy American social mores in the 1960’s with the dance. And who doesn’t like one near the end of a good suspense story?

By comparison the Fed’s plan to move some of its balance sheet from short-dated Treasury securities out into the 30-year Treasury bonds is likely to have about as much impact on the US economy as the QE2 liquidity infusion… which is to say, not much. And in this case it does not even provide that additional liquidity, which at least repaired portfolios through risk asset inflation.

It’s the macro-financial equivalent of distracting the masses with shiny objects. Not a single person who does not meet credit standards will get a loan, and no more than a very few businesses will create an additional job. And it holds certain deferred risks in the form of extra upward pressure on government borrowing yields once the economy actually turns up.

Much more impact will be felt from any Greek default, or the ability to once again avoid default (at least temporarily.) Everyone knows that is the driver for the current extreme volatility of equities, and government bonds’ resilient ‘haven’ bid for the past couple of months; recently joined by the US dollar. And even those uplifting “Greece-on” phases bring less and less weakness to government bonds (i.e. higher yields) for one good reason:

It’s the global economy!! Don’t take our word for it… ask the OECD.

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2011/09/18: Weekend Thought: During His Jim Cramer Interview, Secretary Geithner Spilled the Beans

September 18, 2011 2 comments

Quite a bit of softball questioning, and others that were leading insofar as they allowed Treasury Secretary Geithner to promote the administration’s renewed stimulus agenda. Nothing necessarily wrong with that; high-level political interviews are after all the art of the trade-off.

However, some of the questions were so generalist as to be meaningless. “Europe alive or dead in three years?” We presume Mr. Cramer meant “the Euro-zone”. And of course the correct answer is “absolutely“, without having to qualify in what form. While they agreed that would include saving Greece within the zone, we are not so sure (and will have more to say on that sometime soon.)

And one of the most telling insights from the interview came in response to one of those seemingly softball questions regarding why the administration’s new jobs initiative must be passed to avoid crippling economic weakness. It was less about the specific benefits or costs of the program, and more so about an aspect of the general economic context that very few have been willing to explore.

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2011/08/16: Large Swings NOT the Exception…They’re the Norm

August 16, 2011 1 comment

Before we even hear the much anticipated announcement of results (such as they may be) from the Chancellor Merkel-President Sarkozy Euro-zone Debt Dilemma meeting in Paris today, there is much fear and loathing over what sort of radical response the various markets might have… Especially equities. As we had a chance from afar to ponder the meaning of both the recent and recent historic significant price swings in many asset classes, we came to a conclusion:

A significant majority of (maybe even most ) casual market observers and even professional investors are poorly equipped to anticipate and manage aggressive price adjustments. Especially as it regards the professional investment class, this might seem somewhat of a surprise. However, across our long history of market involvement, we have seen many more instances of folks who rely on models that provide assumptions of incremental price movement than those who understand major adjustments are the norm and not the exception. And there was a key observation on that quite some time ago from a somewhat unexpected source (in light of his subsequent philosophy and practice.)

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2011/08/10: How We Got Here-IV: Welcome to the Island, Survivor (…we hope)

August 10, 2011 5 comments

Yep, it seems to have all turned into a big game of Survivor… And the two-way stretch from the stress factors is obvious. Getting through this is going to be a test of who can stand the huge amount of cognitive dissonance imposed from the outside. That includes the increasingly tedious and blindingly benighted machinations of the political class and alleged financial luminaries, and the radical, rabid dog reactions it foments in the markets.

It increasingly seems this is going to be a test of endurance, as Ben Bernanke was probably right to indicate that there won’t be much need to raise rates between now and mid-2013. In other words, after his previous soothing views on the economy and markets, the Fed head has thrown in the towel on expecting anything truly positive to develop in the intermediate term. And that’s not just us playing off his perceptions, as we have been great skeptics of the ability to return to an upbeat economic environment in spite of any improvement in equities and risk assets. And neither is it plain old bearish talk. Beyond the fiscal and debt ceiling dilemmas, there is good reason to believe it can’t get better this side of the next US general election.

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