Comfortably Numb

You don't Say...(Bernanke on the long-term effects of Quantitative Easing):

"One disadvantage of asset purchases relative to conventional monetary policy is that we have much less experience in judging the economic effects of this policy instrument, which makes it challenging to determine the appropriate quantity and pace of purchases and to communicate this policy response to the public."- Ben Bernanke [October 2010]

BTFD: Deja Deja Deja...Vu

Compliments of Central Bank Dopium, HFT computers, and delta hedgers (aka. volatility sellers), the markets have now carved out what can only be described as the mother of all bearish rising wedges.  This pattern which has developed since the low in 2009 is obvious to even a blind man, although likely not obvious at all to the recursive computer algorithms generating this attenuating fractal.  Volume is duly collapsing (lower pane), per the text book definition of a rising wedge.  We have been back and forth through this 1375-1400 level about 10 times since 2007, so mark this area, because it's where most of the bodies are likely to be buried - metaphorically speaking, of course...

As I have said before, selling options volatility into a multi-year top is analogous to selling fire insurance right before fire season - it works great, until it fails catastrophically i.e. it's just Wall Street's latest sky dive without a parachute.  Clearly, as this article confirms, some people didn't nearly get the message from 2008.  So, the market will just have to try harder this next time.

(p.s. to be fair, the above article does end with bankruptcy guidance, so at least it gives people assistance for when the strategy fails - as always, you can't make this shit up...).

Dr. Copper Prescribes Ritalin for Stocks

Copper, which is far less prone to emotion, speculation, and Central Bank manipulation, has a different out look on the global economy than stocks.  In the chart below, in both prior instances when copper topped out, stocks continued on briefly to new highs but then succumbed ultimately in the direction of copper (down).  Now, on the other side of point (3), the divergence between stocks and copper is enormous compared to the prior instances.  Meanwhile, the fact that copper has gone from the upper left to the lower right quadrant is yet another roundly ignored sign of global deflation and impending recession.

Spectacle 2012: Peak Denial

What good is a collapsing global financial system without spectacle to distract the masses from the catastrophe unfolding in plain view.  Something for everyone...except reality of course.

But we have to thank politics for giving us our best spectacle of 2012 - Robama v.s. Obamney.  The world breathlessly awaits to see which of these Harvard drones will be chosen as the face and voice of the 14,000 special interest groups operating in D.C.

The Idiocracy's Checklist for Financial Collapse

Let's review the Idiocracy's checklist to ensure all preparations have been made:

1) Market controlled by front-running HFTs, causing random meltdowns and stock crashes

- Check

2) Investors anaesthetized by monetary dopium ("Operation Twist") and hence oblivious to risk

- Check

3) Impending global recession

- Check

4) Make-believe U.S. recovery sponsored by (more) government borrowing

- Check

5) Intractable European debt crisis getting worse with each passing moment

- Check

6) Financial news media with its head fully lodged in the financial industry's ass

- Check (night vision goggles all around)

7) Politicians campaigning full time and ignoring reality

- Check

8) All finance industry laws and incentives leading up to 2008 still fully in place

- Check

9) All policy-makers, finance industry executives and other buffoons contributing to 2008 still fully in place
- Check

10) Fully outsourced economy, ensuring absolutely no job creation whatsoever

- Check

11) Rigged banking system and interest rate setting mechanism (Liebor)

- Check

12) Massive post-2008 consolidation of the banking sector, creating banks that are too bigger to fail 

- Check

What else?  Another war?  Let's see if Iran is available, fall back on Syria.  Or, lazy man's approach, just keep drone attacking Pakistan until that shit blows back in our face. 

Ok, we are ready.  All signs point to yes !!!

BTFD - The ECB Goes All In [and Out]...

[Update: August 2nd, 2012]: A Bit Of The Old In And Out
Apparently Draghi was bluffing after all...So, as one would expect, the markets are having a temper tantrum, because they didn't get any free money from either the Fed or the ECB this go around.  It appears that Wall Street's candy shop is closed until the catch 22 of further economic/market weakness comes into play...Which sets up an interesting next few weeks, given that Wall Street is already imploding under the weight of its own greed, per the prior post below...

[Original Post: July 27th, 2012]
Mario Draghi, head of the European Central Bank moved the markets big time yesterday (and today), when he said:

"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro...And believe me, it will be enough.”

Wall Street Shits Itself (Yes, again)

In an all too familiar throw-back to the 2007/2008 era, the Wall Street scandals and fiascos keep mounting day after day.  This time it was Knight Capital one of the High Frequency Trading (HFT) Firms on Wall Street.  Yesterday, inexplicably, one of their computer algorithms went rogue and started trading dozens of stocks erratically.  In the event, the trades had to be cancelled and reversed causing Knight to incur a one day loss of $440 million.  This type of scenario is exactly what the book Broken Markets predicted would happen on an increasingly frequent basis due to the out-of-control complexity of the HFT algorithms.  It's at least the 3rd major glitch this year alone, along with an unknown number of lesser (aka. single stock) events that appear to be happening on a regular basis now.

The truly scary aspect of this story is that this glitch happened on a day when overall trading volumes were extremely light (summer volume).  Imagine what could happen during a major asset reallocation if for example the Central Banks don't give the markets their latest dose of monetary heroin?

At that point, anything is possible...

Shock Doctrine End Game: Thanks for Playing

It was radical (Canadian) left-winger Naomi Klein who wrote "The Shock Doctrine", a book that described how (inter)national disasters have been used opportunistically in past decades to impose extreme capitalism.  The phenomenon she described was to take advantage of the prevailing state of "shock" to privatize the economy and provide much greater access for multinationals.  At the time I remember finding her analysis to be interesting, if not somewhat paranoid.  Just today however, I came across this chart below which shows in the most graphic detail possible, exactly what she is talking about.  It's the shock doctrine taken to its logical extreme.  As we all know, following the events of 2008, large U.S. companies engaged in massive layoffs ostensibly in a bid to merely 'survive'.  Little did we know, that in the process they took the opportunity to redefine the term 'survive', and used the crisis as an excuse to liquidate the middle class.  All I can say is 'wow', relative profits are 5 times higher than in 1980 when Reagan took over from that "candy ass" Carter  - all due to America's 30 year "Going Out Of Business Sale", sponsored by massive outsourcing.  No country can achieve profit margins of that magnitude without selling itself off.  And note that even at their nadir in 2008, profits were still in the 7% range - double the 1980 level.  Shared sacrifice indeed.  And as I wrote at the time, it was highly apparent that companies were taking layoffs to ridiculous extremes.  When companies such as Microsoft which has the highest (monopolistic) profit margins in corporate history are taking advantage of the crisis to lay people off, then you know it's all just a burnt offering to Wall Street.

From The Economist (July 21st, 2012):

And as the Economist article states, companies are sitting on record levels of cash which they could be investing in the U.S.,  but choose not to.  These mega companies don't have any problem selling into the U.S. market, only investing in it.  Meanwhile the stooges in Washington at the behest of their Corporate masters have created the ideal incentives to ensure the arbitrage continues, until there is nothing left to sell.  As one would duly expect, the chart below shows middle class net worth has crashed over the same period and is now back at 1989 levels.

Source: BusinessWeek

So it seems that Ayn Rand and her loyal followers won the class war hands down.

In due time the masses will awaken from their QE-sponsored coma and raise a pitch fork in honour of her pyrrhic victory...

Inexorable Deflation: Mind the Output Gap

Treasury Yields Are Breaking Out (To the Downside)

Faceberg: The Idiocracy's Titanic

As I write this, Mark Zuckerberg is holding his first conference call for Facebook investors, as he reports quarterly results.  The stock is now down 18% on the day at its current After Hours price of $24.  It's also down 36% from the IPO price and -46% from the first day high i.e. Wall Street's biggest IPO fiasco ever, by far.  From high to low the stock has lost $45 billion in market cap in just two months - an amount that exceeds the GDP of 130 countries.