Yen on the move

Swiss Franc and the yen are on the move and the dollar is weakening. I think the whole financial system is so overlevered and opaque that no one has idea what the weak link is. John Succo at Minyanville once again had a good blurb about credit and the business cycle. This isn't the American economy of ten years ago. This is a global economy with uneconomic players seeking a mild form of central planning. If you can't realize what is going on then you can't plan for potential problems. got Gold??

Yen on the move

Its a quiet day where the mo mo idiots are all trying to outdue themselves for the end of the year. Stocks are widly stretched. The yen advanced on a report that the trade deficit has narrowed. Contrary Investor has a good article this month about the Trade deficit is responsible for a never ending credit cycle. Consumption is waning in the US.

Thoughts of the day

Not much in the way of news today. The capital markets are determined to pump certain issues as high as posssible into year end. There seems to be complete belief that nothing can derail the market into year end. I am skeptical of government intervention. My best guess is that nothing has derailed the markets in the way of geopolitical news so therefore it never will.

More importantly, I think a lot people in America are struggling. The market continues to paint a rosy picture most likely because of the 2/20 HF situation that is really driving everything. A lot of longer term issues seem to creeping up among the general population. Lack of income growth, too high student debt, and massive wealth disparity are the most important ones. I just think the capital markets are too short term driven to realize that these are the issues that are going to have profound effects on the country in the next 30 years. Sadly, I don't think my generation is going to enjoy the same things as my parents and I'm not the only one. Everyone my age is drowning in debt and finding wages completely eroding. Wall Street can keep dressing this crap up for a bonus, but its all bullshit. A consumer led recession is going to take place and with it the realization that the country is losing power and the wealthy are abandoning people. I hope Dr. Faber is wrong and we don't see a revolution, but it will grow more likely with time.

Freeport buys Phelp Dodge

Big news is another silly buyout in the mining sector. The markets do not seem this feverish since the heady days of 2000. More LBO's and MA than even then. World markets are booming and hubris is a live and well. Volatility is at record lows in virtually every asset class.

EOW Thoughts

Sheesh. An awful lot of data came out this week and a concensus on things is even more muddled. The obvious winners include global stock markets. The mo mo players in the nasdaq are back even though all data points to softening domestic housing markets and growth. The yield curve is no longer a curve. Its a line. Hopefully someday we will figure out why there poeople scooping up 30 years bonds below the rate of six month t bills. The carry trade in yen swiss francs seems to be getting more problematic. When they blow up people will be forced to delever.

Has anyone noticed that the global financial system is a bigger bubble than in 2000? Everything that happened 5 years ago in the US is now taking place on a gloabl scale. Private equity is now doing deals at 9.5 times cash flow versus 3.5 a few years ago. Leverage buyouts, leveraged consumers. What happens when everyone has to delever? Central Banks should be concerned because at some point they are going to watch the biggest credit debacle in the history of the world. When risky assets get repriced as risky assets things will go wild.

Hedge Fund Blow Up Rumors

Apparently a major hedge fund is blowing out of energy trades and having to liquidate a bunch of high yield currency trades like yen and swiss franc. Hopefully the yen will sky rocket sometime soon.

Global markets seem to be a peak euphoria. The nymex has doubled making it a thirteen billion dollar oil exchange and markets like the BRICS look massively stretched. Something is going to blow up before the year is over.

Chineese Reserve Diversification

China has decided that its going to deversify its reserves out of dollars and into other assets. I think it has directly to do with the fact that the dems are in the house and senate. Trade protection is going to be ratched up because a lot of jobs are being sucked away from the US. Gold is getting a solid bid. Risks seem to be rising in the real world, of course the financial system believes it is bullet proof and nothing can wrong.

As much as the Chineese want to modernize there society is impossible for them to employ a billion people. They know it, but they dont want violence and revolution to break out.

Closing Time

Markets are just about too close. 30 year bond has come off about 10 basis points from the highs. Word is the Japan is going to buy bonds until the end of time. I guess this is the market that we work with. Its really a combination of capitalism and price fixing. Apparently Japan thinks there is infinite demand to consume in the US, even though the data seems to be saying otherwise. Quite frankly, I think Asia is clueless about how to run there economies. You can't suck away all the US manufacturing jobs and expect people to keep buying things forever. Duh! Where is Andy Xie? Does anyone know if has been rehired by another firm?

Conditions Worsening

Sotcks continue to tick lower. At some point we are going to hit some stops. The dow hit a new high as did the Nasduck, small caps, and spoos topped out at or before there highs. The stakes certainly seem very high right now. Everyone wants a bonus, but everyone cant be long.

In other news. The writers of credit insurance will be the recipients of the largest bonuses on wall street. I'm going to go out on a limb and say that this is the peak for CDS writers. It really cant get much better. S&P has reported that credit quality has deteriorated for 25 years with all most all issues in junk status. Hey, just leverage yourself to the hilt its OPM.

MISES

Central-bank monetary inflation and credit expansion cause a boom-bust cycle by distorting prices and profitability. They incite entrepreneurs across the economy to malinvestments and misallocations. With- out artificial credit-expansion, cronyism would result in higher profits for the cronies at the expense of lower profits or greater losses for the non-cronies. But it would not produce a business cycle.

I think it is important to keep in mind how fast credit can expand and then contract. Japan had numerous periods in the 90's where credit would expand and the economy would briefly recover, but it never was really able to get things back on track. The US is vulernable to any contraction in credit. It is impossible for credit to be extended at over ten percent a year forever. It will contract and there will be a very unpleasant credit event with consequences that no one can predict. Financial participants are still searching for profits via lending. Thats all we can do in a 70 percent gdp consumption economy. Keep people spending at all costs. The problem is that demand is softening for the largest loans. Residential and auto loans. A new source of lending must be found.

An Admission of Error by the Fed

Good article in the back of the WSJ about the error in fed policy. It only took them 3 years to figure it out. Honestly, what a complete bunch of morons. Where they all living in a cave the last couple of years. How can the markets have any faith in the fed at all? There is going to be a massive capital markets collapse sometime and no one is ever going to figure it out. How about 1 million FNM's around the world. Its clear the fed is braindead and has lost its usefullness.

Some bozo keeps talking about the CPI as the main measure of inflation. I think paying to attention to CPI is a complete joke. Money or credit expanding far above the economy's real level of gdp will generate some kind of inflation. Our society has decided that inflation in certain things is permitable while others are not. Instead of bitching about oil being high, I want to bitch about houses being high. Oh wait, we cant borrow against oil in order to fuel consumption. The fed blows bubbles and then watches them deflate leaving behind a wrecked financial system.

All the market cares about is the rate to borrow money

I have to continually remind myself that we are the midst of credit and finance boom unlike anything the world has ever seen. As soon as rates bottom markets move higher. MA, LBO, Mortgages are the things that drive our economy in the new century. Therefore when rates head higher markets shit themselves. Its a ponzi scheme and it will end badly.

NFP came in at 90,000 jobs and 4.4 percent. Of course prior months were revised higher. Nothing seems to add up. Are we living in George Orwell's 1984. I dont know how gdp is close to zero, but over a million jobs have been added. Bernake is living on some other planet. Way to go Ben.

CDS are at new lows

I dont know how much the fed pays attention to markets in its analysis, but they cannot be comforted the fact that spread are at record lows. According to the markets there simply not enough risk out there. As AG said risk premiums dont stay low forever and in a very fast electronic market place things could get ugly very fast.

After hours up- TMTA, JDS, BRLC,
down- PWAV, WMFI,

Stocks are in a grinding low vol consolidation. Gold continues to look strong and oil is in a range. More chatter is taking place about slowing consumer demand. At this point the economy is ok and credit is widely available. Therefore how much is are lower interest rates really going to stimulate demand. Doug Kass on realmoney.com thinks the consumer is lent, not pent up. I agree. We are running out of asset classes to inflate.

No post yesterday. Went out for Halloween with a couple of good friends and was not in the condition to trade. I have a couple of the 1350 jans puts in the spoos and long 7 yen futures around 8450. I continue to remain long short in the cash account. Gradually moving into more shorts. Last night on The News Hour there was an interview with a milatary historian who painted a rather bleak situation on the war in Iraq. More troops are needed and if we decide to pull out the country would fall apart rapidly.

Dr. Brett had a good article on out of control trading. I've been there.