PIMCO On The Fiscal Folly Of The Keynsian Revolution, And "Just Saying No" To Keynes

Zero Hedge has been among the most vocal critics of Keynesian economics, and specifically the misinterpretation by modern governments of the core approach of the "Keynesian revolution", which essentially gave them a carte blanche to drown society in preemptively failed stimulus after stimulus, funded with a relentless tsunami of public debt, which, while some believe will never be "called", others, who actually base their opinions on real world empirical evidence and not textbooks, realize all too well that such debt is ultimately unsustainable, reserve currency or not. Which is why we were amused to read today in a letter by Pimco's Tony Crescenzi, the core gist of our argument, repeated so often through the years, namely finally "Saying no to Keynes and fiscal folly." The key paragraph from Pimco: "Politicians and the beneficiaries of their fiscal illusions for the past 80 years abused the Keynesian philosophy, relentlessly and dangerously pursuing the use of debt for self-aggrandizement. Today, the citizens of indebted nations bear a heavy burden and must begin repaying the debts. It is a herculean task, because the debts are mountainous. Yet, there is no choice, because investors have become intolerant of fiscal follies. They are saying no to Keynes, in other words." This also explains why during Bernanke's Jackson Hole speech the Chairman basically threw the ball back in Congress' court. Unfortunately he will soon realize that absolutely nothing will come out of this, and it will be up to him to once again guarantee that Wall Street generates yet another year of record bonuses.

 

3 Charts From SocGen On Why The "Japanese Scenario" Means Investors Should "Be Afraid, Be Very Afraid"

Some observations from SocGen, which presents us with three charts explaining why those who believe in the Japanese scenario should "be afraid, be very afraid - If we accept the idea of a three-stage crisis (taking as our starting points 2000/01 + 2007/08 + 2011), we have probably reached a situation similar to Japan’s lost decade of the 1990s. A Japanese-style scenario for the US could gain traction, particularly if there is no real estate recovery in the US, high unemployment levels persist, and economic sentiment remains depressed. Such a configuration would suggest that, in June 2011, we exit a bear market rally, which was fuelled by restocking and QE2. Another 20% drop in the equity indices could then be observed in the coming months if this scenario were to materialise."





ES To Contextual FV Spread Continues To Diverge

The ES to Contextual Risk spread presented on Friday, at which point the ES was 15 rich to "underlying" fair value (first red circle from the left on the chart) continues to make new wides. After collapsing to 30% of the original spread level shortly after presenting, (first green circle) the spread returned to almost inception levels, and has since continued to blow out wider. At last check, ES appears to be nearly 25 points rich to fair value. Whether this means that correlation traders have taken an extended vacation, or that once again the purchasing capacity of those who "wag the dog" of actual underlying risk expression is impaired due to lack of actual capital, is unclear. It is also unclear how much wider the last 24 hours of irrational exuberance can send this spread before it reverts to fair levels. If the recent move in ES is predicated by self-fulfilling expectations of the Fed announcing QE3 on September 21, it is quite likely this may blow out to historic wides as the Bernanke Put, as presented here and which impacts primarily stocks in the early part of the easing regime, continues to be priced in over the next 3 weeks.

Italy Trims Austerity Plans, Removes Tax Hike Proposal On High Earners, To Pursue Tax Cheats Instead

Italy's brief flirt with Austerity, disclosed on August 12, lasted all of 2 weeks. As Reuters reports, following a 7 hour meeting between FinMin Tremonti who has been portrayed by the media as the primary reason why Italy has recently become the target of bond vigilantes, and which in turn was forced to establish some token measures of austerity, and PM Berlusconi, the most provocative measure of the "austerity" packet have been dropped, namely the solidarity tax, which would see new taxes on high earners, as well as austerity imposed on local budgets, and instead will be replaced with new 'tax evasion' avoidance schemes. Surely this massive watering down of Italian austerity will work: just ask Greece how effective the whole crack down on tax avoidance was. At least the Piazza Navona strike cam can be dropped for now... or at least until bond vigilantes strike in Rome again, and the country does the whole austerity charade again.

Did Bernanke Pre-announce QE3 And More "Hope" Last Friday As Stocks Believe? Here Is Rosenberg's Take

With today's market session merely a continuation of what happened on Friday, here is David Rosenberg's explanation of the market move seen following the initial dip on Friday, followed by the latest surge in stocks. Rosie's summary on what has been driving stocks higher over the past 48 trading hours? Simple - " the markets were responding to something and they were. It's called hope, and Ben gave them some." If indeed stocks are correct about QE3, look for Brent, WTI, Gold, and everything else to resume the upward climb, completely ignoring anything and everything that the CME decides to do with "speculative" margins levels.

Ron Paul Asks If Libya Is Indeed "Mission Accomplished"

Ron Paul has released the following extended rhetorical inquiry on what the utility of the recent expansion (through very military means) of US and European interests in Libya has been, which more than anything exposes US hypocricy when it comes to foreign national interests. To wit: "Gaddafi may well have been a tyrant, but as such he was no worse than many others that we support and count as allies. Disturbingly, we see a pattern of relatively secular leaders in the Arab world being targeted for regime change with the resulting power vacuum being filled by much more radical elements.  Iraq, post-Saddam, is certainly far closer to Iran than before the US invasion.  Will Libya be any different?" And he follows up: " With the big Western scramble to grab Libya's oil reserves amid domestic political chaos and violence, does anyone doubt that NATO ground troops are not being prepared for yet another occupation?" Unfortunately, we will get the answer to this question quite soon, especially if a counter revolution in Libya, as many expect, does occur.







Graham Summers’ Weekly Market Forecast (Performance Gaming Edition)

Posted by : Phoenix Capital...

Post date: 08/29/2011 - 13:46

The Euro could be in the final stages of intervention/ bailouts. On September 8, a German court will be ruling whether it is constitutional for Germany to participate in EU bailouts. Consider that 6...

Karl Denninger: Real people say 'screw you' to the markets

 

 

In King World News interview, Embry cites huge demand for real metal

 

 

Walker Todd: Fed's lending against equities was as good as buying them

 

 

Record prices spawn new wave of China gold bugs

 

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