Most Americans Still Have No Idea How Bad The US Economy Is
Remember,
back in the day, when a bankruptcy was simply called a bankruptcy?
Naturally, this was well before ISDA came on the scene and footnoted
the living feces out of everything by claiming that a bankruptcy is
never a bankruptcy, as long as the creditors agree to 99.999% losses at
gunpoint, with electrodes strapped to their testicles, submerged in a
tank full of rabid piranhas, it they just sign a piece of paper
(preferably in their own blood) saying the vaseline-free gang abuse was
consensual. Well, now we learn that as the global insolvency wave finally moves to China, a bankruptcy is now called something even less scary: "deferred loan payments"
(and also explains why suddenly Japan is going to have to bail China
out and buy its bonds, because somehow when China fails, it is the turn
of the country that started the whole deflationary collapse to step to
the plate). After all, who in their right mind would want to scare the
public that the entire world is now broke. Certainly not SWIFT.
And certainly not that paragon of 8%+ annual growth, where no matter
how many layers of lipstick are applied, the piggyness of it all is
shining through ever more acutely. Because here are the facts, from China Daily, and they speaks for themselves: "China's biggest provincial borrowers are deferring payment on their loans just
two months after the country's regulator said some local government
companies would be allowed to do so....Hunan Provincial Expressway
Construction Group is delaying payment on 3.11 billion yuan in interest, documents governing the securities show this month. Guangdong Provincial Communications Group Co, the second-largest debtor, is following suit. So are two others among the biggest 11 debtors, for a total of 30.16 billion yuan, according to bond prospectuses from 55 local authorities that have raised money in capital markets since the beginning of November." So not even two months in and companies are already becoming serial defaulters, pardon, "loan payment deferrers?"
And China is supposed to bail out the world? Ironically, in a world in
which can kicking is now an art form, China will show everyone just
how it is done, by effectively upturning the capital structure and
saying that paying interest is, well, optional. In the immortal words
of the comrade from Georgia, "no coupon, no problem."
Things sure have changed in the past 30 years...
Three years ago, when it first became largely adopted by the mass investing population as a hedge to a collapsing market, the 3x levered ETF known as the Direxion Daily Financial Bear 3X Shares, or FAZ in short, was the hottest thing since sliced bread. Subsequently, it has transitioned form being an object of affection to one of infinite scorn, hatred and outright homicidal urges, for one simple reason: it, like many of its other levered bearish peers, is anything but a way to profit from a collapsing market. In fact, as a recent proxy filing by Direxion indicates, it is virtually impossible to make money in the long-term using FAZ... or medium-term... or, as many would say, even intraday as well. The reason for this is simple: while nobody gets the true inner workings of these inverse x-levered ETFs, certainly not the "experts" who post three times a day on Seeking Alpha, one thing everyone should understand is what the following table straight from Direxion is saying: namely that even if the market collapses by 60%, one could lose up to 96.1% of their entire investment in the FAZ, if for some ungoldy reason, annualized vol surges to 100%. Because, you know, vol only occasionally rises when the S&P plunges by more than half. The same is applicable on any time frame: in essence the FAZ only works if the two massively contradictory Venn diagrams overlap: a market plunge and not rise in vol. Uhm, maybe they should have disclosed that a little bit sooner...
While we have long known that the drachma, and recently the lira, have seen significant "when issued" interest by institutional clients desiring to hedge their currency collapse exposure, and thus early markets by various trading desks, little did we realize just how destabilizing this fact to the system would be, at least according to SWIFT. According to the WSJ, this organization, best known for making an abrupt appearance any time one wishes to do a wire transfer, then promptly disappearing until the next such instance, ended up promptly shutting down any Plan B optionality when "at least two global banks took steps to install back-up technology systems that could handle trades in old European currencies like drachmas, escudos and lire... quickly found, is not so easy in a financial world that is trying to both exhibit confidence in the ailing euro and—just in case—plan for its possible demise. Technology managers at the banks contacted Swift, the Belgium-based consortium that manages the network used in financial transactions, said people familiar with the matter. The banks wanted Swift's technology support and the currency codes that would be necessary to set up the backup systems." And got promptly rejected: "Swift declined to provide some information for such contingency planning, including whether old codes could be used in the system, said the people familiar with the matter." The reason is that in Europe, the mere admission that Plan B is a possibility, apparently set off a chain of events that makes Plan B an inevitability: "...officials there feared that releasing the information could fuel further doubts and instability in the euro zone."... And the kicker: '"As soon as you start contingency planning . . . it can become a foregone conclusion," said Alastair Newton, senior political analyst at Nomura PLC. "But if things go wrong and you don't have plans in place, you're in trouble."
A Few Chinese Bad News Bears To Spoil A Happy New Year
China Insolvency Wave Begins As Nation's Biggest Provincal Borrowers "Defer" Loan Payments
Remember,
back in the day, when a bankruptcy was simply called a bankruptcy?
Naturally, this was well before ISDA came on the scene and footnoted
the living feces out of everything by claiming that a bankruptcy is
never a bankruptcy, as long as the creditors agree to 99.999% losses at
gunpoint, with electrodes strapped to their testicles, submerged in a
tank full of rabid piranhas, it they just sign a piece of paper
(preferably in their own blood) saying the vaseline-free gang abuse was
consensual. Well, now we learn that as the global insolvency wave finally moves to China, a bankruptcy is now called something even less scary: "deferred loan payments"
(and also explains why suddenly Japan is going to have to bail China
out and buy its bonds, because somehow when China fails, it is the turn
of the country that started the whole deflationary collapse to step to
the plate). After all, who in their right mind would want to scare the
public that the entire world is now broke. Certainly not SWIFT.
And certainly not that paragon of 8%+ annual growth, where no matter
how many layers of lipstick are applied, the piggyness of it all is
shining through ever more acutely. Because here are the facts, from China Daily, and they speaks for themselves: "China's biggest provincial borrowers are deferring payment on their loans just
two months after the country's regulator said some local government
companies would be allowed to do so....Hunan Provincial Expressway
Construction Group is delaying payment on 3.11 billion yuan in interest, documents governing the securities show this month. Guangdong Provincial Communications Group Co, the second-largest debtor, is following suit. So are two others among the biggest 11 debtors, for a total of 30.16 billion yuan, according to bond prospectuses from 55 local authorities that have raised money in capital markets since the beginning of November." So not even two months in and companies are already becoming serial defaulters, pardon, "loan payment deferrers?"
And China is supposed to bail out the world? Ironically, in a world in
which can kicking is now an art form, China will show everyone just
how it is done, by effectively upturning the capital structure and
saying that paying interest is, well, optional. In the immortal words
of the comrade from Georgia, "no coupon, no problem."World's Second And Third Largest Economies To Bypass Dollar, Engage In Direct Currency Trade
To all who still think that in the war of attrition between the USD and the EUR (because contrary to what some have "discovered" only recently, currency wars have been going on for a long, long time and will continue to do so, before morphing into trade and real wars), in which both currencies are doomed, and where the winner takes it all, if only for a few minutes, we bring to your attention the following most recent update out of the Pacific Rim (where incidentally the Shanghai Composite has resumed its relentless track lower with the obvious intention of closing 2011 at its 52 week low) in which we find i) that the dollar's hegemonic control over the world is ending, and ii) that the mercantilist relationship so long sustained between China and the US, may be shifting and reversing, and in its next metamorphosis will see Japan buying the bonds of... China (although probably not for long - see next post). As Bloomberg reports, "Japan and China will promote direct trading of yen and yuan without using dollars and will encourage the development of a market for the exchange, to cut costs for companies, the Japanese government said. Japan will also apply to buy Chinese bonds next year, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday." And before someone blows it off as merely more foreign relations posturing, "“Given the huge size of the trade volume between the Asia’s two biggest economies, this agreement is much more significant than any other pacts China has signed with other nations,” said Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd." As for China's reverse mercantilist move, one which will stun anyone who believes that Yuan is still undervalued, "Finance Minister Jun Azumi said Dec. 20 buying of Chinese bonds would be beneficial for Japan because it would help reveal more information about financial markets in China, the world’s largest holder of foreign currency reserves." Speaking of, has Albert Edwards gloated yet that given enough time, he always ends up being proven right, in this case about the CNY's upcoming devaluation?Ronald Reagan's 1981 Christmas Address
Things sure have changed in the past 30 years...How The FAZ-Mobile Promises To Lose 99.6% Of Your Money Even If The Market Crashes By 60%
Three years ago, when it first became largely adopted by the mass investing population as a hedge to a collapsing market, the 3x levered ETF known as the Direxion Daily Financial Bear 3X Shares, or FAZ in short, was the hottest thing since sliced bread. Subsequently, it has transitioned form being an object of affection to one of infinite scorn, hatred and outright homicidal urges, for one simple reason: it, like many of its other levered bearish peers, is anything but a way to profit from a collapsing market. In fact, as a recent proxy filing by Direxion indicates, it is virtually impossible to make money in the long-term using FAZ... or medium-term... or, as many would say, even intraday as well. The reason for this is simple: while nobody gets the true inner workings of these inverse x-levered ETFs, certainly not the "experts" who post three times a day on Seeking Alpha, one thing everyone should understand is what the following table straight from Direxion is saying: namely that even if the market collapses by 60%, one could lose up to 96.1% of their entire investment in the FAZ, if for some ungoldy reason, annualized vol surges to 100%. Because, you know, vol only occasionally rises when the S&P plunges by more than half. The same is applicable on any time frame: in essence the FAZ only works if the two massively contradictory Venn diagrams overlap: a market plunge and not rise in vol. Uhm, maybe they should have disclosed that a little bit sooner...
A SWIFT Denial - How In Europe, Even Admission Of A "Plan B" Is Equivalent To Failure
While we have long known that the drachma, and recently the lira, have seen significant "when issued" interest by institutional clients desiring to hedge their currency collapse exposure, and thus early markets by various trading desks, little did we realize just how destabilizing this fact to the system would be, at least according to SWIFT. According to the WSJ, this organization, best known for making an abrupt appearance any time one wishes to do a wire transfer, then promptly disappearing until the next such instance, ended up promptly shutting down any Plan B optionality when "at least two global banks took steps to install back-up technology systems that could handle trades in old European currencies like drachmas, escudos and lire... quickly found, is not so easy in a financial world that is trying to both exhibit confidence in the ailing euro and—just in case—plan for its possible demise. Technology managers at the banks contacted Swift, the Belgium-based consortium that manages the network used in financial transactions, said people familiar with the matter. The banks wanted Swift's technology support and the currency codes that would be necessary to set up the backup systems." And got promptly rejected: "Swift declined to provide some information for such contingency planning, including whether old codes could be used in the system, said the people familiar with the matter." The reason is that in Europe, the mere admission that Plan B is a possibility, apparently set off a chain of events that makes Plan B an inevitability: "...officials there feared that releasing the information could fuel further doubts and instability in the euro zone."... And the kicker: '"As soon as you start contingency planning . . . it can become a foregone conclusion," said Alastair Newton, senior political analyst at Nomura PLC. "But if things go wrong and you don't have plans in place, you're in trouble."
A Few Chinese Bad News Bears To Spoil A Happy New Year
12/25/2011 - 16:31
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