Financial topics

[Higgenbotham]

I mostly agree with you on that, but I would say that we're not exactly in the eye on the storm. The first storm was in 2008-2009 and it was one we barely survived. The second storm has yet to hit us and has not yet built its full strength. We don't see it at all and if we do, we consider it something minor. There are signs if you know what you're looking for.

This is from this morning's news of overnight developments. Again, the data points are mixed and it seems as if the old news that was already in the pipeline is holding things up whereas a new development is dragging things down. Therefore, while US stocks are down this morning a bit, we may see some rebound after the data releases. How much rebound may tell whether we are in the eye. My thought yesterday was that it may be a few weeks away but not months. This morning the eye looks closer.

"European stocks relinquished early gains and moved lower after Germany's Bundesbank said it won't accept bank bonds guaranteed by Ireland, Greece and Portugal as collateral. Moody's Investors Service said "this announcement marks a step towards divergent collateral rules and raises questions about policy cohesiveness among Euro-Zone central banks and this is credit negative for Euro-Zone sovereigns and banking systems overall, but particularly for those of Greece, Ireland and Portugal." European Stocks had initially rallied after China's Mar PMI manufacturing unexpectedly expanded by its fastest pace in a year, while Mar German PMI manufacturing was unexpectedly revised up to 48.4 from the originally reported 48.1. The British pound rallied to a 4-1/2 month high against the dollar after Mar U.K. PMI manufacturing unexpectedly increased +0.6 to 52.1, stronger than expectations of -0.5 to 50.7 and its fastest pace of growth in 11-months."

[OLD1953]

The modern business cycle seems to have diverged from the old cycle of create a product, find customers, keep the customers happy, grow the customer base, reduce prices by increasing volume, grow the customer base, repeat until you have to find a new product line and start over.

The new cycle appears to be: issue stock options to the management in lieu of salary so they can claim capital gains on money they never invested, manage the stock price, sell stock at the top, managers bail out, company buys back as much stock as possible to control the drop, issue new round of options to management, repeat cycle while declaring no dividends and producing products as a sideline to stock price manipulation. Customers are a nuisance, barely to be borne, and never to be given the implied services they paid for in the warranties or support contracts.

Claiming this is somehow due to taxes or regulations, very common on the various pundit preening displays that pass for news, is a peculiar notion, because I can't find these amazingly changed laws anywhere. It looks more to me like a lot of corporations are simply ignoring their obligations, doing a lot of double billing (utterly rampant in the medical field) and engaging in illegal tax evasion and/or fraud. Government is absolutely paralyzed in terms of dealing with corporate lawbreakers.

[jcsok]

This bear went back into hibernation, for the most part, at 1410. Intend to try to rebuild position around April 20. Bears have gotten very hungry, and have been hunted relentlessly by the Fed, But the Fed and Europe should be about out of ammo. Still minorly short ES, and 100% short 6E.

[Higgenbotham]

This bear went back into hibernation, for the most part, at 1410. Intend to try to rebuild position around April 20. Bears have gotten very hungry, and have been hunted relentlessly by the Fed, But the Fed and Europe should be about out of ammo. Still minorly short ES, and 100% short 6E.

I have no position right at the moment either. Though I am moving in and out as the market is pretty two sided now. We saw a fairly strong rebound after the data releases, sort of indicating that the eye of the hurricane may be off into the future, though there was some pretty stiff selling at day end.

"Intend to try to rebuild position around April 20."

I'm looking at that same time zone, though also see a chance of something earlier if it plays out right.

"Bears have gotten very hungry, and have been hunted relentlessly by the Fed. But the Fed and Europe should be about out of ammo."

The Fed has certainly been lighting a fire under the market, but I agree the game is just about up, as the next play to keep a fire under the market would need to be real action rather than words, and that's going to be a lot tougher.

[Higgenbotham]

FRANKFURT, April 2 (Reuters) - European shares were flat on
Monday, giving up early gains due to renewed nervousness about
the euro zone after media reports said Germany's Bundesbank had
stopped accepting the bonds of Portugal and other peripheral
countries as collateral.
The Bundesbank denied the reports but they hit banking
shares and stocks in peripheral euro zone markets. The German
central bank said it continued to accept all euro zone sovereign
bonds.

http://www.reuters.com/article/2012/04/ ... CQ20120402

I hadn't known the Bundesbank issued a denial but that would be consistent with the preludes to past blowups if my memory is correct. My thinking today was that it will be "risk on" more or less until somebody says they're pulling out of the Eurozone because their collateral isn't being accepted, or something along those lines.

[vincecate]

I think this week's hussman article is well worth reading. He says that historically when the government and public both spend beyond their means then corporate profit margins are abnormally high and unsustainably high, like now. The pundits assume that current profit margins will stay the same when forecasting future stock prices, but this is very wrong. Current corporate profit margins are 70% above normal and will "mean revert".

http://www.hussmanfunds.com/wmc/wmc120402.htm

[Higgenbotham]

Looks like May 1 will be the end of the denials if something really is going to happen.

Friday March 30, 2012 (23:01)

Bundesbank rejects Greek bonds

German central bank refuses debt from countries in bailout programs as collateral for liquidity


By Sotiris Nikas

Greek bonds are increasingly becoming worthless, which may well further delay Greece’s return to the markets, as Germany’s central bank is now refusing to accept the bonds of countries in bailout programs as collateral, according to a press report in Germany.

Up until this week Greek bonds had been used by banks to draw liquidity from eurozone central banks and the European Central Bank. However, the ECB announced on March 21 that it was giving eurozone member states’ national central banks the right to reject bonds of banks guaranteed by states that are in European Union and International Monetary Fund reform programs: Greece, Portugal and Ireland, for the time being.

In this context, the Bundesbank has become the first of the eurozone’s 17 central banks to refuse these countries’ bonds as collateral, according to a report in Friday’s Frankfurter Allgemeine Zeitung. This means that as of May, the German central bank will cease to lend to commercial banks that use Greek, Irish or Portuguese bonds as collateral.

http://www.ekathimerini.com/4dcgi/_w_ar ... 012_435700

[vincecate]

I hadn't known the Bundesbank issued a denial but that would be consistent with the preludes to past blowups if my memory is correct. My thinking today was that it will be "risk on" more or less until somebody says they're pulling out of the Eurozone because their collateral isn't being accepted, or something along those lines.

Mish says you should never believe the rumor until it is officially denied. If it is true they deny it (politicians think that when things get serious they have to lie) but if it is not true they ignore it.

http://globaleconomicanalysis.blogspot. ... h-and.html

[Higgenbotham]

I hadn't known the Bundesbank issued a denial but that would be consistent with the preludes to past blowups if my memory is correct. My thinking today was that it will be "risk on" more or less until somebody says they're pulling out of the Eurozone because their collateral isn't being accepted, or something along those lines.

Mish says you should never believe the rumor until it is officially denied. If it is true they deny it (politicians think that when things get serious they have to lie) but if it is not true they ignore it.

http://globaleconomicanalysis.blogspot. ... h-and.html

I recall John also covered this type of thing.

But let's recall that European politicians have lied over and over again, and Eurogroup chairman Jean-Claude Juncker recently was quoted as saying, "When it becomes serious, you have to lie," as we reported two weeks ago. By their own admission, it's not possible to believe a word that European financial executives say. They will deny that anything is going to happen until it actually happens. And with a corruption scandal brewing in Spain, "it" might happen to Spain before too long.

http://www.generationaldynamics.com/cgi ... d.e110522b

Blowback grows from EU's political farce this weekend

We've commented several times on the repeated denials by EU officials on Friday, and how every one of them turned out to be a flat lie. Mainstream analysts and journalists are finally beginning to recognize what we've been saying for years -- that in this generational Crisis era, lying and fraud are the norm, not the exception. Here's how EuroIntelligence describes the situation:

"Guy Schuller, spokesman for Jean-Claude Juncker, admitted yesterday to lying about the secret meeting of finance ministers on Friday. The Wall Street Journal Real Time Brussels (link) blog has got it all, including the above quote from Mr Schuller, who was contacted by various media groups to whom he denied that the meeting was taking place. "There was a very good reason to deny that the meeting was taking place," Mr Schuller told the WSJ. "It was self-preservation." Helpfully, the WSJ also dug up an older press conference of Mr Juncker, who said "When it becomes serious, you have to lie." In his column on Monday, Wolfgang Münchau also commented on Mr Schuller's lie, adding that he did not believe the pronouncement that the meeting did not discuss a Greek exit from the eurozone either. Furthermore, he no longer believed any statement by any EU officials in respect of this crisis. We are in the stage of the crisis where officials are lying all the time. Lucas Zeise, in his column in FT Deutschland, says the outbreak of lies is the best metric for the pending break-up of the eurozone. He recalls various currency crises from the 1970s and 1980s, in which officials also lied that nothing would happen, until it happened. Zeise says two necessary conditions to avoid a break-up are the acceptance of a transfer union, financed, for example, by a tax on exporters, and the tolerance of large wage increases in northern European countries."

http://www.generationaldynamics.com/cgi ... gd.e110511

[Trevor]

What do they mean, increasingly worthless? Greek bonds are already worthless and nobody in his right mind is going to buy them. Yeah, it was an "orderly" default, but it's still a default and their economy is still crashing. If I was an investor, that would be the last place that I would want to put my bonds.

They may be lying to the public, but I get the impression that these people are also lying to themselves. They don't want to believe what's happening, so they close their eyes and pretend that everything is fine or at least we're well on the road to recovery.