Generational Dynamics Forum - New Site

The money the FED tossed into the pot over the last decade mostly wound up in the markets, which drove prices beyond reason but didn't cause price inflation locally. Now housing is essentially dead, and cannot lead a recovery (as it does traditionally) until the excess inventory is sold or destroyed in some fashion. (One can imagine something similar to the tobacco raiders who would burn or rake tobacco plants to limit amounts grown and force prices up, but I'd rather not.) Given housing cannot inflate, most commodities are inflated beyond reason already and consumption in the US is dropping, and given that China is in the leading edge of catastrophe, while Europe is cutting spending everywhere, it's not hard to imagine a scenario wherein the FED dumps money into the banks, and the banks just buy US bonds or blue chips, because nothing else is making any real money without undue risk.

Was a little surprised nobody commented on that GAO report, churn on a "credit card" of 16 trillion over 2.5 years is a lot. This puts a wholly different face on the bank rescues.

Not sure of the best place for this, this is the closest match topic I can think of.

The money quote long predicted, in a CNBC article today, "MF Global May Not Be Able to Pay Clients Back: Trustee":

David Rosen, an energy broker at the New York Mercantile Exchange, said he was leaving the meeting with more questions than answers.

"The customers need to be made 100 percent whole — there's a national interest here," said Rosen, who organized fellow MF Global customers on the NYMEX trading floor exchange in the early days of the bankruptcy. "I think the trustee has done a good job so far; they've been responsive to us. But we need to make it so this can't ever happen again."

I think this MF situation is the most serious development recently, much more so than the various debt problems such as we have always had with us and can strategize around, because it certainly seems as if the customer money simply disappeared through perfectly legal standard-practice manipulations and shenanigans and isn't coming back. How can anyone have faith in any modern investment when something like this can happen? The only thing that makes sense is burying silver bars under your fenceposts, as apparently they do in the Islands. Or getting paper stock certificates and putting them in the safe deposit box, but that isn't easy - for many corporations, impossible. Or physical cash. Or unencumbered real estate, perhaps, as long as MERS is nowhere in its chain of title. Seriously, where do you put your long-term savings/college fund/retirement that's safe?

How are they getting around section D?

D. Clearing Firm Guarantee
In addition to its obligations under the CME Rules, Clearing Firm agrees that it will be financially responsible for all Customer orders sent to the CME Globex Platform via any CME approved Access Method (including via CME Globex Interface Direct, CME Globex Interface Data Center, CME Globex Trader – Direct or Internet, or CME EOS Trader) that contains the Firm Numbers and for clearing any trades that are matched as a result of such orders. Clearing Firm will be responsible to clear such trades even if the orders received via the CME Globex Interface Direct (i) were entered as a result of a failure in the security controls and/or credit controls, (ii) were entered by an unknown or unauthorized user, or (iii) exceeded Clearing Firm’s credit parameters.

http://www.cmegroup.com/globex/files/CM ... rantee.pdf

http://www.cmegroup.com/clearing/files/ ... guards.pdf

Obviously they were authorized, obviously the same guarantee applies, so how is this not an enforceable contract? Have we really reached the point where contracts are only enforceable if they are convenient to the kings?

LONDON | Fri Jan 13, 2012 2:20pm GMT

LONDON Jan 13 (Reuters) - European shares turned negative after a senior euro zone government source said ratings agency Standard & Poor's was set to downgrade several, unspecified euro zone countries on Friday.

At 1414 GMT, the pan-European FTSEurofirst 300 index of top shares was down 0.5 percent at 1,013.98 points after earlier rising as high as 1,026.81.

"There is a rumour that S&P is about to downgrade several countries, that is what is causing the weakness in stocks," a London-based trader said.

http://uk.reuters.com/article/2012/01/1 ... I220120113

http://generationaldynamics.com/forum/v ... 830#p11793
http://generationaldynamics.com/forum/v ... 830#p11787

This news may be the trigger or precursor event we spoke of earlier in the week that possibly seemed due over the weekend. If it's similar to what was seen with the Bear Stearns subprime hedge funds, this news may set the market back, but the real panic event may be similar to when Bear Stearns hit the wall 8 months after the subprime hedge funds went to pennies on the dollar in July 2007 (the funds themselves were small compared to the scale of the whole crisis). Though I would say the scope of this looks to be larger, as the fact of the US downgrade in early August caused a pretty serious market reaction.

European and Wall Street markets have tanked in the last hour, on
rumor that S&P is going to downgrade several European countries,
including France.

Actually, al-Jazeera reported at about 10:20 am that France has
already been downgraded, based on reports from French sources.
Interestingly, Bloomberg TV is still reporting it as only "possible,"
as of 10:30am. I guess al-Jazeera has better financial sources
in France than Bloomberg does. (Or worse, if the story turns out
to be false.)


UPDATE 10:46am BBTV says that Germany will keep its AAA rating.

UPDATE 10:56am: Austria will lose its AAA rating. S&P will announce
what will happen to France at 3 pm Eastern time.

UPDATE 11:04am: BBTV is quoting French sources as saying that AAA will
be downgraded, but they don't know whether it will be one or two
notches. If it's two notches, then it will have devastating effects
on the EFSF bailout fund.

John wrote:UPDATE 10:56am: Austria will lose its AAA rating. S&P will announce
what will happen to France at 3 pm Eastern time.

This is probably being done one hour before the market close in order to minimize any panic that might occur. Usually announcemnts take place after the market close. I believe the US was downgraded after the stock market close on Friday, August 5.

http://money.cnn.com/2011/08/05/news/ec ... /index.htm

On the news the S&P and Dow whooshed lower – and the Fast pros think the sell-off presents a good buying opportunity.

“It’s already priced into the market,” says trader Jon Najarian, referring to the one notch downgrade of France.

To confirm his thesis, Najarian points to the Volatility Index. “The Vix popped on the news but then pulled back. It’s still a very low number – institutional investors are not scared –they’re still in,” he says.

Trader Zach Karabell agrees entirely. “Real world impact from the France downgrade will be about the same as the S&P downgrade of US debt in July – zero.

http://www.cnbc.com/id/45987489

I find this fascinating from a Generational standpoint, especially thinking about the Galbraith quote that John has used time and time again. These traders (and other traders I know who are very profitable traders) are using technical indicators to guide them. Yesterday, according to some such traders I read, the indicators said to "buy". Today, they still say to "buy". Meanwhile, conditions can continue to worsen as the indicators that worked so well in the non crisis period may stop working. Do the indicators like the VIX really know the future? Or did they only work under a certain set of conditions that may no longer be operative?

It's ALL fascinating, Higgie. It's like a dark, depressing science
fiction horror movie set off with black humor.

Here's a quote from today:

> "The consequence (if France is downgraded) is that the EFSF cannot
> keep its triple-A rating," Jörg Krämer, chief economist at
> Germany's Commerzbank, told Reuters. "That may irritate markets in
> the short term but wouldn't be a big problem in a world where the
> US and Japan also don't have a triple-A rating anymore. Triple-A
> is a dying species."

> http://www.spiegel.de/international/eur ... 36,00.html

"Or did they only work under a certain set of conditions that may no longer be operative?"
Exactly the paradox we are in.