Slacktivism has been exposed as a joke.
Half way through last week a nation erupted; the Republic of Ireland football team crashed out of the World Cup at the hand of Gaul, that of a certain Thierry Henry. A Facebook group was established. It took on something of a life of it’s own – over 300k users inside the first 24 hours.
“Something has to be done”.
FIFA made no mention of the incident in their official match report. It was edited several times, each time the Magnum PIs on Twitter reporting to the world the latest breach of instant populist moral values and punch-drunk notions of democracy. Avatars may not have been coloured green, but the online social network air was turning a particularly dark shade of blue and the feedback loop of increasingly agitated noise fed into itself, reaching a deafening cresendo online while steadily losing touch with reality.
Continue reading ‘The Emperor Has No Clothes’
Stocks dived from their recent range at the top of this week, largely for reasons unknown.
While the usual sources of financial infotainment were puzzled at the pullback – citing an absence of negative macroeconomic news – this is in fact a telegraphed “the rally has run out of steam” message. Trader sentiment changes as a function of time, and it is this inability to read the same data consistently that has the greatest impact on market direction beneath the long-term trend. So people have had enough of drinking the government-led recovery Koolaid for now.
What we then look to are combat indicators giving us signs of whether indeed everyone sees this and are still prepared to presevere with a contrarian rally – “climbing the wall of worry”. In such an event watch for a sharp drop as sellers get out quick followed by an equally sharp rebuttal as traders look to get in on the next leg of the rally.
The 2nd scenario is that this is indeed the end of the current rally, whether it then plays out to be a bear market one or the first phase of a recovery would remain to be seen.
So keep an eye on this throughout the week, my thinking at the moment is we’re seeing the beginnings of a summer pull back based on low volume and lack of strong recovery numbers.
The smart money is on a resumption of the bear market.
The upcoming earnings season is thought to be the spark that reignites the bears’ tinder. But as this report points out, firms have already downgraded themselves to expect nothing but bad news anyway. There hasn’t been any warnings because the bar has been lowered to a point where no one will come in under it. So I think this might not be the smoking gun the analysts are looking for. Let’s face it, when something like that is telegraphed so far in advance the trades have already been made.
Likely then it will be the visibility vacuum created after the deluge of numbers dries up that provides this rumour based market with sufficient uncertainty to go to the wall once more. Looking forward the consensus is still predicting a 2nd half recovery, or at least a slowdown in the rate of economic decline. This imbalance between a somewhat doveish expectation and the fact there is far more uncertainty built into the economy as things stand is the disconnect to sell into.
If we are to look at the market as a series of quarterly themes, it is the mid-quarter that can often tell the tale for the time frame as a whole.
The phrase “sell in May and go away” is shaping up to be my key investment theme this summer…
The thought also occurred in my head this week – “Citi Vs GM: First to Fail?” Before giving myself a hefty slap across the face and a “GM you dumbass!” sardonic response. A fairer question would be “will GM go bankrupt before Citi’s controlling shareholder is the US government?”.
Either way it’s the public who will be getting nasty over this. A lot more of them are gainfully employed in America’s flagship car wreck than in America’s flagship bad loan. Stand by for a surge in social unrest somewhere in the West in the next few years. Events elsewhere will only serve to stoke things further. My bet isn’t entirely against America on this one.
Here’s what the market thinks:
Just thought I’d call a spade a spade. At the moment the best way of measuring whether or not commentators believe we’re in the midst of a depression seems to be how often they fail to refer to it as a recession.
Anyway on the subject of blogging on the markets in general, it’s not often I allow myself the opportunity to comment on the daily financial noise, so when I do it’s with the intention of pointing out that the general short term outlook of those who should know better is more or less completely at odds with long term, set-in-stone realities. And it seems even those who do know better are unable to see any other way out of it:
The rise in debt eventually will lead to slower economic growth and diminished standards of living in the U.S
Allan Sinai, chief economist Decision Economics
Nevertheless he supports the Obama stimulus plan. I have a ‘meh’ attitude to all the political hubris surrounding the market today, but I can’t understand all his talk of building for the future when his policies will result in a poorer US tomorrow.
Another noteworthy individual coming from the ‘knows better but doesn’t appear to think there’s anything else for it’ stable is George Soros. He has been expounding exactly what circumstances the US finds itself in, but his solution seems to be to throw more public debt at it. Puzzling.
To put this into perspective, take a look at the ‘Some Inconvenient Truths’ paper causing a stir amongst the more savvy market commentaries. A depression of between 3 – 7 years. Note the FT writer covering the story was equally unable to decide on the state of the economy – the two tags she decided on to accompany the story? Depression and recession.
UK, US, Irish Republic. More will follow…
Once the debt has been drawn down, which will happen, will the 10s become the new 80s? Much more recognised voices than mine can articulate the cycle that may produce it.
And is Brazil, largely seen as immune (insofaras an economy can be immune from a global recession) to events elsewhere, merely being set up as the last domino to fall?
The recent climb for the Dow to just under the 9k mark has been surprising to say the least. If markets like to climb a wall of worry then they had quite a high one to get over of late, economic data in the past two weeks coming in worse than already poor expectations.
But last night the penny dropped, albeit in the form of disappointment over the automakers bailout. That in itself may prove to be unsuccessful even if it passes the senate eventually. The Whitehouse is now looking to use some of the bailout loot reserved for the banks instead. Either way it’s messy and the outcome will be highly uncertain at best, a waste of money from the outside at worst.
The Dow came out of it’s benign hibernation to finish down 200pts. It’s also poised for a triple digit decline today, although just how bad may be tempered by the news that retail sales came in not as bad as expected. Barring a high profile pre-Xmas bankruptcy, I’m looking to find support around 8,200 or if a bankruptcy occurs, somewhere around the mid to upper 7,000 (ie no lower low for the time being).
Continue reading ‘Market Inefficiency’
The problem, as I see it, is that unless the Treasury wants to back the entire credit market (likely reducing Treasuries to junk status – and no, I’m not kidding), we’re simply delaying the inevitable failures yet to come. When we’re losing 500,000 jobs per month, you can let these guys get our money at 3% – but it won’t be enough to stop the tide of foreclosures and defaults.In fact, a case could be made that once these programs run out — and once our Treasuries have become one gigantic SIV — the pain will eventually be felt.
Bennet Sedacca, Minyanville
World governments have received praise from numerous quarters regarding their interventionist strategies. Indeed this praise often seems to be circular-referencing itself has one government gives the thumbs up to the next. Meanwhile though, the markets gyrate wildly on the possibility of where the public fund bucket will pop up next. Let’s face it, what else would cause a 1500pt rally on the Dow amidst the economic crater of over half a million jobs lost in a month?
People say markets are not listening to the fundamentals. Neither are governments whose main weapon against bad debt has been to bail it out. Banks with remarkably positive market risk betas, subprime mortgage holders & illiquid automakers have benefitted. The dot com bust came when people realised there was no business case for pumping money into pipe dreams.
When will the ‘old’ [read 'The'] economy bust come?
When I began a grad job at a London Investment Bank, credit derivatives and for the uber finance geeks, securitisation, were all the rage. The Weekend FT was full of embarassingly glowing stories of how the demigods from JP Morgan & Co planned this bright new era of sophisicated and ubiquitous credit while sipping champagne by the pool at Boca Raton. Greenhorn Oxbridge types made weak references to arcane products they likely never fully understood and bandied about all the key terms that hopefully convinced others they could act the part. Not that dissimilar to a traders role in the brokerage houses anyway you might think. That’s true, and as such I use it to gauge the level of complicity amongt the rank and file of the sellside in this credit squeeze.
One conversation I will always remember that for me typifies what went wrong was with a debt markets guy who shall remain nameless. As usual I was giving it the big one about equities in general (I never really got the alleged sexiness of the more exotic debt instruments as it just seemed to be a repackaging of the same boring fixed income cash flows) and he was giving me one of those “you’re just one of those dumb market traders” looks. Obviously that just threw fuel on my fire. But anyway when he was explaining away his debt fetish for selling things off in tranches the following line stood out:
What I like is being able to outsmart someone. I don’t want to take on any risk, so if I can take a product and package it up in such a way I can take a guaranteed cut from it’s sale then that’s the best way to do things.
(Presumably Ex-)Debt Markets guy, circa 2005
So the new kids on the block thought it was cool because it made them feel smart. No one bothered to point out this newfangled method of repackaging was resulting in triple A assets backed by single A backed by junk. A great big house of cards that neither the buy side nor the sell side nor the ratings agencies bothered to question. The deceit was in selling it to the public (via that perennial medium of unquestioning bluster, the press) as an example of everyone’s-a-winner financial magic. But more worrying was the ability of the great & the good in the financial sphere to believe their own hype. You can count on your hand the number of market participants willing to bet against the tide of cheap debt.
Fundamentally it was the willingness of those hired to make important & complex decisions for themselves & the money they were in charge of to shirk that same responsibility in favour of doing the fashionable thing & feeling smug about it, that brought about the situation we find ourselves in.
The markets as a whole most resemble an infinitely large field of sheep. At any one time the sheep can be found grazing or whatever it is they do, in a number of flocks. These flocks pick an area according to several reasons that can be found by the use of confirmatorial bias, however in reality it is a completely arbitrary decision upon which the flock then acts. After a while the patch of grass disappears and it’s time to move on. But the sheep being stubborn don’t move on in an efficient manner; they proceed to kick the arse out of it until they’re feeding off nothing more than their own delusion that here lies a perfectly lush grassy veld. Eventually the flock, disillusioned with finding only assorted tree roots and babies heads, moves off to the next arbitrary stance where the process begins anew.
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