Wednesday, August 10, 2011

Riots and Safes

It may be a product of an era of comfort and cosseting or it may be a throw back to the guilt of Empire, but whatever the reason, The British Disease has appeared to TMM to be almost endemic. But now it may have finally been diagnosed and research embarked upon for a cure. The moral compass of the British people has for many years pointed towards one of self doubt and paranoid inward reflection leading to a feeling of collective responsibility for all the injustices of the world. This has led to UK involvement in conflicts around the world, huge payments in compensation and a media which desperately looks for links in any story that can blame the causes on something UK.

The riots may have finally broken this trend with even Guardianistas rebuffing idealistic arguments linking the riots to basically anything they don't agree with. TMM tried suggesting that the riots were a natural reaction to an expansion of the US Balance sheet and a grass roots rejection of the ECB purchase of Italian debt married to an uprising of an underclass that always doubted the enforceability of a 3% debt to GDP ratio in the original Maastricht treaty. We were gaining some traction in political circles until these two idiots betrayed the real reasons.

The outstanding "political betting blog" neatly expressed the latest YouGov survey of what the main causes of the riots are seen as, with a massive majority clearly angry that this is purely criminal and gang behaviour. Only 8% of voters blamed the "cuts".

As such, TMM don't think it will have any affect on the direction of the UKs austerity plans that have, during the latest attacks on Europe and the US, been a stand out differentiator leading to GBP becoming a relative safe haven amongst the carnage.

And we continue to like the proud pound in general. Especially GBP/USD. Which is an extreme rarity having been brought up through an era where there were ever only 2 conceivable positions in GBP - Short or very short.

Now, markets. In the mixed doubles the latest score is FOMC and ECB 1 - 0 SNB and BoJ. ESZ1 now trades 100.01 BID and Swiss customers are being sent letters saying they are being charged -ve interest to hold CHF in their bank accounts. Contacts of TMM have started selling their personal CHf and are moving out to EUR just in disgust that they should be charged for the pleasure, just like some US banks are doing. Which is interesting.

We have been suggesting for a while that the authorities have never had the banks out of their gun sights and have been seeking retribution for the damage they caused in 2008. We thought that ideally the regulators would gently nudge them back towards old fashioned banking where they would abandon all the newfangled investment leverage risk thing and appear as friendly high street bowler hatted guardians of society. But in the case of the Swiss and the odd American they appear to have gone one step further resulting in their being no incentive whatsoever to place your cash with them other than the most fundamental of reasons - a safe.

Which leads TMM to consider selling banks and buying safety deposit box companies as we head right back to the wild west 1800's of banking.

Oh and as to all that FOMC stuff last night? We think that QE3 will be the straw that breaks the Dollar's back.

We leave you with a quote from the man from whom one member of TMM crafted his pseudonym.

"There are a set of men who go about making purchases upon credit, and
buying estates they have not wherewithal to pay for; and having done
this, their next step is to fill the newspapers with paragraphs of the
scarcity of money and the necessity of a paper emission, then to have a
legal tender under the pretense of supporting its credit, and when out,
to depreciate it as fast as they can, get a deal of it for a little
price, and cheat their creditors; and this is the concise history of
paper money schemes"

Thomas Paine (1737 - 1809)


Anonymous said...

'Confused from Cheltenham' continues to be an avid reader appreciating the humour and the sinsights and if occasionally you get it wrong ...well welcome to a very very big club membership.

Meanwhile I'd like you t introduce you to my theory.
It is no accident that many Western countries that have problems with a portion of our youth have in the past been expansionists developing empires around the world. Once upon a time this popular activity created almost constant warfare in one country or another .more oft than not many countries at the same time.

For that purpose we each had sizeable armys and often increased them periodically when needs arose.
That's the context.

Now each of these countries have always had disaffected youth that went on to become even more disaffected adults given the chance.

The last word "chance" is the operative word here.

You see constant warfare meant that many disaffected youths ended up in the front ranks wielding a musket for 6p a day and a chance to be famous.

That warfare however was very labour intensive and the mortality rate was exceedingly high as you imagine it would be when you are walking in a straight line towards 200 cannons fire big balls at you.

The outcome of course was that military expansionist policy was an excellent filtering system that prevented the level of disaffected youth from becoming too large and too available to make trouble at home.

Unfortunately, warfare has faded in the sense we really don't do much of it and it is all so small scale and technology intensive. In effect therefore our disaffected youths have had the opportunity to breed like rabbits as our filtering system has broken down.

Naturally with no external war of size to engage in and dare I say it no way we afford to do so anyway. It is a natural consequence that we will be plagued domestically be that with large scale riots like today ,or more typically with ongoing levels of crime and social misbehaviour.

With falling global demand I anticipate surplus tanker capacity becoming available at cheap rates. It would be infintely cheaper for us to hire a fleet .Fill it with our disaffected youth and I feel a trip up the Somalian coastline unescorted would be approriate. Leave a couple of shiny cars on the decks by way of bait and I think we could say mission accomplished don't you?

Anonymous said...

“Spain’s fundamentals show we are very far from requiring a bailout,” Ms. Salgado told Onda Cero, a Spanish radio station.

Hilarious, the lame duck PSOE looks to be pulling a G.W. Bush, hand off the poisoned chalice to their opponents and pretend like it really didn't all go bad under their watch.

Anonymous said...

I don't know why TMM are suprised in any way: savers have been the most obviously screwed constituent of any Western society for a long time now: capital gains taxes, currency inflation, 0% interest rates, charges on current accounts, etc.

The fact that both legislators and bank executives hate frugality is only logical if you look at their own accounts.

abee crombie said...

hahaha.. nice theory. How about you just give youth a job! Or better yet, revamp the curriculum at schools so when students graduate (uni, high school whatever, they have some skills). I dont think that kind of dis affected youth lives in Silicon Valley

Aside from guns, bullets, safes and Gold, AGNC and NLY has some nice moves yesterday... free money, no really!

Shorting swissy is starting to make more and more sense.. just how long will you have to sit on it before the momo crowd gets invloved and starts to move it?

Anonymous said...

Here's a couple of quotes taken from an unnamed anonymous discussion board:

"Any of you guys getting in on this shit? While the getting's good?

Looting storefronts been pretty sweet, stole an iPad and a Blu-ray player so far. My catering van has been destroyed but it's insured, so who gives a f***"

one response:

"why are you sto tarded?

go for the mobile phones. sell like candy to stupid riot f**s. PROFIT

Also, break into everything that got money. including ATVs. Smash them till money comes out"


you haven't lived til you've hit a cop in the face with a brick. It's hilarious watching them cry."

The two looter girls seem paragons of moral virtue and intellectualism in comparison.

The question is, what caused these heroes to get loose now? What's behind all this now?

Anonymous said...

Anon @ 1:47 PM, I won't hazard my opinion on that question for fear of being pegged as conspiratorial, only report the facts:

* Today Syrian government TV has gotten in on the action, the UK "uprising" (they don't use the word riot) is their top story.

* Many soi-disant experts brought on to explain that the "uprising" is similar to a slave rebellion.

* Former admitted "communist" White House green jobs czar Van Jones operates an outfit in Oakland, CA which similarly attempts to exploit police shooting incidents and provoke violent protests in the aftermath.

Anonymous said...

BTW, might I interest anybody in some Banco Santander SA, trading at less than 6.5x P/E?

cpi65 said...

re: the kids - worth a 5 mn read, IMO.

Nic said...

Very good gossip about Socgen today ... yet the CHF isn't moving? If this doesn't get CHF bid then then long swissie must be almost over, no?

Anonymous said...

The squid says short the dollar on QE3, caveat emptor...

Anonymous said...

swedish 10y are 2% ... nuff said

Leftback said...

"the mortality rate was exceedingly high as you imagine it would be when you are walking in a straight line towards 200 cannons fire big balls at you."

That sounds like trading this market, Cheltenham!

Leftback said...

Yesterday's REIT buys are holding up well. Better than my telecoms anyway. On the whole this move was expected and the action seems less frenzied.

Buying a bank with the ticker STD seems like inviting disease into the portfolio. Might be a good rental.... there are so many world banks trading down, look at NMR, making a new 52-week low today.

Is today the Exit Rally for Treasury longs?

Charles Butler said...

LB - possibly, but if you'd donned a prophylactic in the form of a short on almost any large EZ bank (DB possibly excluded) whilst you toyed with the clap, you'd be feeling mighty frisky today. Long SAN-BBVA/short all others turning money for six weeks straight.

Who estimates country risk better? Equities or bonds?

Leftback said...

Good point, bond markets are always smarter than equity markets. Today seems like a day where a few people need to whip up a bit more panic so they can exit their shorts, sell puts and dump some Treasuries.

Anonymous said...

Or maybe there is actually a problem in Europe's banking system?

Charles Butler said...

Short covering rally tomorrow, then, is it? Way too many people publicly admitting to be looking for bargains for my liking.

Walk trumps talk.

Leftback said...

Blow-off top?

Swissy Goes Parabolic

Anonymous said...

'Confused from Cheltenham' hs no problem with giving "youth" a job.I highly support that idea.
The underbelly of our society that has always been there and dare I say it always will be there is what I call the "disaffected youth". To them I also offer opportunity. They love to play with fire and violence I offer them a boat trip to Somalia to hone their skills.

ntwsc said...

Btw anyone here looked at the food stamp indicator?

Leftback said...

100y bonds are back... bottom call for rates, anyone?

Leftback said...

Panic buyers only drove the 10y to 2.11% today, not the 2.02% we saw on Monday.

There was obviously some more cafeteria selling going on at the close, so I helped myself to a nibble. This market is going to drive a lot of punters away, but then that's the idea, isn't it?

VIX made it to 44, one more week to OpEx. This may be a long bottoming process that takes several weeks, as some of the fatally wounded funds are picked apart by the surviving whales and piranhas. There is nothing much going on in FX or carry that anyone can make sense of, other than a bunch of lemmings are still buying Swissy, yen and gold.

Crude does seem to be finding a floor, which probably places a support under energy stocks and eventually the rest of the market.

All of this analysis assumes that a monster-sized European bank is NOT in fact about to expire.

Wait, did you just see Sarko carrying what appears to be a TARP into the Assemblée Nationale?: "Mes amis, we need to act now, or the world economy will come to an immediate halt. We must immediately give all of the proceeds of the hard-working taxpayers to the French bankers so that they can continue to live in Paris, enjoy fine dining and haute couture, and take their customary vacances on the Cote d'Azur. The future of the Republic depends on it...."

It isn't that hard to imagine, is it? I don't think we are there yet.

Anonymous said...

worth pointing out that while Libor/OIS is not extreme, the fx swap basis in eurusd is getting very wide - synthetic dollars for 3 months now costing 80bp. (up from 20 last week)

While the banks are in a far better place (plus the USD FX lines in place with BoE, ECB), there is only so long that the shortage of duration available in the domestic US dollar market will keep this short end bank funding going. US 2a7 funds now have 60% of their money in 7 days and shorter. European banks are still heavy funders in that mkt.

Does history repeat (sep/oct 2008)? will the spot fx market come under pressure, i.e. USD rally against EUR and GBP? Both cable and EURUSD have been rangebound. Perhaps it is time to get short. Cheap hedge against further turmoil....


Anonymous said...

anon 10.47 I was wondering the same
thing existing safe havens away from Euro debt become either deadended ,or already priced for extremes wheres the next lousiest safe haven with liquidity going to be found?

Leftback said...

The ECB has many ways to f*ck this up. If Tricky turns around and reverses the stupid unnecessary summer rate hike, the result would be USDEUR rally, and might set off another bloody Eurodollar squeeze, I do hope they can think stuff through and just BUY THE TOXIC SHITE like the Fed did, hence supporting bank balance sheets, sovereign debt markets and equities at a stroke.

The Swerve has been much more aware of the likely sequence of events and made far fewer policy errors.

Now, here's another way of f*cking with those who have been bidding up the safe havens. Margin requirements raised for Ts, gold and FX. People buy Treasuries on margin?

Leftback said...

A very well written polemic below from Charles Wyplosz on a solution to the European debt crisis.

Slightly more articulate than mine but the same message: Announce the ECB will guarantee all public debt, then buy the distressed shit and hold to maturity (in the manner of Bernanke), while guaranteeing all bank deposits. Done and dusted, China comes in and provides the bid, the shorts get toasted. The unwind? That's another story for another day, mes amis....

q=node/6845> European Debt Solution

Anonymous said...

Can annyone explian to me why shorting the US10Y isn't a god id'ea at right now???

Combined with USD hedge I think it's the perfect trade since both QE3, stagflation, future downgrade etc simply must puch rates higher at some point?

Anonymous said...

Anon 82.1
Shorting safehaven for the moment makes sense because they are full to the brim with weakhands who have run away in fear and a lot will run away from their current position when they start to see the drawdown hit their account.

If you want to buy fear which this move was to a great degree then do it before the fear sends the Vix to 50 because the only way this now makes sense is if we get a global systemic event this week or very very soon.

Anonymous said...

That's a postcard form @confused in cheltenham'

Anonymous said...

Anon, the only reason why you should short treasuries is that you believe things are going to get better.

There's no stagflation threat. There was no stagflation threat at any point. Inflation is DEAD as far as the eye can see...unless things get better that is.

Debt downgrades don't mean jack shit in U.S.'s case either. Japan is AA- with negative outlook, an enormous public debt and yet it gets 10 year money @ 1% yield. That's what's ahead of USA.

Anonymous said...

Also, probably worth pointing out, european (especially French) banks pretty much found it impossible to issue 3 month USCP after June. I do recall stories of them being aggressive payers for 3 month paper.

Anyway my point is; come september, the amount of dollars maturing will be very high in the banking system. Old 3 month paper from June, shorter in July, shorter in August - you can see what is happening - a mountain of maturities.

Whether or not that translates into a tradable outcome I cannot tell.

But bank funding concerns are getting quietly bigger. Yes, a lot of them have done most of their TERM budgets for the year...but this concerns the front end.

Anonymous said...

Annon 8:21 to Annon 8:35,

Ok, of cource I forgot to mention the main uppside of the trade, if things get better then expexted;)

Thats the beauty of the trade that you have potential upside both on mayham- and better-then-expected senario.

When comparing to Japan, remember that all other downgraded countries have seen higher long rates and that Japan spending/saving culture is very different from US. US spend, Japan save, thereof the non-existing inflation. US will see inflation in time, especially if QE3 will push down the dollar...

DoTW said...

Talking of Empire guilt. Can you run a survey for me on TMM? What do readers think the proportion of the current population of a country is that needed to have been born when "a bad thing" happened for said current population to have any responsibility for saying sorry / paying compensation? If your from the UK think Kenya, from the USA, native indians, Australians and Kiwis the 'indigenous', if your Italan then everybody flipping country where the Romans ever did a bit of rape and pillage.

Armed with your survey's results I will then be able to confidently stand up in a Notting Hill wine bar and tell the assemble twitterers to shut the f up. Provided I can remember when the relevant attrocity / mis-treatment happened of course