Interactive Global Inflation Heat Map
by Zero Hedge - January 31st, 2011 2:13 pm
Courtesy of Tyler Durden
No, there is no “dis” prefix missing. Sorry. Today’s “heat” map, which in places like a burning Cairo has a very peculiar double entendre, comes courtesy of the WSJ.
h/t Chartporn
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DiggHello Ben Bernanke, Meet “Stephanie”
by ilene - January 31st, 2011 2:05 pm
Courtesy of Mish
Here is an email from "Stephanie". She heard me talk about the economy on Coast-to-Coast AM radio with George Noory.
Stephanie writes ….
Hello Mish,
I don’t know if you give advice, but I heard you on Coast-To-Coast and you seem to know what you are talking about. I am 65 years old, get $938 from Social Security, and this is all I live on every month.
I have a CD that is about $16,000 now and is providing $75 a month. In about a year that will stop because the interest has gone down so much. If you were me, what would you invest in?
I lost $2,000 in the stock market a few years ago and the way it is now it is rather scary. I don’t know what else to even consider and when I ask my banker he seems to be at a loss too.
Any help you could offer would be a blessing. Thank you for your consideration and kindness.
Stephanie – Somewhere, USA
Clobbered by the Fed
Hi Stephanie
You and many others are getting clobbered by the policies of the Fed. Not only did taxpayers bail out the banks at taxpayer expense, Bernanke and the Fed continues to do so.
By holding interest rates low, the Fed is hurting everyone on fixed income with savings in the bank or CDs. You get almost no interest on your savings, and that is robbing you and everyone else like you.
Bernanke is hoping people like you gamble and invest in risky assets. Indeed, he is doing everything he can to force people into taking more risk.
Don’t do it. It is not a prudent thing to do.
The stock market is extremely overvalued here and could easily decline hard. Indeed, I think it will at some point.
Emergency Fund in Cash
My straight forward advice to everyone is to have an emergency fund of at least a year’s worth of living expenses in the bank before they invest in stocks, bonds, gold or anything other than short-term CDs or treasuries.
It is obvious that Bernanke’s concern is doing what is best for banks. He shows no concern about the damage he is causing elsewhere.
Bernanke is a Coward Hiding Behind Mathematical Formulas
I wish I could get Bernanke in a room with you and everyone in your position, and…
Here Comes The Greek Brady Plan Together With 35% Bond Haircuts…And A Caption Contest
by Zero Hedge - January 31st, 2011 1:38 pm
Courtesy of Tyler Durden
Just in case you were expecting a full recovery on those Greek bonds stashed away under the mattress (ahem ASSGEN) here comes Euro Intelligence to spoil your day (and maybe, just maybe, wreak some havoc with your CDS). In a nuthsell: we are about to see a Brady plan with 35% haircuts. If true, we may be seeing some pretty interesting unintended consequences in the near to very near-term future.
From Euro Intelligence:
We think this story from To Vima in Greece is true. It contains a lot detail about discussions currently under way for a future Greek debt restructuring. The paper says that the EU, IMF and the ECB have reached basic agreement that a debt restructuring for Greece is inevitable, with the following concrete options being discussed. 1. A haircut of 35%. Technically, this will be an exchange of existing bonds with bonds of 65% of their value. 2. A bond swap to 30-year bonds with low interest rates. 3. A new loan package of 25% of the previous volume. The paper recalls the Brady plan, under which the US organised a similar debt swap for Latin American debt, with the help of a Fed guarantee. The paper also quotes Greek sources as confirming that they no longer expect the rebound of growth to happen immediately.
More importantly, here is today’s caption contest. The winner gets to cross their ZR bid which at last check was locked limit up.
Have at it.
Crude Oil Spikes Like An Egyptian
by Zero Hedge - January 31st, 2011 1:33 pm
Courtesy of asiablues
By Dian L. Chu, EconForecast
Images of mass Egyptian protesters clashing with police in Cairo broadcasted around the world shook global financial markets on Friday, Jan. 28. Dow and S&P 500 both dropped more than 1%, while some asset classes such as gold, silver, U.S. Treasuries were hot commodities from safe haven demand.
NYMEX West Texas Intermediate (WTI) also spiked more than 4%, closing at $89.34, while ICE Brent crude for March delivery surged 2.1% to $99.42 a barrel, and touched $99.74 intraday, a new post-2008 high.
Egypt – Home of Two Oil Transport Chokepoints
If you are wondering the significance of Egypt related to the curde oil market. Here is a quick overview.
Egypt, with oil production of about 685,000 barrels of oil a day, is ranked in the top 30 among the world’s oil producers, based on U.S. government data. The country is not a significant oil exporter as its production is mostly used for domestic consumption.
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| Graphic Source: U.S. EIA |
However, since Egypt is home to the two world oil transit chokepoints--Suez Canal and Sumed Pipeline--the surge in crude oil prices was partly on worries of potential supply transport disruptions.
Suez Canal Shutdown = Higher Oil Price
Suez Canal is a key water transportation lane between Europe, Middle East and Asia. An estimated 1.8 million barrels per day (b/d) of crude oil and refined petroleum products flowed through the Suez Canal, according to the U.S. EIA. The 200-mile long Sumed pipeline is an alternative to the Suez Canal for transporting oil with a capacity of around of 2.5 million barrels per day.
In the event that the canal is closed, thousands of ships and oil tankers would have to go around Africa, adding about 6,000 kilometers (3,729 miles) to their journey, slashing the availability, while adding to the cost of crude oil.
Increasing Middle East Tensions
Furthermore, since crude oil typically is very sensitive to geopolitics, markets are also nervous because the unrest in Egypt has raised tensions in the Middle East- the world’s major oil-producing region.
As riots first started in Tunisia, spreading to Yemen, and now Egypt, anger over rising prices and high unemployment has…
Bank Excess Reserves Projected To Climb By $700 Billion In Five Months As Fed Liquidity Management Becomes Unfeasible
by Zero Hedge - January 31st, 2011 12:58 pm
Courtesy of Tyler Durden
As Zero Hedge accurately predicted, on Thursday there will be no $25 billion 56 Day Cash Management Bill auction, as part of the just announced roll down of the Fed’s SFP (or SFB as it is known elsewhere) program, which will bring down holdings of associated debt at the Treasury from $250 billion to just $5 billion in 8 weeks. Previously we predicted that the impact of this activity will be nothing short of a doubling of POMO but did not discuss the impact on bank excess reserves. Over the weekend, Barclay’s Joseph Abate analyzed the impact of the termination of SFP as well as the ongoing QE2, and came to the conclusion that excess reserves, which at last check had been just about $1 trillion (well below where they should be based on recent asset purchases, another topic we have discussed) are about to surge by a massive $700 billion over the next 5 months! What this means is the market will simply factor in even a greater impossibility for the Fed to tighten liquidity when the moment comes (which we believe will be pretty much never) forcing those evil speculators to push all commodities to even greater record highs (yes, rice included), forcing us to get even more bullish on the continuation of the recent round of global food-price hike driven revolutions.
From Jo Abate:
The Treasury announced Thursday morning that it would let the SFB program wind down gradually beginning next week. The program was created in 2008 as a means for the Federal Reserve to drain bank reserves with the help of the US Treasury. Under the program, the Treasury sells 2m bills and deposits the cash raised in its account at the Federal Reserve. In this way, cash moves from the bill purchasers’ bank accounts (more specifically, their banks’ reserve accounts) to the Treasury balance at the central bank. The program has locked up $200bn for almost two years.
Since these bills count as marketable debt, they add to the US Treasury’s running total under the debt ceiling. With the Treasury fast approaching the ceiling, it needs to create room under its remaining capacity in order to keep its coupon auctions regular. Allowing the SFB program to expire is the first step in what we expect to be
…
Is SEC Rule 611 The Key To Unlocking the Mystery Behind the IBM “Flash Dash”?
by Zero Hedge - January 31st, 2011 12:28 pm
Courtesy of Tyler Durden
A week ago we speculated how the well documented flash smash in IBM caused a market wide ramp, resulting in another attempt at closing above 1,300. It failed. But the mechanics behind the trade still were unexplained. Below, we present a summary by Dennis Dick which highlights the latest weakness in market structure which the mini melt up in IBM (and, subsequently, in ES) has exposed. The only question: was this trade a glitch, or was someone trading fully aware of the limitations of SEC rule 611. (which, incidentally, has some very interesting exemptions, such as “qualified contingent trades” a topic touched by us tangentially previously).
Unlocking the Mystery Behind the IBM “Flash Dash”, of Trading Defendes
On Tuesday afternoon, at 3:15 pm, IBM was trading strong, up over a point at 160.76, when suddenly at 3:18:15 pm the stock spiked to 164.35, and immediately traded back down to the 160.76 area. This series of trades all occurred in the same second. What happened? What was the cause of this sudden “Flash Dash”?
The answer is a testament to the fragmented liquidity in our current market structure. SEC rule 611, the order protection rule is designed to prevent “trade-throughs” – trades being executed at prices inferior to the best-priced quotations. But this rule may not go far enough because it only protects the top of the book.
Consider the following example:
Security XYZ
Order book on Ask:
500 32.00 INET
500 32.01 INET
500 32.02 ARCA
ARCA receives a market order to buy 1000 shares of XYZ, and the best available offer is on INET for 500 shares. ARCA must route the first 500 shares to INET, so as to not violate the order protection rule (because the 500 shares on INET is at the top of the book…
Tracing The Path Of Egypt’s Disruption Sending Contagion To The Stronger Countries Of Europe
by Zero Hedge - January 31st, 2011 12:07 pm
Courtesy of Reggie Middleton
What could the ruler of Egypt’s turmoils possible have to do with the need to takeover even more banks in western Europe and the potential default of several members of the PIIGS group? Read on, my dear friend…
I received an impressive response from my earlier description of the potential for contagion as a result of the Egyptian uprising. It is very engaging to simply fathom the practical melding of the minds of financial analysts, political analysts and global macro-economists. Unfortunately, this is not common practice. As a matter of fact, it is apparently never done in the analysis & research commonly proffered by the brokerage houses and the mainstream media. The practical applications of such has demonstrably superior predictive power over the application of any of the single approaches. For those who have not followed me over the years or somehow feel that an individual or small group cannot outperform the glorious houses for brokerage of “The Street”, I urge you to look into who I am and to compare my performance to that of the street’s best and brightest over the last few years . I attempted to demonstrate the predictive powers and effectiveness of looking for deeper understanding outside of one’s core discipline by illustrating to my readers how our Sovereign Contagion Model predicted a roughly 40% chance of eruption in the Middle East, reference Egypt’s Social Unrest As A Pan-European Economic and Financial Contagion? It Can Happen!!!:
Let’s see how close we came (this model was published in May of 2010. Professional subscribers can find this on page 15 of this document: 
Sovereign Contagion Model – Pro & Institutional (retail subscribers must use this document – Sovereign Contagion Model – Retail (961.43 kB 2010-05-04 12:32:46))
Closest thing you can get to a crystal ball? No, just an objective, empirical approach from a realistic perspective. None of that bull or bear crap, not being pessimistic nor optimistic – just realistic.
Now that it is apparent to all that social unrest is most definitely here (or not quite here yet, but definitely there), it is time to walk both readers and subscribers alike through the thought processes that went into the model and attempt to trace a distinct path of where this may lead.
Instability stems from
…
RANsquawk US Afternoon Briefing – Stocks, Bonds, FX etc. – 31/01/11
by Zero Hedge - January 31st, 2011 12:07 pm
Courtesy of RANSquawk Video
The State Of the Union: An Excessive Amount of State
by Zero Hedge - January 31st, 2011 12:03 pm
Courtesy of Value Expectations
by John Tamny, Toreador Research and Trading (Guest Contributor)
In the near week since President Obama’s State of the Union speech, commentators from all sides of the political spectrum have weighed in on the good, bad and innocuous of Obama’s vision for the country’s future. What’s perhaps not been commented on enough is how unfortunate it is that Obama’s policies – or those of any President for that matter – concern us so much such that we’re compelled to watch, comment, and worry about the implications of State of the Union speeches at all.
For background, it’s fair to suggest that every reader of this column has approached Presidential elections at one time or another with a great deal of excitement, dread, or a combination of both depending on what pre-election polling data suggests. Possessed with strong views about what should be the future direction of the country, elections are important to all of us; so important that sometimes we stay up all night to catch the returns on the way to forming an optimistic or negative view of the policy landscape going forward.
At first glance this speaks to the wonders of American democracy, and our ability to participate in it. But given a second pass, the American obsession with national politics and policy speaks to a hugely negative trampling on the Constitution by both political parties.
To put it simply, national elections shouldn’t matter that much, and if the Constitution even remotely informed the policy directions of politicians, the vast majority of Americans could with good conscience ignore national elections along with much of what’s going on in Washington. That’s the case because as any cursory reading of the Constitution makes very plain, the document first authorizes the federal government, and then it severely limits its power.
The Bill of Rights is in no way meant to limit our infinite rights as American citizens, but instead it exists to explicitly constrain the activities of our elected officials in Washington. The various amendments clearly list the powers of the federal government, and any not listed quite simply do not exist.
But just to ensure that there be no confusion as to what they meant in writing the Constitution, the Founders made sure to insert the 10th Amendment. Some call the latter “the Amendment for Dummies”, as it makes very clear that any…
$100.01
by Zero Hedge - January 31st, 2011 11:45 am
Courtesy of Tyler Durden
The March Brent Crude contract has just surpassed $100 for the first time since October 2008. Surely nobody is worried about monetary policy and Middle East contagion. After all, this is just throwing darts at the next disinflationary target.
And just to demonstrate how successful Genocide Ben has been at whatever his agenda is, below we present the ICE gasoline contract, which is only relevant for those who drive, use transportation, buy food, ship stuff or travel. Nobody else will be affected. It also confirms that disinflation reigns supreme.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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