World’s Second And Third Largest Economies To Bypass Dollar, Engage In Direct Currency Trade
by Zero Hedge - December 25th, 2011 10:56 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
To all who still think that in the war of attrition between the USD and the EUR (because contrary to what some have “discovered” only recently, currency wars have been going on for a long, long time and will continue to do so, before morphing into trade and real wars), in which both currencies are doomed, and where the winner takes it all, if only for a few minutes, we bring to your attention the following most recent update out of the Pacific Rim (where incidentally the Shanghai Composite has resumed its relentless track lower with the obvious intention of closing 2011 at its 52 week low) in which we find i) that the dollar’s hegemonic control over the world is ending, and ii) that the mercantilist relationship so long sustained between China and the US, may be shifting and reversing, and in its next metamorphosis will see Japan buying the bonds of… China (although probably not for long – see next post). As Bloomberg reports, “Japan and China will promote direct trading of yen and yuan without using dollars and will encourage the development of a market for the exchange, to cut costs for companies, the Japanese government said. Japan will also apply to buy Chinese bonds next year, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday.” And before someone blows it off as merely more foreign relations posturing, ““Given the huge size of the trade volume between the Asia’s two biggest economies, this agreement is much more significant than any other pacts China has signed with other nations,” said Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd.” As for China’s reverse mercantilist move, one which will stun anyone who believes that Yuan is still undervalued, “Finance Minister Jun Azumi said Dec. 20 buying of Chinese bonds would be beneficial for Japan because it would help reveal more information about financial markets in China, the world’s largest holder of foreign currency reserves.” Speaking of, has Albert Edwards gloated yet that given enough time, he always ends up being proven right, in this case about the CNY’s upcoming devaluation?
Some more on the direct FX bypass, something which should piss of USD traders quite a bit, from…
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Ronald Reagan’s 1981 Christmas Address
by Zero Hedge - December 25th, 2011 9:21 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Things sure have changed in the past 30 years…
Abridged transcript (full version can be found here):
Good evening.
At Christmas time, every home takes on a special beauty, a special warmth, and that’s certainly true of the White House, where so many famous Americans have spent their Christmases over the years. This fine old home, the people’s house, has seen so much, been so much a part of all our lives and history. It’s been humbling and inspiring for Nancy and me to be spending our first Christmas in this place.
We’ve lived here as your tenants for almost a year now, and what a year it’s been. As a people we’ve been through quite a lot — moments of joy, of tragedy, and of real achievement — moments that I believe have brought us all closer together. G. K. Chesterton once said that the world would never starve for wonders, but only for the want of wonder.
At this special time of year, we all renew our sense of wonder in recalling the story of the first Christmas in Bethlehem, nearly 2,000 year ago.
Some celebrate Christmas as the birthday of a great and good philosopher and teacher. Others of us believe in the divinity of the child born in Bethlehem, that he was and is the promised Prince of Peace. Yes, we’ve questioned why he who could perform miracles chose to come among us as a helpless babe, but maybe that was his first miracle, his first great lesson that we should learn to care for one another.
Tonight, in millions of American homes, the glow of the Christmas tree is a reflection of the love Jesus taught us. Like the shepherds and wise men of that first Christmas, we Americans have always tried to follow a higher light, a star, if you will. At lonely campfire vigils along the frontier, in the darkest days of the Great Depression, through war and peace, the twin beacons of faith and freedom have brightened the American sky. At times our footsteps may have faltered, but trusting in God’s help, we’ve never lost our way.
Just across the way from the White House stand the two great emblems of the holiday season: a Menorah, symbolizing the Jewish festival of Hanukkah, and the National…
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How The FAZ-Mobile Promises To Lose 99.6% Of Your Money Even If The Market Crashes By 60%
by ilene - December 25th, 2011 8:45 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Three years ago, when it first became largely adopted by the mass investing population as a hedge to a collapsing market, the 3x levered ETF known as the Direxion Daily Financial Bear 3X Shares, or FAZ in short, was the hottest thing since sliced bread. Subsequently, it has transitioned form being an object of affection to one of infinite scorn, hatred and outright homicidal urges, for one simple reason: it, like many of its other levered bearish peers, is anything but a way to profit from a collapsing market. In fact, as a recent proxy filing by Direxion indicates, it is virtually impossible to make money in the long-term using FAZ… or medium-term… or, as many would say, even intraday as well. The reason for this is simple: while nobody gets the true inner workings of these inverse x-levered ETFs, certainly not the "experts" who post three times a day on Seeking Alpha, one thing everyone should understand is what the following table straight from Direxion is saying: namely that even if the market collapses by 60%, one could lose up to 96.1% of their entire investment in the FAZ, if for some ungoldy reason, annualized vol surges to 100%. Because, you know, vol only occasionally rises when the S&P plunges by more than half. The same is applicable on any time frame: in essence the FAZ only works if the two massively contradictory Venn diagrams overlap: a market plunge and not rise in vol. Uhm, maybe they should have disclosed that a little bit sooner…
This Direxion explains as follows, just so readers can do a text search in their favorite "short" ETF to confirm that it is nothing but another disguised instrument designed to lose money no matter what the market does:
Over time, the cumulative percentage increase or decrease in the value of the Fund’s portfolio may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the Fund’s underlying index due to the compounding effect of losses and gains on the returns of the Fund. It also is expected that the Fund’s use of leverage will cause the Fund to underperform the compounded inverse return of three times its benchmark in a trendless or flat market.
The effect of compounding becomes more
…
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BARRY RITHOLTZ: Here’s Why Most Investors Are Guaranteed To Lose
by ilene - December 25th, 2011 8:18 pm
BARRY RITHOLTZ: Here’s Why Most Investors Are Guaranteed To Lose
By John Mauldin, Thoughts From The Frontline
Courtesy of John Mauldin and Business Insider
It’s Christmas Eve and that time of year when we start thinking about what we did in the past year and what we want to do in the next.
Why do we make the mistakes we make (over and over and over?) and how do we avoid them in the future? If it seems to be part of our basic human condition, that’s because it is.
Recently I have been having a running conversation with Barry Ritholtz on the psychology of investing (something we both enjoy discussing and writing about). Since I am busily researching my annual forecast issue (and taking the day off), I asked Barry to share a few of his thoughts on why we do the things we do. He gives us even more, exploring the three main opponents we face when we enter the arena of investing.
Barry is the driving force behind The Big Picture blog, often cited as the #1 blog site in terms of traffic (and a favorite of mine!) and FusionIQ, a software service that uses both fundamental and technical analysis. Over the years Barry and I have known each other, we have become quite good friends. If you ever get a chance to catch us on a panel together, you are in for some fun, as we tend to go at it and each other just for the heck of it, while trying to share the little that we have learned along the way. Barry is all over financial TV and now has a weekly column in the Washington Post. And now, let me turn it over to Barry.
Your Three Investing Opponents
By Barry Ritholtz
“Tough Year!”
We hear that around the office nearly every day – from professional traders to money managers to even the ‘most-hedged’ of the hedge fund community. This year’s markets have perplexed the best of them. Each week brings another event that sets up some confusing crosscurrent: call them reversals or head fakes or bear traps or (my personal favorite) the “fake-out break-out” – this volatile, trendless market has been unkind to Wall Street pros and Main Street investors alike.
Indeed, buy & hold investors have had more ups and downs this year than your average rollercoaster. The third and fourth quarters…
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College Football Nothing But a Free Farm-System for the NFL; Who are the Winners and Losers in the Current System?
by ilene - December 25th, 2011 7:41 pm
Courtesy of Mish
While watching the myriad of college bowl games this holiday season, many of them between teams that have no business being in bowl games at all, please step back and ponder who the winners and losers of this system are.
My high-school friend David Wise takes a critical look at college football in a Real Clear Sports article proclaims it’s Time for Colleges to Rein In Football
Since 1985 college tuition has increased nationally by 498 percent compared with 115 percent for prices overall – an unsustainable bubble. Higher education commentators Andrew Hacker and Claudia Dreifus have commented that a large portion of this additional college tuition revenue is being funneled into athletics and not towards education. Over the same time the average compensation of public college football coaches has increased 750 percent compared with 32 percent for professors. The two colleges that will play for the BCS championship this season spend $1,320 per every member of the student body ($204,919 per player) to support the football programs.
In the words of Dr. James J. Duderstadt, the former president of the University of Michigan, athletics “has drifted so far from the educational purpose of the university. They exploit young people and prevent them from getting a legitimate college education. … We are supposed to be developing human potential, not making money on their backs.”
And the failure of colleges is not just in things such as the whopping 51 percent disparity between the graduation rates of African-American and white players on last year’s BCS champion Auburn Tigers or the combined 34 percent graduation rate for all players on the 2005 champion the Texas Longhorns. Colleges and the education system in general are failing young men who at age 22 graduate at the rate of 100 males for every 187 females.
In a time of crushing state government deficits and student loan debt, it makes absolutely no sense for American universities to operate as free farm systems for the NFL and NBA. At a time when the American competitive position in the world is under more stress than ever, we cannot allow our universities – an area in which American still holds undisputed world leadership – to erode. Rather than have the NFL subsidize college sports, a cure that would be worse than the disease, there are other options.
The low point this year is to be found in
…
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A Few Chinese Bad News Bears To Spoil A Happy New Year
by Zero Hedge - December 25th, 2011 4:31 pm
Courtesy of ZeroHedge. View original post here.
Submitted by EconMatters.
By EconMatters
Goldman’s Jim O’Neill noted in a recent interview that the world’s future prosperity depends on China’s growth. While we don’t totally agree with that assessment as we see China as one of the many contributory factors towards world’s future, there are some recent bad news bears coming out of China that could spell troubles for markets, at least in 2012.
Export Growth Could Drop to Zero in 2012
The General Administration of Customs released November trade figures showing export growth continued to decelerate and was at their most sluggish in two years. At a news conference, China’s Commerce Ministry spokesperson warned,
“The overall trade environment next year for China will be complicated, partly due to the economic uncertainties in the European countries, and I should say that the export situation in the first quarter of next year will be very severe.“
Wang Tao, an economist at UBS Securities noted China’s growth is expected to “drop to zero in 2012,” which will have a “sizable negative impact on the economy,” and that the export figures underline “shifts in the export structure – some traditional lower-end and labor-intensive sectors may be losing market share to cheaper producers.” (See Chart Below)
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Chart Source: ChinaDaily.com, 14 Dec. 2011 |
FDI Sees Its First YoY Drop in 28 Months
Part of China’s recent explosive growth has to do with foreign investments pouring into the country to capitalize on the expected burgeoning middle class income growth. But in November, China…
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A SWIFT Denial – How In Europe, Even Admission Of A “Plan B” Is Equivalent To Failure
by Zero Hedge - December 25th, 2011 3:27 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
While we have long known that the drachma, and recently the lira, have seen significant “when issued” interest by institutional clients desiring to hedge their currency collapse exposure, and thus early markets by various trading desks, little did we realize just how destabilizing this fact to the system would be, at least according to SWIFT. According to the WSJ, this organization, best known for making an abrupt appearance any time one wishes to do a wire transfer, then promptly disappearing until the next such instance, ended up promptly shutting down any Plan B optionality when “at least two global banks took steps to install back-up technology systems that could handle trades in old European currencies like drachmas, escudos and lire… quickly found, is not so easy in a financial world that is trying to both exhibit confidence in the ailing euro and—just in case—plan for its possible demise. Technology managers at the banks contacted Swift, the Belgium-based consortium that manages the network used in financial transactions, said people familiar with the matter. The banks wanted Swift’s technology support and the currency codes that would be necessary to set up the backup systems.” And got promptly rejected: “Swift declined to provide some information for such contingency planning, including whether old codes could be used in the system, said the people familiar with the matter.” The reason is that in Europe, the mere admission that Plan B is a possibility, apparently set off a chain of events that makes Plan B an inevitability: “…officials there feared that releasing the information could fuel further doubts and instability in the euro zone.“
And so Europe is left to fend on its own, with the mere mention of the possibility of failure being completely ignored, as the mere contemplation of failure is not only no longer an option, but apparently an outright admission of defeat. Needless to say, the fact that European banks have no way to hedge anything any more, CDS trading having been killed, thank you ISDA, and now supervisory bodies themselves telling banks to not even consider Plan B, is enough reason why the LTRO will be an abysmal failure.
Because one does not need to be a rocket scientist to realize that when everyone is telling you that even Plan B is improper, then it…
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Denial To The SWIFT Degree – How In Europe, Even Admission Of A “Plan B” Is Equivalent To Failure
by ilene - December 25th, 2011 3:27 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
While we have long known that the drachma, and recently the lira, have seen significant "when issued" interest by institutional clients desiring to hedge their currency collapse exposure, and thus early markets by various trading desks, little did we realize just how destabilizing this fact to the system would be, at least according to SWIFT. According to the WSJ, this organization, best known for making an abrupt appearance any time one wishes to do a wire transfer, then promptly disappearing until the next such instance, ended up promptly shutting down any Plan B optionality when "at least two global banks took steps to install back-up technology systems that could handle trades in old European currencies like drachmas, escudos and lire… quickly found, is not so easy in a financial world that is trying to both exhibit confidence in the ailing euro and—just in case—plan for its possible demise. Technology managers at the banks contacted Swift, the Belgium-based consortium that manages the network used in financial transactions, said people familiar with the matter. The banks wanted Swift’s technology support and the currency codes that would be necessary to set up the backup systems." And got promptly rejected: "Swift declined to provide some information for such contingency planning, including whether old codes could be used in the system, said the people familiar with the matter." The reason is that in Europe, the mere admission that Plan B is a possibility, apparently set off a chain of events that makes Plan B an inevitability: "…officials there feared that releasing the information could fuel further doubts and instability in the euro zone."
And so Europe is left to fend on its own, with the mere mention of the possibility of failure being completely ignored, as the mere contemplation of failure is not only no longer an option, but apparently an outright admission of defeat. Needless to say, the fact that European banks have no way to hedge anything any more, CDS trading having been killed, thank you ISDA, and now supervisory bodies themselves telling banks to not even consider Plan B, is enough reason why the LTRO will be an abysmal failure.
Because one does not need to be a rocket scientist to realize that when everyone is telling you that even Plan B is improper, then it…
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Sol Sanders | Follow the money No. 98 | Moves speed up on a complicated Asian chessboard
by Zero Hedge - December 25th, 2011 12:08 pm
Courtesy of ZeroHedge. View original post here.
Submitted by rcwhalen.
Latest from Uncle Sol. A version of this column is scheduled for publication in The Washington Times, Monday, December 26, 2011. Merry Christmas. Chris
Follow the money No. 98 | Moves speed up on a complicated Asian chessboard
Sol W. Sanders <solsanders@cox.net>
A new era of increasing instability is opening in East Asia.
The death of North Korean leader Kim Il Jong is only adding another, if explosive, element to an already volatile equation:
· China enters a period of substantially slower economic growth, if not a crash, on the eve next autumn of a takeover by a new generation of undistinguished Communist Party leaders.
· Japan wrestles with efforts to remake its domestic politics, but buoyed by its always magnificent – if constipated – bureaucracy, pursues a security buildup despite, ironically, a left-leaning governing party precariously clinging to power.
· South Korea’s miraculous ascendancy to world economic leadership and prosperity is imperiled by its export-led strategy now facing world economic shrinkage, and with the prospect of continued harassment from the North.
· North Korea attempts continuance of its highly leverage Communist monarchy but its balancing act could well succumb to both internal rivalries and Western pressure to halt its profitable foreign arms sales.
· Taiwan goes to another democratic election in January under the evil eye of Beijing that fears recent increasingly binding economic ties may be countered by “nationalists” intent on maintaining de facto independence.
· The Obama Administration has made new commitments, particularly in Southeast Asia, of resistance to aggressive Chinese claims despite rapidly reducing the navy as it backs out of two, long and inconclusive wars.
Beijing’s high growth rate – despite its majority largely left out of the Coastal Cities boom – is dropping precipitously, because of inherent weaknesses built into its state capitalism and the world economic downturn. Having abandoned Maoism two decades ago, conventional wisdom held such rapid growth essential to sustain one-party, elitist rule. While there is no organized national opposition, there are increasing signs local Communist cadre have lost control. Massive infrastructure overexpansion, declining export prospects and untenable internal debt levels could produce a breakdown.
Furthermore, Pyongyang provides new concern for Bejiing’s conflicted view of North Korea. China’s aid supports Pyongyang at the same time North Korea rejects “the China model”, the Kim…
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And Now, A Present: “Are The Brokers Broken?” – A Reprise
by ilene - December 25th, 2011 11:22 am
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Often times we are asked "why does Zero Hedge prefer to provide information in piecemeal increments and isolated snapshots (of irregularity) rather than write comprehensive articles (or even a book) that explain, from beginning to end why everything is broken – the end?" There are two answers – a short and a long one. The short answer is that finance, more so than any other field, changes so rapidly that the nuances are always and constantly on the margin, which in turn is stable only for the period of time that it is observed, and then it becomes part of "technical analysis." (Indeed, the Schrodinger wave function collapse is just as alive and well in finance as it is in the quantum arena). As such, we adhere to the paradigm describing the distinction between giving a man a fish and teaching a man to fish: we believe that it is far more useful to demonstrate all that ways in which the market (and global economy) works, or rather doesn’t, than engage in extended exercises of vanity, which serve as much to stroke the author’s ego, and demonstrate one’s knowledge of SAT words, as they do to elucidate the matter at hand. By sharing our own views of events as they transpire in real time, be they right or wrong, we hope to provide our readers with the "connect the dots" patchwork required to evaluate relevant financial events as they occur in real time, instead of describing them in the in vitro vacuum of moody brooding. (As for a book, we are more than confident enough "independent" bloggers out there will succumb to the very system their protest against, and pen a few hundred pages on the goal-seeked topic of their choosing – the last thing the vast upcoming book pyre needs is our own intellectual self-pleasuring). The long answer is far longer, and, ironically, deserves a post of its own. But this is neither the time nor the place. What then is the purpose of this post is to break away from our tradition, but also not to recreate the wheel, as many others find delight in doing. Instead, as a special present to our readers, we share the seminal analysis by Citigroup’s Matt King from September 5, 2008, titled "Are The Brokers Broken?" which…
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