QE is taking a beating in the press the last 2 days as equity markets have turned red and commodities went splat. We noted last Tuesday on Squawk Box that the breadth of the initial commodity selling was significant and should be taken seriously. Right through the corrective equity move, the markets are reacting in similar fashion to prior well advertised monetary stimulus. The surest sign that all is not well remains the plethora of bubble calls as equities marched higher from Memorial Day and immediate chants of crisis on the pullback.
QE is doing its thing, however. MBS spreads no longer warrant the "spread" moniker. Taking MBS production from the market extinguishes 10 year equivalent Treasury supply. The "dime" (as we call 10yrs) was 1.63 to 1.66 on the structure referred to as "current coupon" MBS. Obviously, we believe this gambit to be folly. Federal Reserve policy aimed at spread compression and volatility suppression was the mistake that germinated the crisis. A system that functions only under that artificial "stability," breaks when inevitably tested. The elasticity and flexibility of market determined relationships is replaced with brittle quant assumptions of low and narrow.
The news is not that QE is not working. It is. If your mortgage is pooled and bought by the Fed, we believe you should stop paying it. Spend the money elsewhere. Take a nice Fall vacation. Buy more Apple. Throw it on your bed and roll around on it. PIMCO likes to say, "The Central Bank is where bad bonds go to die." Prove them right, stop paying.
Daily & Weekly Pivots, Expected Trading Ranges & Price Metrics
Below is an online Excel applet that can be expanded (lowermost right hand side button) or downloaded by clicking on the Excel icon. The 1st worksheet covers bonds, indexes, globex currencies. The 2nd worksheet Spot Currencies.
Below is an online Excel applet that can be expanded (lowermost right hand side button) or downloaded by clicking on the Excel icon.
Today we will be force fed stories of a run on new i-phones like foie gras ducks. But this is a story about a different run. Run is a small Banda Island that had the luck to be loaded with Nutmeg trees. In the early 1600's the English had a jones on for nutmeg and mace that only an Iphone line stander could understand. Nutmeg houses and fine jewelery were crafted to glorify the precious spice. The nutmeg was more valued than the silver necklaces forged to carry it. The 17th century saw the land mass known as "Europe" advance in economic and technological terms at an envious rate. The Dutch Golden Age was enforced by a trading company loved and loathed called The Dutch East India Co. The English were jealous and nutmeg mania was in full run.
An amazing man by the name of Capt. Nathaniel Courthope was dispatched to Run to secure the spice from the Dutch. His incredible story can be read in Giles Milton's awesome Nathaniel's Nutmeg. Spoiler alert: The Dutch East India Co. eventually wins the struggle. In the 1650's Run was to be returned to the British. The Dutch destroyed the Nutmeg trees on the way out the door. Europeans found something else to idolize. After a couple more wars and such the Netherlands (new name) signed over another occupied island quaintly called "New Amsterdam" to the English. That heavily populated island, and the long line of Iphone maniacs on it, is now known as Manhattan.
The history of mania is well documented. They all end the same way.
Jihad vs. McWorld
The two axial principles of our age—tribalism and globalism—clash at every point except one: they may both be threatening to democracy
Just beyond the horizon of current events lie two possible political futures—both bleak, neither democratic. The first is a retribalization of large swaths of humankind by war and bloodshed: a threatened Lebanonization of national states in which culture is pitted against culture, people against people, tribe against tribe—a Jihad in the name of a hundred narrowly conceived faiths against every kind of interdependence, every kind of artificial social cooperation and civic mutuality. The second is being borne in on us by the onrush of economic and ecological forces that demand integration and uniformity and that mesmerize the world with fast music, fast computers, and fast food—with MTV, Macintosh, and McDonald's, pressing nations into one commercially homogenous global network: one McWorld tied together by technology, ecology, communications, and commerce. The planet is falling precipitantly apart AND coming reluctantly together at the very same moment.
I read Jihad vs. McWorld when it was released as a book. Several years later, President Clinton was asked what he was reading and without hesitation said Jihad vs. McWorld by Barber. I've reread it several times since. Last week, the battle exploded across the headlines as MENA nations lit up, the Fed dialed QE up to 11 and Apple released a new i-phone. Apple was trading at $14.75 cents when Barber's article appeared in The Atlantic. The stock printed a new high at 696.00 as a KFC was attacked in Lebanon last week.
The inane culture channels of MTV play a remarkable role in the anger. MENA countries blocking MTV are the hotbeds of Jihadi violence. (Barber uses a broad definition of Jihad, not the narrow religious term) The Occupy movement in the US is a Jihad based on the same principles and dynamics outlined above. "Just beyond the horizon of current events lie two political futures- both bleak, neither democratic. " DOW 13593, enjoy.