Tuesday, May 25, 2010

In Case You Managed to Miss It, It’s Ugly Out There

Oh, if you don’t love the smell of naplam in the morning, you will not be happy with the market actions.

Per my delayed Bloomberg, Euro flirting with recent lows, at 1.2281. Gold off at $1187 an ounce. (which fits if you believe in deflation, even though gold does well in deflation, the inflationistas may have pushed it too far too fast and be exiting the trade). The Nikkei had a bad day and is off 3.1%. Stoxx 50 is off 3.03%, the FTSE is down 2.54%,

In case you also missed it, the US and China have temporarily buried the hatchet, escalating North Korean tension leading the US to act a tad more submissive and the Euro slide making this not exactly the best time to escalate a fight.

Meanwhile, Geithner is trying to talk up the market: “Geithner Says Europeans ‘Acting Forcefully’ to Mend Finances.” But absent internal rebalancing, fiscal austerity puts Europe on a deflationary path, and its only refuge is to really tank the euro to provide some lift via higher exports. And that will come at the expense of its trading partners, and is eventually likely to produce protectionist measures.

Topics: Banking industry, Commodities, Currencies, Economic fundamentals, Globalization, Investment outlook, Regulations and regulators

Email This Post Email This Post Posted by Yves Smith at 3:45 am

43 Comments » Links to this post

43 Comments:

  • alex black says:
    May 25, 2010 at 4:02 am

    I don’t have a great nose, but I’m not sure I smell napalm. I’m kinda smelling a carry trade unwind. Dollar up bit, Yen up bigger.

    • alex black says:
      May 25, 2010 at 4:04 am

      I also don’t have great fingers – meant dollar up big….yen up bigger…

  • Albatross says:
    May 25, 2010 at 4:53 am

    Don’t ya worry, Yves! PPT will be at force.

    ‘Orderly decline’ is the name of the game except some crazy man (Il Kong Kim, Ahmedinejad..) surprise the markets in unexpected ways..

  • Abhishek says:
    May 25, 2010 at 5:18 am

    North Korea’s dysfunctional regime keeps doing erratic and dangerous things like shooting down a South Korean warship with a torpedo and then denying it . What’s even worse for North Korea is that the evidence was proved by an international team.North Korea is a totally basket economy ruled by a dynastic dictatorship which has no interest in the welfare of the economy and its people

    • Bates says:
      May 25, 2010 at 8:22 am

      The US’s dysfunctional regime keeps doing erratic and dangerous things like invading Iraq because the US public was lied to about ‘weapons of mass destruction’ that did not exist. What’s even worse for the US is that ex pres Bush finally admitted that Iraq had possessed no weapons of mass destruction. The US is a totally basket economy ruled by a financial oligarchy which has no interest in the welfare of the economy and its people.

      There, fixed.

      • Andrew Bissell says:
        May 25, 2010 at 12:41 pm

        If the U.S. was anything like North Korea you’d be hauled off to prison and shot for a post like that. Not saying we don’t have some MAJOR problems (and I’m also not saying we have any business putting our military on the Korean peninsula), but the comparison is ridiculous in this case.

        • sherparick1 says:
          May 25, 2010 at 1:25 pm

          Wait until the Palin/Cheney (Lynne) administration, as I ams um sure all the “terrorist sympathizing” non-real Americans will be rounded up and properly “secured.” I don’t think these folks will take any more chances with elections if they get back in power again. http://palingates.blogspot.com/2010/04/sarah-palins-fans-threaten-and-try-to.html

        • Bates says:
          May 25, 2010 at 2:51 pm

          “If the U.S. was anything like North Korea you’d be hauled off to prison and shot for a post like that.”

          Well now, since this is not N or S Korea and we currently have limited freedom of speach I suppose what I have to say is absolutely are relevant as your post, is it not? Why did you not take up the comparison of my post to the original? What is the difference in the US using lies to invade Iraq and N or S Korea using lies to start a war?

          ” not saying we have any business putting our military on the Korean peninsula”

          We did this already under the auspices of the UN… Trust me, it did not work out well. I had two uncles killed in that ‘police conflict’.

          ” but the comparison is ridiculous in this case”

          In what way? IOWs, get to the meat of the matter and stop blathering nonesense.

          • DownSouth says:
            May 25, 2010 at 8:18 pm

            Hey! Hey!

            Good one Bates.

            On this you and I agree: “The US is a totally basket economy ruled by a financial oligarchy which has no interest in the welfare of the economy and its people.”

            The reason Andrew Bissell doesn’t “get to the meat of the matter and stop blathering nonsense” is because he’s a closet apologist for the financial oligarchy.

        • proudly let this wave, zzzip says:
          May 25, 2010 at 3:44 pm

          Whereas here, if you embarrass the regime, like Al Jazeera did during the Fallujah masscre, we just bomb the bureau, and then we try to bomb the HQ in our ally Qatar. Yes we are so very above censorship.

        • Blueslide says:
          May 25, 2010 at 8:16 pm

          Of course torturing, even POW’s, and denying American citizens due process was ridiculous once as well,

        • psychohistorian says:
          May 26, 2010 at 4:40 am

          I would have to agree with other commenters that Andrew Bissell should study up on the history of American imperialism of the past 50-60 years to fully understand the inappropriateness of his comment.

  • purple says:
    May 25, 2010 at 6:30 am

    It doesn’t matter what Treasury and Geithner want on the yuan, ultimately US politics are going to decide it. China doesn’t have the same political system, so perhaps they don’t fully realize what little sway technocrats and policy officials have in the US. If US unemployment stays high, which looks very likely, this is not going to end well – either there will be tariffs or imbalances will bring down the system again.

    • Bates says:
      May 25, 2010 at 8:16 am

      ‘gold is always manipulated down on futures expiry’

      How right you are Bill, but nothing is forever. At present an enormous amount of liquidity is being provided to large Wall St firms to short gold and other commodities, regardless of any losses the big shorts may encounter. All central banks know that the pricing of gold in fiat exposes fiat currencies to be…well, fiat! We will see a time when the large shorts are forced out of their positions because of losses and a lack of funds and then gold and all commodities, who’s dollar values are currently being manipulated, will be traded in a more fair market environment. Mr Market always prevails.

      • aet says:
        May 25, 2010 at 9:27 am

        Gee that’s tough for people who eat gold, huh?

        • Mocha says:
          May 25, 2010 at 10:28 am

          “Gee that’s tough for people who eat gold, huh?”

          And you will eat what? Dollars? Fortunately for those that can digest dollars the Fed is printing lots of them. :)

          • aet says:
            May 25, 2010 at 3:38 pm

            Been a long time since I’ve seen gold used to buy food.

          • Doug Terpstra says:
            May 25, 2010 at 5:12 pm

            Is it more nutritious than paper? How does it taste? I think land and water might be a better investment in the future “world made by hand” (James Howard Kunstler)

          • Bates says:
            May 25, 2010 at 6:03 pm

            “Is it more nutritious than paper? How does it taste? I think land and water might be a better investment in the future “world made by hand” (James Howard Kunstler)”

            Gold has been money for many thousands of years. Fiat currencies come and go. At last count about 5,000 fiat curriences have come and gone in recorded history. What makes you think the dollar will be around forever?

            As for land and water being better investments you are right if you live in a society where the rule of law prevails and the laws are applied equally across society. Unfortunately, we do not live in that place. If you have land and water can you defend them against taxing agencies? Can you defend them against others that desire them and have government on their pockets? Are they portable? Of course, the answer to all the above is NO.

            As for Mr Kunstler… Is he still waiting for the end of the world when Y2K happens. :) If so, he must be a very patient individual. He is a good scribbler and that is the extent of his talent, imo.

          • DownSouth says:
            May 25, 2010 at 8:11 pm

            Bates,

            You say:

            As for land and water being better investments you are right if you live in a society where the rule of law prevails and the laws are applied equally across society. Unfortunately, we do not live in that place. If you have land and water can you defend them against taxing agencies? Can you defend them against others that desire them and have government on their pockets? Are they portable? Of course, the answer to all the above is NO.

            I still don’t understand the fixation with gold. If a government can take your land and your water away from you, it can take your gold away from you too. Can you defend your gold “against others that desire” it and “have government in their pockets?” In addition to people who “have government in their pockets,” people who don’t have government in their pockets can also take your gold away from you. They simply put a gun to your head and carry it away, and this does not require the cooperation of the government. But land, how is the common thief going to carry it away, or change title without complicity of the government? It seems rather obvious to me that there are more ways to take gold away from someone than land.

            Is gold portable? If the government prohibited the possession and/or exportation of gold, how do you propose to remove it from the country? Paper currency is much easier to smuggle than gold—-it’s not susceptible to detection by metal detectors, but still extremely risky because it is bulky. If you ever traveled in and out of Mexico you would know that paper currency is not very portable, and gold, at least in any significant quantities, is not portable at all.

            Just last month an American was arrested in the Mexico City airport with 150 gold coins with a weight of 5Kg 33 grams:
            http://www.elvoceromi.com/latinoamericanas/6400-policia-mexicana-detiene-a-estadounidense-con-150-monedas-de-oro

            This guy will more than likely be staring at the walls of a Mexican prison for years to come.

            It seems that high-grade diamonds or small, extremely rare and valuable paintings would be infinitely more portable than gold, if portability is the criteria you are searching for.

            Your fixation on gold is for reasons other than your stated ones.

    • MyLessThanPrimeBeef says:
      May 25, 2010 at 12:06 pm

      Don’t worry about the trade wars and tarrifs between the nations of the world – that was the 1930′s.

      This time, it’s the boycotts and retaliatory power shut-offs between the states of the country.

  • billwilson says:
    May 25, 2010 at 6:37 am

    Gold still holding in there (down only a couple of bucks when the whole market is down big is quite an accomplishment). Remember gold futures expire on the Crimex this afternoon. Look for gold to do nicely thereafter (gold is always manipulated down on futures expiry).

  • D'Annuzio says:
    May 25, 2010 at 7:05 am

    Remember the Maine !

    How’d North Korea get a German Torpedo ? reportedly the torpedo was a German one as per the initial investigation.

    • robert says:
      May 25, 2010 at 9:42 am

      A German torpedo you say? First of all I find it hard to believe that a modern explosive projectile powerful enough to split a destroyer in half would survive as more than dispersed atoms, let alone the propeller and pieces large enough to read the makers mark. Not defending NK but how certain can we be that this is not old, rotting ordinance or a miss fire from a bygone era?

      • Black bird says:
        May 25, 2010 at 11:14 am

        It’s fake evidence. (Originally they say it was china/russia) Obviously china and russia said, why don’t you fuck off with that evidence talk or we’ll supply north korea with advance weapons and you will be radioactive by noon.

        The korean conflict is staged. everybody already knows the outcome. (US humiliated at the UN.)

    • NOTaREALmerican says:
      May 25, 2010 at 12:01 pm

      It vuz from ant old u-boat.

  • Oren says:
    May 25, 2010 at 7:36 am

    Additionally, I think we all over looked the Volcanic Ash problem.
    Europe was grounded for about 10 days this quarter. Lots of companies world wide will have a hit on their 2nd Q reports coming mid July (leaking late June).
    Enjoy the ride…

  • Bill Smith says:
    May 25, 2010 at 7:59 am

    You got a link for that?

  • mario says:
    May 25, 2010 at 9:51 am

    I disagree. Its not ugly, its actually pretty. I may actually invest without being ripped off.

  • Brett says:
    May 25, 2010 at 10:56 am

    Don’t feel bad. Ugly it is (as I write DJI 9855 -210), but it’s not collapse. Not yet. The talking heads are still reacting to news in Europe, but in my mind that’s not what’s happening here.

    These levels are where a market that reflects Main Street realities belongs. This is the correction that has been waiting in the wings.

    If it’s good enough for Schiller, then I may as well bring it up here – the S&P P/E are returning to sustainable levels:

    http://www.multpl.com/

    This is where equity prices belong. The rates of slower growth just mean that this isn’t a bubble market.

  • jal says:
    May 25, 2010 at 11:06 am

    “… how certain can we be that this is not old, rotting ordinance or a miss fire from a bygone era”

    Look closely at the pictures of the torpedo pieces. That torpedo has corals growing on it. (See the white)
    How long does it take for corral to grow at the depth and temp that this was suppose to come from?

    I would say that this is not the right torpedo. Its propaganda fuel.
    jal

  • Boomka says:
    May 25, 2010 at 11:51 am

    I can’t believe carry trade is still alive… how many years have we been talking about unwinding? what is it going to take to actually unwind it?

  • MyLessThanPrimeBeef says:
    May 25, 2010 at 12:11 pm

    Talking about getting ugly out here, well, the ‘pretty’ get prettier and the ugly get uglier.

  • Hugh says:
    May 25, 2010 at 2:25 pm

    It’s a bubble, folks. They can teeter and slide but they ultimately have only one ending. They burst. We have seen the teeter and the slide. The question is when will we see the burst.

  • Paul Tioxon says:
    May 25, 2010 at 2:51 pm

    Do not underestimate the x factor of the crumbling infrastructure. Not only collapsing bridges, the exploding BP Oil rig, the mine disasters all speak to doing everything on the cheap, as slum lord management mentality reaps a harvest of randomly distributed disasters from sea to shining sea. It’s so bad, we can not even place our faith in the Japanese to build a dependable auto.

  • Paul Tioxon says:
    May 25, 2010 at 8:34 pm

    Hmmm, was it something I didn’t say. How about, it’s so ugly Larry Summers is promoting a second “mini stimulus” and taking the time to belabor the Keynsian Macro prime the pump policies of overcoming collapsed private demand with government spending for jobs until a virtuous cycle of growth takes hold, and the government can gracefully exit after its temporary although necessary intervention. Whew, he gave a longer speech than that, it’s on Huffington Post. I’m sorry if I don’t have a link to offer from the Institute for World Order, but, hey, it is ugly, time is of the essence.

    http://www.huffingtonpost.com/2010/05/25/larry-summers-obamas-top_n_588787.html

  • Bates says:
    May 25, 2010 at 9:41 pm

    Downsouth
    ‘Your fixation on gold is for reasons other than your stated ones.’

    Yes, I have been found out. I am a gigantic gold dealer with outlets in many states and all continents around the world. I even have floating gold sales boats to meet the sailors before they can reach the red light districts.

    Happy now?

    Joking aside, as I stated in an earlier post I will be happy to see a return of a US currency that is a store of value… I don’t care if it’s based on bananas… and, at the current rate of US economic decline it probably will be based on bananas…If I had any gold it would be long gone from the US…like several years ago.

    • psychohistorian says:
      May 26, 2010 at 4:54 am

      I want to respond to Downsouth as well about why I support investment in metals and commodities over Treasuries.

      As Bates stated earlier, fiat currencies come and go. IMO the US dollar has seen its better days as evidenced by the trillions pumped into the system in the past couple of years. I don’t buy the arguments that running the printing presses has no effect on the value and believe that metals and commodities will hold their value more than the dollar in the near term future.

      Assuming society keeps functioning, I hope to convert my non-dollars back into whatever fiat currency is operational as needed to buy food to eat, etc.

      If the social structure breaks down entirely then who knows what strategy will insure long life and prosperity……..

    • DownSouth says:
      May 26, 2010 at 11:47 am

      Now we’re getting somewhere.

      The bottom line is that your affinity for gold isn’t so much an investment decision as a poltical statement.

      I think that’s an important distinction to make.


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