Fitch On A Warpath

As we speak, Fitch is nuking ratings across Europe. Not that it matters for much directly, but when all the ratings agencies reach agreement, there could be some fireworks from funds obligated to sell.

Unless Europe is smart, quick on its feat, and able to undo their own financial regulations…

(laughter)…

Look, this will sound silly, because I’m basically arguing that you should worry when European yields go up, and ignore them when they go down. But that is exactly what you should do, and here’s why:

The ECB is doing the buying.

Now, on that point alone, the ECB can make EU bonds look as low as they want. Markets and auctions are funny things. You could have 99% of trades say that Security A is worth $10. And then the final 1% of trade activity can go for $15 and suddenly the 99% of price discovery never mattered; except that it did matter, way more than a few dumbasses crowding in overpriced sales at the end of the day (and especially if those trades are designed to create suckers to buy much larger volumes of Security A tomorrow at inflated prices).

That’s what’s meant when people talk about markets “pricing on the margin.” It’s why econometrics rarely predicts anything. It’s why, in general, you can get massive bull rallies on little to no volume, or huge price collapses on the same.

The ECB could make Italian 10 years tomorrow read .01%, and it wouldn’t change the situation in the least. But if they did that, then the jig would be up, now wouldn’t it? They’d be called out. So instead, it’s steady drift downwards, and much talk of “renewed market confidence,” which these bastards are still convincing themselves is all that’s missing from the grand success they deserve.

There are two outcomes here which should concern you, given the magnitude of the debt that needs to be cycled. The first is, the ECB keeps buying their member’s bonds, while professing they aren’t/won’t/never, and receiving no help from private equity markets.

In this case, the euro goes to par against the dollar, and our (U.S.) exports go to zero.

The second is, the ECB, realizing they will not trick private market participation, throws in the towel and sends some very large nations into default.

In this case, European demand dries up, and…our (U.S.) exports go to zero.

Are you seeing a pattern here?

The case that avoids these outcomes is not contingent on printing/no-printing. It’s contingent on cooperation from private creditors willing to roll over the debt on their backs, and keeping the EU monetary supply in balance.

If that happens, I will be proven wrong and I will reluctantly cover my oil and energy shorts, hands in pocket, face to the ground.

But now, I ask you, are private markets falling for the “All is well! All is well!” sounding board? Bank participation in European debt is at an all-time low. Money is being held up in reserves. Corporate balance sheets have never been higher. Greece and Portugal are looking read to go over the edge.

But hey, Italian and Spanish yields are lower. Just this: who’s buying?

Great fucking work Ben; I think you got that 2% inflation target yesterday. Can you point to a commodity that wasn’t up?

A Zerohedge guest post yesterday was discussing the models the Fed is using to define core inflation. Take a look right at them; the variables include oil prices, which are presently going on a tear. The price of oil is given an entire relationship unto itself, it’s so important.

Just looking at that model, the only way that Bernanke’s idiotic “commitment” to more stimulus passes is if the dollar gets so strong that cheap imports flood the system, overcoming the rest of the game (not that the model makes much sense anyway; substituting an estimator for an entire economy of activity is foolish).

By his own standard, he pretty much crushed hopes of devaluation yesterday by setting off the coke run. Although the point of the model isn’t to make sense; it’s to bait idiots who aren’t confident enough to call him on it.

And where are these reports of QE3 promises coming from? I’ve looked for every transcript of that speech imaginable, and nowhere does he say “I’m going to be dipping into MBS paper.” I see the same thing he’s been saying time and again; if deflation returns with a vengeance, he’ll engage in more easing.

You think he’s going to do that here?

The guy said we’d have low yields…maybe. That’s about it.

Bruce Springsteen, coming soon to a March near you. It is the thirteenth sign.

I thought it would be June. Please check the 2012 predictions, as this means “The Boss” will most likely be dead by mid-summer, rather than the Fall.

Get your heart attack game on…

Oh well that’s grand, the Fed is predicting it will hold rates low for another two to three years. What a novel bit of statistical modeling that took. I wonder: what methods does one use to forecast one’s own choices? Did they use their prior data to calculate the expected outcome?

“Why I do believe I will hold rates low until 2013,” says Bernanke.

“Wait a second there, sir. I see that from past statements you’ve made, you’re a chronic liar, and your’ forecasting has an error rate of one standard deviation, usually to the high side,” Janet Yellen quips in.

Elizabeth Duke leans over. “Yeah, she’s right. You’d better tack on a solid year, just because you seem to contradict yourself so much.”

“Damn, didn’t realize I was such a hypocrite. Okay, 2014 it is. Well that’s a useful insight; I had no idea what I was going to do. Now at least I can know what I expect I know what I’ll do.”

Fucking. Useless. Drivel.

What point is there to this? You want to know what it tells me? It tells me Bernanke & Co. are stuck with their hands tied behind their backs. It tells me there is actually nothing better they could be doing right now, than restating their “commitment to low interest rates” because the economy cannot withstand more money printing.

It tells me they are boxed in with nowhere to go.

I am not at all afraid of a Fed announcement ushering in new easing, because I don’t think these people believe it will actually help. Even the likes of Duke have to be questioning the faith, after a half trillion of purchases forcing treasury rates lower managed to accomplish nothing.

Oh, wait, I guess it did circulate a half trillion additional dollars through the economy, forcing oil prices higher and putting the squeeze on the poor. That it did very well…

Let me elucidate this point again. If Bernanke is going to ease, he needs room in prices to do so. We don’t have that now. People can’t stomach another $20 on the price of oil, rolling inflation targets be damned. That oil prices are this high is alone enough to stay his hand. So if you’re projecting Fed intervention coming this year, you’d better be rooting for my oil shorts to take me back to break even from last year, because shy of that, you aren’t getting a penny.

But don’t worry, you’ll keep getting these “clarifications,” “clarity statements,” and my favorite, “clarifying statements of clear clarity.”

I have a confession. I didn’t even bothering listening to Obama’s speech last night.

I know the state of the Union; I get nothing out of listening to this guy. Some people enjoy hearing him, because he is “a great orator,” whatever the fuck that means. I suppose it’s not much different than enjoying the quality of sound. It’s probably an interest that rhetoric majors and guys who build electric speakers have in common. But I get nothing from hearing words uttered, however eloquently, that are totally devoid of content.

Myself, the 9th floor is kept quiet, unsullied by incoherent disruption. When I want to listen to something beautiful, it will be music. I can enjoy music because it isn’t constantly telling me how all my triumphs are owned by others. It also doesn’t iterate the same message; that I must surrender my hard won resources over to people I would sooner see dead than in control of any aspect of my life; over and over and over…

Listening to Obama talk is enjoyable to some, because the tones and sounds he makes are pleasant. But when I actually hear the words coming out of his mouth, my blood pressure spikes and I dream longingly of stuffing a basketball down his throat to muffle the stupidity.

So I didn’t listen to the speech. And after reading excerpts of it this morning, I can’t help but think to myself, “Good job, self. Time well spent…”

His speeches are nothing but a string of unrelated opinions and poorly made points, forced together. The only thing they have going for them are that the individual notes and tones of him talking are not unpleasant to hear. That hardly makes for good listening.

Good speeches and good music should come from the same place; they need theme, continuity and coherence, and cadence. They need structure and shape given to them. They need to serve a higher purpose than to simply hear scattered notes with no grand design.

For the record, you should always read speeches rather than listen to them. When you read them, any affability of the speaker is removed and you are forced to take the points of speech on their fluentness, merits, and ability to tie content to drive truth. Do that and I promise you won’t think Obama is that great of a speaker anymore.