The Federal Reserve is clueless

Really, the Federal Reserve doesn't understand what is happening in the government debt markets. I hope Reuters analyst Alister Bull has made an error and the Federal Reserve does not actually believe the second paragraph below:
Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit? If so, there might be less need for the Fed to expand the money supply by buying more U.S. Treasuries.

Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. This might be an argument to augment to step up asset purchases.

Another possibility is that China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities.
Quantitative easing is the reason people are worried about a U.S. dollar collapse. Stepping up quantitative easing will not solve the problem, it will exacerbate it. All QE can achieve is the lowering of interest rates. On the issue of central banks such as China reducing long-term bond purchases, in my post Crowding Out has arrived, I linked to the Brad Sester post that shows this is exactly the case.

Read the whole article. The Federal Reserve has no idea what it going on, yet they are pursuing the most interventionist policy in their history. Does that inspire confidence? I've mentioned TBT and PST before, two ETFs that deliver the double inverse of the daily change in Treasuries. The above is why the trade carries risk above and beyond their leveraged nature.

Unfortunately, it doesn't appear the Reuters story was wrong on the facts, Bloomberg has a similar story out today:Treasuries, Dollar ‘Only Game in Town’ as China Buys.
Fed officials see several possible explanations for the rise in yields. One is the outlook for the economy is improving and investors are selling government debt used as a hedge against mortgage securities.

Another is the supply of Treasuries for sale exceeds the Fed’s so-called quantitative easing program. After cutting its target interest rate for overnight loans between banks to almost zero, the central bank pledged to buy as much as $300 billion of Treasuries and $1.25 trillion of bonds backed by mortgages to cap borrowing costs.
That confirms what Reuters reported about the Fed believing their asset purchases may not be sufficient. The article also goes on to mention central bank purchases, mentioning China specifically:
China increased its holdings by 3.2 percent, the most since November, buying Treasuries with its reserves to control the level of the yuan. The currency, which was pegged at about 8 to the dollar until July 2005, has traded between 6.8 and 6.9 since last June. It closed May 29 at 6.8291 to the dollar.

“To some extent they have to buy Treasuries because they want to support their currency peg,” said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Securities USA LLC. The firm is also a primary dealer.
China can cease purchasing Treasuries as soon as they decide to allow the yuan to appreciate. The article goes on to discuss "bond vigilantes", sovereign credit ratings, and Fed policy, and then this:
Indirect bidders, a group that includes foreign central banks, purchased 54.4 percent of the $40 billion in two-year notes sold May 26, the biggest percentage since November 2006, according to the Treasury. They bought 44.2 percent of the $35 billion five-year notes auctioned May 27, compared with an average of 32.4 percent at the previous 10 sales. The scooped up 33 percent of the $26 billion of seven-year notes offered on May 28, matching the average of the other three sales this year.

“The idea that we have lost sponsorship at the auctions seems farfetched,” said Ian Lyngen, an interest-rate strategist in Greenwich, Connecticut at RBS Securities Inc., another primary dealer.
Central banks purchased a larger percentage of bonds on the day rates tumbled. The simplest explanation is that outside of central banks, there isn't much private demand for government paper, the old argument for crowding out, considering the action in mortgage markets. Please see Mish Shedlock's post,"Mortgage Market Locks Up". Mish also covered the Federal Reserve's failure on Wednesday in a post titled: Treasuries Massacred; Yield Curve Steepest On Record
Check out his post, which includes the following quote from Fil Zucchi, "As I publicly asked before, if Mr. Fed can't rig the price of an asset by buying it with printed money, why should anyone else buy it?" The chart above indicates few have found an answer to that question.


May Performance

_____________May %_____YTD %
S&P TR_______5.59______2.96
My Funds

Changes in May:
I had to sell positions out of the short fund to keep positions below the 10 percent limit. The fund is loaded up on the garbage that shot higher the past three months, click the link to see a chart that looks like Everest.

In the Best of Funds, I closed shorts on oil, gold and real estate, and entered shorts on U.S. long-term treasuries. I also increased the cash portion of the portfolio to the limit of 35 percent. Considering the short hedges I had in place, and the large cash position that was over 20 percent to begin the month with, the 6.80 percent return versus 5.59 percent for the S&P 500 Index is an acceptable performance, but considering the strength of gold mining stocks last month, I suffered for my heavy defense.

In the Software portfolio, Netease (NTES) added more than 10 percent for the month and has grown to the limit of 25 percent. I had to trim the position to stay within the rules.

In the China fund, I went short on Chinese SOEs again, with ProShares UltraShort FTSE/Xinhua China 25 (FXP). That plus a heavy cash position and defensive holdings kept the month's return to 0.92 percent. Over the past 90 days, the portfolio has paced the market, so last month's under performance notwithstanding, I should be alright as long as I don't sit out the next bull market.


Good thing I exited the oil short

Is this the blow-off move, or is the dollar going to die? $US broke fell through $1.41 versus the euro this morning, crude oil topped $66 a barrel and gold is up to $974 an ounce. With stocks ready to rise at the open, it's starting to look like 2006:
“The Obama administration disappointingly seems to be following the same path as the Bush administration,” he said.“The basic strategy appears to be to try to bring us back to 2006 by propping up asset prices and reflating the popped credit bubble, subsidizing bank creditors and shareholders, and delaying needed bank recapitalizations, while hoping for an economic recovery.”
More from the interview with David Einhorn.


Out of Double Short Oil, Double Short Real Estate

In the Best of Funds portfolio, I closed out PowerShares DB Crude Oil Double Short (DTO) and ProShares Ultra Short Real Estate (SRS). I don't think the trades are wrong fundamentally, but I was down about 30 percent and 20 percent, showing the timing risk of leveraged funds. The failed trades cost about $13,000, or $0.13 on the shares, which closed at $14.42 yesterday. That makes for a loss of about 0.9 percent for the fund.

I'm still in several other short funds, which have losses clustered around 10 percent.

Crowding Out has arrived

I remember learning the crowding out theory in economics class, which says that government spending and borrowing "crowds out" private spending and borrowing. For the longest time, however, there was little evidence that government borrowing was crowding out private borrowing, probably due to the fact that the U.S. was in the midst of a multi-decade credit expansion. If there was an effect, it was muted.

No longer. Brad Sester shows why Treasury rates are rising now—central banks reduced their demand for long-term Treasuries, leaving private borrowers to pick up the slack.
Over the last 12 months of data (data through the end of April, May data will be out soon), the US issued $735 billion of notes, bonds and TIPs.* In calendar 2008, the increase in supply of longer-term Treasuries was about $400b – a large sum, but easily within the realm of historical experience.

Yet even as the supply of notes has increased, central bank for longer-term Treasuries for their reserves has fallen. Central bank demand for longer-term Treasuries – on a rolling 12m basis – has been trending down since August 2008.
It's a situation that will only grow worse in the coming months and years. ProsShares Ultra Short Barclays 20+ Year Treasury (TBT) is one of the few ways to profit from the trend.

Here's an article discussing potential crowding out in China.


Deflation or Inflation?

Originally posted on 2009/05/25 9:46 PM...bumped to the top with an update
Two articles from the Telegraph: US bonds sale faces market resistance & China warns Federal Reserve over 'printing money'. From the former:
The Obama administration needs to raise $2 trillion this year to cover the fiscal stimulus plan and the bank bail-outs. It has to fund $900bn by September.

"The dynamic is just getting overwhelming," said RBC Capital Markets.

The US Treasury is selling $40bn of two-year notes on Tuesday, $35bn of five-year bonds on Wednesday, and $25bn of seven-year debt on Thursday. While the US has not yet suffered the indignity of a failed auction – unlike Britain and Germany – traders are watching closely to see what share is being purchased by US government itself in pure "monetisation" of the deficit.
This is really getting hyped after the decline in the U.S. dollar last week. There's the potential for fireworks this week, in either direction. A successful sale could reverse the dollar's slide.

From the latter article:
Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature."

"I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal.
Later in the article, Fisher discusses the massive "deficit" facing U.S. taxpayers if entitlement spending is not brought under control.

Government pumping of the money supply has the potential to spark inflation, but a failure in the Treasury market and rising interest rates would touch off another fierce round of deflation, one that may not spare precious metals.

UPDATE: Today's bond sale saw Treasury yields increase. iShares Barclays 20+ Year Treasury (TLT) fell 1.77 percent. ProShares Ultra Short Barclays 20+ Year Treasury (TBT) gained 3.76 percent. SPDR Gold Shares (GLD) fell 0.33 percent. PowerShares DB Crude Oil Double Short (DTO) lost 6 percent.

I've lost about 24 percent on DTO since adding it on May 15, and made about 14 percent on TBT since adding it on the same day. It's decision time on DTO. I usually cut holdings off around 10 percent, but I allow the leveraged funds a wider range because one day could reverse returns.

Prechter sees more deflation, recommends cash and gold

Elliott Wave Guru Sees Dark Days Ahead
He offers a socionomic take on the government's policies:
Q: Some observers allege that steps taken by President Roosevelt during the early part of the Great Depression ended up prolonging the depression. Will policy decisions being enacted now ameliorate or exacerbate the current decline?

A: Governments' policy decisions hamper and ruin economies all the time, but their meddling does not affect waves of social mood. On the contrary, waves of social mood generally spur governments to act. The 1929-1932 collapse caused the government to get restrictive and separate commercial and investment banks in 1933; this was after the bust it was designed to prevent was over. The 1990s boom caused government to get frisky and repeal the act in 1999; this was just as the boom it was designed to foster was ending. These policy decisions did not cause any changes in social mood, but the social mood trends predicted the character of the policy changes. Government herds, just like everyone else, but it is at the tail end of the herd, because it takes time for a consensus to develop so extensively that government has the public support to act.
He goes on to recommend short-term Treasuries, cash, and some gold. Overall, he says investors should stay safe until the deflation is complete.

Chinese Stimulus: Where From, Where To | 国家发改委公示“4万亿”资金来源

Government Explains Details of Stimulus Package
The central government will provide 29.5 percent of its 4 trillion yuan stimulus package, with the remainder to be drawn from local governments and private companies, said a government statement on May 21.
Interesting that a lot of the spending will come from the local level and private companies. This suggests the spending should be more productive than in the U.S., where local governments are willing to spend federal money on any project, regardless of whether it is a good use of the money.


Andy Xie: Efficiency's Urgent Cry for Attention | 谢国忠: 求诸效率

Efficiency's Urgent Cry for Attention discusses where China's economy needs to go from here. Read the whole thing, but below are two passages with investment implications:
Most analysts argue against inflation on grounds that excess capacity due to slumping demand will keep inflation in check. Hence, they say, the liquidity boom won't be a problem until the global economy has fully recovered. I think this is faulty logic. Financial markets can channel liquidity directly into inflation through commodity speculation.

Despite declining oil demand, for example, prices have nearly doubled from their lows this past spring. This mainly reflects rising financial demand; a rising amount of liquidity has flowed into oil futures, which is being powered by expectations of inflation. As in the 1970s, these expectations alone are capable of turning liquidity into inflation.
He also sees unions and wage pressures as inflation threats. Later, he explains why manufacturing will be unable to reduce costs:
Excess capacity won't hold down inflation for two reasons. First, manufacturing value-added is much lower than it was before relative to raw material costs. Globalization has forced multinationals to shift production to low-cost countries such as China. In the process, manufacturing has decreased in importance. For example, steel prices are moving in tandem with iron ore prices, despite huge processing overcapacity. The reason is that iron ore accounts for more than half the cost of production. Coking coal is another quarter of the cost. Equipment depreciation, labor, and profits account for small shares of product price.

Second, much of the overcapacity needs to be scrapped because demand won't recover to yesterday's levels. The bubble exaggerated demand in many industries. Automobile, IT and financial services stand out in this regard. Credit won't be as cheap in the future. Auto demand will reflect that. The industry may shrink by one-third.
The financial sector can act as an escape valve for inflation. New money pushes asset prices higher and then filters through the economy to cause commodity and wage inflation. As the financial sector contracts, that liquidity will be moving out of the financial sector (and new money will not enter) and into the commodity sectors of the economy. Unlike commodities, where overcapacity lasted for almost two decades, overcapacity in the financial sector can be eliminated rapidly.

Deflation remains a threat and will until it ends, but the seeds for inflation are being sown.



Peter Schiff sees another 30% decline in housing

Housing's Big Picture Isn't Pretty:
The authors of the Case-Shiller index had assigned the index a value of 100.0 in January of 2000. This figure does not represent a dollar value for home prices but is simply a benchmarking tool. In December 2008, after a severe 28% decline from its June 2006 peak of 226.29, the Case-Shiller 10 City index stood at 162.1. However, if home prices had followed the 3.4% annual 100-year trend line from December 1997 (when the index was at 82.3), then the index would have arrived at only 118.92 in December 2008.

This would suggest that the index would need to decline an additional 27% to get back to the historical trend line. Extrapolating along the sunnier 50-year annual average increase would put the index at 132.2 by December 2008. This would still put the trend line 18.5% below current prices. A cursory look at the chart below should disabuse anyone of the notion that home prices have now hit bottom. Policymakers and economists should by no means rely upon projections that see home prices turning around in the near term.

However, the story by no means ends there. Given the current conditions in the real estate market, with bloated inventories, growing unemployment, nonexistent consumer credit and shattered illusions of real estate riches, it would be logical to assume that prices will fall below the trend line. How much is anybody's guess, but 10% would be conservative.

Given that we are entering uncharted territory with price declines much sharper than those seen in the Great Depression, I would argue that the 100-year price trend would be the better projection to use. In such a scenario, the index would bottom out at around 108 if a 10% overshoot on the downside is seen. That leaves another 34% decline in home prices on the table.
Schiff thinks the decline may take place nominally, as inflation outpaces home price growth. There are as of yet no signs of inflation, however.

The American consumer will be down for the count, by fire or ice.

Are Chinese State Owned Enterprises Profitable?

Not according to Giovanni Ferri and Li-Gang Liu. Due to preferential credit access, the two economists estimate that the profits of SOEs would disappear if they "were to pay a market interest rate." Some key portions of the paper, Honor Thy Creditors Beforan Thy Shareholders: Are the Profits of Chinese State-Owned Enterprises Real?
Public ownership in the banking and industrial sectors appears to be one of the key factors behind the fragility of Chinese banking. Two statistics are revealing. Although SOEs’ contribution to the Chinese GDP was around 25%, they received about 65% of total loans (Pitsilis et al., 2004). In addition, the ROA and ROE of private companies are higher than those of public enterprises (Table 1A).
In section 4, they note the difference in the interest rates:
With respect to intrate, on the average of 2001-2005, SOEs pay 133 basis points less than the total sample average. The SOE gap amounts to 265 basis points with respect to cooperative enterprises and to 198 basis points vis-à-vis private enterprises. However, intrate for SOEs does not seem to differ significantly from two other special classes of enterprises, those with ownership located in Hong Kong, Macau and Taiwan, and those with ownership located out of greater China. It is worth pointing out that the difference favorable to SOEs decreases somewhat comparing the sub-period of 2001-03 and that of 2004-05. In the former sub-period the gap vis-à-vis private enterprises is 223 basis points, while SOEs pay 31 and 16 basis points less than, respectively, the Hong Kong-Macau-Taiwan firms and the foreign ones. In the sub-period of 2004-05, the gap shrinks to 159 basis points vis-à-vis private enterprises, while SOEs pay 47 and 50 basis points more than, respectively, the Hong Kong-Macau-Taiwan firms and the foreign ones. It is also worth remarking that, though somewhat decreasing as time passes, the lower costs of debt for SOEs – especially with respect to private firms – is systematic across the years.

We reach similar results after examining intrate1. With respect to the entire period, SOEs pay 157 basis points less than the average company, 225 basis points less than private enterprises, 4 basis points less than Hong Kong-Macau-Taiwan companies, and 75 basis points less than foreign capital firms. Note that the gap in favor of SOEs does not reduce visibly over time. In the sub-period 2001-03 it amounts to 159 basis points vis-à-vis the sample average, 234 basis points compared to private firms, 5 basis points visà-vis Hong Kong-Macau-Taiwan companies and 70 basis points compared to foreign capital firms. In the sub-period 2004-05 the gap amounts to 152 basis points against the sample average, 211 vis-à-vis private firms, 29 basis points compared to Hong Kong-Macau-Taiwan companies, and 83 basis points vis-à-vis foreign capital firms.
The paper deals with the economic implications of the favorable credit environment for state-owned enterprises. From an investment standpoint, SOEs face the risk that their favorable situation could end. As China reforms, it's increasingly likely that the playing field will eventually be leveled in the favor of private industry. Here's an article from today's South China Morning Post (subscription required): Beijing boosts the private sector
"The global financial crisis might have sped up, instead of stalling, the market-oriented reform as the way to promote economic efficiency," said Yang Yiyong , deputy director of the Economic Research Institute under the Macro Economic Academy, an affiliate of the planning agency. On Friday, state councillor Ma Kai highlighted the need for further reforms, saying this would help guarantee the country's development and be an active response to the global financial crisis.

The guideline, posted on the central government's website yesterday, said: "The severe international and domestic economic situation requires us to continue reform and openness policy unswervingly."

The government reaffirmed the central bank's policy of pushing ahead with interest rate reform and improving the way the yuan exchange rate is determined.


We Are Out of Money—But We'll Spend More!

Drudge has the transcript. Relevant quote begins around the 13:20 mark.
Obama: So we have a short-term problem and we also have a long-term problem. The short-term problem is dwarfed by the long-term problem. And the long-term problem is Medicaid and Medicare. If we don't reduce long-term health care inflation substantially, we can't get control of the deficit.

So, one option is just to do nothing. We say, well, it's too expensive for us to make some short-term investments in health care. We can't afford it. We've got this big deficit. Let's just keep the health care system that we've got now.

Along that trajectory, we will see health care cost as an overall share of our federal spending grow and grow and grow and grow until essentially it consumes everything...
Government doesn't invest. The government spends billions of dollars (or trillions) to fix a problem, and the end result is the same problem but more expensive. Health care spending is too high, everyone agrees on that. Obama should be putting forward actual cuts in expenditures now, to lower costs. People will find a way to save, they can do more with less. The idea that government is going to spend more and it will lead to lower costs in the future is a farce, I don't think it has ever happened. The result of his plan will be that even greater cuts will be made in future.


Raising Cash in Best of Funds

I'm limited to 35 percent cash positions on Marketocracy if I want to keep my fund in compliance, and I'm going to that limit today in my Best of Funds by exiting some hedges. I was in the double-short euro fund, DRR, double short gold, DZZ, and long U.S. dollar, UUP. This is a technical trade based on the fact that gold is outperforming regardless of the direction of the dollar, and the U.S. dollar fell during the rally and during the sell-off.

I may be mistaken. This could be a blow-off move and the dollar will rally as equities fall. However, I believe I can gain more from being in short equity ETFs than in long U.S. dollar or short euro ETFs. A big cash position gives me options, which I want at a time such as this.



医疗保险情况更糟。感兴趣的朋友可以去读一下布里斯-巴特利特的分析:link 。据他估计,如果我们要偿付当前的债务数目,税率估计要上升81%。











Shorts Killed Again....Updated

I went short on oil in my Best of Funds fund, and it crimped returns in the past month. Since adding PowerShares DB Crude Oil Double Short ETN (DTO) it is down 17 percent; it fell 11 percent yesterday.

Oil prices are up in recent days, to about $60 a barrel. I'm staying short because I do not believe there will be an economic recovery. If I am wrong, and prices do continue to rise, then we have an inflationary situation, in which case I am well-hedged in other commodities and precious metals.

Update: I posted this in the morning, but we've got a nice reversal today. The Best of Funds portfolio is invested for just this type of market. Though the hedges (such as short gold, versus gold miners) and large cash position have hurt returns (I don't sense a full on short opportunity yet), the fund is up 1.60 percent as of about 2:30pm, versus a 2.36 percent drop in the S&P 500, a difference of almost 4 percent.


The only sane man on CNBC?

A bunch of bloggers though Jeff Macke was losing it in this clip from Tuesday, but he sounds like the voice of sanity in this clip:

The market is running on pure emotion and attempts to justify the move with talk of recovery are nuts. Bank of America is a poorly run bank that is technically insolvent, some investors just gave them another $13.5 billion and they need to find at least another $20 billion more according to the Treasury department's joke-of-a-stress-test—but BAC wants to repay $45 billion of TARP money this year and their stock is up 500 percent off its lows.
If you're wondering what he means by the car people, this is the interview that appeared earlier in the show:


Caijing Interview with Brazilian President Silva

From Caijing's interview with the President of Brazil:
Caijing: What strategic issues will you focus on?

Silva: We will focus on renewable fuels, especially ethanol and bio-diesel. Brazil has the technology; it's already been tested and used for many years. Brazil's energy blend is very diverse and we'd like to share that knowledge with the Chinese. Brazil is the only country in the world where nearly 90 percent of all cars sold are flex-fuel – they can run on gasoline, 100 percent ethanol, or a blend. Now we are working on bio-diesel fuels to replace or be mixed with diesel, and therefore diminish the impact of greenhouse gases.

When I talk about promoting bio-fuels, I know about China's need to produce food. We don't want anyone to be replacing their food production with bio-fuel production. But what we do want is for countries like China to establish partnerships with Brazil and Africa, for us to produce bio-fuels and generate more jobs and income, and at the same time, meet the needs for a new energy blend, which we will all have to adopt. We cannot simply continue taking things out of the planet and not replace them. A clean energy model is an obligation for all of us. If you don't have land to produce but you need energy, you can finance other countries that can produce to meet your market needs. But what we cannot do is to continue to burn diesel, oil, gasoline, coal and firewood, while ignoring the damage we are doing to the planet.
One strength for Brazil is its ethanol comes from sugar cane, a far less energy intensive crop than corn.
Caijing: What else can be done to prevent global protectionism?

Silva: Protectionism often depends on sovereign decisions made by independent countries, and we cannot control that. That's why the WTO is important. It's important to strengthen the WTO. That's where we'll achieve balance, both to avoid protectionist practices and to avoid dumping. That's what will make trade more fair and balanced.

One important thing – I want to bring this up with President Hu Jintao – is that between Brazil and China, we need to establish a trade that is paid for in our own currencies. We don't need dollars. Why do two important countries like China and Brazil have to use the dollar as a reference, instead of our own currencies? We've already started doing this with Argentina. Our trade is taking place in our own currencies. Otherwise, we'll be in an absurd situation, where the country that caused this crisis will be the country that gets the most dollars. It's crazy that the dollar is the reference, and that you give a single country the power to print that currency. We need to give greater value to the Chinese and Brazilian currencies. The governors of our two central banks and our ministers of economy need to put their intelligence to work.
Jim Rogers recently said he expects a currency crisis in the U.S. dollar:
“We’re going to have a currency crisis, probably this fall or the fall of 2010,” Rogers said. “It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar, so it’s time for a currency crisis.”


Deflation Continues

Euro zone contracted by massive 2.5 pct in Q1

If you click the link and read the story, you'll notice they never give the annualized figure. The Euro-zone contracted at a 10 percent annualized rate!

Foreign Direct Investment in China Tumbles on Crisis
Investment dropped 22.5 percent to $5.89 billion in April, the commerce ministry said at a briefing in Beijing today. That compares with a 9.5 percent decline in March. For the first four months of this year, spending fell 21 percent to $27.67 billion.
China recorded a 40.6 percent drop in new registrations by foreign companies in the first quarter from a year earlier, the State Administration for Industry and Commerce said in a report released this week.

Wholesale Prices Post Largest 12-Month Decline Since 1950

Banks are insolvent

“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society,” he said, speaking at the Qatar Global Investment Forum.

Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. “At least the British are not hiding the bail-out,” he said.

MatlinPatterson said private equity and hedge funds were deluding themselves in hoping to go back to business as usual after the trauma of the last 18 months.

“This is not a normal recession and there will be no V-shaped recovery. The crisis has destroyed leveraged companies. We’re going to see a catastrophic increase in the number of LBO’s (leveraged buyouts) going into default because they’re knee-deep in debt and no solution exists since they can’t refinance,” he said.
Read the whole thing.

Update 1: The article is now gone from the Telegraph website. Here's Zero Hedge reporting why:
It appears that the Daily Telegraph has gotten major cold feet about the incendiary interview (incendiary, at least, to the administration) it had posted last night with Mark Patterson. One can only speculate why that may be the case, but if you try to connect to the article that had received the biggest number of hits yesterday, you just get a big gaping 404 hole now.

Luckily, ZH expected some potential foul play, which is why we copied the entire piece in its entirety and still have it available for readers who would rather be exposed to the truth instead of watching CNBC and other increasingly more censored media outlets.

As Zero Hedge anticipates getting a take down notice from the DT any minute, I would love to get the feedback of any lawyer readers as to what recourse ZH would have in that case.
There's also an update from Mark Patterson's lawyer posted, who says there are factual inaccuracies. It'll be interesting to see what happens here. The quotes may be misattributed, wholly fabricated, etc, but given that his firm is involved with the public-private partnership with the U.S. government, and the government threatened Chrysler bondholders, who knows what the real story is here.

Zero Hedge has the full article available.

Update 2: At least one blogger received a cease and desist notice.

Update 3: Letter from Mr. Patterson says the story is a complete fabrication.

Protectionism is here, thanks be to Obama

In addition to stimulus that fails to stimulate, see previous post, full on protectionism is breaking out courtesy of the "buy American" provisions.
Ordered by Congress to "buy American" when spending money from the $787 billion stimulus package, the town of Peru, Ind., stunned its Canadian supplier by rejecting sewage pumps made outside of Toronto. After a Navy official spotted Canadian pipe fittings in a construction project at Camp Pendleton, Calif., they were hauled out of the ground and replaced with American versions. In recent weeks, other Canadian manufacturers doing business with U.S. state and local governments say they have been besieged with requests to sign affidavits pledging that they will only supply materials made in the USA.

Outrage spread in Canada, with the Toronto Star last week bemoaning "a plague of protectionist measures in the U.S." and Canadian companies openly fretting about having to shift jobs to the United States to meet made-in-the-USA requirements. This week, the Canadians fired back. A number of Ontario towns, with a collective population of nearly 500,000, retaliated with measures effectively barring U.S. companies from their municipal contracts -- the first shot in a larger campaign that could shut U.S. companies out of billions of dollars worth of Canadian projects.
If Americans are willing to do this to Canadians, they're willing to do it to any nation. Even their own:
The new buy American provisions, the company said, are being so broadly interpreted that Duferco Farrell is on the verge of shutting down. Part of an increasingly global supply chain that seeks efficiencies by spreading production among multiple nations, it manufactures coils at its Pennsylvania plant using imported steel slabs that are generally not sold commercially in the United States. The partially foreign production process means the company's coils do not fit the current definition of made in the USA -- a designation that the stimulus law requires for thousands of public works projects across the nation.

In recent weeks, its largest client -- a steel pipemaker located one mile down the road -- notified Duferco Farrell that it would be canceling orders. Instead, the client is buying from companies with 100 percent U.S. production to meet the new stimulus regulations. Duferco has had to furlough 80 percent of its workforce.

"You need to tell me how inhibiting business between two companies located one mile apart is going to save American jobs," said Bob Miller, Duferco Farrell's executive vice president. "I've got 600 United Steel Workers out there who are going to lose their jobs because of this. And you tell me this is good for America?"
Hope and change my friend, hope and change. Have hope, and keep the change!


华友世纪将大幅裁员:或为出售铺路—Layoffs at Hurray! pave the way for sale



Short translation:
A source at Hurray! told CNstock.com that big layoffs are coming at Hurray! The article goes on to say insiders believe it could mean a sale is coming.
Often times the layoffs are done after a sale, since new management decides who to hire and fire. This may indicate the company has burned through a lot of cash and needs to reduce operations, or it could mean that a sale is in the works, since Shanda would be most interested in Hurray!'s assets.

Along those lines, JLM Pacific Epoch has insider news about the deal:
An unnamed insider said that Shanda (Nasdaq:SNDA) has offered $3.25 per American depositary share (ADS) for about 80% stake in music production, artist development and wireless value-added services provider Hurray Holding Co, reports Sina.
More info at link.

Hurray! held up well in Wednesday trading, considering yesterday's run-up and the overall mood in the market. HRAY lost 6.6 percent.

A clear example of Socionomics

This morning, Yahoo! Finance provided a clear example of socionomics at work. The economy is in the middle of a bad recession and retail sales fell 0.4 percent in April. No surprise. Analysts expected a 0.1 percent increase, but analysts are notoriously wrong and were clearly betting against the grain. Also, given that the analyst estimate is an average, I'd bet there were some overly optimistic ones who pushed that number from zero or even less than zero.

The headline speaks to popular sentiment, however, obsessed as people are with "green shoots" and thoughts of recovery. The news here isn't the actual news, it's the way the headline is phrased that offers a glimpse into the herds' mentality.

Update: Bloomberg wants in on the action. ‘Good Bad’ Economy Inspires Consumers as Slump Eases
The Sterenbergs are among Americans who are cracking open wallets as the U.S. economy begins to stabilize after the federal government spent, lent or pledged as much as $12.8 trillion to end the longest recession since the Great Depression, according to data compiled by Bloomberg.

Protectionism Back Again

Now some American politicians are trying to pass protectionist legislation:
“By illegally subsidising its exports through the undervaluation of its currency by 30 per cent or more, China distorts the gains from trade, creates barriers to free and fair trade, harms US industries and has destroyed millions of US jobs,” those sponsoring the bill said in a statement.
I doubt this will be successful, but the risks of success increase as the world becomes increasingly protectionist.


Inflation—Deflation Debate

Lu Lei writes in Caijing: Pay Attention: Deflation Looms in China
Looking only at China's first quarter trade surplus, which was 53.6 percent higher than in the same period 2008, one could form a false impression that net exports are still powerful tonic for China’s economic growth. In contrast, total trade fell by 24.9 percent in the first quarter due to a 19.7 percent decline in exports and an even sharper decline in imports, down 30.9 percent.

On one hand, it's not difficult to see that export weakness will remain for awhile. Just look at the recent Canton Fair, China’s most important trade fair, where fewer foreign buyers participated this year and export contracts diminished 20.8 percent in value.
The part about imports is important:
In fact, imports have been sympathetic to exports during the ups and downs of this cycle; imports have always led exports by approximately one month. This is because factories import materials or equipment according to their expectations of how many products they would be able to sell later, abroad or at home.
And there are currency implications:
Both fall-offs in trade and foreign direct investment would serve to ease pressure for appreciation of the yuan, reducing China’s attractiveness for interest arbitrage. Therefore, the "hot money" previously rushing into China for higher returns might head the other way. We have seen evidence of the current account surplus taking as much as 96 percent of the total surplus, reflecting a lack of momentum for capital inflow and an increasing chance that a capital account deficit will emerge. Besides, as growth in foreign exchange reserves slows or perhaps turns negative, China's central bank would no longer need to buy large amounts of foreign exchange from banks to prevent the yuan from appreciating too quickly. The current excess liquidity in the banking system might change as a result.

Another implication of falling trade is future negative growth for inventory investment. This would undermine the driving force of fixed capital investment. Indeed, inventory buildup was suspended roughly at the same time as trade growth turned negative in November 2008. According to the National Statistics Bureau, domestic companies cleared 44.8 billion yuan worth of previously stocked materials in November, which was followed over the following three months by destocking of products valued at 33.11 billion yuan. The direct result is shrinking industrial value added, partly offsetting the government's stimulus package, which invests heavily in fixed capital.

Finally, China's labor costs, as well as land and capital costs, probably would continue to decline along with trade. As businesses get more hesitant about inputs with these factors due to concerns about future profitability, we might see these costs decline.

Each of these aspects point to a greater danger of deflation, which would dampen China's recovery. It may be too early to cheer for the government's enormous investment in infrastructure, since a truly promising up-tick in domestic demand has yet to appear.

Shanda in the News—盛大新闻

Shanda (SNDA) has some news today.
Shanda May Buy Service Provider Hurray!
Hurray! is up 27 percent on the news. Caijing reports a previous offer from another bidder was $3.50 per share, another 25 percent above the current price.

Investors like Shanda here as well, shares are up about 2.5 percent. Why might Shanda be interested?
The company [Hurray!] also provides a range of other WVAS to mobile users, including games, pictures and animation, community, and other media and entertainment services.
Shanda was rumored to be interested in the company in 2005.

Here's the reason why the company is attractive:
HRAY has about $59 million in cash. Market cap as of right now, up 25 percent to $2.75 per share, is $60 million. At $3.50, an acquirer would pay about $16 million net for a company with $54 million in declining revenue last year. However, the $60 million figure is from December 31, 2008, and the company lost $9 million in that quarter. The total figure at this time may be around $50 million, assuming business deteriorated at the same rate as Q4, which would raise the cost to around $25 million.

More from JLM Pacific Epoch:
Shanda may inject some of its online literature assets including Qidian.com, into Hurray for backdoor listing, reports Sohu quoting an unnamed insider.

Best Prospect Overseas Limited withdrew an offer of $4.00 per American depositary share to acquire a 51% stake in Hurray on May 8, saying that some Hurray board directors had refused to negotiate. A Sina source said that Hurray cut contact with Best Prospect after granting Shanda a one-month exclusivity period for negotiation.
Shanda looks as though they're playing the role of white knight. It'll be interesting to see if, and how much, they bid.

Best Prospect Overseas Limited isn't going away, they've written a letter to shareholders.



New Index to Watch

Nasdaq OMX Government Relief Index, of companies receiving more than $1 billion in government relief. It includes these stocks, equally weighted: AIG, BAC, BK, BBT, COF, C, CMA, GM, GS, HBAN, JPM, KEY, MI, MS, NTRS, RF, STT, STI, USB, WFC and ZION. (Hat tip to Minyanville's Depew)

The symbol is QGRI, or ^QGRI if you use Yahoo! Finance.
There's also a European index, EUGR (^EUGR)

Here's a link to a chart comparing the two.

Note that only a 5-day or 1-day chart is available, and there's no historic data on Yahoo's site.


Old ideas die hard

There's not much I can say kindly about Economic Realities and the Marx Mystique
Marx was among the very first to recognize that the fever-fits of financial crisis and depression that afflict modern market economies were not a passing phase or something that could be easily cured, but rather a deep disability of the system. That was a good. We are being reminded of this now. Marx pointed a spotlight in the right direction. He thought that cycles and crises showed the long-term unsustainability of the system. We modern, neo-liberal economists view it not as a fatal lymphoma but rather like malaria: Keynesianism -- or monetarism, if you prefer -- gives us the tools to transform the business cycle from a life-threatening yellow fever into occasional night sweats. With economic policy as quinine, we can manage the disease.
Except it's the Keynesian/monetarist intervention in the economy that exacerbates the natural boom and bust cycle. Central banks manipulate the interest rate, the most important price in a modern economy. Price controls do not work, and we have governments all over the world controlling the most important price in the world.

Granted, Brad Delong is writing in a Chinese magazine, but I'd argue there is nothing to be learned from Marx. The idea of communism isn't new (even in China), it was proposed under different names at different times in history. Where he is correct, it is because he is a classical economist, but there are plenty of those who did not make his social and political mistakes.

Buy China, Not Buy China, that is the question

Two different perspectives on the Chinese stimulus plan.

News To U(use) posts: Chinese stimulus is benefiting American business.

On the other hand, Michael Pettis mentions that the Economic Observer (English and Chinese links on right) supports a "Buy China" provision, similar to the "Buy American" provision excoriated in the global, and Chinese, press. He then explains:
First, the “Buy America” provisions were never enforced and, what’s more, they are in many cases against US law. Of course they may also be against the law in some cases in China, but there is a robust legal mechanism in the US that can be used to prevent the US government from enforcing rules that violate US laws or US trade agreements. Importers, American as well as foreign, can sue the US government with every expectation of winning in court, in a way that no one, especially no foreigner, would even attempt doing in China.

Second, US government procurement is a tiny fraction of total US purchases, even taking into consideration the US fiscal stimulus. In China, almost the entire stimulus package is going to expand investment in SOEs and/or government projects, so the share of government procurement in total GDP is much, much higher in China. That makes it a far more trade-constraining measure in China than it could ever be elsewhere.

Finally, and probably most importantly, China is the country that most desperately needs foreign demand to absorb its excess capacity. In a world of contracting demand, China is the country that is most likely to suffer from protection, for the same reason that it is the country that benefits most from absorbing other country’s badly-needed demand. In that case it is not enough to say that China is just doing what everyone else is doing (and never mind that it is much harder for foreigners to invest in China or sell to China than it is for China to do either abroad), since any dispute that resolves itself in greater trade protection hurts China worse than it hurts the other disputant.
In the short-run, the United States stands to gain the most from protectionism, especially since it quickly solves the issue of consumer demand. We can call it "involuntary saving" or "forced savings", since protectionism would cause imports to drop and consumer prices to rise. Americans would consume less and save more, exactly what the country needs.

Long-term, protectionism is a bad policy (that doesn't mean globalization has been carried out successfully). Short-term, the time period most politicians think on, it can make a lot of political sense.

Yield To Me Fund

My high yield fund has performed decently, up 16.18 percent in the past month versus 12.75 percent for the S&P 500 Index. After trailing the market for two years from 2006 to 2008, the fund started to outperform in the fall of 2008, when I avoided some of the crash. Unlike most of my other funds, I've kept Yield close to fully invested, with cash currently around 6 percent.

The returns since inception are acceptable, considering many mutual fund managers failed to beat the S&P 500 Index. Since inception the fund is up an annualized 1.27 percent, dividends and fees included, compared to -1.30 percent for the index, a difference of 2.57 percent, annualized.

The fund currently yields 5.41 percent.
The S&P 500 Index currently yields about 3 percent.

Andy Xie: Here Come the 1970s

I recently posted on the idea of stagflation, stagnation coupled with inflation. I cited the examples of Wiemar Germany and Britain in the 1970s as comparisons for the U.S., which I believe is in greater trouble than the U.S. of the 1970s, and wrote:
The point is, we can have inflation and it still doesn't solve the economic problems, which take time to work out. A deflation will wipe out the problems swiftly. People with too much debt will lose some property, businesses fail, and unemployment jumps. It will also allow for a quick recovery because the assets will move from the inefficient to the efficient. Low prices will lead to value buying, and prices will have natural support at the bottom. Instead, the government is desperately trying to inflate the economy. This allows the inefficient structure of the economy to live another day, another year, perhaps another decade. The transition will be long and slow, but high inflation and currency crises means the pain could last longer. For politicians, however, the only worry is the next election.
I finished that post by saying I believe deflation remains my expectation until the evidence says otherwise. In Andy Xie's latest, Stimulate Away Our Imbalances? Dream On, he makes the case for stagflation and echoes my comment above about inflation allowing the inefficient economic structures to survive:
Chrysler's bankruptcy won't solve the industry's problem. The U.S. government intends to use the process to force the company's creditors to accept an 80 percent write-down on their debt holdings. After wiping out shareholders 100 percent and debt holders 80 percent, the company seems able to survive. However, it will survive because of capital subsidies, which puts pressure on other producers that have the same financial burden. It starts a vicious cycle that forces other automakers down the same path.

The bottom line is that the global overcapacity is equal to U.S. sales times two. Supply and demand are roughly balanced if two of the three U.S. automakers shut down for good, neither restructured nor revitalized. However, it doesn't look like that will happen. The political process seems to be wiping out shareholders and bondholders first, and using taxpayer money next to keep an over-bloated industry alive. The industry will destroy capital for years. When governments subsidize electric cars, more money will be wasted. If you invest in the auto industry, you will likely lose.

In a desperate effort to boost auto demand, car owners in Europe and the United States are being offered incentives to buy new and junk the old. This is just advancing future demand. It reduces pressure for the auto industry to restructure and extends the problem over time. The auto industry is an example that current economic difficulties can't be overcome by stimuli, and governments are not yet on the right path.
Finally, he lays out the case for stagflation:
As governments and central banks around the world try to resolve structural problems with stimuli, the global economy is probably heading toward stagflation. Despite exceptionally weak demand, oil prices have been rising. The current price of more than US$ 50 a barrel cannot be justified by supply and demand. Rather, prices are being driven by the withholding of financial supply and demand. Money has been flooding into exchange traded funds that buy oil futures. Oil exporting countries are cutting production; they think it's better to keep oil in the ground than exchange it for paper currencies that could devalue precipitously. Rising prices for oil and other commodities, driven by inflation expectations, could trigger inflation in 2010 despite a sluggish global economy. We could be witnessing a replay of the 1970s.







商业地产呢?运营着166家商场的美国最大商场运营商通用增长物业公司(General Growth)已申请破产保护,并颇具争议地为166家商场都各自申请了破产保护。通用增长物业公司曾是美国最大的商业抵押担保证券发行商,大部分商业抵押贷款就是通过它被创造出来的。放款人认为他们可以直接动那些商场的现金流。有些商场相当的赚钱。提醒律师出场。



Emotions Driving the Market

As mentioned in the previous post, emotions is the driving force of this stock market rally. The Financial Times just published an article covering the change in rhetoric from Washington:
The sunnier rhetoric of recent weeks marked a sharp shift both from the bleak mood of the fin de regime administration of George W. Bush and from the first weeks of the Obama White House. The outgoing president’s political capital was so low in his final months in office that the mere fact of his public appearances seemed to have a depressing effect on the markets. His secretary of the Treasury, Hank Paulson, enjoyed greater confidence, but he needed to convince lawmakers the situation was dire enough to merit his $700bn Tarp programme.

Likewise, Mr Obama needed the nation to be worried enough about the economy to pass his nearly $800bn stimulus plan. And too much good cheer in the first days of his administration could have wasted one of his most powerful trump cards – the country’s belief that this recession is owned by president number 43, not number 44.

But once the stimulus bill was passed, the White House calculated that, as Mr Obama told the Financial Times, lawmakers and US voters had reached their limits. No new money to rev up the economy or revive the banks would be forthcoming until the president and his team could demonstrate concrete results from the first instalment.

Since then Americans have been hearing a decidedly more optimistic vibe from Washington. It has seemed to work. A Google search for the term “economic recovery” turned up 6,991 references to the term in January and 7,831 in February. In the first week of May the phrase occurred 24,443 times.
Socionomics makes use of Elliot Wave Theory, and its very important to know the position within a larger pattern because there are frequent corrections at vary levels of time. Thus far, the evidence suggests this is a minor correction within a much larger bear market, but it's possible that the low is years away, rather than months.

I believe, however, that irrational optimism and irrational pessimism are required to allow for a truly extreme emotional event of its opposite. For example, the peak of the Nasdaq technology bubble occurred on the heels of Y2K panic. Similarly, if we are going to have a depressionary low, it may require the ginning up of public optimism right before the bottom falls out. If people expect a depression, then it's likely the actual depression will be better than expected and optimism will return. If people expect a recovery, but none comes, they will be devastated.

We do have an example: 1931, "The Tragic Year", chapter 10 of America's Great Depression. Economists and politicians of the era expected an economic recovery, but it was not to be.

Signs of Deflation in China and U.S., Optimism in the Markets

Giordano (0709.HK) reported a sales slump of 4.3 percent in the first quarter.

China's vice premier Wang Qishan said the economy will get worse before it gets better, and added:
"To overcome the current difficulties, it is essential to convert confidence into credit in the market and quickly recover functions of the financial markets,"
Speaking of credit, U.S. consumer credit fell $11.1 billion in April. It's falling at a 5.2 percent annualized rate, compared to the 6.1 percent annualized rate of first quarter GDP.

Optimism is increasing regardless of the news. Bank of America is up about 70 percent since last Friday, based on pre-market trading this morning. Commodity prices are rising—copper is up again and oil moved towards $60 a barrel. Credit contraction, unemployment, and high debt levels would indicate deflation is still a risk, but one cannot ignore the possibility of inflation. American stock indexes bottomed in 1974 and tread water for almost a decade, but high inflation ate away at returns.

And we can learn lessons from Wiemar Germany. Even though the Reichsbank continued printing money, the depression of 1920-1921 caused the German price level to fall. I also looked at some other books on the library shelf, and found one titled, "Good-bye Great Britain"

Here's a snipped from wikipedia on the 1976 crisis:
James Callaghan came to power in 1976. He was immediately told the economy was facing huge problems, according to documents released in 2006 by the National Archives. Financial markets were losing confidence in sterling. The UK treasury could not balance its books, while Labour's strategy emphasised high public spending. Callaghan was told there were three possible outcomes: a disastrous free fall in Sterling, an internationally unacceptable siege economy or a deal with key allies to prop up the pound while painful economic reforms were put in place. The pound fell below $1.60 later in 1976.
Sounds a lot like the U.S. government today...

The point is, we can have inflation and it still doesn't solve the economic problems, which take time to work out. A deflation will wipe out the problems swiftly. People with too much debt will lose some property, businesses fail, and unemployment jumps. It will also allow for a quick recovery because the assets will move from the inefficient to the efficient. Low prices will lead to value buying, and prices will have natural support at the bottom. Instead, the government is desperately trying to inflate the economy. This allows the inefficient structure of the economy to live another day, another year, perhaps another decade. The transition will be long and slow, but high inflation and currency crises means the pain could last longer. For politicians, however, the only worry is the next election.

At this moment, I believe the evidence of economic recovery is slim, the stock market rally is based on emotion, and deflation remains the greater threat. Nevertheless, it pays to be prepared for any eventuality.

Mexican Flu Quarantine Over in Hong Kong

SCMP reports today:
At the Metropark, the sheets were later put back over the windows, but that did not stop people inside from lifting the veil on what had gone on among the 283 people, most of them strangers, who were thrown together for a week.

The time they had wasn't all bad, according to one source, speaking by telephone, who said at least two new couples had formed.

Another story going around is that at least one of the women caught behind closed doors is a prostitute.

She remained stuck in one of the hotel's 173 rooms with the guest who brought her in because the management refused her a separate room, guests said.

"I think it's true," said one guest. "I think I met the guy, and I talked with him."


2009/05/07 News

Light posting lately. I've been studying up on the German hyperinflation (德国恶性通货膨胀) of the early 1920s, and will post about it in future.

Markets are gaining on no news and bad news (stress tests at U.S. banks). China's PMI numbers indicate economic expansion in April, and positive reports from companies such as Alibaba (1688.HK) have helped send the market higher. Optimism is in charge.

On to gold and gold miners:
From the Financial Times: China to continue buying gold
China is likely to buy more gold as a means of diversifying its foreign exchange reserves, after having recently doubled its holdings of the precious metal, the Financial Times reported, citing gold analysts.

The newspaper said analysts believe China will buy gold mostly from domestic producers to avoid pushing international prices higher.
More here:中国将继续增加黄金
Domestic producers include Sino Gold (1862.HK), Lingbao Gold (3330.HK), Zijin Mining (2899.HK), and Jinshan Gold (JIN.TO).

From Caijing:
Zijin Mining Shareholder Cuts Stake
Zijin Mining Group Co, China's largest gold producer, said its second-largest individual shareholder has lowered his stake to 1.72 percent from 2.24 percent.
Ke Xiping sold around 74.8 million Zijin Mining shares between April 27 and May 5.
After the sale, Ke and Hengxing Group, in which Ke holds 95.4 percent, held a combined 4.99 percent of Zijin Mining.


And finally, the big news:
Taiwan and China are planning to permit trading of each others’ shares for the first time as ties improve 60 years after their civil war ended.

A so-called trading platform may list as many as 30 stocks from each market, said Schive Chi, chairman of the Taiwan Stock Exchange. Now, investors are restricted from directly investing in each others’ equities. An agreement on the dual-listing of exchange-traded funds is also expected this year, he said.

iShares Taiwan (EWT)is 65 percent off it's lows this year. The potential gains for Taiwan's economy and stock market are much greater than for China, due to their relative size, but the cross-straits trade will be a boost to the entire region's economy.


Chinese, Resource Stocks Pop

The rally in the stock market continues to cause big single-day gains in many stocks. General Steel Holdings (GSI) and Spreadtrum (SPRD) both popped 19 percent today; both are in my China fund. Massey Energy (MEE), held in my Best of Funds fund, climbed 21 percent. Teck (TCK) added another 13 percent and is now up 125 percent in the Best of Funds and 350 percent in the Green Dragon fund.

This has the hallmarks of short-covering or market melt-up behavior, but I've been early with my shorts in the Best of Funds. Many investors are looking for at least a correction, but none has arrived. Right now, I think this could be typical "buy the rumor/sell the news" behavior, and we might see a decline when the stress tests are released on Thurday, or possibly the day before.

P.S. My short fund continues to get annihilated.