Regular visitors to this site will have noticed that activity has been on the wane for a while now. This is has been because I have been kept busy with personal and professional obligations lately which have made it very hard for me to find the time to maintain this blog. Its not that I have been short of things I wanted to say, far from it, there are so many things I want to communicate which the luxury of free time prevent and so many others that prudence or even self preservation prevent me from sharing. I will have to leave that to other bloggers because it seems that in spite of new technology giving us exciting and accessible means to reach a massive audience we live in times where intellectual and social freedom is not entirely encouraged and has even quite recently been criminalized without so much as a whimper from the common man or the intelligentsia. We have reached a point where the authorities don’t even need to build the gilded cage for us as after a generation of indoctrination it seems that a depressingly substantial proportion of the population have become zealous self-censors with a propensity to reflexively stifle the free discourse of their fellow man whilst engaging the venal language of totalitarianism without a thought for the social landscape they are realising for future generations. By all means argue, by all means argue passionately but always find the way to argue politely and respectfully because the mark of a man of substance is not how he engages with his betters but how he dispatches an unwitting fool, prefer knowledge, wit and guile over insult or degradation.

By the time I [hope to] return to this blog I expect that the full force of the current global depression will be known to everyone, in spite of efforts by the authorities to mitigate or hide its magnitude. There is nothing anyone can do about it now and there is little more I have to add on the subject. So I wish you all the very best of luck and hope that God will be with you in these difficult times. I hope to be back in about three to four months, or thereabouts.

Yours
Wolfie

  

For quite some time now people have been worrying about the quantitive easing strategy and its affects on the Bond markets, personally I have been very critical of this strategy as I think it is bound to fail in the long-term. The only question is when as far as I can see and the chatter in the financial forums is getting louder as I suspect that day of reckoning is approaching.

Karl Denninger : CBs And Other “Real Money” Had Enough?
 
From the forum, wire from Reuters claimed original source:
 
21. There apparently is a new wrinkle to the intermediation trade between buying from Treasury to sell to the Fed with real money, including central banks, now in on the act. Indeed, several Street sources relay central banks were aggressive offers into this morning’s coupon pass, with one letting go of a large block of old 5-years. Other offers too are coming in from embedded Asian real money longs — in the higher coupons — also looking to sell size without unduly upsetting the market, and especially considering the illiquidity in off- the-run bids from the Street.
 
Whether influenced or not by the much higher tenders coming in on the Fed Passes ($45 bln tendered for $7.4 bln bought in today’s pass for a 16.2% hit rate), fast money has been tattooing the bid and especially so in the belly with the 10-year most leaned on. Note as well, earlier this week the Bank of England (BoE) gilt pass too saw a need to offer paper at or below the market’s bid side in order to get sales off.
 
So now what Ben?
 
If Foreign Central Banks are selling into Ben’s bid then the game is literally weeks or even days away from being over.
 
I have written for over a year about the potential for a bond-market implosion and subsequent economic collapse.
 
Bernanke, if he continues to play his “QE” games into this, assuming it is real, must be immediately forced from office by President Obama and/or Congress.
 
In short we must choose the (much) higher interest rate path and choose it now, because that is now an assured outcome.
 
We can choose between significantly higher interest rates and an economic collapse along with significantly higher interest rates.
 
Avoiding the higher interest rate outcome no longer appears to be possible exactly as I have been talking about for more than a year.
 
And exactly as in the 1930s, we will wind up in the same place with “The Fed” being blamed for the “loss of liquidity” when in fact the truth is that it was the government attempting to spend more than it made, and finding the market unwilling to support insane deficit spending, that led to the bond market dislocation, much higher interest rates, and the second phase of the economic collapse.
 
We are following the precise same path we went down in the 1930s.
 
Hope you’re ready, and say thanks to Ben, Hank, Geithner and of course Obama, all of whom think they can ignore the realities of the market.
 
Disclosure: The time to short the phone book is approaching.

Its been ugly in the U.S. Treasuries market. What Denninger is saying is that most or the recent activity in the Treasuries Market has been simple dealer arbitrage. The Primary dealer buys public debt from the U.S. Treasury and then sells to the Fed under QE and pockets the difference.

The rumour yesterday was that real money was now in play, such as Asian central banks who were selling to the Fed along with the dealers and this was swelling the market and driving yields up. This is the opposite of what the Fed wants.

This is exactly what many of us in finance predicted when Bernanke confidently outlined his theory for holding down longer-term yields. So where now? Does he increase QE treasury purchases or does he capitulate and accept that the Fed cannot take on the whole Bond market? Its all a bit 1931 and I fear we are in serious danger of an instantaneous flight from government debt and a collapse of the bond market.

A lot of people down my way have been getting excited about apparent green shoots of recovery in the housing market thanks to quite a lot of favourable news items appearing suggesting increased activity at estate agents. Indeed local agents are getting very excited and lots of new properties are showing-up in their windows with somewhat optimistic price tags. This is what we in the trade call a “dead cat bounce”, where people simply can’t take any more bad news so they just stick their fingers in their ears and sing “la, la, la”. Just ask Julie Andrews what comes after “la”…

U.K. Home-Loan Delinquencies Worse Than for Subprime
 
May 20 (Bloomberg) — Delinquencies on some U.K. non- conforming home loans exceed those by subprime borrowers in the U.S., and losses on the securities they back are accelerating, according to independent research firm CreditSights Inc.
 
Almost 30 percent of non-conforming mortgages made in Britain in 2005 are 90 or more days delinquent, compared with a rate of 27 percent on U.S. subprime loans made that year, analyst David Watts wrote in a report today. Non-conforming loans are similar to subprime in that they typically have low, or no, documentation requirements and may be made to borrowers with poor credit scores.
 
“The similarity to the U.S. is already reflected in delinquency and repossession rates and we think it will be evident in eventual losses to investors,” London-based Watts said in an interview. “They have all of the hallmarks of the U.S. deals.”
 
Unemployment in Britain, which rose by 244,000 to 2.2 million in the first quarter and may reach 3.1 million by the end of next year, has coincided with “a sharp rise” in delinquencies, according to the report. Bradford & Bingley Plc, the nationalized U.K. mortgage lender, said in March provisions for bad loans soared 23-fold in 2008 and forecast “further deterioration” this year and next.
 
‘Alarming’ Delinquencies
 
There are about 30 billion pounds ($46.5 billion) of bonds outstanding that are backed by non-conforming home loans, according to the report. The rate at which delinquencies are increasing in the securities is “alarming,” Watts wrote.
 
In the past quarter, 90-plus-day delinquent mortgages in 2005 RMBS have increased by 5.25 percentage points to 29.3 percent, according to CreditSights. Delinquencies rose 5.7 percentage points to 25.1 percent for 2006 deals and by 4 percentage points to 16.3 percent for 2007.
 
House prices are declining, falling more than 22 percent since mid-2007, and exacerbating the impact of the rising unemployment rate, according to CreditSights.
 
That is feeding through to repossessions, which for the 2005 deals are about 7 percent, similar to U.S. subprime, and 5 percent for the 2006 RMBS and 3 percent for 2007, Watts wrote. Losses when those properties are sold are climbing, rising to an average of more than 25 percent since house prices peaked in 2007.
 
“Losses are high and going higher,” said Watts. “The numbers are ugly, uglier than I expected.”

These are what are sometimes called “liar loans” and while not exactly sub-prime they are equally as corrosive. We are just entering the 18 month zone where people who overstretched themselves on these are starting to loose their grip and the trickle of £30Bn will become a deluge.

Those guys down at the Telegraph are starting to get themselves quite a reputation, not only for rocking the political boat with their whistle-blowing exposure of MP’s expenses but also for their dire and bearish financial predictions. To their credit they are often correct.

Then there was this 14th May Evans-Pritchard story about an incendiary interview with Mark Patterson, which mysteriously vanished from the Telegraph website the next day. The story is that it was removed because it contained “factual errors”, which I’m quite happy to believe because I have observed Evans-Pritchard to exaggerate somewhat from time to time.

Here’s the letter from Mark Patterson denying the story

There’s just one thing though. The original article was actually spot-on.

Here’s the story below so you can decide what you think for yourself. Highlighting is mine.

US ’sham’ bank bail-outs enrich speculators, says buy-out chief Mark Patterson

The US Treasury’s effort to stabilise the banking system through the TARP programme is a hopelessly ill-conceived policy that enriches speculators at public expense, according to the buy-out firm supposed to be pioneering the joint public-private bank rescues.

“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside,” said Mark Patterson, chairman of Matlin Patterson Advisers.

The comments are likely to infuriate Tim Geithner, the US Treasury Secretary, because MatlinPatterson took advantage of the TARP’s matching funds to buy Flagstar Bancorp in Michigan. His confession appears to validate concerns that the bail-out strategy is geared towards Wall Street.
Under the convoluted deal agreed earlier this year, Matlin Patterson has come to own 80pc of the shares while the US government has ended up with under 10pc.

Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable.

“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.

Matlin Patterson 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.

“Alfa hedge funds have been making their money by gambling with excessive leverage, so the knife that cuts off leverage is going to cut off their heads as well,” he said.

Like many bears, Mr Patterson expects the great crunch to end in deliberate inflation, deemed a lesser evil than outright depression.

“The US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fed’s balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road,” he said.

Matlin Patterson, however, has missed the Spring rebound, the most powerful rise in equities in over 70 years. “We shorted the equity rally because we thought it was lunatic. We’ve kept adding positions seven times, and we’re still holding,” he said. Ouch!

Bluetech : The Divine Invasion - A Review.

I first tuned-in to the creative work Evan Bartholomew (Bluetech) after his release of collaborative album Dreamtime Submersible (Steve Hillage, System 7). Fascinated by his intricate beat-scape of clearly classical, perhaps Bach inspired use of melody phasing in a modern Psybient context I awaited his next with some interest. Phoenix Rising was soon to follow but oddly, good that it was with a message that this was a “bridging release” of some sort before the final album was released in early 2009. The wait is now over but the question is, “Is it really that Divine?”.

Although similar to psytrance’s emphasis on maintaining non-stop rhythm throughout the night, psybient is far more focused on creating a vast soundscape that can be experienced over the length of an album, focusing less on beatmatching and allowing for a myriad of tempo changes.

The Album starts very well with beautifully crafted and fascinating interplays between various rhythms and harmonies this is truly classic Bluetech style and nothing particularly new. However this doesn’t last and near the middle the quality plummets reaching a nadir with Swimming In A Feverdream which features musical themes reminiscent of 1980’s electronic children’s toys and if he’s trying to be clever its not working here, its just annoying. The standard does however improve steadily after this and by the time we reach The Light we are in blinding foot-tapping form once again as the last few tracks of the album prove to be by far the best.

Overall it’s a good album but not quite a great one. There is plenty to enjoy here and lets face it most mainstream artists insult their fans with only one or two listenable tracks per album and you get a lot more than that here for your money but after calling your previous album Phoenix Rising you set high expectations and I feel that The Divine Invasion is slightly more Divine Hubris than Invasion. So much potential there but not quite realised this time around.

Listen to Album Samples

Bluetech Website/Order CD Online

Another Review

You can also listen to a sample of Living Time below…

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Bill Moyers sits down with Bill Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout. This show aired 3rd April, 2009 on PBS (US).

There seems to be more need for us now to remember our national identity than ever. God bless England, happy St. George’s Day.

There’s been much talk of late about seeing better times ahead, green shoots of recovery or market bottom over the last couple of weeks. Don’t believe a word of it. The bear market rally of the last month or so is running out of steam, liquidity injections are starting to run dry and fundamental problems in the derivative markets remain. Yesterday’s drop of 3.5% in the indices mark the start of the next cyclic adjustment, this is the start of the final slow descent into financial hell, fasten your seatbelts because the worst is yet to come.

Welcome to the new Post Modern global reality where almost nothing you see is real and certainly nothing you hear has any meaning. Enjoy it while it lasts because chilling reality has a historical record of making a showing sooner or later and the longer it is frustrated the worse the reality is when it finally makes its entrance.

What’s wrong with this picture? A handful of telegenic designer anarchists besiege the City surrounded by a mass of journalists as they vandalise a deserted retail branch of the almost state owned government scapegoat bank. Interviews with the protesters indicated that they have on the whole only the slightest grasp of what the financial crisis entails but are certain that bankers earn more than them which elevates their envy to political statement. Bank workers who grasped this ignorance were seen waving £10 notes at the hapless ignorant in the streets below and who can blame them.

What is really astonishing about these events is that we have reached a Post Modern watershed where we are witnessing a protest by a politically motivated but brainwashed group that rather than being at odds with the state works in the state’s favour by focussing public anger away from their complicit part in fermenting the financial crisis. Is it not usual for the public or doubly so acclaimed anarchists to be at odds with the state rather than their willing tool? Not any more, after decades of Post Modern indoctrination in state education our darling new generation are not taking to the streets to demand freedoms or to bring the state to task - no they want more controls and more state intervention in their lives.

State complicity in the financial crisis.

How The Fed created the housing bubble.

Dillon, Read & Co. Inc. and the Aristocracy of Stock Profits.

Not everyone there was entirely clueless I’m glad to say.

This guy understands the crux of the problem with the bailout. Right now taxpayers money is being used to replace the liabilities of mispriced derivative instruments - this is the crime that the G20 leaders are doing everything they can to avoid.

This guy recons that the suspension of the mark to market rule is the way to go, fine in the short term but otherwise its just evading the inevitable and ultimately results in nobody trusting anyone’s pricing strategy. At least it show he’s been thinking about it.

However check out that banner in the foreground. These people are actually demanding a single world currency? Do they have even the slightest clue as to how markets work?

We’ve started getting emails giving us advanced warnings of the planned demonstrations that will be taking place this Saturday (28th March) and next week (1st/2nd April) here in the City. I get the impression from their tone that they are expecting quite a lot of trouble.

While I have a lot of sympathy with the views of the protesters they really have come to the wrong place as the square mile is for the most part an administration centre and even if you could prevent things happening here the clients would only go elsewhere and nothing would materially change for the planet. Just Britain would be poorer. Really changing the world requires a lot more dedication and hard work than shouting at white men in suits and smashing street furniture. However, if these silly kids want to come and waste their time then we will be waiting… and I’ve been working-out, a lot.

When 35 Greenpeace protesters stormed the International Petroleum Exchange (IPE) yesterday they had planned the operation in great detail.
 
What they were not prepared for was the post-prandial aggression of oil traders who kicked and punched them back on to the pavement.
 
“We bit off more than we could chew. They were just Cockney barrow boy spivs. Total thugs,” one protester said, rubbing his bruised skull. “I’ve never seen anyone less amenable to listening to our point of view.”
 
Another said: “I took on a Texan Swat team at Esso last year and they were angels compared with this lot.” Behind him, on the balcony of the pub opposite the IPE, a bleary-eyed trader, pint in hand, yelled: “Sod off, Swampy.” [Link]

Update : The Proper Way To Respond To G20 Protesters (Here Is The City)

“Stop the New World Order”, Canal wall graffiti (Islington, London).

Confused? Take a look at this more explicit video…