Net Future Value

You may have seen the new skirmishes this weekend in the very public debate about Carmen Reinhart’s and Kenneth Rogoff’s government debt research. Reinhart and Rogoff (I’ll call them RR) posted a letter to Paul Krugman on Reinhart’s website, in response to a piece that Krugman wrote for The New York Review of Books.

Krugman, of course, is one of the pundits who last month published “incomplete, exaggerated, erroneous and misleading” reports about RR’s research, as I explained at the time. Unlike some of the others involved, he kept the smear campaign alive and all but guaranteed RR’s latest response. I’ll recap the weekend’s exchange in a moment, but not before offering my take on Krugman’sMO.

Observations on Krugman’s campaign for more deficit spending

I’ll start with an excerpt from my April 27 article, “More Reasons to Call Off the Reinhart-Rogoff Witch Hunt”:

[The] question of how much debt is too much is an extremely important question. And RR’s many critics make no attempt whatsoever to answer it (if I’m wrong about this, please send me the research), even as they bash two researchers who’ve been leading the way to possible answers since well before their 2010 paper.

It seems to me that you can say two things about the many pundits on this issue:

1. Commentators in the U.S. who’ve both looked under the surface of our fiscal challenges (see the problems with official numbers in articles such as this and this) and seriously considered the question “How much is too much?” have come away alarmed.
2. Of the commentators on the other side – those now crowing over the misinformation that’s spread all the way from Rortybomb to the Colbert Report – I don’t know of any who’ve attempted to do the same due diligence and answer the all-important question.

Well, I still haven’t found an RR critic who’s made a genuine effort to estimate how much debt is too much. But I did force myself to search a little further, and my search coincidentally focused on Krugman. I read End This Depression Now, his 2012 book, from cover to cover.

This wasn’t my idea of a good read, but I try to make my reading list as balanced as I can stand. In this case, I was looking for counter-evidence to my assertions above. I wanted to see if there was anything more to Krugman’s positions than über-Keynesianism and boasts that his adversaries were proven wrong. He writes incessantly about inaccurate inflation and interest rate forecasts made by so-called “austerians” – those who’ve dared to express concerns about America’s soaring government debt – while arguing that these erroneous forecasts somehow prove his policy advice correct.

But his logic is full of holes. Near-term inflation and interest rate predictions have little to do with one’s beliefs about the mostly long-term risks of excessive debt. I don’t doubt that some forecasters have made faulty predictions. I know for a fact, though, that there are many who’ve opposed Krugman’s deficit spending recommendations while at the same time either accuratelyforecasting inflation and interest rates or not making any predictions at all. By my estimates, the second group is large and the first not so much.

How Reinhart and Rogoff Spoiled My Holiday

So, what does all of this have to do with RR’s letter to Krugman?

Well, just when I’d gotten through End This Depression Now and thought I could go back to reading stuff that makes sense to me, I learned of the RR post and felt compelled to read through Krugman’s latest attacks. And then I felt compelled to write – not just to offer my two cents on this weekend’s scuffle, but also to draw some parallels between the current debate and Krugman’s book. So much for my planned holiday reading of either The Bankers’ New Clothes or more of The Great Deformation. (I know, I’ll get over it.)

In any case, here’s my list of takeaways from RR versus PK, Memorial Day weekend edition:

• Using Internet archives (the “WayBackMachine”), RR demonstrated that their data was publicly available as far back as 2010, contrary to PK’s accusations that this data was withheld. (As I said in earlier posts, I’ve downloaded their spreadsheets in the past and knew they were available.)
• RR showed that they’ve recommended policies intended to reduce austerity, contrary to their portrayal by PK as tireless austerity advocates.
• RR counterpunched on the question of debt-to-growth causality. (And yes, everyone recognizes this isn’t determined wholly by correlation.) They responded to the accusation that they put too much weight on the causal effects of high debt on growth with an argument that PK puts too much weight on the causal effects of low growth on debt.
• Krugman eventually retreated to a core position that RR should have prevented impressionable policymakers from over-interpreting their 90% debt-to-GDP threshold. (I offered my opinion on these accusations here.)

For longer summaries, I recommend reading Econbrowser (James Hamilton) and economicprinciples (David Warsh).

Here’s the discussion we should be having

Now I’ll jump from RR versus PK to F.F. Wiley versus PK. (And no, I don’t expect a response, but I’ll say my piece anyway.)

Not surprisingly, End This Depression Now reads like a longer version of Krugman’s blog. If you’re one of his followers, you’ll be even more convinced that poor inflation and interest rate forecasts by the “austerian” crowd provide the evidence needed to justify massive deficit spending. Never mind those of us who’ve forecast inflation and interest rates correctly, or not at all, and yet still believe his fiscal policy views are too extreme.

As I said above, I couldn’t find a genuine effort to estimate how much debt is too much. But Krugman’s book does include a section titled “What about the Burden of Debt?” This is two pages long, running from the top of page 141 to the top of page 143. Here’s an excerpt:

 

The key thing to bear in mind is that the $5 trillion or so in debt America has run up since the crisis began, and the trillions more we’ll surely run up before this economic siege is over, won’t have to be paid off quickly, or indeed at all. In fact, it won’t be a tragedy if the debt actually continues to grow, as long as it grows more slowly than the sum of inflation and economic growth.

To illustrate this point, consider what happened to the $241 billion in debt the U.S. government owed at the end of World War II … this amounted to about 120 percent of GDP (compared with a combined federal, state, and local debt of 93.5 percent of GDP at the end of 2010). How was that debt paid off? The answer is that it wasn’t.

Krugman goes on to discuss post-World War II debt developments, while providing some incredibly misleading debt service calculations, but I’ll leave those for another day. I’ve shared the excerpt because it seems to tie into the RR debate. Consider the following:

• By using the post-World War II experience to dismiss our current debt problems, Krugman essentially suggests a debt threshold of 120% of GDP. He says nothing about debt above 120%, but he’s suggesting that we shouldn’t worry as long as we’re below 120%. It’s a threshold, all the same.
• For all the bellyaching about RR’s data choices, they’ve built the world’s most extensive government debt database (to my knowledge). Their most recent paper on debt and growth, published in 2012 and largely ignored by their critics, examined 26 high debt episodes in 22 countries. Krugman’s threshold, on the other hand, is based on one high debt episode in one country.
• There are many reasons to believe that our World War II debt was far less troubling than today’s challenges. One of these is that we were running gigantic non-defense budget surpluses, which meant that we balanced the budget after the war by merely bringing our soldiers home and returning factories to civilian use. As I discussed here and here, balanced budgets and financial repression were the critical ingredients in our success at whittling away war debt, and were more important than the “mild inflation and substantial economic growth” cited by Krugman.
• Outside of the natural slippage that occurs in recessions, our post-war leaders truly detested budget deficits. Presidents Harry Truman and Dwight Eisenhower restored surpluses within two years of every 1940s and 1950s recession, while mostly dismissing Keynesian theories that were being shaped in academia at that time. Truman even raised taxes to help pay for the Korean War (what a novel idea!), while Eisenhower went so far as to claim that “continued deficit spending is immoral.”

In other words, there are several layers of contradictions in Krugman’s reliance on the post-World War II period to support calls for more stimulus. Perhaps most glaringly, the reduction to a 60% debt-to-GDP ratio by 1957 (about half of the 1946 figure) was achieved partly by avoiding the types of Keynesian stimulus measures that have since helped push debt back above 100% of GDP. If Krugman’s ideas about deficits existed at all in the 1950s, they certainly had no influence in policymaking circles, where old-fashioned principles of fiscal discipline still held sway. And without Truman’s and Eisenhower’s un-Krugman-like beliefs, the success story that he cites as a reason to be unconcerned wouldn’t have unfolded the way that it did.

Krugman’s use of this decidedly non-Keynesian episode of debt reduction to justify his Keynesian beliefs reminds me of the many times (too many) that I’ve encountered “circular reference” errors in Excel. His logic is no less flawed or “circular.” But since there’s no spreadsheet involved, I’ll call it an error of induction.

Getting back to RR versus PK, Krugman refuses to walk away from a smear campaign that’s based on overblown accusations of questionable thresholds, selective data use and a spreadsheet error.

I think it’s time to change focus and consider the questionable thresholds, selective data use and induction error in Krugman’s work.

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A former engineer over at SA provided a technical analysis on why Intel will win vs. AMD.  Also, as a result, $AAPL will suffer.

There has been a great deal of discussion about whether or not Intel’s recent failure to continue its long train of increasing sales and profits – year to year – in each quarterly report, is critical. Many proponents have taken the position that Intel’s stutter is singular and reflects a temporary reduction in PC sales and/or a hiatus before new products become available for the PC market and newer growing mobility markets. Many opponents support a position that says that ARM (ARMH) has decimated Intel in the mobility markets and that there is no way Intel can take market share from ARM. And now, AMD is preparing to enter the fray, presumably to capture market share from ARM and compete with Intel.

The Intel proponents cite significant semiconductor process advantages and new products to be released soon. The ARM proponents cite better architectures and lower power, along with an abundance of design wins in existing platforms. The AMD proponents – well, they don’t have anything to cite except maybe low cost.

How is an investor to evaluate the rhetoric and determine the financial outcome of this battle of words?

My position as a technical expert allows me to evaluate the true capabilities of ARM/TSMC (really ARM/ anybody_who_can_build_ARM_processors) vs. Intel – with AMD nipping at everyone’s tail, when it comes to mobility applications. I am about to do that in a way that should settle this hassle for the near future.

Without further ado, I can state with certainty that the new mobile oriented processors coming from Intel later this year will capture the processor space for the leading smartphones and tablets.

There are two fundamental, related, reasons for this:

1. These processors are faster than anything that ARM/TSMC (or AMD) can offer at the same level of power consumption.
2. Their power consumption at the same level of performance is much less than anything ARM/TSMC (or AMD) can offer.

You have heard all this before, but many of you don’t believe this and are still arguing that moving to 28 nanometer or 20nm (still planar) will save ARM from the Intel bomb. Well, that’s just wrong! Read on!

These two statements, above, are corollaries to laws of physics relating to silicon FET-based integrated circuits. In current technologies – 32 nanometer and smaller – constructed in a planar (TSMC) fashion, the predominant use of energy occurs as a result of leakage in inactive FETs. The FETs leak because they are running at low voltage, and in order to do that, they must have low threshold voltages. When you construct a FET with low threshold voltage in a planar technology, you can’t completely turn it off. So it leaks.

When you construct a FET for the same use in a 3D or “finFET” technology, the gate (the valve that controls the flow of charge carriers) has much more effective control and is more nearly able to completely extinguish the leakage current in the inactive FETs. Voila, the battery charge lasts longer. And because the gate length is shorter, the FET uses less energy for each transition from one state to another. So you can squeeze more transitions from a given amount of stored energy in the battery, i.e. it runs faster.

It’s the laws of physics that controls the winner in the processor race for mobile applications, and Intel has already won this race. Anyone who disagrees is in denial, has some ulterior motive, or is just dense.

What all this means is that whoever builds phones or tablets using Intel processors can make them run faster and run longer on a given battery than by using an ARM (or AMD) processor.

This argument cuts off the other arguments about market share, design wins, better architecture and other objections by the Intel opponents.

Market share is a measure of the past. What was, not what is. What is, is that the 22nm finFET is a better transistor and it makes for a better processor. If you want the best processor in your next phone/tablet/mobility_device, it had better be an Intel processor.

Architecture is an abstract thing; the “goodness” of an architecture can only be measured by objective effects. How quickly can I do something? How long will the battery charge last? Intel wins again, by actual comparison in Motorola phones!

I have given you the facts that support my statement that Intel has already won this race. If any of you want to continue to argue about this, please supply the facts that support your argument. I don’t argue with people I don’t know unless I know the facts that they are trying to use to support their arguments.

Now, the impact of this win:

It’s clear that Intel will rapidly gain market share pitting phones with Intel inside against phones with ARM or AMD inside. As I have stated elsewhere, this is a case where word of mouth will sell Intel-based phones and tablets. Whoever buys one will be delighted and tell their friend about the long battery life and the great performance – and their friends and their friend’s friends will go out and buy “Intel inside.” Marketing 101!

This will likely have a strong negative impact on Apple (AAPL), TSMC, and AMD. It will take TSMC about 3 years to fully vet a 14 nanometer finFET process in preparation for full production. Intel should be there in a year. So Intel has a near-term 2-year lead; that’s a painful disadvantage in the marketplace.

As an aside, I should mention that the positive effects of the finFET process for Intel are not limited to the mobile market – which to my mind includes smartphones, tablets, and laptops/ultrabooks.

Depending upon the degree of emphasis Intel applies to the Foundry business, this can be very big for them also – not only will customers want to use these processors inside of most ASICs (Application Specific Integrated Circuits), but they will enable the Intel Foundry to gain customers who are unable to build their chips in TSMC processes. This class of customer includes anyone who is trying to build a very large chip, a chip that will melt as a result of its own leakage current when built by TSMC can turn into duck-soup for the Intel Foundry.

And finally, do a Wiki search on “Intel MIC.” There you will find some information about multiple integrated core processors and who is buying them from Intel.Stay tuned for more articles on Intel.

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A rather skewed distribution in asset returns Year to Date (through March 31), with the winners so far i) the Nikkei, in both JPY and USD terms, on endless jawboning out of the Japanese political apparatus that it may do virtually anything – although in a few hours we will see just what the BOJ actually will do, the S&P on the $85 billion in monthly liquidity injections, and finally the FTSE on expectations the arrival of yet another Goldman central planner will unleash yet another epic episode of monetization in July, just as the Japan effect is fading. The losers: pretty much everyone else. (BitCoin was not included in the sample).

Total Return Performance of Major Assets YTD 2013

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Every morning, the first thing I do is read my emails. Seth Godin is one of my blog subscriptions. He writes some great stuff, this was today’s feed. I highly encourage subscribing to his blog.

Toward zero unemployment

Abstract: The paper presents evidence that econometric techniques
based on variance- L2 norm are flawed –and do not replicate. The result
is un-computability of role of tail events. The paper proposes a
methodology to calibrate decisions to the degree (and computability) of
forecast error. It classifies decision payoffs in two types: simple payoffs
(true/false or binary) and complex (higher moments); and randomness
into type-1 (thin tails) and type-2 (true fat tails) and shows the errors
for the estimation of small probability payoffs for type 2 randomness.
The Fourth Quadrant is where payoffs are complex with type-2
randomness. We propose solutions to mitigate the effect of the Fourth
Quadrant based on the nature of complex systems.

Download the paper: SSRN or NFV

Here is a paper I had to write for one of my classes this semester. Figured I would share it! Hope you guys enjoy it.

Creating Customer Loyalty in Small Businesses by Using the Endowment Effect

By, Evan Mayberry

The endowment effect was first introduced in 1980 by an economist named Richard Thaler. His definition for this effect is “people often demand much more to give up an object than they would be willing to pay to acquire it”. In other words, as soon as ownership has been made, individuals will value it more. This effect is considered an irrational behaviour and is found in behavioural economics. Traditional economics indicates that all human beings make rational decisions and through those rational decisions economists can predict future outcomes. However, in my opinion, I believe people want to be rational, but in reality they are quite irrational with their decisions. In this paper, I am going to exploit this irrational behaviour and show how the endowment effect can create customer loyalty in small businesses. To do this I will first introduce customer loyalty and why it is important for small businesses, then I will provide various real-life scenarios in which the endowment effect has been successfully used to create loyalty. At the end there will be a conclusion of what was covered in the paper, along with my personal recommendations in how small businesses can encourage customer loyalty through a perceived sense of ownership.

 “Customer loyalty is the result of consistently positive emotional experience, physical attribute-based satisfaction and perceived value of an experience, which includes the product or services”– beyondphilosophy.com

This definition works perfectly with the endowment effect because it describes emotional experience. Emotions are what drive behavioural economics and are what make consumers act irrational.

Customer loyalty in small businesses is essential. If to be so bold, I would say it is the most important thing for a business to work towards. Naturally, in this type of business, everything is small (the building, the customer base, the employee base and the product line or the services offered). Given this, creating strong long-term relationships with customers should be a business’s number one priority. Why? Because not many people will know you exist. But for those people who do know you exist, they need to be sending out a positive and consistent message about your business. Positive word of mouth is one of the most influential and powerful ways of marketing. Creating loyalty will promote positive word of mouth, which in return will give you a competitive advantage. (Sounds good, right?)

Now that I have established what customer loyalty is and why it is so important. Let us now look at various real-life examples in which the endowment effect has successfully worked in creating customer loyalty. The various environments I will be covering are: professional photography, restaurants and my personal favorite a local climbing gym.

The Boiling Crab

Established in 2004 as Boiling Crab, this seafood restaurant has been making an incredible impact all across United States for their delicious food and consumer personalized ambience. You might be asking what this consumer personalized ambience is… let me tell you. In the picture above is the inside of one of the Boiling Crab restaurants located in New York. It doesn’t look that attractive, right? Instead of a restaurant with an elaborate and contemporary ambience, Boiling Crab lets their customers control the ambience. They do this by allowing customers to write whatever they like on the walls (to a limit), after consuming a meal.

How does this relate to the endowment effect and customer loyalty?

When customers have the opportunity to essentially put their signature (write on the wall) in the restaurant it creates a small sense of perceived ownership for that customer. Once that ownership has been established that customer instantly gains some emotional value, which will in turn make him/her more loyal to the restaurant. An example of this would be taking your friends to the Boiling Crab, so you can show him where you left your signature. Once your friends see what you wrote, they too will want to write something (but they have to eat something first).

JMC Photography

Based out of Maui, Hawaii, photography by Bonnie and John Carpenter (JMC) “specializes in professional wedding and portrait photography throughout the Hawaiian Islands”.  JMC photography is well renowned in Hawaii because of their ability to produce brilliant photos by creating multi-frame single shot images.  Multi-frame single shot images is the process of combing many different frames into one through Photoshop. Doing this allows them to create the best possible image and it also allows them to utilize the flash on the camera appropriately. This in turn produces amazing highlights on the image in various areas. To take these multi-frame single shots someone needs to be pushing the button on the camera. The camera is typically placed on a tripod for stability purposes and Bonnie or John is working with the placement of the individuals to create the best shot. So, who is pushing the button? Instead of hiring an assistant to take the shots for them, they have the customers take the shots.

How does this relate to the endowment effect and customer loyalty?

Having the customers push the button creates a sense of ownership because they are participating in the creation of the photo. Even though this participation is quite minimal in the whole photography process, customers can still say, “I helped JMC photography create this photo”. This makes a huge impact on the customer because it gives the photo even more emotional value than it already has. The return from this is a customer that will become more loyal to JMC photography and will want future events photographed by them.

Cliffside Climbing

This last example is my personal favorite, Cliffside Climbing gym located in Kamloops, British Columbia. Cliffside Climbing offers a series of route problems for top-rope (using a harness and rope to climb above twelve feet) and bouldering (climbing twelve feet or under without a rope). I have incorporated climbing in to my life and Cliffside Climbing were the ones who introduced it to me. Currently, I go to this gym about two to three times a week. The atmosphere is quite welcoming with positive energy and easygoing attitudes.

Cliffside Climbing offers some neat activities in which members can participate in. A couple of these activities are setting your own route problems and putting your hand print on the climbing walls. Setting your own route problems involves placing a series of different holds on wall to create a problem. This problem is left up on the wall for approximately four months with your name attached to it, to recognize your efforts. The other activity involves placing your handprint at the twelve foot mark on the climbing walls. This mark indicates the max height you can safely climb to without a rope.

How does this relate to the endowment effect and customer loyalty?

For the more involved member at the climbing gym, they are able to set route problems. Once they set the route problem they are recognized for it. This act creates a great sense of ownership within the climbing gym. While you are in the gym you will see other members climbing the route and feel a sense of personal accomplishment. The personal accomplishments will increase the emotional value of going to the climbing gym, which in turn will increase customer loyalty.

For the more casual member at the climbing gym, they are able to participate in placing their handprint on the climbing walls. Doing this creates a sense of ownership because you are placing your mark on the climbing gym. The next time those members come to climb at the gym they will see their handprints, which will increase the emotional value of going to the gym. With this increase in emotional value there will be an increase in customer loyalty.

What does this all mean?

As you can see from these three different examples, there is a positive correlation between the endowment effect and customer loyalty within small businesses. Creating some type of ownership for customers, regardless of how small it is, increases the emotional value of the customer for that business. This increase in emotional value in turn increases customer loyalty. In other words, the endowment effect can be quite a useful tool for businesses if used correctly.

Using the endowment effect properly is quite easy, but there are a series of guidelines that should be covered while doing it. Firstly, small businesses should make sure that everyone is treated as an equal. Each and every customer should have the equal opportunity to participate in the activity that is offered by the business. Secondly, small businesses should avoid complex activities that require a lot of thought processing. Use the KISS (keep it simple, stupid) principle when constructing and implementing the activity. Thirdly, make sure that the activity is fun and engaging. Having an activity that is fun and engaging will increase the emotional value for the customer. Moreover, it will leave the customer with positive remarks towards the business. The last note that I will leave on, is to treat customers as if they were family. In small businesses all relationships with each customer, is just as important as another. Keep the relationships professional, but go that extra mile for customers when the opportunities arise. If done properly, the results are amazing and rewarding.

References:

Beyond Philosophy; Company Website, 2013; http://www.beyondphilosophy.com/customer-experience/customer-loyalty

Boiling Crab; Company Website, 2004, www.theboilingcrab.com

Chan, Lawrence; 2 Simple Ways to Gain Customer Loyalty, October 2010; http://www.tofurious.com/marketing-tips/simple-ways-to-gain-loyalty-endowment-effect/#comments

Cliffside Climbing; Company Website, 2008: www.cliffsideclimbing.com

JMC Photography; Company Website, 2008; www.jmcmaui.com

wiseGEEK; blog/forum, 2003-2013; http://www.wisegeek.com/what-is-the-endowment-effect.htm

First we got GM subprime interest-free car loans,  then we got subprime ABS securitizations, then we got soaring student loan defaults and delinquencies, then we got the opportunity to sell and short student loan exposure, and now, finally, the credit bubble is complete as FastFunds Financial Corporation is proud to announce that it has acquired exclusive mortgage servicing rights for an “Innovative New Mortgage Product.” Why is it so innovative? Because it requires no credit verification, no credit history, no docs and needs no personal guarantees. In other words, it is the very worst of the worst lending practices we saw in 2006: the NINJA.

But there is a twist: “all that is required to qualify for a mortgage loan is qualifying for a life insurance policy, a down payment that usually amounts to 10% of the purchase price and verification that the borrower has the financial ability to pay the monthly payments.”

In other words: buy life insurance, get a subprime, no doc mortgage for free.

Ye olde days are truly back.

From the FastFund credit bubble peak press release:

NET LIFE is a development stage enterprise that has developed and is offering an innovative new mortgage product that is not based on credit history (no doc) or personal guarantees. It is only secured by the underlying collateral and a life insurance policy on the borrower. Therefore, all that is required to qualify for a mortgage loan is qualifying for a life insurance policy, a down payment that usually amounts to 10% of the purchase price and verification that the borrower has the financial ability to pay the monthly payments. NET LIFE believes this mortgage product will be attractive to a wide spectrum of potential borrowers including:

• first time homebuyers;
• borrowers who have experienced prior financial difficulties such as foreclosures, bankruptcies, late payments or credit problems; are presently employed and whose current income would qualify for a mortgage loan; but who couldn’t otherwise qualify; and
• borrowers who may wish to bypass the traditional paperwork involved in the typical underwriting process but who would otherwise qualify.

Since its formation in 2012, NET LIFE has completed development of its mortgage product and conducted testing via a limited number of successful closings. NET LIFE is now developing plans for a national launch of its product line.

“We are excited to be on the forefront of launching this exciting new product and especially being on the servicing side where we can gain substantial benefit without the risk associated with traditional mortgage underwriting,” stated Barry Hollander, acting Chief Executive Officer of FastFunds.

* * *
We, on the other hand, are just as excited to sit back and watch how this time the most spectacular credit bubble ever created with the full complicity of every central banker in the world “will be different” and have a different outcome than the last time…

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Nassim N. Taleb is a former derivatives trader who became a scholar and philosophical essayist in 2006. Although he is currently Distinguished Professor of Risk Engineering at New York University’s Polytechnic Institute, he self-funds his research and operates in the manner of independent scholars. Taleb is the author of The Black Swan (2007–2010) and Antifragile (2012). His works focuses on decision making under uncertainty, as well as technical and philosophical problems with probability and metaprobability, in other words “what to do in a world we don’t understand”.

What We Learn From Firefighters

Since 2004, interest in ‘stocks’ and ‘bonds’ has plunged by more than 50%. Despite a renaissance for bonds in 2008, and stocks in 2009, the ‘Great Rotation’ appears to be ‘out of investing’. Google Trends also shows that, as expected, ‘Bonds’ have been more popular than ‘Stocks’ since the crash – a development the Fed is so desperately trying to reverse, by imposing ever stricter central planning, ironically the reason why most have “just said no” to anauthoritarian, inefficient, and farcical policy instrument formerly known as the market. Is it any wonder so many retail brokerages, commission-takers, and asset-gatherers are advertising day-in, day-out and constantly reassuring with the “it’ll all be ‘ok’ in the long-run meme”?

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It’s an ugly start to the day wherever we look. Europe is a bloodbath as the dead-cat-bounce hopes fade with Swiss 2Y rates notably negative once again and Italian bond spreads 55bps wider on the week (near the wides of the week) as Italy’s equity market plunges back to the lows (-4%) on the week. US equity futures are fading rapidly and after tracking gold for most of the last 12 hours, we are now seeing gold (and silver) resurge as stocks continues to slide back towards bonds un-exuberance. Treasury yields are at the lows of the week (-11bps). From weak macro data overnight to the whocouldanode sequestration, there’s plenty to worry about, but then again we have POMO in a few hours…

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