Archive for May, 2010

Up and down, volatility in the markets is spooky

Over the last few weeks, the relative calm in the markets has all but evaporated.  While yesterday’s Dow average shot up nearly 3%, this was only after a week of steady declines after sudden moves in both directions.

What is consistent here is that volume is up – way up.  The VIX volatility index is at one of its highest points since the big panic hit in 2008, so whether the direction of the markets is up or down the swings have each been both wild and significant.

With European debt concerns rising and the U.S. mortgage market still stuck in its own dangerous spiral, there’s little to be bullish about in the medium term.

What recovery?

Fears of a Greek default have set off an unfortunate chain reaction in financial markets around the world – and the massive Euro-zone bailout of the debts of troubled states seems to be doing little but ensuring that the bankrupt states are allowed to continue borrowing even more money at low interest rates.  Unfortunately, access to more debt isn’t going to solve the crisis brought on by over-consumption and excessive debt payment obligations – it is only going to delay the reckoning and ensure that the broke states are able to get even deeper in over their head & ability to someday pay back what is owed.

The current phase is starting to look like pure asset deflation coupled with still-high commodity prices.  So long as the quantitative easing policies of central banks promote liquidity, most of the new easy money is going to be tied up on the commercial bank’s asset sheets in one speculative form or another.  The primary strategy appears to be investing in raw materials – driving up the cost of living but strengthening the banks’ books to make them appear a bit more solvent.  The only commodities that have followed the broader deflation trend are wheat, soy, and corn.

Cheap bread, austerity, and a grand circus of reality & contest shows for distraction.  Welcome to the new global order!

States going to court over healthcare

The new health care reform bill achieves much of its savings by passing off unfunded mandates to the states – and those state budgets aren’t exactly in a position to absorb large new spending plans.

Meanwhile, some employers are weighing the cost of fines against the cost of rapidly rising insurance premiums, and starting to wonder if it might just be much cheaper to drop employee coverage outright. At most, they’d be required to pay a fine equal to 8% of the worker’s wages – medical costs are closer to 18% of GDP and that means a worker’s insurance costs are likely to be more like 20-25% of their salary since their children and spouses are also covered.

In response, there is a growing movement for legal relief in the federal courts.  Currently, 20 states have signed on to the suit seeking to prevent the healthcare legislation from moving forward.

Complaints about the health reform package will take on many forms:  from questions about the legal role of the federal government and their constitutional legitimacy, to concerns that small businesses and independent contractors will be left out in the cold (once again.)

UK Elections results show need for reform

The recent election in the United Kingdom has left the nation without a clear majority party in Parliament, but the bigger issue to many voters is the need for electoral reform that more accurately represents the results of the voting.

Despite winning about 23% of the popular vote, the Liberal Democrat party will only receive 57 seats – or less than 10%.  In contrast, labor secured 29% of the vote and receives 258 representatives.

Its plain to see that the voting system strongly favors incumbents, even beyond the typical media and word of mouth support that they can usually count on.

Increasingly around the “Democratic” English-speaking world, it is becoming clear that this democracy we claim to value is little but a public relations exercise for the established parties.

Your rulers aren’t going anywhere, and there is no voting scenario that will really change this fact.  Welcome to the new international empire…

Let the lawsuits roll..

By now, you’ve probably heard that the SEC has filed official charges of fraud against Goldman Sachs, but the little detail that might have escaped scrutiny is that the original SEC complaint is being followed up with a virtual flood of investigations, lawsuits, and even some criminal charges.

Not only are regulators across Europe looking for ways to get back at Goldman for its role in selling off toxic mortgages as AAA bonds (of course, the ratings agencies had to play along as well) because the German, French, and British banks that took the hit are now scrambling for enough funds to stay solvent in the face of debt crises in Spain, Greece, and Portugal.

Of course, mortgages aren’t the only part of the market that were manipulated in order to exaggerate sharp rises and falls in value – it has long been suspected that JP Morgan, Goldman, et al have been engaged in the aggressive ‘market-making’ speculation that has brought commodities, and especially precious metals, on a roller coaster over the last few years.  If this report is true, someone at the DoJ is getting ready to go after JPM for fraud in the silver markets.  When and if that happens, expect some immediate price instability – and possibly even investigations into the physical gold that is supposedly backing up all of the paper certificates sold in the last decade.

Keep an eye out for new lawsuits and complaints going public over the next few weeks.  Its going to be an interesting time…