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What would we do without Zero Hedge? Does anyone else notice the rapid deterioration of financial news media, especially in the US? OK, we are not naive, there are biases in the media, traders from big ibanks talking up their positions, and trading is all about information arbitrage. But financial news used to be really serious. Traders could turn on a TV to see what the markets were doing. Bloomberg being the last financial channel broadcast on TV to avoid the “CNBC Phenomenon” or more specifically the “Cramer Phenomenon.” But now, even Bloomberg TV has become a financial version of The View, with the occasional serious guest, and the occasional well researched article.
This is not meant to be a praise-all for ZH, but seriously, what other site has a continual flow of objective analysis, and breaking news that’s not visible elsewhere on the net? Ok, traders don’t really need news they just need data, so in today’s electronic market financial journalism may be less valuable for traders. But that doesn’t mean the quality of financial journalism should be allowed to deteriorate to an entertainment level. Trading is often compared to gambling, Wall St. being the ‘big casino’ – but most involved take it very seriously, and the markets can make or break families, companies, and countries. In most Vegas casinos, you will find all sorts of cheap tricks to overwhelm your visual cortex such as scantily clad ladies, loud bells and whistles, lots of flashing lights, free drinks and food spiked with salt and sugar, and well dressed managers waiting to be so polite and charming should they see you drop a load. See any similarities?
There is another interesting parallel with ZH, it was founded in 2009, before Wikileaks became popular, and before the NSA scandal. Starting with Wikileaks exposing Swiss banking activities, and other significant financial infos, traders and investors have started changing the way they obtain and process information on the internets. This was more solidified with the NSA scandal, although much infos released by Snowden are not of a financial nature. Many of the policies now being implemented by a global community of concerned internet users were running on ZH before all of this happened. Again, not an all-praise for ZH, but what value do many mainstream financial networks have, with all their biases, agreements with partners, and guests from large houses talking up their positions. It was a shocking for many to learn that all it takes to get on CNBC is $2,500 (probably policy changed now, but it used to be like this). Stock traders from the late 90’s remember the ‘Power Lunch Bump’ where it was almost guaranteed that the guest, whoever he was or whatever he said, was good for at least a few points of their stock to jump while talking. A new group of retail traders flush with cash from the 90’s boom were anxious to get in on the action but didn’t know anything other than to turn on the TV and watch CNBC. Professional traders took it with a grain of salt, but it sure was a great way to pay for lunch. What a different world we live in.
So what’s the new financial media all about? It’s outlined well in the ZH Manifesto:
- to widen the scope of financial, economic and political information available to the professional investing public.
- to skeptically examine and, where necessary, attack the flaccid institution that financial journalism has become.
- to liberate oppressed knowledge.
- to provide analysis uninhibited by political constraint.
- to facilitate information’s unending quest for freedom.
our method: pseudonymous speech…
anonymity is a shield from the tyranny of the majority. it thus exemplifies the purpose behind the bill of rights, and of the first amendment in particular: to protect unpopular individuals from retaliation– and their ideas from suppression– at the hand of an intolerant society.
the right to remain anonymous may be abused when it shields fraudulent conduct. but political speech by its nature will sometimes have unpalatable consequences, and, in general, our society accords greater weight to the value of free speech than to the dangers of its misuse.
– mcintyre v. ohio elections commission 514 u.s. 334 (1995) justice stevens writing for the majority
What ZH represents most importantly, an anonymous network of financial professionals which is extremely diverse, some are from the mainstream, some from the fringes. It’s a bastion of internet freedom, representing free speech as it was intended. Of course that’s just the platform, it doesn’t guarantee high quality of information, but somehow, it is the only source where information is almost all quality.
Aside from retail investors, what’s to keep traditional financial media alive at all? In the case of something like Bloomberg, their public media is almost irrelevant. The BB team is supporting their clients for the terminal, and so having their own network of analysts, journalists, and other types of agents makes sense to support data provided through the terminal. But what about others?
There are other exceptions such as Reuters, not a unique financial media, but they are backed by the trading element of their business. But unless you are a customer of Reuters, such as the new product giving their clients a nanosecond edge “Ultra Low Latency Data” their reporting on general news and especially financial events is suspect.
Or maybe, the only thing keeping such mainstream institutions alive, are a secret group of corporate clients, that can use such outlets for their own information campaign purposes. In any event, as the markets evolve, and the internet evolves, the new paradigm in financial media is the “Bitcoin” model, not the USD model:
“The advantage for Chinese users to use Bitcoin is freedom, people can do something without any official authority,” said Patrick Lin, system administrator of Erights.net and owner of about 1,500 Bitcoins. Lin said he’s sticking to the currency itself, rather than IPOs, in part because of weak regulation. “The Bitcoin world is just like the Wild West — no law, but opportunity and risk,” he said.
ZH is a public site, but represents the gateway into the ‘dark’ internet, at least as it’s concerning financial media. Of course, there wasn’t technology 50 years ago to support such a network, so it was easy for certain powerful media companies to dominate the sphere. Now, anyone with a computer and internet access, can learn as much about the markets as you can at Wharton (if they learn anything there is questionable). With that knowledge, that person can open a blog, and become their own independent financial media agent. The standing argument that bloggers are unprofessional because they don’t have journalistic credentials, has been disproved in the last years, since it was sites like ZH that broke the flash trading scandal, and Wikileaks, that broke the story about Julius Baer.
The new paradigm of financial media is a decentralized, global network of well informed uber-agents, who proliferate their information privately through their own information portals, and through public networks, such as Zero Hedge (currently, ZH the only one).
“The Fed will never end QE for good…” blasts Marc Faber, “they may do some cosmetic adjustments, but within a few years, [Fed] asset purchases will be substantially higher than they are today.” There will be another weakening in the US economy, Faber warns, and “the Fed will argue it hasn’t done enough and will do more… they have been irresponsible for 20 years.”
Noting that investors should “not buy stocks but be in cash”, the stunned CNBC anchor exclaims “How could you sit in cash when th emarket is on fire and interest rates are so low?” to which Faber blasts, “The market is not on fire, look at IBM, Cisco, and Intel – all lower than 2011; it’s on fire if you are in Facebook or Twitter and not everyone owns them.”
Use rallies to reduce exposure, he warns, “we will go up until it is over; and when it is over the drop will be larger than 20%”
Kyle Bass Warns When “Everyone Is ‘Beggaring Thy Neighbor’… There Will Be Consequences” | Zero Hedge
“There are going to be consequences to central bank balance sheet expansion all over the world,” Kyle Bass tells Steven Drobny in his new book, The New House of Money, adding “It’s a beggar-thy-neighbor policy, but everyone is beggaring thy neighbor.” The Texan remains concerned at QE’s effects on wealth inequality and worries that “at some point this is going to ignite and set cost pressures off.” While Gold-in-JPY is his recommended trade for non-clients, his hugely convex trades on Japan’s eventual collapse remain as he explains the endgame for his thesis, “won’t buy back until JPY is at 350,” and fears “the logical conclusion is war.”
Drobny: You’re on the tape saying that dollar/yen is going to 200.
Bass: If I’m right, it will go much further than that. I don’t think it will hit 500, but in crises, currencies swing too far. They can start discounting 15% or 20% rates out ad infinitum because they are in a full bond crisis. But once they flush the debt and have a reset, you’re not going to have 20% rates ad infinitum. We’ve committed more capital to the currency market, but all of the convexity is in the bond market.
Drobny: Recently we’ve seen the yen move your way and everyone is getting excited about “The Japan Trade” – is this the big move you’ve been looking for?
Bass: No, this is just the beginning. It’s not the real move. The real move happens when it runs away from the authorities and they lose control.
Drobny: At what point do you go the other way and buy Japan?
Bass: When the yen is 350 and they’ve wiped out their debts.
Drobny: Let’s play out your Japan scenario. If the yen goes to 350 and Japanese government bond yields go to 20% and they can no longer finance themselves such that it becomes a financial disaster, what are the implications for the rest of the world?
Bass: Well, policymakers have been changing the rules, which is challenging for macro hedge funds. But that’s the beauty of this situation.
Drobny: What if they decide to just knock a few zeros off the debt?
Bass: In the end, they may be forced to do so.
Drobny: What if they bought the whole debt stock at 1% yield?
Bass: That’s the St. Louis Fed’s school of thought, which contends that countries that have their own central banks can print their own currency and will never fall. For the world’s sake, I wish that were true. For the last 2000 years, it hasn’t been true, and I don’t believe it to be true. If it is true, I’ll lose 150 basis points a year and move on. Our core portfolio will be fine. Still, if it were true, then why even have fiscal policy? We don’t need a fiscal policy if that’s the case – we could just spend the money however we want. Policymakers don’t believe there are consequences to their actions, but the consequences will come. Economic gravity will actually set in.
Drobny: But you don’t suffer the consequences if you are out of office. That’s the next person’s problem.
Bass: The point is that no one will make those difficult decisions unless they’re forced to make them. The politics of all these situations tell me how this is going to play out, and that’s through massive central bank balance sheet expansion and capital controls.
The Fed recently wrote a paper that actually endorsed capital controls if done concurrently with other nations. It’s hard for me to fathom that capital controls can ever be a great idea, but this is what you’re going to see.
We are in a period that will be characterized by enormous cross-border capital flows. How will it play out? Let’s assume that I’m right about Japan. What happens then? Nominal interest rates in the US and Germany go negative. The Pavlovian response is to fly to perceived safety; this is why we’re not betting against US rates. In fact, we’re receiving rates in Europe and Australia right now because some sort of stagflation will play out first, before you start to see the real problems in Japan. If you look at history and try to understand what has created despotic rulers and wiped out populations financially in the past, and what happens next, the logical conclusion is war.
Drobny: Who is the war going to be between?
Bass: I’m not exactly sure, but it seems to me that the aggressor in Asia is China and they don’t get along with Japan.
Post-World War II, Japan has been constitutionally limited, such that they cannot declare war. But current Prime Minister Abe is talking about rewriting the constitution so that they can actually declare war again. That’s not stabilizing for the region. Nationalism is rearing its head as we speak.
A third of the population in Japan is over the age of 60, and a quarter is over the age of 65. To put this into context, in the broader developed world only about 8% of the population is over 65. At a point when these people need the money the most, they could lose 30-40% of their savings, maybe more in terms of purchasing power. The social repercussions bother us more than the financial repercussions because the social fabric of Japan will either be stretched or most likely torn, and we don’t know what’s going to happen next.
Drobny: Besides Japan, what bothers you?
Bass: There are going to be consequences to central bank balance sheet expansion all over the world. Look at currency cross rates. If all central banks are expanding at the same rate, the cross rates aren’t moving, but your purchasing power, in terms of goods and services in the country where you live, is diminishing. You’re not focused on real returns, you’re preoccupied with the cross rates.It’s a beggar-thy-neighbor policy, but everyone is beggaring thy neighbor.
I really worry about the true cost of goods and services, but people are preoccupied by the dollar/euro exchange rate to gauge the relative strength of the European economy. You see this preconditioned response and even macro players say things like, “Oh, buy the Nikkei at week end.” They’re picking up a dime in front of a bulldozer. Japanese industry has been hollowed out. The exchange rate may stop the decline for a certain period of time but it’s a secular decline. The people that own Japanese equities right now are tourists. But this creates opportunities in the marketplace.
Bass On inflation,
When you look at what’s going on from an inflation perspective, central banks have printed about $10 trillion dollars since the beginning of the crisis. The first $4-5 trillion went into re-equitizing heavily leveraged structures and bringing down rates. The second $4-5 trillion is making its way into the monetary base, and even though the multiplier is not working, at some point this is going to ignite and set cost pressures off. Again, it won’t be demand-pull, which is technically a good kind of inflation. Rather, it would result from too much money in the system.
Bass On QE’s effects on wealth inequality,
It will show up in food in the early stages. Global QE is filtering its way into asset prices. Those closest to the proverbial spigot are enjoying the printing the most with most in the middle and lower class not feeling the love at all. All you have to do is look at the gap between median income and mean income growing ever wider. This means the rich are getting richer while the rest stay stagnant or even decline.
Drobny: If you could do only one trade for the next ten years – non-risk-managed…
Bass: Actually, the answer to this one is easy – I would buy gold in yen.
While the world of mainstream media stock pundits would like investors to believe that there is a wall of money on the sidelines waiting anxiously to go all-in on stocks (bear in mind there’s a seller for every buyer and where does the cash on the sidelines go when it is handed over to the seller in return for his stock?), as none other than Charles Schwab notes in this brief Bloomberg TV clip, “investors are less rattled” than most believe, “and have stayed invested” in large part. “There hasn’t been a wholesale movement away from stocks,” he goes on, busting myths asunder, adding that “investors want to see market-driven conditions, not Fed manipulated ones.”
So perhaps – just perhaps – Schwab is right, if the Fed stepped away and let markets be markets once again, maybe real capital would flow once again?
Schwab goes on to discuss how the Fed’s policy has hurt the older generation – “it has been a terrible thing”
Beginning at around 50 seconds, Schwab calmly dismisses one of the biggest market myths and raises a few red flags – “we see the market go up or down depending on which Fed member is speaking…”
- More Market Manipulation: Wall Street Out of Control (senseoncents.com)
- JPMorgan Accused obstructing regulators -Market Manipulation (12160.info)
- EU Accuses 13 Investment Banks of Hampering CDS Competition (bloomberg.com)
- Barclays, traders fined US$488M amid U.S. energy probe (business.financialpost.com)
- Is Libor Now Beyond Manipulation? (blogs.wsj.com)
- Spain Says Deficit Target Must Wait 2 More Years Amid Recession – Bloomberg (bloomberg.com)
- Euro Unemployment Just Hit A Brand New Record High (businessinsider.com)
- German Exports Fell in February Amid Euro-Area Recession – Bloomberg (bloomberg.com)
- Fed Watch: When Can We All Admit the Euro is an Economic Failure? (economistsview.typepad.com)
- Euro-Area Economic Confidence Falls More Than Forecast (forum.prisonplanet.com)
- Euro-area unemployment hit record high of 12 per cent in February (irishtimes.com)