The Market Ticker ® - Commentary on The Capital Markets
Posted 2011-11-23 12:42
by Karl Denninger
The Game Is About Done
It's pretty-much over at this point....
This morning Germany had a failed Bond auction.
That's not particularly noteworthy; it happens from time to time.
But what's noteworthy is what happened to bond yields everywhere through Europe in response: They blew out.
The Greek and Italian "problem" is no longer about Greece and Italy.
It has been creeping into Spain and more-recently France,
but this morning jumped into Germany and everywhere else "all at once."
Capital has said "no more" to the lies in Europe.
While this does not mean an instant implosion it does mean one important thing:
The willingness of capital holders to continue to permit deficit spending is coming to an end,
and with it the false "GDP" that this lie has "supported" will also come to an end.
Our lawmakers, for their part, continue to sing a happy song about how we'll get it done --
but not today, since the super committee was an abject failure.
Covering up the failure was the fact that there were departments that had 10, 20 even 30% increases
in the funding found in the appropriations bills that were passed in the House
even while the "committee" was trying to find a way to "cut" spending.
Folks, this political game of lie, lie and lie some more cannot go on forever.
Eventually the waiter appears with the check and you either pay it, wash dishes, or get arrested for theft.
In the political world that "arrest" comes in the form of capital holders saying that
they no longer believe you will ever pay and borrowing costs go up -- way up.
The Fed cannot "print" out of this and neither can the ECB.
If either try that they will engender an all-on revolt, never mind that as purchasing power falls
the fixed costs of staying alive go up relative to incomes and the war is lost anyway.
Reality must eventually be faced. That day is here for Europe and it will soon be here in the US.
We have permitted the lies and stealing -- both indirectly and now, as we've seen,
it appears directly through MF Global -- to go on for too long.
To those Seniors (and soon-to-be-Seniors)
and others who say "but we were promised!" and "I vote dammit - you better give me what you said I'd get" respond:
The till is empty and your check is going to bounce.
Occupy Wall Street? Well sure, but while you're at it,
why aren't the Seniors encircling the Capitol and refusing to leave?
Why isn't the underlying truth being discussed and why aren't the jackals that led to this happening
being forced from office and run out of town on a rail?
I'll tell you why: Because everyone thinks that they can manage to somehow "get theirs"
while "someone else" will take the hit.
I'm sorry to tell ou that it isn't going to work out like that.
There's no point in continuing to play this game.
MF Global showed us -- you're right, you hedge or you place your bet, you still lose your money!
How many farmers, airlines, industrial producers and other legitimate entities using the market for risk management
got screwed by that little game and why is it that Corzine is not in handcuffs?
FINRA? What's that -- it appears Corzine didn't have a valid (and required) securities license.
Self-regulation not only failed so has any resemblance of actual law enforcement.
The same game was run over in Europe with sovereign CDS.
You hedge, you bet right, the ISDA declares that you were "voluntarily" exchanging your bonds
and the hedges you bought were worthless.
Your "exchange" was as voluntary as is handing over your wallet when there's a gun up your nose,
but that doesn't matter -- the word "is" can be redefined any time the people in charge want, and they want.
Your money, that is.
It will not be long ladies and gentlemen, when the bulk of the folks running the algorithms deduce that
they're exposed to the same risks -
they have to post margin too, you know, and if it can be stolen then their capital isn't safe either.
These deposits aren't supposed to be "at risk" when there's no position actively open --
that's a performance bond against possible failure to pay,
but is supposed to be exactly as safe as a bank deposit in a checking account under FDIC limits.
Well, it wasn't. The CDS you bought on Greece wasn't.
And it will only take another event like this or two before people conclude that everything is unsound
as the jackals running the game will redefine the meaning of words to suit themselves and,
failing that will simply steal the money.
30+ years of lawless behavior has now devolved down to blatant, in-your-face theft.
They don't even bother trying to hide it any more, and Eric "Place" Holder is too busy
supervising the running of guns into Mexico
so the drug cartels can shoot both Mexican and American citizens.
What am I, or anyone else, supposed to do in this sort of "market" environment? Invest in.... what?
Land titles are worthless as they've been corrupted by robo signing, margin deposits have been stolen,
Madoff's clients had confirmations of trades that never happened and proved to worthless pieces of paper
instead of valuable securities and while Madoff went to prison nobody else has and the money is still gone!
Without enforcement of the law -- swift and certain -- there is no deterrent against this behavior.
There has been no enforcement and there is no indication that this will change.
It will take just one -- or maybe two -- more events like MF Global
and Greek CDS "determinations" before the entire market --
all of it -- goes "no bid" as participants simply stuff their hands in their pockets and say "screw this."
It's coming folks, and I guarantee you this:
Whatever your "nightmare" scenario is for such an event, it's not bearish enough.