The New Abnormal: Permanently Engineered Market Volatility

Πηγή: Money Morning
BY SHAH GILANI, Capital Waves Strategist
AUGUST 19, 2011

If the gut-wrenching market volatility of the past few weeks has made you sick to your stomach , I have some bad news for you: violent volatility is the new normal - or more precisely, the new ab-normal.

After massive market moves last week, the Dow Jones Industrial Average tumbled 419.63 points yesterday (Thursday). And, while t hat may be bad news for average investors, it's something Wall Street wants.

If you're not a day-trader, high-frequency trader, hedge-fund manager, or institutional desk trader, reading this is going to make you mad as hell. But it's something you have to know, understand, and accept if you're going to be a successful investor going forward.

The reality is that in their crusade to manufacture extraordinary personal wealth, Wall Street insiders have engineered volatility into the capital markets.

This change is permanent.

Indeed, the same dangerous volatility that destabilizes markets creates innumerable trading opportunities for Wall Street's proprietary traders. These traders feed off each other and off their banking-industry clients.

The game is simple: Wall Street creates market volatility, some of which leads to panic. Panicked investors, in desperate searches for safety, turn to "experts" for protection. And Wall Street rakes in the profits - not just from their market-crushing trades, but from the investment fees they charge individual investors, companies and nations.

It's similar to how the mafia might trash your business and then offer to "sell" you their protection services.

By increasing volatility in stock, bond, commodity and real estate markets, The Street has created a self-perpetuating moneymaking machine.

Obviously, without the manufactured volatility, markets would be more stable, predictable and better serve economic development and growth. But there are no extraordinary gains to be made in calm and stable markets.

So Wall Street for decades has worked to make market volatility the norm.

Exodus: The Beginning of Volatility for ProfitThe roots of manufactured market volatility can be traced back to an obsession Wall Street has with disadvantaging the public while giving itself every advantage it can.

Keep an Eye on Europe

Πηγή: Morning Star

By Dave Sekera, CFA 

02-08-11

BOND STRATEGIST: While most recent headlines revolve around the shenanigans in Washington, we recommend that investors keep tabs on the eurozone

Despite the shenanigans in Washington (or more likely because of them), buyers snapped up single A or better paper last week. Investors sought after the highest-rated issuers, such as Wal-Mart (WMT) (rating: AA), Microsoft (MSFT) (rating:AAA), and Johnson & Johnson (JNJ) (rating: AAA). Early in the week, there was market chatter that Chinese investors were out buying the most highly rated bonds, and the speculation was that those accounts were reallocating from other asset classes such as agencies and Treasuries. Insurance companies were also out in force, searching along the entire yield curve for highly rated issuers.

Indicative of this demand, the corporate bond spread for the Morningstar Corporate Bond Index tightened by 5 basis points last week to +154 and the AA rated component was the best-performing rating segment. The long end of the Treasury curve rallied strongly, as both the 10-year and 30-year tightened about 20 basis points to end the week at 2.80% and 4.13%, respectively. Half of the gains came at the beginning of the week, and the other half occurred Friday after the horrible second-quarter gross domestic product number was released.

High-quality corporate bonds are providing a port in the storm, as investors are comfortable owning the debt of issuers that have transparent financial reporting and significant cash reserves on the balance sheet. It's hard to argue against owning Microsoft bonds at a spread over Treasuries. The company has nearly $53 billion of cash and short-term investments on the balance sheet against $12 billion of debt and provides much greater financial transparency than any sovereign issuer. As we posited in the spring of 2010 when the sovereign debt crisis first reared its ugly head, we think the transparency afforded in corporate issuer analysis as opposed to sovereign analysis will allow corporate bonds to outperform sovereign bonds. At that time, we also wrote that we expected U.S. corporate bonds to outperform European corporate bonds because of the lack of full disclosure by the European banks as to their sovereign exposure and the sovereign overhang of the peripheral nations that would lead to selling risk assets.

Even though all the headlines in the United States revolve around politicians trying to score political points as opposed to resolving the debt ceiling, we recommend that investors keep an eye on Europe. One week after the latest Greek bailout was announced, sovereign credit spreads have begun to leak wider. Portugal's 4.80% notes 2020 gave up most of their gains and are trading only a few points above their lows. Ireland's 4.50% notes 2020, which moved up the most, began to lose some of their gains, and Greece's 6.25% notes 2020 began to bleed wider.

More worrisome, the debt and credit default swaps for Spain and Italy continued to widen out. Spain's 4% notes 2020 fell to 87.75, which equates to a 5.82% yield or +347 spread over German Bunds. At this level, these notes are only 2 points higher than before the Greek bailout. Italy's 4.45% notes 2020 fell back to their lows at 89, resulting in a yield of 6.14% or +384 spread over German Bunds. Although we no longer consider sovereign credit default swaps to be the best indicator of credit risk, the swaps for Spain and Italy widened to +350 and +300, respectively. Considering that these nations are much larger than Portugal, Ireland, or Greece, have significantly more debt outstanding, and consist of a greater amount of the eurozone's GDP, if either one is no longer able to fund itself in the public markets, it would be near impossible for the Europeans to craft a bailout.

Top 7 Political Scandals in Greece

Πηγή: PFhub

Between 2006 and 2009, a number of scandals involving Greek politicians made it to the news. Formal enquiries were launched and the cases were tried in court. But in most cases, stringent action was not taken and some of the accused simply walked free. Here’s the list of top scandals that disgraced the Greece’s government and politics in recent times.

The Top 7 Political Scandals in Greece

1. Bonds Controversy
2. Vassilis Magginas Controversy
3. Ferry Contracts Controversy
4. Phone Tapping Controversy
5. Sex Tape Scandal
6. Vatopedi Controversy
7. Siemens Controversy

1. Bonds Controversy – March 2007

In this scandal, unstructured bonds were sold in Feb 2007 to state pension funds. They had been underwritten by JP Morgan for the government and later sold to North Asset Management at 92.95% of their nominal value. These bonds were eventually bought by state pension funds at very high prices in the secondary market.

The government-brokered arrangement came under criticism from the public as well as the opposition. In June, North Asset Management and J P Morgan under pressure and criticism agreed to buy the complete bonds issue to cover up the losses pension funds had made. Labour Minister Savvas Tsitouridis was sacked after the incident and charges of money laundering were framed against him.

2. Vassilis Magginas Controversy – December 2007

In this scandal, Labour Minister Vassilis Magginas was accused of harboring uninsured foreign workers in his Athens home. Allegations that the minister had allowed free accommodation to an Indian uninsured couple and their three children surfaced in 2007. This led to his resignation. But subsequent enquiries into the issue did not yield any conclusive results and the minister was cleared of charges after getting full support from the government.

3. Ferry Contracts Controversy – April 2009

Party Deputy Aristotle Pavlides was embroiled in a bribery scandal in 2009 after it was alleged that his aide had demanded bribes from a private ship-owning firm to grant a contract to ferry routes on the Aegean island. The Minister maintained throughout that he was innocent and refused to resign from his position. Investigations were launched after the case was moved to the Parliament but the Minister escaped indictment.

4. Phone Tapping Controversy – 2004-2005

In March 2006, the government revealed that phones of more than 100 eminent Greek personalities, including that of Prime Minister Costas Karamanlis had been tapped between 2004 and 2005. After a two year investigation failed to yield results, the case was dropped and government concluded that foreign intelligence agencies were responsible. The Greek government was criticized for its mishandling of the case and failure to determine the mastermind behind the illegal tapping.

Vodafone Greece was fined €76 million by Greece’s Communication Privacy Protection Authority and charged with breach of privacy.

5. Sex Tape Scandal – February 2008

In February 2008, a sex scandal involving former Culture Ministry General Secretary Christos Zahopoulos surfaced. DVDs of the minister having sex with his female assistant was produced in the office of Prime Minister Costas Karamanlis. It was referred to as the ‘sex lied and dvd’ scandal by the media.

After news of the incident became public, Zahopoulus stepped down from his post and jumped from his fifth-floor balcony. He survived the fall but the sex scandal caused a lot of embarrassment to the Greek government.

6. Vatopedi Controversy – September 2008

Merchant Marine Minister George Voulgarakis and deputy ministers were accused in land swap deals, involving the wealthy Vatopedi monastery. It was alleged that the accused had spent over 100 million Euros in taxpayer money to finance the land deals. The investigations revealed a land swap between Voulgarakis and the Vatopedi monastery, which also involved the Minister’s wife who acted as an agent in the transaction.

An investigating committee was set up by the Parliament in October. Minister of State Theodore Roussopoulos resigned after news of his suspected involvement in the case surfaced. But the investigations failed to gather enough evidence and were halted in December.

7.7. Siemens Controversy – May 2008

In 2008, allegations of bribery against Siemens surfaced after it was found that the company had paid substantial sums to government officials and other companies to win deals, including security contracts for the 2004 Athens Olympics and a contract for the Athens subway. Close to 100 million Euros in bribe money was involved in the case.

The allegations have not been proved against Siemens or the Greek government. Siemens has also been charged with other corrupt dealings involving the Greek government, including spending millions to fund political campaigns of favored candidates.

After the debt crisis, citizens are demanding that Prime Minister George Papandreou makes good on his promise to stamp out corruption in the government. With so many political and corruption scandals disgracing the government in the past few years and little action being taken against those involved, the growing public resentment towards the government is only just. It is high time that Prime Minister Papandreou stepped up to tackle issues of corruption and transparency in his government.

Will the Greeks finally hold their ground and come out of the mess? It just remains to be seen.