The Creature from Jekyll Island Speaks!

At the risk of being dubbed Roubini's love child for my sometimes dour outlook over the last couple of years, let me start by saying that the economic data of late has been somewhat encouraging.

Let me then immediately point out, that clearly, we are hardly out of the woods.

Dubai World/Nakheel and its rescue by the UAE Central Bank is a very clear indication. Greece and its growing sovereign problems and the markets lacklustre response to how they will resolve them add to which the constraints of the EU's growth and stability pact, puts Brussels over a barrel.

How can they not rescue them, without forever damaging the EMU even as they own rules dictate that they cannot.

What about Austria and what we have seen with Hypo of late?

It brings our focus back to today, even as we wind down for the holidays with liquidity creeping backwards, in what has been a tumultuous year, questions galore exist on what next and all eyes on the FED.

Today the FED is likely to hold pat on its monetary stance; but with the recent foray into tri-party reverses, and as some of the QE measures coming to their natural end, the signals are probably starting to grow on how it may start dealing with the enormous amount of liquidity swilling in the system. We see the ECB finishing up on its 12 month LTRO and of course we know of jurisdictions actively hiking globally. While the market is starting to write rates higher, the futures curve is correctly of the opinion that we are looking into likely Q3 of 2010.

At all times one asks, if 1% rates back at the start of this decade led to the ensuing bubble and its consequences, what sort of implications will ZIRP have on a go forward basis. Despite that, the deep concern however is still whether all the cheap dosh has delivered what was intended. Sure we have observed some clear results from the cash for clunkers and the help for homebuyers; but as we have seen once that particular artificial support has been removed then conditions snap back to reality.

In my humble view the jury is still out. From a quick overview we are certainly in a much better place than a year ago, and while the data on the face of it looks good, the deeper reviews leaves lots of reasons for concern on how well the overall economy is performing. Lets hope that its starts to move to a deeper and more entrenched reality.



Season greetings to everyone!

My adventures in food....

Many of my friends and all of my family are aware of how keen a cook I am. My current journey through George Brown College on Saturdays is helping to elevate, not only my understanding of food; but also my abilities around techniques, style and recipes. At the same time my immersion in this topic has me pursuing charcuterie, new braising techniques and a whole bunch of other things. One of the things that I started to do a number of years ago was make my own gravalax.


I would say at this juncture I am able to create a superior product to what i can generally get in the store at a smidgin of the cost. Recently I have started to make a much better product however, by not only curing my lox for 2 to 3 days based on size; but by air drying it in my fridge for 8 to 20 hours to allow for the creation of pellicle and then cold smoking for a couple of hours at 50F. Yesterday I shared the end result of this approach with colleagues at work and it seemed to have been very well received. I am also experimenting with curing for a shorter period by using my food saver to vacuum seal and cure smaller pieces (half a side) that from all accounts should substantially shorten the cure. I also tried that with the smaller piece in the picture which delivered a firmer product with a much better colour.

There are only a couple of places that i believe provides a truly superior product and one of them is J Willy Krauch in Tangiers, Nova Scotia. Their approach is the more traditional Danish method of salting for one day and then smoking over 1 to 2 days. A truly amazing product. Great write up here. http://snipurl.com/t7wtg

Feel free to contact me if you would like my recipe.

Where and What Next?

I haven't thumbed a message on the train for some time. Is suspect part of it has to do with the inconclusive nature of the data of late as well as the fact that a direct function of that has been reflected in my market marking time. Equities while off recent highs still show resilient performance looking at the returns of the last six months, gold recently hit new highs and I imagine that the commodity currencies in particular are highly likely to take another run at recent achieved highs.

This weekend , I read two interesting pieces, one in the Globe and Mail and the second in the New York Sunday Times.

The first suggested that economists generally speaking invariably get it so wrong, that in fact we may well have a new economic nirvana ahead if we simply take a contra outlook. Now admittedly the focus was more Canadian. The second which was an editorial in the NY Sunday times pointed out a couple of rather scary numbers, that suggested that the underemployment rate was close to 17.5%.

Now note that's the underemployment rate, not unemployment rate. Its all a reflection on what's officially recorded and in the light of Fridays non-farm payroll, many would have you believe that the trend of the officially reported numbers is obviously positive. Clearly, that's one interpretation; but the brute reality is substantially different for the many that have exhausted unemployment benefits, and can no longer claim, and effectively fall of the rolls.

This however does not make them less unemployed and that number is becoming increasingly significant, to the extent that the notions of a second stimulus package or an extension of the very pervasive rescue package already underway will have to continue.

****The unemployment rate includes only jobless people who have looked for work in the past four weeks. The underemployment rate - which also includes jobless workers who have not recently looked for work and part-timers who need full-time work - reached 17.5 percent in October. And the long-term unemployment rate - the share of the unemployed population out of work for more than six months - also continues to set records. It is now 35.6 percent.

The official job-loss data also fail to take note of 2.8 million additional jobs needed to absorb new workers who have joined the labour force during the recession. When those missing jobs are added to the official total, the economy comes up short by 10.1 million jobs. *****[NY Sunday Times Editorial] http://snipurl.com/t5gxs

This rolls into the contention I have expressed previously in these comments and that is the hands of the FED will be tied for longer than they would necessarily like. Its evident that despite the massive amounts of largesse, only a few industries might have benefited and in fact many of the programmes undertaken have yet to yield fruit.

The G20 this weekend seemed to be in agreement

***The MSCI World gauge of equities in 23 developed countries increased 0.9 percent at 10:18 a.m. in London and futures on the Standard & Poor's 500 Index climbed 0.9 percent. Russia's 30- stock Micex Index added 2.9 percent. Gold gained 1.3 percent to $1,109.50 an ounce and crude oil jumped 2 percent. The dollar weakened against 14 of 16 major currencies tracked by Bloomberg.

Policy makers from the U.S., U.K., Japan and 17 nations said on Nov. 7 that it's too early to withdraw spending intended to revive growth. The MSCI World has surged 66 percent since March 9 as governments spent $12 trillion, by International Monetary Fund estimates, to rescue the global economy from its first recession since World War II.

"Markets don't need to be worried that these governments and central banks are suddenly going to take away all the stimulus measures," Stuart Bennett, a senior currency strategist at Calyon in London, said in an interview on Bloomberg Television. "Risk appetite should remain supported into the end of the year.". *****[Bloomberg]

We have a ways to go and this is hardly about a pessimistic outlook and more a realistic one. That would suggest to me that our markets will continue to stay range bound even as we creep higher from the lows of 13 months ago.

Dow 10,000, Infinity & Beyond!

I thought I would follow up on yesterdays late day missive.

SPX currently 19.5% above 200 day mva. Historically 20% above the 200day MA has proven to be a tough obstacle to overcome.

*During the 2002/2007 bull market, we never hit +20%.
*1986 and 1987 saw 19%/20%, but no higher.
*1982 saw the deviation briefly above 20%.
*1975 saw a marginal move above 20%.
*1943 saw the 20% deviation again prove good resistance.
*1935 and 1936 though saw the deviation above 20%.
*1933 saw the S&P 500 59% rich to its 200-day.
*1929 saw the 20% deviation again prove good resistance.
*94% S&P 500 stocks also now above their 200-day average.

You can't turn your nose at a 60% retracement from the lows and with the Dow at 10,000 again the equity community are likely celebrating the return of the heady days of the market.

Here is a very good comment picked up from Bloomy this morning.

****Intel Corp.’s sales forecast and earnings from JPMorgan Chase & Co. pushed the measure up as much as 1.6 percent to 10,027.73 yesterday. "A lot of people make fun of these milestones, but I think that it has an effect on psychology," said David Darst, the New-York based chief investment strategist at Morgan Stanley Smith Barney, which has $1.4 trillion in client assets. "That can have an effect on tipping people over to being more worried about being out of the market."*****[Bloomy]

Not so fast I say.

I suspect that there is money on the sidelines waiting to join the party; but for my purposes, I will continue to stick to the notion that we are about to enter the third leg of the W and thus currently sit at an inflection point. One of my market colleagues with many years in the business, had this to say - " I'm now thinking what's coming is leg 2 of a Nikkei-style Triple Waterfall" - which is a lot worse than my suggestion I suspect the new down leg won't reach anywhere near the lows we saw 7 months ago as buyers of dips that might not have participated in this massive run up, likely join in.

But wait one moment....last week we had punters in the Canadian market openly talking of the BoC likely raising rates sooner reflected by the sell-off in the BAX futures and we had a very violent move higher in US rates as the market started incorrectly interpreting the FED's statement as a desire to hike rates sooner than later I don't subscribe too either .

Yesterdays FED statement more accurately articulated at Alphaville this morning

*****DOLLAR HIT ON FED’S DOVEISH TONE - Posted at 04:57 by Gwen Robinson

The dollar fell on Wednesday after minutes from the Federal Reserve’s last policy meeting showed that while some committee members favoured increasing Fed purchases of financial assets to speed recovery, just one policymaker urged a reduction in buying. This overall doveish tone was echoed in the discussion of inflation, suggesting that the Fed is still a long way from raising interest rates. **** (FT Alphaville)

In Canada with the Canuckie Buckie roaring ahead (buy Cad Calls and wear diamonds, or if not sell strangles, after all recent history has shown us 12 big figures stronger from here for Funds is very do-able) the lack of an intervention desk, and the game of competitive devaluation now a fully global one (note the complete lack of vocal statements on a strong greenback policy from Geithner and the administration as the US dollar gets pilloried).

Let's look at other reasons for what might be deemed an artificially high level for equities and reasons why hikes are not likely in North America until the second half of 2010.

We have had a complete government sponsored equity market rally, we know banks are still not lending to each other despite where Libor might be as more hoarding takes place, we recognise that all the wobbly assets that are still off balance sheet will have to be brought back despite current ongoing deferrals, we know consumers are certainly not consuming as much and are certainly not borrowing as much and without the various credits and programmes , whether it was cash for clunkers or first time house buyer credits, that some of the results seen to date would have been even more woeful.

You have an FDIC almost out of cash, the FHA (Federal Housing Administration which insures mortgages with low down payments) likely requiring a bailout of its own, a much larger unemployed population than the data suggest due to the fact that benefit exhaustion rates are screaming higher and with that other impending situations, as we note Commercial Real Estate defaults increasing and with that CMBS's likewise.

But I suspect all eyes will be on equity markets as more good news comes in with Goldman easily surpassing ( not surprisingly) its EPS forecasts and I suspect BoA and CITI will show similar.

A New Forking Threshold - The magical Animal

I must admit the headlining is becoming somewhat tedious now, so that's the last time it will be used.
Its been a month since I started reading the Menu in Progress blog that provided me with the necessary inspiration to pursue my desire to make my own charcuterie. I seem to be almost there having crossed an initial threshold over the Labour Day weekend where I completed smoking my first two pork bellies after a week curing in the fridge and produced bacon that was then hand cut. I don't own a slicer...yet.


This was followed up by me trying to obtain a "magic fridge" ( a bar fridge essentially that I can use as a sanitary and temperature controlled environment for curing my products) with no luck.


However I still made a major stride forward by making my own sausage for the first time also, over a two day period. It has taken me quite a bit of time to get some of the more specific items such as the prague powder/pink salt and the hog and beef casings, as well as my temperature controller for the fridge I don't yet own.

Nonetheless, the products seem to have been very well received by a couple of friends, though I have to admit that the bacon was saltier than I had planned, so thank goodness for the Quebec maple syrup that i had added to the cure.


Now Pandora's Box is open, who knows what up next; but I have some ambitious plans , though the lack of my curing environment, has forced me to go slower and in fact it has been helpful as I continue to t eh read the excellent tome by Michael Ruhlman & Brain Polcyn - Charcuterie as my current food bible on these topics. AN excellent investment indeed.

I have added some pikkies from Picassa.

New Frontiers Ahead - Forking Good!

I seem to have gone a little crazy on the Charcuterie front of late.

I have wanted to try my hand at smoking sausages, bacon and all manner of meats for sometime; but have refrained from lack of knowledge, equipment and any number of other reasons including fear of failure and botulism.

I had a fab conversation with a young chef from what is to be a new restaurant BUCA, back in June, (the new restaurant associated with Jakobs Steak House and Brassai) as they fed us at the annual Set Sail for Hope Charity event on Toronto Island, one of my top if not my foremost event of the year. I asked the young chef if it would be possible for me to possibly use a wine fridge for curing as a more sanitary condition rather than the open area in one of the spare rooms in my basement, which while keeping a fairly consistent temperature, still had me concerned and worried about the sanitary nature of the environment. (The room is is primarily used to store dry and tin goods, extra clothes thats been packaged away, wine beer, a dusty rowing machine and any other types of stuff not in use that needs to be stored)

After quite a bit of dialogue and in particular probing on my part, I was 90% convinced that it could be done; the question was then some more research to get comfortable on exactly how I would go about this.

Luck and circumstance would seem to have delivered a path to me filled with knowledge, trials, experience success and failure and lots of pikkies through an exceptional blog if you are a "foodie" (general term) called Menu in Progress.

I say exceptional only because the writing is great, the pikkies excellent, the food very scrummy and not only are recipes provided; but there is wonderful detailing of the experiences.

So over the Simcoe Day holiday weekend I had the opportunity to visit the site a number of times and leave some comments, which were responded to by Mike who writes the blog.

This has led me to do a ton of research on what one might require to get going, for my initial attempts, which I suspect will be pancetta and bacon (start slowly).

This will provide me with the requisite time to get hold of the various equipment that I require from myriad sources. As I mentioned I may start off with bacon and pancetta; but i see a variety of sausages smoked, dried and fresh in my future as I try and advance my knowledge in this area.

Are We There Yet?

I was asked a few mornings ago with some other colleagues from different asset classes, what we felt might be the biggest impediment to the rehabilitation of the economy and markets over the next number of months. My response and concern was based on the reality of a market that seems hell bent on reading the tea-leaves as being positive for the market at all times and with every piece of data.
This should worry pretty much everyone. In particular the idiotic blabbers at CNBC (though there are a few there that should be paid attention to including the Guru of the Pit _ Rick Santelli) and their desire to find positive headlines and put positive spin on pretty much anything.

The most recent example was Mondays "New Home Sale" figure, which came in as up 11%. Sure its a good number; but the reality is that the number has to be understood in context, and that context represents a number of things that should provide food for thought. First no mention was made of the fact that median prices had dropped by over $13,000 from May at $219K to June at$206K as the folks at Housing Bubble put it

***This is pure economics with prices falling you will expect new home sales to increase especially in the spring and summer months which are normally stronger.**** http://www.doctorhousingbubble.com

This is hardly about being pessimistic and more about realism and pragmatism. The same article points to the growing and largely forgotten Alt A and ARM's situation that's still ahead especially in California.

However a recent publication this week on ZeroHedge's website by Tyler Durden with David Rosenberg (he of ex-Merrill fame and now brightening the firmament at Glusken Sheff here in Toronto) should be read for a reality check. While the document seems long, it’s primarily graphical and makes some very salient and focused points on the economy. It produces data with a little more depth and insight and is sufficiently worrying to leave one floundering in that the overly upbeat prognostications from government and media alike should be taken with more than just a grain of salt.

Specifically in its introduction it shares the following

“We believe an aggressive “fact-finding” investigation into the true depths of the recession is critical due to increased pressure by members of the Mainstream Media and conflicted Investment Banks to present a myopic, unjustified opinion. Furthermore, opinions based on overoptimistic projections and “hope” is the primary reason the Credit Bubble persisted as long as it did.

- As there is an all too real threat of a relapse into the same kind of optimistic zeal and the resultant formation of yet another asset bubble, Zero Hedge is presenting the factual side of the story . We demand that readers question any and all assumptions presented herein (as well as everywhere else) on this most critical subject “ - ZeroHedge Article

Here are a couple of morsels for general consumption that I found particularly chilling.
UNEMPLOYMENT: People have been on unemployment insurance so long it has expired. Benefits exhaustion rate hit a record 50%. Americans are rolling into various extended benefits programs such as Emergency Claims and Extended Benefits, which surged by 170,000 in the last week alone. While “unemployment” is still below 10%, U-6, or the broader underemployment metric is at 16.8%, 6.5% higher from a year ago
HOUSING: NAHB housing market improved in July… To 17 from 15 the 8th worst print on record. Sales outlook is stuck at 26, and anything under 50 is a contraction RealtyTrac disclosed that Q2 foreclosure activity was the highest on record. 􀁠 1.9 million foreclosure filings in the first half of 2009, a 15% increase from the prior year period *June foreclosure filings of 336,173 were the fourth straight month exceeding 300,000 *One in 84 housing units received at least one foreclosure filing in the first half and all this is occurring on the backdrop of an industry-wide housing moratorium *According to Whitney Tilson, foreclosures have been temporarily cut by 66% through moratoria which reduce supply *At some point the banks will need to release the flood gates – watch out below as millions of units in shadow inventory are unleashed on the few buyers out there

The full document can be found at this URL http://zerohedge.blogspot.com/ It is worth the time and effort to give it the once over.


My personal take is that we are some ways along in the process of rehabilitation and that it’s definitely not a V; but looking more like the W.
The kind of percentage returns that we have seen this year in the equity markets and in the S&P in the last couple of weeks alone should suggest that they are hardly likely to continue.

Undoubtedly risk appetite is back markets are on a better footing and business is once again underway; nonetheless the amazing compression in corporate and high grade spreads experienced over the last few months seems over done and unsustainable. Driven by supply (or rather lack of) and demand factors, that do not necessarily reflect the reality of the underlying US economy.
Even as our own Governor at the Bank of Canada tells us that we will be out of recession in Q3, I wonder about his certainty. Maybe it’s the rainy weather that has me all afoul and in need of amore upbeat disposition this week.

Man Without a Plan?

The other Bernanke my good mate Jimmy!

Maybe its the cynic in me; but I have read a any number of articles t his weekend dealing with Ben Bernanke's testimony last week and whether or not he will be re-elected in January of next year for another 4 years. There are the pros and cons; but before I deal with that there is still the conflicting statements of how he will take monetary policy ahead. Back in May I noted an article in market News that stated that the FED and Bernanke would try and adopt a two track approach to monetary policy within the very easy liquidity arrangements that have been instituted to drag us out of the current economic and credit malaise.
In this weeks testimony to Congress and even prior to that in a WSJ article the day prior to his confessions to Congress, Dr. Bernanke once again reflected on the trail balloon of May, the implications of which are t hat he could essentially drain the system very quickly, by paying for excess reserves held at the FED by banks at the same level as the Fed funds rate, while potentially retaining quantitative easing (vis-à-vis purchase of Mortgages and Treasuries).

It seems that Dr. Bernanke is speaking out of both sides of his mouth however or maybe its simple confusion on my part ( certainly wouldn't be a first), in that he is also stating that the Fed will retain rates at theses low levels for the foreseeable future (i.e. into 2010 as opposed to what the market believes is a necessary hike before year end).

Suddenly the unsmiling Dr. Ben is doing a world tour and has had more press in the last week than a politician running for office.
Well I guess he is running for office after all and so it should not be surprising; but I digress somewhat. It would seem that the there is a substantial split however on what and how Dr. Ben has done. I read two op-ed pieces in Sunday's NYT and I was horrified to find that Dr Roubini who wrote one, quite surprisingly was very supportive of the things that Bernanke had done to address the crisis; however I found myself siding with Anna Schwartz, the erstwhile and highly respected economist, who with great aplomb skewered Bernanke for his numerous failures ("Man without a Plan"). I am certainly with her. I was reminded that way too often the current incumbent of the position of Lord of The Universe like his predecessor Guru Greenspan, have chosen to articulate positions on all manner of things and have been horribly wrong in hindsight.

Where I would have to disagree is that part of his plan was always going to be about inflating the FED balance sheet. The 2002 speech referencing the printing press and distributing dollars from a helicopter has come to pass.

****"Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined
government can always generate higher spending and hence positive inflation." Dr. Ben Bernanke 2002****

The FED has liabilities galore and continues to print money at an unprecedented rate. This week alone the treasury will be issuing some US$211 bn between T-bills and the auctions for 2Y (42bn); 5Y (39bn) ; 7Y ( 27bn) and the TIPS (6bn).

Its interesting to note that even the disgraced Elliot Spitzer once deemed Wall streets own sheriff for his eager desire to prosecute wrongdoing is now accusing the Creature from Jekyll Island (the place the FED was born) of running a huge ponzi scheme based on discussion with the hubristic and substantially overpaid Dylan Ratigan ( I don't like him).

****Advocating in favour of a House bill to audit the Federal Reserve, Spitzer said: "The Federal Reserve has benefited for decades from the notion that it is quasi-autonomous, it's supposed to be independent. Let me tell you a dirty secret: The Fed has done an absolutely disastrous job since [former Fed Chairman] Paul Volcker left.
"The reality is the Fed has blown it. Time and time again, they blew it. Bubble after bubble, they failed to understand what they were doing to the economy.
"The most poignant example for me is the AIG bailout, where they gave tens of billions of dollars that went right through - conduit payments - to the investment banks that are now solvent. We [taxpayers] didn't get stock in those banks, they didn't ask what was going on - this begs and cries out for hard, tough examination.
"You look at the governing structure of the New York [Federal Reserve], it was run by the very banks that got the money. This is a Ponzi scheme, an inside job. It is outrageous, it is time for Congress to say enough of this. And to give them more power now is crazy." ******** [Source - rawstory.com]

Homecooking......

I cook and have done so for some time. Part of it has to do with my upbringing.
As the eldest of five and with a single parent, I learnt to cook early. Its amazing but cheese on toast with baked beans for 5 seemed back then as challenging as a putting out a beautiful roast rack of lamb with a potato pave, petit pois with carmelised shallots and a nice jus.
Furthermore my very first job and then the jobs that were to follow exposed me to the delights of quality cooking and restuarnats both as client and coverage.

In recent times I have tried to take my knowledge base up, by enrolling at George Brown College for their Continuing Education Series, specifically in Culinary Arts. At the start of the year I did a 12 week course, and I am about to finish a 10 weeks course, with a three week course coming up that will focus my knife skills. That’s my compulsories and over the next 2 years, taking 6 electives will provide me with my Culinary Certification. I think it simply suggest that I have attended and should have garnered some know-how along the way.

From Canada Day

I had pretty good food knowledge going into my courses; but have found that the classes have elevated that base, primarily because it has helped establish a framework for my knowledge thus expanded my understanding, as I have made connections within my knowledge base as well as learning new stuff.

While I knew that I liked cooking, I didn’t appreciate to what extent until I started attending class and found myself as excited as an eight year old on Christmas morning each Saturday, as I gathered my knife roll and other accoutrements for my four hour session at George Brown College.

The interesting thing is that most folks seem to assume that I want to work in or run a restaurant. Nothing could be further from the truth.
I simply want to be able to cook superb meals at home for both my family and friends. I am not talking about simply cooking elegant meals either.

One of the things that I have found out over time is that as much as I enjoy an elegant meal, beautifully cooked and expertly presented, I am as keen or possibly keener when it comes to braised foods. Ultimately it’s the whole low and slow approach, whether BBQ-ing or braising.
Using a relatively cheap cut, good seasoning and the process of low and slow, it is transformed into something super delicious.

This was evidenced this morning at our office, as I had BBQ-ed a pork butt Canada Day and shared the goodness with my colleagues this morning with my home made tangy BBQ sauce. I have posted a few pikkies of the BBQ process on my Big Green Egg (BGE) and some others from items I have made. Enjoy!

Obama's Ascendancy and Fall

Along the way I have had a rather interesting dialogue with a colleague of mine that I have the utmost respect for.
Not only is he one of the very best traders I have ever worked with and one of the funniest persons; but he is someone that has a love for the culinary arts like myself, fully interactive in any environment, and with every sort of company. One of his contentions and a consistent one to boot, was that Obama would be a one term President, a viewpoint I have not been able to embrace until recently

He has always ascertained for any number of reasons that Obama would be one term. Recent events that have had very little main media profile has me seriously doubting my opposition to my colleagues contention.

The first aspect deals with the Presidents assertion that Pakistan/Afghanistan would be the focus of the war on terror. His approach is philosophically and fundamentally no different to that of Dubya, just different geographically.

In his attempt to unearth Osama Bin Laden and his Taliban supporters, he has created a source of future enmity and hatred for the USA. The result of his actions is that there are anything between 2.5 and 3 million displaced persons now living in refugee camps in the Afghan/Pakistan borders. This is a direct result of the action of the new Commander-in-Chief. People are dying and displaced, the camps lack water and appropriate facilities, and the only thing that they know is that their current situation and circumstance is a direct result of US policy as ordered by Barack Obama.

Additionally while his recent speech in Cairo was a landmark one in many respects and reached out to the Muslim world, some may see it as cynical picking Hosni Mubarak as host, when one considers the record of the Egyptian leader.

What's even worse is that as part of the financial services industry I watch in astonishment as a bit of a double play occurs, on the one hand harsh rhetoric and the appointment of a czar to oversee executive pay even as the majority of the banks are allowed to borrow from Peter to pay Paul. In this instance I refer to the fact that many of the banks (and read Goldman Sachs, Morgan Stanley as banks now) happily feeding at the FDIC guarantee trough to borrow cheaply and pay back TARP Funds. Nice arbitrage especially when these institutions are only paying back a portion of what they actually owe; but it allows them a way out from under the heel of the administration re executive compensation and the like.

While I continue to believe in Obama to a greater extent than not, I am increasingly of the opinion that what has always been a plan that sits on a knife edge, will end up falling apart, especially with a likely second leg down in the economy as unemployment picks up and the federal deficit continues to grow at an astounding pace.

The End of US$ Hegemony - June 16th 2009

This morning I delve into the domain of my esteemed colleague on FX Jack Spitz. We have had numerous conversations on this topic and I suspect many more ahead.

Of late all eyes have been on the FX markets and with good reason; but it has not been the more traditional economic data and drivers that we have generally looked upon; but instead what increasingly looks like a complete paradigm shift.

With the G-8 Ministers meeting this weekend providing rah-rahs and pom-poms for the Greenback and the Finance Ministers of Japan and Russia suggesting faith in the worlds reserve currency for very different reasons, one might question my focus on the end of the hegemony of the Greenback and why this may be the beginning of a paradigm shift that will change the worlds reserve currency.

How can this be?

Currently and for the last number of decades the US way of life and its military spending in particular has been financially sponsored and supported primarily by the Chinese, Japanese and South Koreans, with the Russians in the last few years and the ascent of oil prices, jumping into second place for buying US debt and funding that lifestyle.

We have continually however, and with increased volume of late, heard and read about the concern that's been expressed by these nations, with the exception of Japan and Korea, about the continued depreciation of the USD.

It's a simple matter of observation, seeing the Chinese continually trying (not always successfully) to purchase real and in particular commodity assets with their USD rather than maintain overly large reserves in what is a continually depreciating currency. Recent examples are Chinalco's bid to acquire a stake in Rio Tinto (and despite huge concessions on the part of Chinalco, still a resound failure) and only yesterday Sinopec's bid to acquire Addax Petroleum with a Stg 4.8bn bid.

Over the last number of months the stories/rumours have been numerous on these same creditor countries looking to diversify away from USD and in the last number of weeks we have had stories from not only these creditor countries but also the IMF suggesting use of SDR's (a currency basket of Special Drawing Rights of which the USD is still the largest percentage, though with the Euro and other currencies also making up said basket); add to that Paul Krugman the recent Nobel Laureate in economics suggesting that the GCC should de-peg from the Greenback and the growing cacophony of voices spouting the same notion, demands that attention be paid.

Hence the shellacking that the USD has been faced with of late, as concern grows about the extent of US deficits ($2 trillion and growing) and despite all the talk of a strong dollar policy the evidence that continues to suggest otherwise.

But this week is especially important as the SCO (The Shanghai Cooperation Organization) meet in Yekaterinburg, Russia, (formerly Sverdlovsk) Monday and Tuesday with Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation group. The SCO continues to gain in significance and in the context of the refusal that the US received in its request to attend this meeting, becomes even more significant.

It's quite evident that the primary subject will be what to do about the US dollar as the world reserve currency. China is already establishing the Yuan as the preferred currency in bi-lateral trade agreements and Russian continues to express a similar desire to use the rouble.

I can't help but believe that we might be seeing a landmark moment in history unfurling before our eyes as it speaks to the hegemony of the Greenback as the worlds reserve currency.

I Want to Believe....in Green Shoots

The quiet optimism I had talked about of late as it spoke to recovery seems to have been overtaken by rampant stupidity.

However I must admit that I read a piece recently from Albert Edwards of Soc Gen, whose faith may have been slightly shaken as he wondered aloud whether he had in fact missed the start of the new bull market rally.

I suspect not, because one can have very strong bull runs in bear markets and looking at the large percentage gains in the rally over the last 6 weeks, I suspect that we need to remember that those gains are hardly linear i.e. based on where one was to track from let's assume last years highs, then we are still down size from there.

From Recently Updated

The other component that would have me wary is simply the economic backdrop. With on average 500,000 jobs being lost in the US each month and plant and retail closings you have a multiplier effect that may have some way to run.

There might be signs that housing is trying to find some equilibrium, but I am reminded of a great line that I read recently to describe our economic travails and it was that "we are no longer falling off a cliff; but rapidly bouncing down a steep hill"

I sit back appalled that I have missed such an impressive rally in equities; but suspect it's quite unsustainable and would agree whole heartedly with the likes of John Mauldin, Albert Edwards, Ambrose Pritchard Evans, that this is a suckers rally for the very reasons supra.

The metrics are pretty impressive looking back over the last 5-6 weeks Equity up anything 30-50%; Credit spreads compressed in the last month IG12 in about 140 points; Curve steepened; Yields higher - 10Y UST hit their resistance area in the 3.32 - 3.35% area last Thursday and will likely hold a 3.00-3.35% for now: Funding Spread vis-à-vis - Libor-OIS now at +71 (versus last years high of +364); 3mth Libor at its lowest level for quite some time trading under 1.00% (well off last Oct 5.77% high).

Investor risk appetite is definitely returning based on not only equities but on the desire for corporate issuance at a price.

So why the scepticism on my part?

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Simply put it doesn't add up just yet and furthermore the damage that has been done is structural in nature.

The Banks have all come through the Stress Tests with flying colours, or at least the majority and the others can raise the required capital with ease now that investor appetite for risk has returned; but Treasury carried out these tests and the initial results had many of the banks up in arms including Wells Fargo from all accounts on the initial outcome and recommendations by Treasury to the extent that there was substantial push back by the banks. While the tests might not have been be undertaken with a tickle stick as some have suggested was the case of Barclays with the FSA; it also suggests that the initial rigour was relaxed at the end of the day.

From Recently Updated

I continue to call for embracing the current economic reality. That is not pessimism that's simply making an assessment of the current facts and circumstance without sugar coating. The observation at this point is the likely divide that we will end up with, as you have the very strong dominant players such as JPM, Goldman, CS and MS and the rest of the crowd.

An acrimonious letter of complaint to Bill Caroll , Host of CFRB 1010 Morning Show

I had the bad luck to be listening to a repeat of your morning show last evening on CFRB and was appalled by your callous attitude towards the suffering of the Tamils in Sri-Lanka. I believe I understand why it is so many listeners consider you a racist based on the attitude you adopt on your show.

While I don't subscribe to that theory, your evidently polarizing approach and contempt for a minority that is suffering, not to mention your reference to the Tamil protesters, in a fashion that would suggest that they are not worthy enough to have the ability to protest in a fashion of they choosing, including breaking the law, screams your contempt at them for trying to bring attention to the slaughter of their families overseas.

I certainly wouldn't disagree with you that walking onto the Gardiner Expressway can only be deemed dangerous; but I suspect that the women and children were not the first to get up the ramp, that’s not me making excuses either, and I wholly agree that breaking the law is not something that should be supported.

Nonetheless you missed the point completely as you excoriated the Tamil spokesperson, threw scorn on the fact that the Tamil community here in Toronto are caring enough of their relatives and former country men and women, in their old homeland, to want to elicit our government to try some form of intervention.

The fact that you also chose to rant in an ignorant fashion about what they thought they would achieve, shows how much you miss the point. Yes folks were and have been inconvenienced by the protest rallies over the last few weeks, myself included; but if you look at the amount of media coverage received by the action taken Sunday, and the responses from various arms of government at the Provincial and Federal level, then that would suggest to me that the Tamils are receiving the interest that they have been trying to attract.

After the genocide that we observed in Rwanda, as Canadians we like to see ourselves as peacekeepers and helping the downtrodden, we have a large population of Canadians of Tamil extraction who are asking for the government of Stephen Harper to use its diplomatic channels to approach international partners at the UN to bring pressure to bear to stop the slaughter; yet you mockingly ask what they hope to achieve, and in fact dismissively imply, its just noisy brown people (my emphasis) breaking the law, putting their children in jeopardy and worse, god forbid inconveniencing and not respecting their fellow Canadians.

The fact that towards the end of your show you backtracked somewhat from some of these heinous attitudes that you spouted earlier in the show does not in anyway help.

I suspect you should be the point person on the wall of shame, you are so quick to attach people's name to for your callous attitude towards a humanitarian crisis.

Movies That I Only Watch on Planes!

I am watching a movie on a flight to Vancouver right now. Its rather touching and I have just had a bit of a revelation.

I think that I am a bit of a sop for movies about underdogs or unrequited love.
My preference has always been for movies that are fast paced, with gratuitous amounts of sex and violence and in watching this ridiculously touching movie starring Dustin Hoffman - Last Chance Harvey Shine - (with Emma Thompson) I am really moved.

Quite sad; though I am even sadder for the bruising I am taking from the rather rotund and large hipped, big boned South-Asian stewardess as she continually knocks my shoulders for the umpteenth time as she waddles past......

When I look back, I have watched numerous movies on airlines over the years that I would not give a second thought too at Blockbuster or when they arrive in the Theatres (still havent seen Titanic); because they simply don't fit my preference for the fast paced gratuitous sex and violence or for a crime drama thriller British style that I particularly enjoy.

So looking back I can name a few movies that have absolutely surprised me that I have watched on planes that fit that category; but were surpisingly enjoyable though somewhat light on story, some of which are now firm favourites.

Marley & Me; The Notebook; Teh Reader; The Namesake (a movie that I truly love and is now one of my favourites of all time); Valkyrie, a really good movie with an outstanding performance by Tom Cruise (a man I love to hate yet, I find it difficult to criticize the majority of his movies, in fact I really enjoy the majority of his movies).

The list goes on and not wishing to bore you any further will stop there and continue this idiotically enjoyable movie about the human condition as it speaks to loneliness. Shine on Harvey!

My Tokyo Experience

Tokyo Trip Apr 2009

For more pikkies of my Japan Trip click on this link:

http://picasaweb.google.com/grazor.ray/TokyoTripApr2009#


What an amazing place Tokyo is.

The Japanese are polite, patient, courteous and especially punctual.
In fact the other side to that politeness is that they ignore you with studious conviction. They don't stare and they avoid eye contact unless directly approached.

Its a city of many contrasts feeling at one time as though its all neighbourhood. and at the same time the degree of sophistication evident in so many things also speaks to its worldliness.

I think now of the odd and an interesting marriage it represents, something. borrowed, something blue, something old and something new. Don't really know about the blue bit, but if you take their language, the script they write in, then most definitely borrowed, as is Buddhism and certainly plenty of the old and new living happily together.

I am currently sitting on the Shinkansen, Super Express, more commonly known as the Bullet Train to you and I, so I can absolutely attest to its speed and punctuality.
Its beautiful and sleek, totally functional, comfortable and the damn thing is so spotlessly clean as to be almost intimidating. I am on a day trip to Kyoto to fulfil a 30year desire to visit the place that the first Tokugawa Shogun had his Kyoto residence, Nijo Castle.
Why you may ask, well simply put during my undergrad I took Japanese Economic History with the period Tokugawa to Meiji specifically as my study range.

Did I mention Tokyo isn't cheap, with the exception of the ubiquitous noodle bars and yakitori houses, most items come at a higher cost here in Tokyo.

My observations of the Japanese and my conversations with my dear friend and his fiancee who are hosting my visit, confirms some thoughts I might have had; but my eyes are continually opened based on simple observation.



The evident hierarchical nature of the society absolutely creates its own quite interesting challenges for the ex-pat gaijin community. Probably the most obvious being the evident lack of social interaction outside of the work environment with Japanese colleagues. As my friend's fiancee informed me, after struggling in Japanese all day, its quite nice to wind down and be around folks, where you can not only think in your language; but essentially relax in it and not have to worry about the myriad of cultural trappings and sometimes obstacles to be found here.

No doubt like a typical gaijin I keep being amazed or gawk at simple stuff
.
*The taxi' whose door opens by itself and closes by itself.

* parking lots where cars mysteriously disappear into the floor once switched off only to mysteriously reappear facing in the right direction to drive away.

*The fact that there are vending machines offering a wide array of products though predominantly cigarettes and a strange variety of drinks almost every 75 metres along the way

* Numerous folks wearing white masks, which I didn't initially understand until it was explained that the large amount of cedar trees in the city has led to 1 in 5 individuals having hay fever like symptoms, so its pretty standard..
The other being that when someone has a cold it helps prevent them from spreading it. (Common sense huh)

*Designated smoking areas along the street that's adhered to by one and all.

* that a car can only be purchased if you can show you own a parking spot or have arranged for one

*The fashion statement for the younger women which is one of long socks/leggings running just above the knee, with either denim shorts or a short denim skirt and high heels is a de rigeur outfit in its various interpretations.

* I don't believe I have seen a male under 40 who doesn't carry some type of man bag, very practical actually and generally very stylish.

*Our tour guide(I did a half day tour that was highly informative) kept on referencing western style toilets on my first day. I didn't think too much of it until I went into one of the public bathrooms at the Buddhist temple, hmmmm......different...... and so I understood that there is a traditional Japanese style apart from sit down, despite the Toto brand having some of the most sophisticated I have ever seen.
One opened for me in restaurant rest room in Kyoto today as I approached it making me nervous and wary that someone was watching me.

* Litter is unheard of as was evident this morning as my host was driving me to Tokyo station in his lovely Porsche and had to avoid a gentleman in the road that had stopped his scooter to track down a piece of litter he had inadvertently dropped.

* all the neighbourhoods despite the lack of large gardens etc, are all filled with trees, bushes and all the doris(avenues) are lined with ginko or cedar; but the surprise was the amount of citrus trees with large ripe fruit that can be found. (limited research suggests it might be the bitter orange used in ponzu)



Tokyo is a phenomenally fashionable town and it shows in the very wide variety of western shops and designer labels. Did I mention that it aint cheap :)

I saw Puma's yesterday that were averaging $440 a pair, admittedly they were naturally high end with a designer name attached to them that I had never previously heard of, there were even Puma platform shoes. We also went to a Nike store where you could design your own sneakers, which is a big thing in this town.....Bathing Ape anyone, the styles are multi-hued and equally multi varied.

The Prada cube in Aoyama was quite extraordinary which brings me to another feature which is the variety of architecture and how attractive the majority of it happens to be. As my host pointed out, invariably as they knock down the older structures, the new ones going up show style and panache and of itself is worthwhile for a tour.

The folks in this town like their cars throwing cold water on some of my misconceptions about Japan being a land of small cars. Yes there are numerous small vehicles, especially trucks delivering liquor and spirits as well as foods; but goodness, I can't remember the last time I saw so many high end vehicles and I am talking Rolls Royce galore, Porsches of all sorts, Range Rovers, the Aston Martin seems especially popular, Maserrati's, and BMW's are two a penny. Lots of Alfa Romeos (including the classic Spyder of which you rarely if ever see one in Toronto).
As a sequitur, by the way a delicious and ironic revelation was that the Japanese have played a very expensive joke on those of us that live in the west and pay the premium for their luxury divisions think Toyota/Lexus and Nissan/Infiniti as examples. There is no Infiniti brand here they are all Nissans admittedly with specific names for the Japanese market. The ubiquitous Oakville mum run around. Lexus SUV, is a simple Toyota here. The wily buggers have charged us more for their domestic brands through a simple rebranding exercise. Knowing this intellectually and comprehending it mechanically before was one thing: however I found staring it in the face though to be more than cheeky!

Moving on, one of the consistent highlights for me has been the quality of the food and the fact that I am now a true believer in Japanese A5 Wagyu, something I was able to experience on the evening of my arrival in conjunction with a NY colleague of mine that was coincidentally in town and was leaving the next day. While I have consumed wagyu before, the quality, taste and texture of the A5 was quite something else. We had the most amazing meal at a Yakinuku restaurant in Nishi-Azabu off a tiny side street with a completely unheralded entrance, that I suspect you would walk pass without appreciating it was there.

We were taken through and up the ladder of taste and flavour, with the grilling taking place at our table and guidance from the lovely young woman that was grilling for us, beautiful slivers of meat with a variety of sauces for dipping then a variety of wagyu A5, which was so beautifully marbled that I watched with increased expectation as she grilled a decently thick almost rectangular column to perfection, which was duly consumed with relish by myself and my dining partners.

The meal ended on an especially high note when I was served a bowl of soba noodles in a cold broth that had a hint of citrus, with beautifully chopped green onions and white sesame seeds sprinkled over the top. It was sublime, the textural crunch added by the sesame seeds to the perfectly cooked soba and that broth with its wonderfully perfumed fragrance was outstanding.



The very next evening of course my hosts chose to take the bar up a notch taking me to a tiny fish restaurant in Shibuya on a Friday night allowing me a number of experiences at the same time.
The first being my chance to observe the throngs of Salary Men out on the town in droves, in their suits and with their briefcases, getting a load off after a long week. The second was the superb meal that we enjoyed at Kekiya.

We started with ultra fresh thinly sliced pieces of bass that was marinated in a mix of olive oil, lemon and dribbled with a light, fresh and invigorating pesto. That was followed by crab spring rolls that has no relationship to the more traditional spring rolls as the wrap was more of a firmer textured crepe with warm crab flesh and greens and beautifully seasoned. We moved on to a large platter of sashimi and thank goodness my host insisted that I had some of the fatty tuna belly, which I had generally avoided in the past; but found that this piece of toro melted in my mouth and was so flavourful, I was disappointed I hadn't eaten some more when it first arrived.


Next came gyoza dumplings which simply didn't meet my expectations in shape (cylindrical and cut into good length individual two mouthful portion) or taste and filling. Here we had discernible pieces of seafood with a flavour base that excited the already overwhelmed taste sensorium.
We followed that up with tuna jaw that had been braised and goodness what a total joy, fantastic ingredients cooked with minimal fuss and beautifully presented not to mention amazingly tasty, we rounded of the meal with two whole grilled sweet fish on the bone served with a lovely clean lemon and olive mix with infused herbs, goodness my hosts know how to appeal to my centres of joy!. The food has been fantastic. Did I mention our Saturday sushi lunch with the most divine Unagi I have ever had. This was a full serving uncut on a long slender plate with a small dollop of rice underneath that allowed you to focus on the beautifully grilled nature of the pike eel and the subtlety of the teriyaki sauce, the sheer enjoyment of which forced me to order a second one.

Tokyo has many contrasts as I have observed. After having being at Shibuya crossing on Sunday evening (a total madhouse), having also mingled in the insanity that is Harajuku on a Sunday afternoon, less than 15 minutes away we are in a part of Nishi-Azabu called Hiro, the Five O'clock bell is rung and my host informs me that from all accounts the bell is rung throughout Japan daily, but as we walk back from a supermarket shopping excursion I am struck by how peacefully quiet the neighbourhood is and that's what I found time after time when wandering away from the major dori's or avenues, you hit narrow side streets that it's a total wonder to explore. They are narrow, neat, clean and invariably one will find small eateries, shops or interesting architecture. Life off the beaten track has never been so interesting and this represents in so many respects the land of so many contrasts that I found in my visit to Tokyo.

Not mentioned or mentioned only briefly in this short travelogue; but must be done, observed:

* the madhouse that is Tsukiji Fish Market and eating ultra fresh sushi and freshly grilled pike eel in the surrounding area at 8am in the morning washed down by a beer.

* A day trip to Kyoto for an opportunity to ride the super fast, super clean and especially comfortable Shinkansen Super- Express, better known as the "Bullet Train". Still a marvel of modern engineering that takes you 500km away in just over 2hours. They are never late ( though bloody expensive) The other reason for Kyoto is the history and the temples. You will not be disappointed.

From Grazor's Blog - Writing because no one wants to listen!

* Yasukuni Shrine in Tokyo. You may have heard about this based on the furore and controversy linked to Japanese Prime Ministers visiting the war dead. Ignore that and go, its very very worthwhile. Its an opportunity to get a complete history lesson on Japan and its relationship with the world.

* take cash and lots of it. Credit cards are fine; but as I found out to my horror,the Japanese cater to themselves, so access to ATM machines with Plus and Cirrus non existent, with the exception of finding a Citi or HSBC branch and even then try getting money out of your account, challenging.

*the basement floors in the large department stores in the Ginza

* the coach service to Narita. You will get a semi tour of Tokyo thrown in as you move from hotel to hotel for passenger pick-up

* the Japanese subway system. Clean (naturally) and very easy to use, though some decent walks on transfers from one line to the next.

More pictures from My Tokyo trip can be viewed here:

http://picasaweb.google.com/grazor.ray/TokyoTripApr2009#

Arrigato Gozaimasu!