Homemade Chili...

Fantastic article from Lee Anne Schreiber discussing what our brain is actually doing while we are watching sports...Well worth reading.

http://es.pn/uoDoRW - Enjoy!

If you were watching World Series Game 6 when David Freese hit his game-saving two-run triple on a 3-2 pitch in the bottom of the ninth, you may have jumped out of your seat, sloshed beer down your chest, and spewed half-chewed nachos toward the screen. But unbeknownst to you, as the beer fizzed, your brain leapt up, stretched your left arm nearly out of its socket trying to close the air between ball and glove before you slammed your backside into the Gulf logo on Busch Stadium's right-field wall.

Your brain plucked the ball from the grass, rocketed it toward third and, effortlessly switching allegiances, your brain slid headfirst into the bag. It also trotted home to score the tying run, and in the next few seconds, it waved a white rally towel, spat, and looked glumly over the Ranger dugout fence. Whatever your conscious fan loyalties, your brain couldn't help playing both sides, all roles. What your eyes see, your brain plays — as best it can, which is, of course, as variable as our actual playing and living.

The evidence that the spectating brain is also a playing brain has been mounting ever since the early 1990s, when a group of neurophysiologists at the University of Parma, Italy implanted electrodes in the brain of a macaque monkey to find out exactly which neurons fired when the monkey grasped a peanut and brought it to his mouth. The electrodes were placed in the monkey's premotor cortex, the region known to initiate signals that direct muscle movement in both macaques and humans. The researchers hoped that pinpointing the individual motor neurons that fired when the monkey grasped the peanut might lead to therapies that could help brain-damaged humans recover hand function.

The Parma team succeeded in their original brain-mapping goal, but it was an accidental discovery that made Parma a world-renowned source of cutting-edge neuroscience (not to mention hard cheese and cured ham). As science lore has it, a researcher in the Parma lab was eating peanuts one day when he heard a monitor buzz, indicating that the monkey's peanut-grasping neurons were firing. But the monkey had no peanut. After a moment of puzzlement came the researcher's "eureka!" moment: Some of the same motor neurons that fire when a monkey performs an action were also firing when he watched someone else perform that action.

Taibbi is on a monumental roll of late - He could throw it up from half court, blindfolded and stumbling drunk, with his left hand, and into a heavy, swirling wind and it would still come down nothing but net...Bravo, Matt, BRAVO!!!

From the Rolling Stone article:

"Man, I thought. This guy is really sure of himself. If there is such a thing as infinite self-satisfaction, he was definitely approaching it that night.

And it wasn’t hard to see why. Bloomberg’s great triumph as a politician has been the way he’s been able to win over exactly the sort of crowd that was gathering at the HuffPost event that night. He is a billionaire Wall Street creature with an extreme deregulatory bent who has quietly advanced some nastily regressive police policies (most notably the notorious "stop-and-frisk" practice) but has won over upper-middle-class liberals with his stances on choice and gay marriage and other social issues.

Bloomberg’s main attraction as a politician has been his ability to stick closely to a holy trinity of basic PR principles: bang heavily on black crime, embrace social issues dear to white progressives, and in the remaining working hours give your pals on Wall Street (who can raise any money you need, if you somehow run out of your own) whatever they want.

He understands that as long as you keep muggers and pimps out of the prime shopping areas in the Upper West Side, and make sure to sound the right notes on abortion, stem-cell research, global warming, and the like, you can believably play the role of the wisecracking, good-guy-billionaire Belle of the Ball for the same crowd that twenty years ago would have been feting Ed Koch."

"You've always had the power to go back to Kansas, dear...Are you ready now?  Then close your eyes and tap your heels together three times.  And think to yourself: there is no place like home, there is no place like home..." -- Glinda the Good

We seem to be having a bit of a "Ruby Shoe" moment in China and China related names over the past few days. The narrative from the brokerage community has been all about rate cuts and lending and monetary easing (oh, my) with the euphoria building to the point where we are seeing these things reported as fact on various newswires (despite emphatic denials at all levels of government). Today it seemed as if the entire sell side community was out "recommending China" with a special emphasis on high beta China plays. The highlight of these recommendations was the call to buy not only high beta names, but to actually search out the worst performing stocks on the view that "they were the most underowned and would rally the most when China broke out."  On a flow basis, China is clearly the belle of the ball with an emphasis on buying in the Chinese property and insurance spaces. 

Before I go on, I'll just give a quick spoiler alert - Below I plan to rain on this China parade - So if you just want to enjoy a Friday free of a bearish rant on China then I'd suggest you stop reading now.  In my experience, when we get this manner of euphoria and excitement, when people are recommending "loading up on high beta" (because stocks only go up, right?), that is generally when a move is on the edge of exhausting itself. And that is where I think we are right now. I believe we're about to see a burst of topping distribution and then we are headed back lower again.

We can start with a simple chart of the A-Shares index. I have attached a 5 year daily chart. Let's have a look just to add some perspective.  I look at it and say: "Really? This has people all excited?"  Because, well, it frankly isn't that exciting.  The downward sloping trend line that has bound this market since 2007 has swerved into view.  I'm just really not seeing it. Not much more than that to say. Are you seeing anything in this chart that I am missing? 

Moving on, the brokerage community seems to have once again taken it in to their heads that monetary easing is imminent. This claim is made every couple of months and, as I have said in the past, will, like a broken clock, be right at some point. But I ask you, why should we believe that it will be proven correct in this instance? There have been denials that a change is in the works from all levels of the Chinese policy making apparatus. And, one really has to wonder, with the economy still growing at a robust pace, why would the CSC feel that any monetary stimulus is needed? Particularly given that the comments out of the Central Standing Committee and Ministry Heads all indicate that China is shooting for a 6-7% growth rate by the middle of the decade. A target that, it is worth noting, makes a lot of sense: it is a $10tn economy, after all. It can't be expected to grow at 9% forever. So why should the easing happen now?

At times like this, I always revisit a chart that has served me well for many years. It is a chart of the Chinese 10yr/3mth curve and I have attached a graph of it overlaid on the A share index. Currently, the curve is sitting deeply inverted: negative 200bps. Not really where I would expect it to be if the policy makers wanted to signal monetary easing. You can see from the chart that they aren't shy about signalling with this curve and that they have done so in the past. Right now we are clearly getting a divergence, and I am not of the view that the divergence will resolve itself in favour of equities.

So while the brokerage community seems to feel that, like Dorothy, if they click their heels together and keep repeating something it will become true, I am afraid that generally it doesn't work out that way. Moreover, I would remind these people that Dorothy woke up in a dirt farmer's shack in the middle of Kansas, in black and white, and sporting a nasty headache.  Which is actually not all that far off from what happens to people that follow an investment strategy of clicking one's heels together and hoping for the best. I believe things are about to come to a head and our down move will resume.  Be a seller of China here.

(download)

Click here to download:

euphoria-parades-and-the-inevitable-rain-mEatIzxwhwfznBFFvBai.zip (75 KB)

Great post from Matina Stevis in the WSJ's "The Source" - As I pointed out in an earlier post, irrespective what happens to the referendum, the events of the past few days are going to result in elections in Greece.  And people are going to win those elections by campaigning on a promise to renegotiate the austerity package agreed with the troika.

The referendum on whether or not to stay in the EMU was actually the best possible outcome for Greece and Europe because it was likely to pass and leave the Socialists in better shape to implement the austerity package.  By forcing new elections, Greece is setting itself up for a showdown with the Troika which is going to prove to be, at the very least, a Euro negative.  And in the worst case, the beginning of the end for the single unit.

The Euro should be no where near 1.37 given the current state of affairs.  It should be passing @ 1.20 on the way to 1.00.

See the WSJ post below:

http://blogs.wsj.com/source/2011/11/03/papandreous-last-stand/

"So here are a few possible scenarios:

–First, Mr. Papandreou steps down and another Pasok minister, most likely Finance Minister Evangelos Venizelos, steps in. The Greek constitution would allow this for a time, but the new government would still need to move swiftly to election.

–Alternatively, someone in Pasok would lead negotiations to form a government of national unity–another interim solution that would probably result in elections by late this year or early next at the latest.

Opposition New Democracy party leader Antonis Samaras is now warming to the idea if an election date is set sometime in the immediate future, but only if Mr. Papandreou quits, say our sources. Dora Bakoyiannis, a former New Democracy minister and now leader of a new party, told us “there are many, many MPs across party lines who are fully prepared to support a proposal for the formation of a national unity government to guarantee the receipt of the new loan and Greece’s continued euro membership."

Seriously???

I could call it many things, but surprise isn't one of them.  Did people think that they were getting another German (or even a French wannabe German) to run the ECB???  When Weber left it effectively emptied the ECB of any lingering Germans and German-ness.  Now we get Monetary Policy Southern European style!  

I'm not convinced that the new style is going to play well in Berlin.

Just sayin'...

The Euro seems to be rallying on rumours that Papandreou is going to be ousted somehow.  I gather the thinking behind the Euro buying must be that if Papandreou goes then the referendum goes too; and that if the referendum is cancelled than all will be well again.

I must say - I don't think that this is sound reasoning at all.

The genie is out of the bottle at this juncture and it isn't as if they can just walk it back and pretend nothing has happened. Should Papandreou resign, even were the referendum to be cancelled, there would likely be new elections.  Equally, were Papandreou to stay and lose the no confidence vote, there would be new elections.  Finally, in the event of an outcome that did not lead to new elections, then I suspect that we will see the members of the New Democracy party resign in order to...wait for it...force new elections.  (They want to renegotiate the austerity measures and they can't do that unless they are in power!)  

It should go without saying that the narrative driving any new elections is clearly going to center on walking back the austerity plan, which, according to the polling data, is a popular stance.  And I must say that it is not immediately apparent to me that Merkel, Sarkozy, et al could sell a renegotiated Greek austerity package to their constituents.  So I have to think that anything that leads to new elections in Greece is going to prove a negative for both the Euro AND global markets generally. This rally in risk here is based on yet more magical thinking: proof, if any was needed, that a little knowledge is a dangerous thing.

"The time has come," the walrus said, "to talk of many things: of shoes, and ships and sealing wax - of cabbages and kings - And why the sea is boiling hot and whether pigs have wings." - Lewis Carroll

Once again Asia having a bout of "Forest for Trees-itis" - Which is a common manifestation of crisis fatigue. Markets opened up weaker on the back of headlines out of Greece that the Greek referendum was going ahead as a referendum on membership in the Eurozone. That weakness was short lived as it became apparent that this was actually Papandreou's best shot at achieving his desired outcome (See my earlier message for more details).  As the Euro rallied on the back of that realization, Asian equities rallied as well; ostensibly on the view that a crisis had been averted.  And herein lies the rub: the market had become so fixated on the "tree" of Greece's referendum (one of several Greek "trees") that it failed to react to the forest of Europe burning around it.

Put another way: should the markets have reacted negatively to the news that the Greek referendum would center upon the question of EMU membership?  No. That specific piece of news was, ceteris paribus, on margin actually more positive than negative: the "tree" was fine (well, in a relative sense it was fine). But should EURUSD be trading @ 1.37 or Asian markets be pushing stronger given some of the other signals out of Europe (Think Italian and Spanish bond yields or the spread between French and German yields)?  Again the answer is "No, absolutely not".  The European "forest" is in full flame and is going to start spreading to the forests of North America and Asia. Equity markets should be selling off and the Euro should be pulling up at around 1.20 on its way to parity.

My view is unchanged. The European crisis, viewed holistically, is about to take it up a notch.  Broadly speaking you want to be selling markets here (I particularly like the Nifty short as it has seen the smallest outflows of all the Asian markets) while buying names that look like China Mobile or CK Infrastructure (CK Infra really sexy here given that European state owned infrastructure is about to go on fire sale).

Finally, I leave you with this link - Which is where the Alien reference in the title came from.  Clearly Paul Krugman has been taking a lot of heat from the Cult of Austerity for his example of how spending on "Alien Invasion Prevention" would act to drive GDP growth. But the Europeans seem to be hoping not for warlike Aliens, but for peace loving aliens that want to invest in the EFSF.  Enjoy!

http://hereisthecity.com/2011/11/01/euro-bailout-an-animated-explanation/

Note from earlier below:

Euro Weakens as Greeks to Vote on Euro Membership The EUR legs down on tthis, but I actually think that it is Papandreou's best move.  A vote on Austerity would likely end in failure as a healthy majority of the Greek populace are against the Austerity program. However, a significant majority of the populace has expressed a desire to remain in the Eurozone. While the answers to these two questions are mutually exclusive, such is the nature of discourse in Greece (and Europe generally) today. The best outcome for markets is that the no-confidence vote fails and the referendum passes.  I believe that this question, voting on Euro membership as opposed to austerity, gives the government the best chance of succeeding in regaining some of their political legitimacy.

Next issue to watch out for, though, is that the opposition, "New Democracy" pull out of the parliament and force snap elections which would effectively mean a referendum on Austerity.  Europe - The currency union that just keeps on feeding late night comedians and bored sales/traders...

Asia is largely ignoring the Greek story in early trade. I believe this is going to prove to be a mistake as the session drags on. Europe did not really get a chance to react to this news overnight and traders there will likely come into the Asian afternoon and fade this news. On a broader view, I don't think that either of these events, the confidence vote or the referendum, can be seen as definitely having positive outcomes.

As far as the no confidence vote goes, the received wisdom is that one doesn't force a no confidence vote unless one is reasonably sure that they will win. I would normally concur with this view, though as a particularly astute client points out, we have to be sure that we understand what "winning" actually is. Which is to say: "could this possibly be Papandreou's way of arranging a graceful exit?" The German press (Bild, Der Spiegel) have carried several stories indicating that Papandreou has tried to quit on a few occasions only to be prevailed upon by the Troika leadership to stay. I don't think that it is beyond the pale that he knows that he doesn't have the votes and called the confidence motion anyway.  And in any event, the people are restive which means their representatives will be as well, so this vote can't be considered a risk free venture by any stretch of the imagination.

On the referendum front, clearly polling would indicate that there is a risk o taking this approach as well.  Polls that I have seen in the NY Times and Der Spiegel have indicated that a clear majority of people are not in favour of the Austerity measures imposed thus far.  Polls on Euro membership have been less clear cut and generally have indicated a preference for staying within the EMU.  As UBS Economist Ed Teather says: "It is going to be important what question is actually asked".  If they phrase the question correctly, they could come away with a big win.  If it is phrased poorly, then they could end up with a nightmare on their hands.  Either way, it will be important to see the question before opining on the probability of its passing. Still, I don't see how it can do anything but make the world a much riskier place in the runup to the referendum.

One issue I have seen raised in defense of the decision to hold a referendum is that the Greek Citizenry will not vote to see their savings destroyed (as on an EMU exit their existing Euro deposits would be converted to "new drachma" at painful exchange rate).  While I can get behind the theoretical underpinnings of this view, the fact is that there has already been a pretty significant capital flight out of Greece, so where people have the means they have deposited money offshore in Euro's, USD's, & CHF's held overseas.  I would imagine as the referendum looms larger we will see another burst of capital flight from Greece. But I don't think that fear about existing savings is going to prove to be a significant deterrent to a no vote in the referendum.

All in all, I think that markets should be reacting with greater vigour to this turn of events. The European situation is like ice cracking: the initial crack has now birthed its own tributaries and the lattice of cracks from those tributaries are growing with ever greater rapidity. But equity markets are reacting to the decreasing stability with a sort of blissful ignorance based on equal parts hope and wilfully poor analysis.  I would expect that as Europe starts to trickle in today we see equity market weakness become more pronounced.  

Bloomberg Story Below:

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Papandreou Calls on Greeks to Back EU Debt Accord in Referendum 2011-11-01 00:00:01.4 GMT     (See EXT4 for more on Europe’s debt crisis.) By Maria Petrakis, Natalie Weeks and Marcus Bensasson     Nov. 1 (Bloomberg) -- Greek Prime Minister George Papandreou said voters will give him support to forge ahead with economic reforms as he pledged a referendum on the European Union’s latest accord on the nation’s financing.     “For the new agreement, we must go to a referendum for Greeks to decide,” Papandreou told lawmakers of his ruling socialist Pasok party in statements carried live yesterday from Athens on state-run Vouli TV. “Democracy is alive and well and Greeks are being called to rise to a national duty beyond the regular electoral processes.”     Papandreou’s gambit risks pushing the country into default if rejected by voters, and raises the ante with dissidents inside his own party. Papandreou’s popularity has plunged after a raft of austerity measures cut pensions and wages, increased taxes and sparked a wave of social unrest. An opinion poll published Oct. 29 showed most Greeks believe the accord on a new bailout package and a debt writedown is negative.     “Papandreou could lose the referendum, which means that new elections would have to be called,” Thomas Costerg, European economist at Standard Chartered Bank in London, said in an e-mail. “Heightened Greek uncertainty could propagate to other fragile euro-area countries, in particular Italy.”      Most of the 1,009 people surveyed on Oct. 27, the day the agreement was announced, said the accord should be put to a referendum, according to the results of the Kapa Research SA poll, published in To Vima newspaper. Forty-six percent said they’d oppose the plan at such a referendum. In the same poll, more than seven in 10 favored Greece remaining in the euro.                        Confidence Vote     Papandreou also told lawmakers he’ll seek a vote of confidence in parliament. The referendum will likely be held after details of the EU accord are wound up, Papandreou said. The vote of confidence will begin tomorrow and conclude late on Nov. 4, according to statements yesterday by House Speaker Filipos Petsalnikos.     EU leaders carved out a second aid package for Greece at a summit in Brussels lasting into the early hours of Oct. 27, after Papandreou scraped together parliamentary approval for the second round of austerity measures in four months. Greece will receive 130 billion euros ($180 billion) in public funds plus a 50 percent writedown on Greek debt, following a fully taxpayer- funded package of 110 billion euros extended in May 2010.                        Venizelos’s View     “I can no longer look at polls where the majority is against the agreement, the majority is against the program, but a majority is also in favor of staying in the euro,” Finance Minister Evangelos Venizelos said on Antenna TV after Papandreou announced his decision. A “no” vote at the referendum would lead to “developments” that the government would assess, Venizelos said.     Papandreou, whose term ends in 2013, is seeking renewed support to push through measures including job cuts to turn around an economy that is set to shrink 5.5 percent this year. The program involves new taxes and cuts in spending to plug the EU’s second-biggest budget gap.     The state budget deficit widened to 19.2 billion euros in the January to end-September period from 16.7 billion euros a year earlier, according to an e-mailed statement from the Athens-based Finance Ministry yesterday.     Opposition parties repeated their call for elections. Papandreou’s plans are “reckless” and put Greece’s EU membership at risk, lead opposition New Democracy party spokesman Yiannis Michelakis said.                          ‘Dangerous’     Papandreou “has tossed Greece’s future in Europe in the air like a coin,” Michelakis said in an e-mailed statement from ND’s Athens offices yesterday. “He is dangerous and must go. There is a solution: elections now. It’s the safest ‘referendum.’”     Papandreou now has just a three-seat majority in parliament and won approval for his latest austerity package amid protests that left one person dead. The budget measures prompted a near- rebellion in Papandreou’s party and violence in the streets.     The New Democracy party, led by Antonis Samaras, would win 22 percent of the vote in elections, with Papandreou’s Pasok party receiving 14.7 percent, and neither getting enough to form a majority in Parliament, according to the Kapa poll. More than 26 percent of voters said they were undecided on who to back. The margin of error is 3.09 percentage points.     Separately, the International Swaps and Derivatives Association said that the euro-area proposals for Greek bonds appear to involve “a voluntary exchange that would not be binding on all holders,” according to an e-mailed statement.     “As such, it does not appear to be likely that the euro zone proposal will trigger payments under existing CDS contracts,” the statement said. “However, whether or not it does so will be decided by the Determinations Committee on the basis of specific facts, if a request is made to them.”     The ISDA statement late yesterday follows a review of whether the proposal would constitute a “credit event” for holders of credit-default swaps linked to the securities. For Related News and Information: Top Stories: TOP --With assistance from Jennifer Ryan in London and Antonis Galanopoulos in Athens. Editors: Digby Lidstone, Craig Stirling, Kevin Costelloe To contact the reporters responsible for this story: Maria Petrakis in Athens at +30-210-741-9080 or mpetrakis@bloomberg.net; Natalie Weeks in Athens at +30-210-741-9069 or nweeks2@bloomberg.net; Marcus Bensasson in Athens at +30-210-741-9077 or mbensasson@bloomberg.net