Where a million essays, debates, rants, and denials have been littered over the past month arguing whether or not Social Security is a ponzi or not, we believe one simple chart should suffice to explain to the reader just where we stand. As those who follow the data series know too well, outlays exceeded revenues in 2010 for the first time ever, for a backward looking basis, and so when applying CBO data on future SSTF revenues and outlays (as a % of taxable payrolls), using 10 year moving average data, for forward looking projections, outlays surpass revenues and basically never look back until at least the end of the century. In other words: this is a construct that relies exclusively on new capital coming in to keep it funded and from imploding under its own weight, something better known in literature as a pyramid scheme. But yes: it is not a ponzi scheme in that it most certainly is not voluntary.
As more developments arise in the Solyndra case, we find the specifics of how it was none other than Jacob Lew, the head of the Office Management Bureau, elsewhere known as the guy who puts together all those forecasts that Obama pulls out of his hat as seeing growth of 3.7% in 2012 here and budget savings of $4 trillion there, got subpoenaed, and not just over anything, but over the deal that is rapidly becoming Obama's Solargate: Solyndra. As a recap: the man who is the "expert" on how the US will get out of its multi-trillion deficit had to be subpoenaed by Congress to explain his secretive actions that ended up most likely harming US taxpayers for reasons still unknown (but not for long), and what is far worse, Congress has to subpoena the head of the OMB because it failed to exercise proper oversight of the stimulus money in the $787 billion American Recovery and Reinvestment Act... and all this under the tutelage of a White House which recently won an award for Anti-Secrecy....which was present to the president by among other Gary Bass of OMB Watch...And somehow we are expected to believe that fiscal stimulus in America has even a remote chance of being allocated productively (a fatal Keynesian flaw which Andy Lees described earlier) instead of pumping up crony capitalism schemes that enrich vested interests, and which drown in opacity and obscurity over which not even Congress has any supervision?
Day after day we are brain-washed with the mantra of equity dividend yields being greater than treasury yields implies 'cheapness' or "who wants a 2% return from treasuries?". While we have tried again and again to put this dead-end of apples-to-unicorns valuation to bed, SocGen has an excellent treatise on the subject that should make all but the most ardent Bill Miller fan comprehend the ultimate risk-reward trade-off. Yes, bonds at sub 2% offer miserable returns, but equities will always offer a higher probability of major losses and until we have an investor base that is able to take such losses, low yields and a systematic preference for bonds is likely to be with us for a while. Risk capital will also be in short supply - if you have it, better use it wisely.
Peter Schiff On Obamanomics: "There Are Not Enough Open Minds In The Capitol To Keep This Ship From Sinking"Submitted by Tyler Durden on 09/19/2011 - 19:11
Peter Schiff wraps his congressional testimony on the Obama jobs plan, which was one of the most memorable such Congressional hearings on the topic to date, with the following letter of caution to all Americans. To wit: "I don't think those few open minds in the Capitol are going to be enough to keep this ship from sinking. There just isn't enough time or a strong enough will for reform from the American people. That is why it is so important for you to act individually to protect yourself and your family from the new age of stagflation. Please take the time to view my testimony, understand the problems we face, and align your investments accordingly." We urge anyone who has not watched Peter's testimony yet to do so below.
As usual, a corrupt and pathetic Moody's continues to boldly not go where everyone else has gone before. Luckily, S&P, which had the balls to cut the US, has just done so to Europe's next domino, by downgrading Italy from A+ to A, outlook negative. Then again, this was pretty much telegraphed 100% earlier today as noted in "Italy Expected To Cut Growth Forecasts Further." Anyway, those incompetents from Moody's are next. Some of the choicest words: "In our view, weaker economic growth performance will likely limit the effectiveness of Italy's revenue-led fiscal consolidation program", "We have revised our base-case medium-term projections of real GDP growth to an annual average of 0.7% between 2011 to 2014, compared with our previous projection of 1.3%", "The negative outlook reflects our view of additional downside risks to public finances related to the trajectory of Italy's real and nominal GDP growth, and implementation risks of the government's fiscal consolidation program" and so forth.
The real issues of my generation have unfortunately been glossed over. There have been the occasional articles chronicling how lifetime earnings are adversely affected for those who come out of school into a recession, but this downturn has already had a duration above and beyond the norm, and at present doesn’t appear to be ending any time in the near term. Meanwhile, the bills are stacking up, and even those of us who are working from Generation Neutral are starting to be concerned that the debts we signed on for at 18 will live to haunt us well longer than our worst projections. There is beginning to be a certain resigned malaise hanging over us, and as capitalism is a system predicated on growth and a healthy amount of optimism in the future, this is yet another headwind to our economic and even psychological well being...I’ve yet to figure out what will break our apathy, as our misspent optimism still keeps us believing, however fleetingly, that this too shall pass. The day that we collectively realize that better days aren’t coming could well be too late, but the debts amassed during our optimistic youth will still continue to knock on our door. If our generation doesn’t have it better than our parents’, I wonder what the narrative we tell our children will sound like.
While there was no news from the Greek-Troika discussions, 'deal' chatter was enough to juice S&P futures to day/night session highs (above 1200) on a significant rise in volume and average trade-size. All day we had 5-10pts swings in ES hinging on every headline from Europe and it was very clear that underlying equities themselves were being dragged in a very macro-manner (no surprise at the intraday correlation) with financials lagging most of the moves and ending down 2.7%. TSYs, 2s10s30s, and credit were far less impressed as ES spiked.
While we have heard rumors of a possible Greek referendum vis-a-vis IMF bailouts (i.e., Euro membership) in the past (as long ago as April 2010, or before the first Greek bailout, when life was actually acceptable and the retirement age was in the 50s) we have promptly dismissed such rumors: after all the EU/IMF/Troica/Status QuoTM what have you would never leave the fate of its existence in such a democratic construct as a majority vote, especially with what would be a near unanimous vote to secede. Well, it may be time to start taking these rumors seriously. Actually no, never mind.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 19/09/11
The Corporate Bank Run Has Started: Siemens Pulls €500 Million From A French Bank, Redeposits Direct With ECBSubmitted by Tyler Durden on 09/19/2011 - 14:43
In a shocking representation of just how bad things are in Europe, the FT reports that major European industrial concern Siemens, pulled €500 million form a large French bank, which is not BNP and leaves just [SocGen|Credit Agricole] and deposited the money straight to the ECB. The implications of this are quite stunning, as it means that even European companies now refuse to work directly with their own banks, and somehow the ECB has become a direct lender/cash holder of only resort to private non-financial institutions! As Bloomberg reports further on the FT story, in total, Siemens has deposited between 4 billion euros and 6 billion euros, mostly through one-week deposits, with the ECB, FT says, cites the person. It isn’t clear from which bank Siemens withdrew its deposits, per the FT... but it is hardly difficult to figure out. BNP Paribas isn’t the bank involved, FT reports, cites unidentified person familiar with the bank. This story should be having far more impact on the EURUSD than any rumors about Greece lying it will fire all of its public workers only to make sure Eurobanks can survive one more day.
There are those who watch quietly from the sidelines as month after month, year after year, decade after decade, the Keynesians among us (especially those who only focus on the upswing in the business cycle and always ignore the downswing) announce that the only thing the economy needs to grow is a just a little more debt... more debt.... much more debt.... And for the most part it worked: for years every dollar in additional debt generated a little less than a dollar of economic growth, or GDP. Alas, slowly but surely, we have been pushed to the point where incremental debt generates no incremental growth: an event that if it were to be recognized for the debt-stimulus dead end it is, would put an end to years of flawed economic thought taught in the world's most prestigious universities. Yet there is more to it, and as always it goes to the age-old question of capital allocation efficiency, and specifically how with time, any centrally-planned attempt to allocate capital effectively always fails, usually accompanied by incurring insurmountable leverage. Probably one of the best and most succinct summary of this core quandary facing the entire developed world and the voodoo economics profession in general, was done by UBS's Andy Lees today, who in one note, deconstructed the primary flaws, and outright lies, at the base of the last ditch economic rescue effort planned by Obama, by the world's army of "fiscal stimulants" and by the western world in general.
Update 2: here comes the rhetoric:
- Greek finance minister official says Greece is close to a deal with the Troika
...and back down:
- Greek finance minister says some work is still needed to quantify measures
And for today's fake press du jour release we go to Marketwatch which amusingly carries the following headline/story, which has since been rebroadcast by Bloomberg and other wire services:
- 700,000,000 Million Cars and Light Trucks Need Recalling
That's.... 700 trillion!?
Demonstrating that when it comes to "lecturing" Europe is no better than America's own Tim Geithner (who was loudly jeered at last week's FinMin meeting in Poland after he came, he saw, and told Europe to do everything that the US had done before with such 'stunning success'), is an exclusive report from Reuters which references an EU document according to which "the European Union will call on China this week to boost domestic demand and on the United States and Japan to tackle their public deficits." Furthermore "the consolidation plans to be undertaken in most EU countries, in the U.S. and in Japan need to be accompanied by appropriate policies in other regions of the world so as to avoid an undesired compression of global demand." In other words, if the rest of the world could promptly go ahead and fix itself and fall bak in line so the status quo can resume its dutiful creep to previously unseen Ponzi heights asap, that would be wonderful and much appreciated by Brussels, and Europe can pretend its monetary union is still a viable long-term option.
In an emailed statement from the Greek finance ministry, we are told not to expect to hear anything from anyone about anything. Sounds like they have it all under control then...*GREECE SAYS NO OFFICIAL ANNOUNCEMENT EXPECTED AFTER TROIKA CALL. The market's initial reaction is to sell-off on this no news as ES moves towards the day's lows and EUR inches lower.
- GREEK CALL WITH TROIKA MAY CONTINUE TOMORROW OR LATER: MINISTRY :-Are they all on hold for Bernanke?
- GREEK FINANCE MINISTRY SAYS NO CABINET MEETING PLANNED SEPT. 20 :- Deny, Deny, Deny, or simply Lie, because this contrasts with earlier reports that G-Pap would convene a cabinet meeting after the call.