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Guest Post: Are Corporations People?

Either limited liability should be abolished  — corporations could still exist, but their owners and management are personally responsible for any debts and destruction incurred — or their behaviour should be taxed punitively to encourage individual and small business initiatives — the real wealth creators, job creators and innovators — over large scale destructo-juggernauts. At the very least, we should completely stop bailing them out when they blow up. That’s responsibility. Corporations are certainly not free market entities. Their very reason for existence — limited liability — is created through government fiat. Capitalism and markets existed long before the creation of limited liability, and surely will exist for a long time after its demise.



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Treasury Responds, Says Very Few Of Its Officials Use Taxpayer Money To Solicit Hookers So You Must Acquit

From the Treasury: "Here are the facts.  The Office of the Inspector General (OIG) recently released 11 investigative reports covering conduct that occurred as early as 2000.  In four cases, the OIG concluded that there was no evidence to support the allegations.  In one case, the misconduct was committed by a private citizen (a Treasury office was burglarized).  That leaves six cases in question.  Although any misconduct is unacceptable, this is a small number that does not fairly reflect a Department with tens of thousands of employees. None of the employees at issue were political appointees or senior officials, and there is absolutely no evidence of any pattern or trend."



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US Climate Update: Warmest 12 Months On Record

The Northern Hemisphere just experienced the all-time warmest June on record, at 2.34°F above average. The average temperature for the contiguous U.S. during June was 71.2°F, which is 2.0°F above the 20th century average, contributing to a record-warm first half of the year and the warmest 12-month period the nation has experienced since record-keeping began in 1895. Scorching temperatures during the second half of the month led many cities to set all-time temperature records. The nation, as a whole, experienced its tenth driest June on record. Record and near-record dry conditions were present across the Intermountain West. Over 170 all-time warm temperature records were broken or tied during the month. Temperatures in South Carolina (113°F) and Georgia (112°F) are currently under review by the U.S. State Climate Extremes Committee as possible all-time statewide temperature records. According to the U.S. Drought Monitor, as of July 3, 56.0 percent of the contiguous U.S. experienced drought conditions, the most since records began.



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Criminal Inquiry Shifts To JPMorgan's Mispricing Of Hundreds Of Billions In CDS: Is Dimon The Next Diamond?

On the last day of May, when we first learned via Bloomberg that there was even the scantest likelihood that JPM may have been massaging its CDS marks within the (London-based of course) CIO organization - the backbone of hundreds of billions in notional exposure, and thus a huge counterfeited benefit to trader bonuses and corporate earnings - we wrote, "The Second Act Of The JPM CIO Fiasco Has Arrived - Mismarking Hundreds Of Billions In Credit Default Swaps" in which we explained precisely how this activity would and did take place, precisely why other traders caught doing the same are on the verge of being thrown in jail, precisely why everyone else does it, and precisely why the biggest CDS self-reporting and client/banker owned-organization (this is where images of Libor should appear), MarkIt, may well be implicated in everything - very much in the same way that the BBA is the heart of Lie-borgate. Because unlike all other allegations of impropriety, most of which rely on Level 2 and Level 3 assets whose valuations are in the eye of the oh so very sophisticated beholder (in this case JPM) who has complex DCFs and speaks confidently when explaining marks to naive, stupid outsiders (in other words baffles with bullshit), when it comes to one of the last places where Mark to Market is still applicable and used: the OTC CDS market, and where daily P&L records are kept, it will take any regulator, enforcer, or criminal investigator precisely 1 minute to find out if there was fraud, or gambling, going on here. Most importantly, it opened up the firm to a criminal investigation. Which as Reuters reports, is precisely what has now happened.



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It's Different This Time: The Scariest Equity Market Chart Around

While analogs for periods past have been shown time and time again, the striking similarity of the last four months of this year and the same period last year is becoming extremely worrisome. The rips and dips are of almost perfectly equal size and duration and retail and professional participation is also very similar. July 21st marked the top last year after failing to break the highs of a July 4th week peak (which occurred on low average trade size). It would appear the bulls are hoping that it's different this time - or else it is very scary with S&P 500 set for the magic 1200 Bernanke Put strike very soon.



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Senate Throws The Book At HSBC Accusing It Of Massive "Money Laundering And Terrorist Financing", No Comment On NAR Money Laundering Yet

Just because there is already an overflow of confidence in the financial system, here comes the Senate's Permanent Subcommittee On Investigations with a 340 page report detailing how HSBC "exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls." Of course, since HSBC is one of the world's largest banks, what it did was not in any way unique, and it is quite fair to say that every other bank has the same loose anti-money "laundering" provisions. What HSBC was likely most at fault for was not providing sufficient hush money to the appropriate powers in the highest US legislative administration. But at least tomorrow we will have yet another dog and pony show, accusing that HSBC did what the NAR does every single day. Because let's not forget that the National Association of Realtors lobbied for and received a waiver for anti-money laundering provision regulations: after all how else will US real estate remain at its current elevated levels if not for the drug, blood, and fraud money from various Russian, Chinese, and petrodollar kingpins, mafia bosses and otherwise rich people who need to launder their money in the US, in the process keeping Manhattan real estate in the stratosphere? But one can't possibly pursue the real truth if it just may impair the fair value of that backbone of honest, hard-working US society: still massively overpriced housing in a world in which those who need mortgages will never get them.



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Gold 'Divine' As Chinese Sell Wine

It seems the end of cheap money bulging out the Chinese wazoo have put the kibosh on the decade-long rally in the price of fine wine. Confirming what we initially noted back in November, it appears that we have a clear winner in the 'best wealth-preservation investment' game as Gold has gone on to dominate fine-wine (and equities) in the last year. As Bloomberg's chart-of-the-day points out, the rapid rise in wine prices - on the back of Chinese demand for French reds - came to an abrupt halt when the PBOC started to put the inflation brakes on - and as is clear - wine is now tracking the Shanghai Composite almost perfectly (down) as the 'asset grab' phase ends. While ironically, wine is (apparently) illiquid - accoridng to Hao Hong of Bocom, the outperformance of Gold in the short- and long-term reminds us of the Monty Python line as Chinese investors appear to have been promised 'all the gold they could eat', since, of course, man cannot live on iPads alone.



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A Cretan Writes A Heartfelt Letter To The Greek IRS

After all that I analyzed above, and hereby invoking the last article of the Constitution I declare the following:

a) Faced with the choice not to eat for three (3) months or to pay the tax you’re demanding I’ll choose not to pay a single penny.

b) Faced with the choice to commit suicide or become a murderer, I’ll choose to murder you.

c) If you have not made an error with this Income Tax Assessment Notice that you’ve sent me, then you’re a bunch of cheats and scoundrels and thieves.



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3 Month 'Slow' In Stocks As Everything Else Goes Nuts

UPDATE: Biggest down day in Faceplant since 5/29 (down 8%) to close at $28.25 on double recent volume.

This was the narrowest day's range in S&P 500 e-mini futures (ES) in over three months and volume was dismally slow as it clung to its 50DMA amid larger than normal average trade size. Elsewhere, markets were anything but dead. Commodities dipped and ripped with WTI breaking back over $88 on Saudi news and Silver/Gold/Copper all ending around unch on the day but leaking off their highs into the close (though well off lows). For a while 'bad was good' as the retail sales print prompted QE-on-esque trades with Gold up, USD down, and Treasury yields plunging to near-record-lows. FX and commodities appeared to catch up to stock's more sanguine view of things from Friday but once there, Treasury yields reversed and rose into the afternoon as EURUSD continued to rally back well into the green (repatriation?) dragging the USD down 0.25% from Friday's close. Credit notably underperformed equities on the day (with HYG stumbling into the close). It seems everyone is waiting with baited breath for Bernanke's speech tomorrow and VIX (which is back in line with realized vol for the first time in 5 months) limped higher by around 0.4 vols to 17.1%.



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Meet Marissa Mayer, Yahoo's New CEO

Former Google employee Marissa Mayer is now Yahoo's CEO. Good luck to the longs and Dan Loeb. In the meantime, hear (sic) she is. In the meantime, those who like us, were a little confused, this is all you need to know.



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Calpers Generates 1% Return, Misses Discount Rate Target By 87%

"Thank you ZIRP, may we have another." This is what the 1.6 million workers who have invested their retirement money with America's largest pension fund, California's CALPERS, may want to ask Chairman Ben following the firm's just announced results for Fiscal 2012 (ended June 30). The end result: +1% nominal return, which means a negative real return. And this is even including the now traditional end of June ramp which this year came courtesy of the now largely irrelevant European summit, which nonetheless ramped stocks and likely meant the difference for Calpers between positive and negative on the year! Sadly just one "another" year would not be enough, but a whopping 7 more would be needed, because as is well known, for all actuarial purposes Calpers, as well as the bulk of US pension funds, use a 7.5% discount rate. In other words, Calpers missed the minimum return it needs to not require overfunding by, oh... 87%. Here is Calper's Mea Culpa: "CalPERS 1 percent return is below the fund’s discount rate of 7.5 percent, a long-term hurdle lowered recently in response to a steady decline in inflation and as part of CalPERS routine evaluation of economic assumptions." At this rate, courtesy of ZIRP and the destruction of equities as an asset class, until the 2s30s is flat, and we have terminal wheelbarrow lift off, Calpers will no choice but to keep revising lower and lower until its discount rate is negative in line with the imminent advent of NIRP. Good luck with those actuarial tables with a negative discount rate.



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RANsquawk US Market Wrap - 16th July 2012



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Guest Post: Consumers Flash Warning Signal

retailsales-income-credit-savings-071612

While bad news may be good news for the market hoping that it will spur more stimulative measures from the Fed to boost asset prices - for Main Street America bad news is just bad news.  More importantly, the decline in consumer confidence continues to perpetuate the virtual economic spiral.  As the consumer retrenches the decline in aggregate end demand puts businesses on the defensive who in turn reduces employment.  The reduction in employment, and further stagnation of wages, puts the consumer further onto the defensive leading to more declines in demand.  It is a difficult cycle to break.



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Guest Post: This Is The China You Don't Want To Invest In

One used to describe how the Chinese economy is like (exactly who started saying that is no longer clear): a bicycle. Anyone with the experience of riding a bicycle knows that you can’t ride it too slowly, or else you fall over. There was a common belief that China has to grow at least at 8% annual rate (now the number seems to have come down to 7.5%), or there will not be enough jobs being created so that there will be social unrest, that kind of thing. We are not sure if we have ever had much faith in such theory. To our mind, the society has something seriously wrong if it requires 8% or more economic growth in order to keep it stable. And if this is true for China, the Chinese society is very wrong indeed (or perhaps the Chinese society has been seriously wrong with or without this implicit 8% requirement). Now, the Chinese government is now worried about growth (we won’t speculate if the government is panicking or not). Even if China successfully reflates its economy to 7-8% growth (via mal-investments in already over-capacity industries), we are genuinely not impressed if that is going to mean even lower return on investment and even lower corporate profit.  That means we have come to an uncomfortable conclusion that China is just not the place we would like to be in, regardless of GDP growth.



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Things That Make You Go Hmmm - Such As QE3 Marking An S&P500... Top?

Over the last five years, there have been so many ‘projections’ from the economic and political glitterati that have failed spectacularly as to be almost unbelievable - from Bernanke's 'subprime is contained' to Rajoy's November promise that 'Spain will stop being a problem and instead form part of the solution'. Projection was historically the moment when, despite all the work that went into getting to that last point in the program, hope and faith took over as the alchemist found himself having to rely on just a little bit of magic in order to get the outcome he so desperately wished for. Grant Williams believes that, when QE3 finally arrives (and arrive it will), it will mark the top of the S&P500 for a VERY long time and its positive effects will be far shorter-lived than many - including the Fed - are projecting. Far from an overwhelming rising tide that will float all boats, QE3 will be a dismal failure and the last bullet in the Federal Reserve’s gun will turn out not to be the hollowpoint that many are projecting, but instead simply a ‘bang flag’.



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