The Republicans went along with the 2011 payroll tax cut of 2%. They will go along with the 3.1% payroll tax cut. You see, this is how politics works. Since the payroll tax was “temporarily” cut, whoever lets the payroll tax cut expire will be declared a tax hiker. Therefore, the “temporary” payroll tax cut will be extended indefinitely, further impoverishing future generations. Meanwhile, how many jobs did the first payroll tax cut create? How many will the extended and increased payroll tax cut create? None! Obama is using the George Bush tax rebate check method of destroying the country. Both decided to address a government spending problem by reducing revenues. This is par for the course and explains why the economy is teetering on the verge of collapse. The Obama plan consists of $225 billion to screw future generations so we can spend today. It also includes $62 billion to pay people who aren’t employed for 99 more weeks, even though Federal Reserve studies have proven that extending unemployment keeps the unemployment rate 1% higher. Paying people for almost two years while they are not employed is somehow supposed to “create” jobs. Then we have the traditional $70 billion transfer from our Chinese lenders to Timmy Geithner and then into the pockets of state government union workers across the land. Obama needs those votes in 2012. Why should states be required to adapt their budgets to reality when their sugar daddy can keep supplying the candy?
Everything you always wanted to know about the future of gold stocks and much more is now answered in this 79 page monster of a report just released by Morgan Stanley, which finally joins the crowd and goes megabullish on gold stocks, by estimating that "currently c.$1500/oz of value is accounted for in reserves in the ground – so, at a $1800-1900/oz gold price, this leaves $400-500/oz for stakeholders, of which shareholders come last (after debt servicing and tax/royalties). While this is a blunt tool, we do believe it provides a good illustration how the sector has historically discounted the spot gold price, but currently does not seem to believe that the current $1800/oz gold price will hold. Thus, we believe an opportunity exists to invest in reserves in the ground rather than bullion (ETF)." So for those who do not wish to chase bullion at record prices (although with currency collapse increasingly imminent, that is probably not a lot), here is MS' conclusion: "Broadly, on stock performance we would make the case for: i) primarily, operating delivery; hence, which stocks look to offer value in their reserves through volume growth and cost reduction. ii) secondly, in the extremes of gold price movement, operating gearing can, but generally does not, supersede operating delivery; theoretically, higher operating gearing generally implies lower quality assets associated with difficult cost/volume control, hence our caution in looking at operating gearing in isolation from operating delivery and track record. iii) thirdly, valuation (but need to adjust for regional risk factors, by-product discount to rating, track-record and risk of delivery). Apparent valuation anomalies can rapidly be erased by big movements in the gold price or failure to deliver to operational expectations. Stocks screening favourably on a balanced gold price outcome (and rated OW by Morgan Stanley analysts) include ABG, ABX, BVN, PMTL. While several of the growth stocks (RRS, KGC, GG) screen less well, delivery on the operating expectations would likely be positive stock drivers." Of course, as much as we like gold and its derivatives, Morgan Stanley's outright push is nothing short of an attempt to get investors to move away from physical into a stock certificate deliverable (and hence, "confiscatable") which is ultimately in the hands of the DTC: something, which, with the world on the edge of complete insolvency, we would hardly advocate.
If there is one currency which can move almost 1000 pips lower in 10 days, the EUR it is. After Chinabot gave up on supporting the broken currency, whose viability is only better to the even more doomed US Dollar, but not before an epic run to safety sends the USD into a Volkswagen-like historic short squeeze, and after Goldman openly called for QE from the ECB (and not just the EFSF monetization foreplay which now looks like it may not even pass) the currency has taken out pretty much all support levels, and at the current rate may tumble to sub 1.30 in the next 72 hours. Gold opens in less than 2 hours: the latest response to the flight from fiat should be amusing.
Two years ago we first covered the flip side of the Chinese real estate "boom" story by presenting the ghost city of Ordos. Today, on the two year anniversary of China's Keynesian miracle being exposed for the whole world to see, Al Jazeera goes back to Ordos to see if anything has changed. And while Paul Krugman may be shocked, shocked, that the Keynesian approach of building for the sake of building does not work not only in the US but pretty much everywhere, it will be no surprise to anyone, that as Al Jazeera concludes, "it's still pretty quiet, but here's the remarkable thing - the building has't stopped, somehow people are convinced that if you keep building, people will come. If not in a few years, then... eventually." And somehow we keep bashing the Fed as the only source of Einsteinian insanity, when it is the same cretins from the Princeton economics department in both the monetary and fiscal arena, who know one thing and one thing only - do whatever ultimately fails, just keep on doing it.
It is a messy situation Trichet will be handing over to Draghi on October 31st. After the unnecessary rate hike in spring, what do you do: i) Cut rates in one of the remaining 3 meetings (see table), presenting Draghi with (almost) no room left to cut? ii) Leave rates unchanged and risk being seen as a lame duck as the Euro debt crisis escalates? iii) Agree to be removed early so Draghi can announce “his” first interest rate cut?
German Economy Minister: "Greek Default Can't Be Ruled Out" And "We Need A Bankruptcy Procedure For Countries"Submitted by Tyler Durden on 09/11/2011 - 12:33
Greece may not file for bankruptcy this weekend... But its time is coming - it is a 100% certainty. And throwing just that little more fuel into the fire is Germany's Economy Minister Philipp Roesler who in an op-ed posted in Die Welt, is once again planting the seeds for the inevitable day when that perpetual transgressor Greece (which just announced yet more tax hikes, and as a result can now shut down its economy as the tsunami of 24 hour strike will be unprecedented) is finally kicked out of the union. The question then, as now, will be: what next?
Goldman Calls For QE In Europe: "How Far Can The ECB Go In Using Its Balance Sheet. The Short Answer Is: A Lot Further"Submitted by Tyler Durden on 09/11/2011 - 12:01
Even as the eyes of the world are currently frozen in a spot in time from ten years ago, and Wikileaks is making doubly sure of this by releasing the entire record of Metrocall pager (remember those?) intercepts starting at 9:55 am on 9/11/01, the world itself continues onward, and especially those who determine its global policy of "Prevention of Harm to The Status QuoTM" are busier than ever this weekend. Chief among these is and always has been the one financial firm which has infiltrated "sovereign" decision-making more than anyone in history: Goldman Sachs, whose alumnus, incidentally, is about to replace Jean Claude Trichet at the helm of the world's largest and most undercapitalized central bank (yes, a central bank can be undercapitalized - read on). Which is why the following note just released by Goldman's Dirk Schumacher is of particular attention. Mere hours after Goldman economist Sven Jari Stehn said that FOMC "easing at the September meeting is very likely—around 75% according to our model", Goldman is now taking on European monetary policy, and specifically the question of further quantitative easing, across the pond, where printing money has always been a far more touchy subject than in the US, courtesy of the German experience with hyperinflation. As a result, the key line in the Schumacher note is the following: "How Far Can The ECB Go In Using Its Balance Sheet. The Short Answer Is: A Lot Further." To be sure, this is not surprising: after all Zero Hedge first predicted that following the latest market trouncing on Friday, in the aftermath of the ECB's admission of failure on Thursday (who can forget Ze Price Stabeeleetee), see "ECBCTRL+P: The Next Steps In The European Implosion", but we are nothing but a simple blog, which predicts what will happen but certainly does not set policy for a corrupt and failed regime. That's Goldman's job. And what is stunning is the brazenness with which it does it now. To sum up: to Goldman both the Fed and the ECB have to engage asap in yet another episode of bonus-preserving currency debasement, middle class be damned. And, we have very little doubt, they will.
No doubt September 11, 2001 changed everything. But the business of actually measuring those changes has been as overlooked by most as the nationalities of the hijackers. The following is presented in the interest of truth, justice and the American way.
As regular readers may recall, back on June 14, before it became an even bigger pariah in the thoroughly discredited rating agency space due to its refusal to downgrade the US, Moody's placed French megabanks SocGen, BNP and Credit Agricole on downgrade review, which means that at some point in the future the rating agency would have to cut the banks' rating from its existing Aa1-2, to Aa3 or even a single A. It is true that when it comes to downgrade reviews the rating agencies are notorious for being as unpredictable in their timing as they are conflicted in their rating: for example even though Belgium was supposed to be downgraded months ago due to the fact that it continues to be the longest running modern anarchy, nothing has occurred, as political interests are obviously pushing the raters to do as paying clients request, not as reality demands. Alas, for France, which is very sensitive to any inkling it may have a less than sterling rating (due to its sovereign AAA requirement without which the EFSF/ESM falls apart), the luck may have run out. Bloomberg reports that the abovementioned banks "may have their credit ratings cut by Moody’s Investors Service as soon as next week because of their Greek holdings, two people with knowledge of the matter said.
Bull versus bear. Greed versus fear. Smart money versus dumb money. Depression versus transitory soft patch. Credit versus equity. In one corner is the credit market, a rather mighty opponent where $1 million defines an odd lot. Credit has spoken loudly. They have priced in a severe recession, depression whatever you want to call it. In the other corner stands the equity market and although fierce is smaller than its opponent where 100 shares defines an odd lot (a mere $700 in the case of BAC). Also known as the contrarian equity has priced in a transitory soft patch, the opposite of credit. Equity hopes to bounce back from a recent loss where they completely failed to price in the 2008 Great Recession. We are now on the eve of yet another showdown. Both corners are far apart and yet only one can be proven correct. The other must accept defeat. The stakes are large and the reward to those on the right side even larger. History will be the judge and time is all it asks.
It is at times like these that we in the financial sector are humbled in the presumption of our own importance and of the meaning of our works. Daily, we chase the ebb and flow of symbols and numbers across the screens and ticker tapes of the world, seeking to distill from them a fleeting pattern, or to recognize within them some more enduring form. Rarely, if ever, amid the hubbub of the trading room or the raw intensity of the Pit, do we reflect on the power of such symbols. We crane for each flickering change in a terse alphanumeric—USZ1, DELL, CPI +0.2%, DAX +150—each of us striving uselessly, but compulsively, to see it before our peers do, or, with a little more purpose, to interpret it more quickly than they. These electronic lights represent a stock, a bond, a currency; of that much we remain aware. But the stocks or bonds themselves are but symbols: a claim to the ownership of a minuscule fraction of some sprawling enterprise, or a right to receive payment from it in days to come. Again, that payment—in dollars, or euros, or yen—is another symbol: a sign that men have "laboured the earth," in Jefferson’s trenchant phrase, and that they seek to exchange the fruits of those labours for our own. This is where the chain of ciphers and sigils leads us at last, then—to the efforts of ordinary men and women going about their daily lives, working at one thing, the thing at which they are most competent, in order to swap their efforts for other things, for a whole diversity of things, made, in turn, by countless, faceless others doing what they are good at, too. This is the majesty of the free market, of capitalism, this self-organizing scheme that most fully utilizes our jewelled planet’s greatest resource—humanity itself—so that the masses of today live better than all the fearsome khans and haughty emperors of old. But on Tuesday, out of a clear autumnal sky, all this was put at deadly hazard by earnest men, albeit men whose earnestness had been twisted into suicidal hatred by the potent brew of fanaticism and despair. By their intricate assault on the good people of the U.S., these men showed that they were versed in the power of symbols all too well.
The Summer Vacation Is Over - As Papandreou Briefs Greece On Its Sorry State, The Riot Police ReturnsSubmitted by Tyler Durden on 09/10/2011 - 13:14
Just as Greece's G-Pap, who has proven he has more political lives than a cat, is about to speak at the Thessaloniki trade fair with an update on the economy (which is now contracting at more than 5% compared to the -3.8% forecast in May), the country reminds us that summer vacation is over, and that millions of Greeks have returned from their month long vacations only to find that they still are not getting the socialist benefits they thought may, just may, sneak their way back into their paychecks and early retirement plans. To wit, as AP reports, "Riot police fired tear gas Saturday to disperse anti-austerity protesters armed with flare guns, stones and sticks as clashes broke out in Greece's second-largest city. From taxi drivers to sports fans, thousands of angry citizens were protesting in the northern port of Thessaloniki before the prime minister's annual speech on the economy. The protests came in waves Saturday. Several thousand taxi drivers angry over new licensing reforms chanted anti-government slogans as they marched, many throwing plastic water bottles at riot police guarding the trade fair where Papandreou was to speak later. An estimated 1,500 students and anarchists followed on their heels, while other crowds gathered for separate protests by the barely-solvent country's two biggest labor unions. Even fans of Thessaloniki's soccer club Iraklis turned out to protest." Of course, now that even Italy, after one aborted attempt to paint over the issue, is forced to impose some austerity, Europe has a long, long autumn and winter of protesting to look forward to, which coupled with the logical impact on GDP courtesy of everyone's complete lack of interest in working any more (think of the horror at retiring at 65), means that all European economies will soon grind to a halt... Just as has been predited on these pages over a year ago.
Ten days ago Zero Hedge presented the idea of applying an Asbestos-type settlement to the neverending lawsuits against Bank of America which if continue at the current rate will result in the swift and brutal end of the massively undercapitalized bank by a thousand Rep and Warranty litigation cuts. Yesterday, we were happy to see that the idea has received far broader billing, and is being taken up by non other than Reuters: "When some look at all of the litigation arising from Bank of America's big role in the U.S. mortgage mess, they start thinking of asbestos and how thousands of lawsuits arising from that cancer-causing product brought down many manufacturers more than a decade ago. The solution back then to dealing with claims filed by more than 750,000 workers exposed to asbestos was the creation of dozens of "asbestos settlement trusts," which have paid out tens of billions dollars in damages. Some of them are still going strong today. The asbestos trusts were seen as an innovative approach to deal with seemingly endless litigation and provide a measure of compensation to sick workers and their families. The system for dealing with claims also allowed some of the hobbled manufacturers to emerge from bankruptcy largely free of the crushing weight of lawsuits." In other words, the choices for Bank of America are now two: either it prepares for a slow, painful, insolvency as all of its cash is bled out in litigation fees and "one-time" lawsuit charges, or, almost just as bad, it funds a massive trust, ringfencing all past, current, and future claims, and which is funded...by nearly all of Bank of America's equity. Yes, the end result will be a near wipe out of the existing Bank of America stock, but it will not be bankruptcy! In essence, what BAC will do is a bankruptcy remote "prepackaged bankruptcy" in which it spins off its contingent liabilities, with an equity buffer of whatever the litigants choose (most likely up to about 95% of the firm's current equity value), and proceeds to grow as a simple bank (with or without Merrill) and fund itself through retained earnings, in the process shedding off the "cancer" that are $1.2 trillion in toxic mortgages. The result of this would be a BAC share price of under $1 but that is inevitable. The alternative: freefall chapter 11 and technically 7 (which will never be allowed by the administration, sorry Chris Whalen), means BAC trades to $0.00, and the status quo system of crony communism is finished.