Bill Buckler On How The US Morphed From A "Global Beacon Of Freedom" To A Symbol Of Political And Economic RepressionSubmitted by Tyler Durden on 03/06/2011 - 21:22
In his latest edition of the Privateer newsletter, Bill Buckler confirms that he is one of the premier politco-economic commentators, with one of the most devastating expositions on how America, once the land of the brave and the home of the free, and truly a beacon of freedom for the rest of the world, has entered the death spiral of its cilivizational curve, which "beginning of the end" started in 1913 with the introduction of the income tax and the ascent of the Federal Reserve, and now, a century later, has morphed into what can poetically be called the "ending of the end." Recent events in the Middle East and Africa only underscore how rapidly the sun is setting on the world's once undisputed superpower. That China is merely biding its time before it disconnects its mutual life support system to the US (which contrary to conventional wisdom, is far more important to the US than vice versa, now that the Fed is by the far the biggest owner of US debt), and ends its symbiosis with US fiscal and monetary policy, should not be a reason for optimism to anyone. With each passing day, Chinese superiority is becoming ever more palpable (even despite the massive loan bubble currently in process in China), even as desperate US attempts to cling to the last trace of its former superpower status are getting increasingly ignored by virtually everyone. If Buckler is correct, the final nail in the US superpower status coffin could come as soon as the unwind of events in MENA, where the people have made it all too clear the US is no longer welcome. What happens next will indicate just how rapidly the complete fall from grace for the US will transpire: "The Middle East is again in strife. This time, the conflict is between
the regimes which have been installed and supported by the US government
in their march to empire and the people who those same regimes have
ruled with an iron fist. To these people, the US is not looked upon as
an “exemplar” of anything - except political AND economic repression."
Gold Surges, Hits New All Time High Of $1,437 After Precious Metals Talked Up During PDAC ConferenceSubmitted by Tyler Durden on 03/06/2011 - 19:38
As the world continues to burn, gold hits a new all time high of $1,437 as silver is en route to pass $36. Whatever shorts did not cover on Friday night are strongly urged to postpone their "market top" speculation until another day. Elsewhere Bernanke is still confused by what the relentless march to daily all time highs in gold means...
Sean Corrigan's Take On The Fed's "Apres Moi Le Deluge" Policy Which Only "A Krugman" Can Approve OfSubmitted by Tyler Durden on 03/06/2011 - 16:32
The key running theme this weekend is "the flood", specifically that soon to be left in the wake of the Federal Reserve, which is now facing the last days of its ignoble existence. Previously, Egon von Greyerz shared his outlook on why the Pompadour-esque cliche will soon lead to a complete destruction of the dollar, and all other paper currencies. Now, it is the turn turn of Diapason's Sean Corrigan, who in his note from Thursday shares his view on the Fed's "reprehensible policy": "When the Chuck Prince Charleston suddenly stopped in 2008, the initial impact was just as dramatic on the market for machine tools, ceramic magnets, and silicon wafers as it was on lumber, carpets, and dishwashers and, so, the shock hit the surplus nations every bit as hard as the deficit ones as they all realised, to their horror, that they had all become nothing more than imprudent, Rueffian tailors. Since then, of course, the game has been replayed at an even more frantic pace, with governments largely taking pole position as the drivers of deficits, the media of monetization and, hence, the inflamers of inflation...By the time this last blunder works its way through the system, it will not just be the world's tinpot tyrants and biddable client kings who will pay the price for the Fed's reprehensible policy of 'apres moi le deluge', but it will be the ordinary man and woman who will have occasion to rue a programme so replete with intellectual arrogance, power-worship, and a wilful blindness to its awful, unintended consequences that only a Krugman could approve of it."
Egon von Greyerz: "A Hyperinflationary Deluge Is Imminent", And Why, Therefore, Bernanke's Motto Is "Après Nous Le Déluge"Submitted by Tyler Durden on 03/06/2011 - 15:17
"Happy days are here again! Stock markets are strong, company profits are up, bankers are making record profits and bonuses, unemployment is declining, and inflation is non-existent. Obama and Bernanke are the dream team making the US into the Superpower it once was. Yes, it is amazing the castles in the air that can be built with paper money and deceitful manipulation of all economic data. And Madame Bernanke de Pompadour will do anything to keep King Louis XV Obama happy, including flooding markets with unlimited amounts of printed money. They both know that, in their holy alliance, they are committing a cardinal sin. But clinging to power is more important than the good of the country. An economic and social disaster is imminent for the US and a major part of the world and Bernanke de Pompadour and Louis XV Obama are praying that it won’t happen during their reign: “Après nous le déluge”. (Warm thanks to my good friend the artist Leo Lein)." Matterhorn Asset Management
With nobody having any clue how the MENA situation will play out (and those who tell you otherwise can be immediately dismissed as full of feces to be ridiculed in perpetuity by everyone but CNBC where they will have a guaranteed contributor slot), and as crude has promptly become the most volatile asset class (as Zero Hedge predicted last summer when we lamented the death of equities) recently experiencing an unprecedented 7 Sigma move which likely led to the liquidation of at least one asset manager, there are two main charts which matter for the oil. On one hand, the Crude Oil non-commercial net specs are at an all time high: well over 100% more than during the oil time highs in crude in 2008. This means that speculators are anticipating an even more powerful move higher than that seen in the summer of 2008 when Crude hit $150 (it also presents the possibility of an unprecedented plunge in oil should the speculative thesis not be realized). Just as important, the performance of energy as a subsegment of all commodities is currently materially underperforming all other commodities, with Previous, Agircultural and Industrial commodity classes all doing far better than crude and its peers. Should there be a rotation out of other commodities into the energy complex, look for crude to surge far beyond $125 in the next few weeks. All it would take is one Saudi geopolitical spark.
We're Just Gonna Inflate Our Way Out If It!...Oh really? I don't think so, Scooter. In a recent discussion we mentioned the fact that lately former Fed member Larry Lindsey has been talking up the idea of a potential fiscal trap for the US. To be honest, we believe this idea has already played itself out in Japan and day by day is coming to a Euro theater near you in terms of individual country experience. The whole idea of a fiscal trap involves the combination of sovereign debt levels with manipulated domestic interest rate levels. Japan has been a poster child example of this simple concept. By artificially holding its domestic interest rates at the theoretical zero bound, it has allowed the government to lever up in a magnitude that most likely never could have happened had free market forces set domestic interest rate levels. Japan has enjoyed an artificial depressant on nominal dollar (in this case Yen) interest costs that has made incredible sovereign debt expansion feel relatively benign from an ongoing debt servicing cost perspective relative to what has been up to this point the magnitude of ongoing sovereign revenue collection.
By now it is no secret that the end of QE2, should one actually transpire as the alternative is surging bond yields which as described yesterday means gross interest expense as a percentage of total US revenue would hit a Weimaresque 30%+, the collapse in equities will be dramatic, once the marginal buyer of up to $8 billion in daily risk disappears, and as was further pointed out recently, the only variable that every asset class correlates with with no exception is the Fed's balance sheet. And while the drop in equities is all but guaranteed, a more important question is what happens to not only Treasury rates but to the shape of the curve. Even though the jump in rates seems inevitable (to those whose career does not depend on pursuing the lemming-like call of the sellside groupthink wild), the finer nuances in the curve shift have not seen a broad discussion. Morgan Stanley's Jim Caron, whose predictive track record leaves much to be desired, has released an analysis of what the end of QE2 will look like from a rates perspective. We urge readers to take this analysis with the same dose of skepticism as any FX recommendation from Goldman's Thomas Stolper.
With ICE and CME margin hikes - that last bastion of supply/demand imbalance suppression - no longer having an impact on crude price, it was only a matter of time before the last theatrical measure in the price arsenal was used. Per Dow Jones: "White House Chief of Staff Bill Daley said on Sunday the Obama administration is considering tapping into the U.S. strategic oil reserve as one way to help ease soaring oil prices." Speaking on NBC television's "Meet the Press," Daley said: "We are looking at the options. The issue of the reserves is one we are considering. ... All matters have to be on the table." There has been support among Senate Democrats for tapping the reserves. Senator Jay Rockefeller on Thursday became the third Democrat to ask President Barack Obama to tap America's emergency oil supply to cool prices that have risen past $100 a barrel on the strife in Libya." What our esteemed politicians fail to realize that tapping the SPR is analogous to Lehman filing an 8K declaring to the world it is now tapping directly into the Fed's discount window for its liquidity - that didn't end too well. The problem with the SPR is that as a non-marginal replacement of supply it is largely a puppet: with a capacity 726.7 million barrels, the SPR holds a 34 day reserve at the US daily consumption of 21 million barrels. The picture is slightly better when considering that the US only imports 12 MMbd, meaning there is a 58 day supply. But the biggest issue that nobody is considering, is that the maximum total withdrawal capacity is physically limited to just 4.4 million barrels per day. In other words, should the MENA escalation flare up, there is no way to physically replace all the lost output. Yet what is most troubling is that even as the US is about to start using up its reserves, Asia is actively shoring up its oil, meaning that as our own oil buffer gets ever smaller, Asia could easily dictate economic terms over the OPEC cartel as soon as a few months from now if the Bernanke liberation wave does not end any time soon.
When discussing central planning, as manifested by the policies of the world's central banks, a recurring theme is the upcoming reversion to the mean: whether in economic data, in financial statistics, or, as Dylan Grice points out in his latest piece, in luck. While the mandate of every institution, whose existence depends on the perpetuation of the status quo, is to extend the amplitude of all such deviations from the trendline median, there is only so much that hope, myth and endless paper dilution can achieve. And alas for the US, whose 3.5% bond yields are, according to Grice, primarily due to "150% luck", the mean reversion is about to come crashing down with a vengeance after 30 years of rubber band stretching. The primary reason is that while the official percentage of interest expenditures as a portion of total government revenues is roughly 10% based on official propaganda data, the real number, factoring in gross interest expense, and assuming a reversion to the historic average debt yield of 5.8%, means that right now, the US government is already spending 30% of its revenues on gross interest payments! And what is worse, is that the chart has entered the parabolic phase. Once the convergence of theoretical and real rates happens, and all those who wonder who will buy US debt get their answer (which will happen once the 10 Year is trading at 6% or more), the inevitability of the US transition into the next phase of the "Weimar" experiment will become all too obvious. Because once the abovementioned percentage hits 50%, it is game over.
And now, for a break from our regularly scheduled Fed-bashing programming. The latest social phenomenon is 85k viewers in and rising at 1k per 30 seconds. Time for a new iBorg?
Two weeks ago Zero Hedge claimed that Saudi Arabian "gestures" to hike crude output were about as hollow as the heads of those suggesting that dealing with surging oil prices involves reducing interest rates even more (which just happen to be at zero already), mostly as a result of the country's recent adoption of "whorism" or its doomed strategy to buy the love of its citizens. The reason is that as UBS' Andy Lees noted, Saudi "will need to ramp up production by about 10% (more capital spending) without prices falling" to fill the suddenly gaping budget hole left from literally throwing $37 billion out of Bernanke's leased helicopter. Yesterday, BusinessWeek's Peter Coy essentially reaffirmed our theory verbatim in the piece "Saudi Arabia Must Keep Pumping Oil to Buy Stability"... needless to say we completely agree with this. Obviously, the bigger issue here is that as WikiLeaks recently suggested, and was reconfirmed by Jim Rogers, Saudi Arabia is simply lying about its excess capacity. Because if Saudi had indeed raised output as many have hoped for, and as Saudi has represented, it would have made up for the funding differential simply by the hike in export volume. Instead, as Reuters reports, Saudi Aramco just hiked prices on oil to customers in Asia and Europe up substantially. This, at least to us, does not appear like the rational action of a player seeking to moderate surging oil prices to avoid further social conflict, and one who can plug offline capacity.
For those who need a good laugh this Saturday evening, we turn our attention to the man who singlehandely made frontrunning the Fed a (somehow legal) artform: Macroeconomic Advisors' Larry Meyer. This so-called pundit, who recently was caught in a debate with David Einhorn (if one may call the complete and utter mauling of someone for his absolute lack of comprehension of anything finance related, a debate), exposing him for the hollow chatterbox he is, and who only receives consultancy fees due to his close relationship with the Fed, which allows him to leak privileged Fed information to the likes of Bill Gross, Larry Fink and others who deem his services relevant, was on CNBC telling the heptabox panel that an oil shock is disinflationary, and that the way to deal with surging oil prices is to CUT interest rates. That's right: cut rates, which at last check were at 0-0.25% (6 minutes into the clip below). While we feel embarrassed for anyone who shares the same perspective as Meyer, who confirms that monetary groupthink is the deadliest form of contagion possible, what stuns us is how anyone could possibly pay to get this person's input on anything aside from what the Fed will do at any point in the future (an arrangement which should be made illegal as of yesterday). Which in itself begs the question: are the Feds finally bugging Macroeconomic Advisors' phone conversations with their clients? After all Gerson Lehrman et al are getting crushed as no hedge fund wants to get their inside information from the "expert networks" any more. Why should Larry Meyer's firm fare any different? Please somebody at the SEC or the DA office: explain that one to us...
Goldman's Noyce On How To Play The "Large S&P Correction Coming" Through FX, (And All The FX Charts That Matter Next Week)Submitted by Tyler Durden on 03/05/2011 - 14:51
In addition to all the traditional technical observations on all the key crosses from Goldman's only must read technician John Noyce, which include the EURUSD, the EURCHF, the AUDUSD, the NZDUSD, and the AUDNZD, the NOKSEK, and the GBPUSD, and a quick look at 2 year USD swaps, Noyce's key technical observation has to do with a pattern emerging in the S&P vis-a-vis trendlines. To wit: "There are a few signals on the daily chart of the S&P which argue that a larger correction could be developing." The key support line according to Noyce: 1,291-1,294 on the S&P, below which the next support is the 200 DMA, which is all the way down at 1,174. The key catalyst: a market that is riduclously overbought at 129 days above the 55-DMA (128 as of the day of Noyce's report which was on Thursday). So how to play the coming correction in FX? The AUDJPY may be the best bet and the Goldman chartist explains why...
Proving that Saudi Arabia is a fast learner from both China's and America's experience, today Saudi's interior minister announced he is banning all protests, marches and strikes following the world's realization courtesy of the clip posted on Zero Hedge yesterday, showing that not all is well in the kingdom in which protests are banned. Dow Jones reports: "Top oil exporter Saudi Arabia has banned all protests, marches and strikes in the kingdom after small protests continued over the weekend in the oil-rich Eastern province towns of al-Ahsa and Qatif, interior ministry said Saturday, according to state-owned channel al Ekhbariyah. These activities don't conform with the Islamic laws and harm the interests of the nation and the society, the Saudi channel quoted the ministry as saying." What does, however, comply with Islamic law is openly using your plunge protection team to bid up the market: "Saudi stocks rose for the first time in three weeks, rallying the most in more than two years, after the finance minister said the Arab world’s largest economy is benefitting from higher oil prices and in “excellent” shape... The state-run General Organization for Social Insurance also purchased stocks, according to Ajeej Capital’s Fuad Aghabi." Not letting a crisis go to waste, Saudi has quickly learned Econ 101 and is now advising its citizens that America's massive economic contraction is its personal gain. And if that doesn't work, it will just use its pension fund to bid up stocks, as a massively Marked to Myth market is apparently in everyone's interest: just ask the Chairsatan.
The political class and their mouthpieces in the corporate controlled mainstream media are desperately trying to spin the oil price surge as a temporary inconvenience that will not derail their phony recovery story. Brent crude closed at $116 per barrel yesterday. West Texas crude closed at $104 per barrel. Unleaded gas has risen by 22% in the last month and 60% since September 1, 2010. I’m sure this slight increase hasn’t impacted Ben Bernanke or Lloyd Blankfein. Their limo drivers just charge it to their unlimited expense accounts. Joe Sixpack, driving his 15 mpg Dodge RAM pickup, is now forking over an extra $1,200 per year in gas expenditures, not to mention more for everything impacted by oil such as food, utilities, and anything transported to their local Wal-Mart by truck (everything). Luckily, the Federal Reserve and crooked politicians only care about their comrades in the top 1% elitist society, for whom oil is an investment, not an expense.