Government Transparency Hits Record Low

Surprise, surprise... the 'most transparent administration ever' is, well, the least transparent.  Not that any of you are shocked by this revelation, but a new report by the Associated Press demonstrates just how secret our government and intelligence agencies have become.  Not only did they claim “national security” over and over like a bunch of drunk parrots, they also claimed the need to protect “internal deliberations.”  Specifically, the number of times the government withheld or censored reports in 2012 was 479,000 times, up 22% from 2011.  The CIA denied 60% of requests, up from 49% in 2011. "In some ways, the Obama administration is actually even more aggressive on secrecy than the Bush administration."

UBS: The Great Rotation Is Much Ado About Nothing

The concept of the Great Rotation continues to garner significant investor attention. From a flow perspective, UBS'  analysis across various asset classes infers there is scant evidence of a large rotation out of corporate credit or fixed income in general. They make a few simple observations. First, that the thesis of a great rotation out of Treasury securities into corporate equities is a fallacy - the Federal Reserve and global central banks are the dominant holders of Treasuries; if they decide to sell, the money will not directly flow into equities. Second, the thesis of a great rotation out of corporate credit into equities is complicated by three main cross-currents which suggests, correctly, to them that the Great Rotation debate is much ado about nothing.

Marc Faber Rationalizes The Irrational And Fears China's "Colossal Credit Bubble"

Though infamous for his doom and gloom more than boom, Marc Faber explains in this brief CNBC clip how the herd-like behavior in stocks and real estate is actually not totally irrational as it is merely a reaction to the central banks forcing people not to hold cash and instead but "gold watches and Ferraris." His point is that if (and when) interest rates are ever normalized, everything changes (and not in a good way) as valuations become severely stretched on all these inflated assets. While the world tells us that bonds are unattractive and stocks are attractive, Faber rhetorically asks, "who knows, maybe the bonds are telling us something about the future return on equities." He warns of paying too much attention to government headline statistics, "what is published does not necessarily reflect the reality," But, just as we have warned, China is his biggest fear for knocking the world' exuberance: "Whether they [Chinese government] can ensure continuous growth will depend on reforms and how to deflate the colossal credit bubble we have in China. This is going to be a huge problem because we have so much underground credit, questionable loans outstanding and questionable investments."

Japan: Front-Runner Of Outright Monetization

Democratic governments in low-growth economies sometimes rely on their central banks to support fiscal policy so as to avoid asking voters to share more of the burden. BNP Paribas' Ryutaro Kono notes that it is the pathology of modern democracies to foist our bills onto future generations and one could argue that the prolongation of our zero-rate regimes and quantitative easing are facilitating this. When this societal weakness is combined with today’s financialized economies, we get a pronounced inclination toward monetization, which could lead to very serious problems. While Governor Shirakawa has described the BoJ as the “frontrunner” in venturing into unknown territory with policies like zero rates and quantitative easing, Kono warns that Japan could also become the frontrunner of outright monetization. This could intensify the dilemma of having to choose between price stability or financial-system stability when inflation actually starts to pick up.

When A JPM "Hedge" Is Anything But A Hedge - In JPM's Own Words

While JPMorgan's arrogance and complete ignorance (intentional or not) of both risk limits and regulatory expectations is now grossly obvious, the fact remains that a lie is a lie and given the following, how can anyone ever trust anything that anyone from this 'fortress-like' balance sheet ever says again? To wit, again and again and again, the public and the regulators were told this was a long-term 'hedge' for a bank that is a natural net 'lender' and therefore exposed to deterioration in credit markets over the long-term. However, as JPMorgan's own data and words show, the SCP 'hedge' in fact lost money in all spread-widening scenarios - exactly when it should be making money to cover 'offsetting' losses in the bank's lending book. In fact, it appears, that this was simply another low 'risk-weighted' way to get around regulatory capital rules and be 'long' the market - in the first three months of 2012, the CIO tripled the size of the SCP book, taking it from $51 billion to $157 billion, in a buying spree that was not motivated by decision-making on a “very long-term basis.”

Because It Worked So Well For Stalin...

Five-year plans in the Land of the Free? Apparently it’s not that far off from reality. Yesterday Senator Tom Harkin introduced S. 544, “a bill to require the President to develop a comprehensive national manufacturing strategy.” In effect, Senator Harkin wants the President to centrally plan the economy. Never mind that the President has zero experience in business or manufacturing. But hey, this worked out so well for Stalinist Russia, it’s no wonder Mr. Harkin wants to copy that model... The trend is clear. Every single day the political elite gives us even more evidence that they’re working overtime to destroy the economy and what few remaining civil liberties still exist.

What Really Happened To JP Morgan In The Market - A Simple Example

On the day of the unexpected JPM conference call in May of 2012, during which the initial extent of the London Whale fiasco was revealed, Zero Hedge presented a full, visual breakdown of everything that, we thought, had happened at the CIO, without any corroborating evidence. In hindsight, our assumptions and conclusions were 100% correct. But for anyone still confused and curious how less than a year ago the most powerful bank in the world put itself at the mercy of a few hedge funds, here is the simple one page summary.

The Complete History Of JPMorgan's "Monstrous" Derivative Risks And Abuses - The Full Senate Report

Curious what according to Jamie Dimon is just a "tempest in a teapot", or, alternatively, why Mr. Dimon is richer than pretty much all of you, here is the full 307 page report that explains everything, including all the events that transpired at the JPM CIO office, all the trades that led up to the "monstrous" Whale portfolio, leading to an epic prop trade failure, coupled with countless lies and misrepresentations to regulators, to investors, to the public, and to politicians, many of which under oath. Oh yes, free Jamie Dimon!

"Too Big To Regulate" JP Morgan "Lied" And "Deceived" Regulators, Investors And Public, Senate Finds

Moments ago, ahead of tomorrow's 9:30 am Senate hearing on JP Morgan's 2012 attempt to corner the IG9 market through its London-based CIO office using depositor cash which as everyone now knows went horribly wrong, titled "JPMorgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses,” the Permanent Subcommittee on Investigations has released its comprehensive 300 pages review of the London Whale fiasco. The report, in a nutshell, finds that both Jamie Dimon and JP Morgan lied and misled investors, regulators and Congress, that it forced its traders to hide growing losses, that it hid trades banned by the Volcker rule (just as we first said in April 2012 in "Why JPM's "Chief Investment Office" Is The World's Largest Prop Trading Desk: Fact And Fiction") and that JP Morgan may, by extension, be "too big to manage" or "too big to regulate" as Carl "Shitty Deal" Levin summarized.

10-In-A-Row For Dow As VIX Plunges To New Cycle Low

If it's a day of the week ending in 'y' then sure enough the Dow is green - 10 days in a row - best run since Nov 1996. The cash S&P's all-time high remains a day or two away at 1576.1 but today's late-day ubiquitous idiocy (first via VIX and then via HYG) took it within a point of the all-time closing high of 1565.15. Volume - take a guess! Trannies outperformed as 4 different stocks were short-squeezed this time to drive half the index's performance (CNW, R, KSU, and UNP). VIX daggered lower to new cycle lows ending at 11.05% at its lows. Away from that tom-foolery, stocks were 'supported' by USD weakness as GBP ramped higher on pre-budget excitement and EUR just because why not; Treasury yields ended the day near the lows of the week - entirely in keeping with the highs of the week in stocks... USD weakness helped WTI rise on the day - now best performer on the week among the commodities with Silver lagging on the week (while gold limps higher). Just another day in dystopia... ahead of the CCAR Part 2.

The Chart That Draghi Should Be Worried About

Europe is fixed from what we are told (though even Herr Schaeuble mutters under his breath that the crisis is not quite over). Given the increasingly tight coupling between European financials and their domestic sovereign credit - thanks to OMT promises and LTRO funding - one could be forgiven for thinking that the most important thing to watch in Europe is the financials. Indeed, year-to-date, European financial stocks have surged over 7% (driven mostly by a global pump in the first few days of January) while at the same time, European senior financial credits (the other 'safer' end of the spectrum in terms of capital structure support from stocks) are 1bps wider on the year... we suggest Mr. Draghi quickly come up with another solution to save the banks (cough Commerzbank cough) before stock markets catch on.

High Yield Shorts As Confident As In October 2007

While the supposed common-knowledge is that rising short-interest is where to look for epic squeezes (and indeed it appears to the case in individual stocks); in ETF-land, it tends to be the opposite (especially when the underlying of the ETF is relatively illiquid). Absolute short interest in the high-yield bond ETF HYG is at a record - surging to over 23mm shares - heralded by many as evidence that HY can squeeze higher. However, given the incredible rise in shares outstanding in HYG (as flows drove creation until around six months ago) the more reliable indication is the short-interest-ratio. The SI ratio is back at the same levels it was at the highs of the Oct 2007 period - we humbly suggest that this (as was clear in 2007) is anything but contrarian as professional bond managers using ETF liquidity to hedge their over-stuffed and over-flowing illiquid HY bond portfolios. With HY 'yields' at record lows, HY spreads near record lows (and crossover having only been tighter during 1946-65 repression), leverage rising notably, and valuations extreme (only 22% of CCC credits priced with yields over 10%!!!) is it any wonder that the professionals are as confidently hedged as they were as the credit crisis exploded and Lehman struck.

10 Examples Of The Clueless Denial About The 'Real' Economy

They didn't see it coming last time either.  Back in 2007, President Bush, Federal Reserve Chairman Ben Bernanke and just about every prominent voice in the financial world were all predicting that we would experience tremendous economic prosperity well into the future.  In fact, as late as January 2008 Bernanke boldly declared that "the Federal Reserve is not currently forecasting a recession."  At the time, only the "doom and gloomers" were warning that everything was about to fall apart.  And of course we all know what happened.  But just a few short years later, history seems to be repeating itself. All of our "leaders" swear that everything is going to be okay.  You can believe them if you want, but denial is not just a river in Egypt, and another crash is inevitably coming.

On The Progressing Extinction Of The US Middle Class

Beneath the positive headlines Bloomberg's Joe Brusuelas notes that there is evidence that a good portion of consumers continue to face a difficult adjustment to the $125 billion tax hike in January and the 15 percent increase in gasoline prices during the past four months. Spending among the upper quintile of income earners is masking weakness elsewhere but it is jobs headlines that are really hiding the dismal reality in America. As the following chart shows, confirming our earlier discussion, the middle-class income-earner is becoming an endangered species (with no 'conservation group' willing to stand up for them) as the government holds the lowest income earners' hand and Bernanke the highest.

The Oddacity Of Hype - Geithner's "Behind The Scenes" Book Coming In 2014

The long-awaited tell-all is coming soon to an ebook near you soon - well in 2014. AP reports that none other than 'Turbo' Tim Geithner has an agreement with Crown Publishers (Random House) to publish his 'behind-the-scenes' account of the financial crisis. From his tenure at the NYFRB to his stint under Obama's wing, we can't wait for all the gossip - ...and then I said, "yes sir, whatever you want sir..." As Crown adds in its PR, "Secretary Geithner will chronicle how decisions were made during the most harrowing moments of the crisis, when policy makers faced a fog of uncertainty, risked catastrophic outcomes, and had no institutional memory or recent precedent to guide them." Should be a thriller... as he answers the all-important question of why (or not) but rest comfortably as he intends to "provide a 'playbook' that future policy makers can draw on." Given the success of Obama's odyssey, we humbly suggest Tim title the as-yet-untitled book, 'The Oddacity Of Hype'.

Not Even Fed's Premonetization Can Help Today's Weak 30 Year Auction

Not even the Fed pre-monetizing yesterday of today's 30 Year reopening auction could do much to improve demand for today's $13 billion sale in long-dated paper. Because if yesterday's 10 Year auction was a testament to demand from Direct and Indirect buyers, today's final auction of the week was anything but. Moments ago the Treasury sold $13 billion in 30 year paper, in a 29 year, 11 month reopening, of the infamous 912810QZ4 Cusip, and which priced at a high yield of 3.248%, the highest yield since last March's 3.381%, and more importantly 1.5 bps higher than the When Issued 3.233%. The internals explained why the demand in the primary market was just not there: Indirects got 42%, Dealer take down was 51.2%, which mean Direct bidders were allotted just 4.9% of the total. This was the lowest Direct allocation since September of 2009, and in stark contrast to yesterday's surge in 10 Year Direct bidders. Finally, the Bid to Cover came at 2.43, the lowest since August of 2012.

Landlord Blackstone Rushes To Capitalize On Housing Bubble By Launching First Ever REO-To-Rent Securitization

In addition to the phenomenon of "foreclosure stuffing" described here extensively before, one of the main reasons for the artificial drop in housing supply has been the ongoing government-subsidized, GSE/FHFA endorsed REO-to-Rent initiative, through which large asset managers have been encouraged to take advantage of government funded, risk-free financing and purchase foreclosed properties in bulk, with the intention of converting them into rental properties. The REO-To-Rent has traditionally been open to the biggest of financial companies, or at least those who don't have the stigma of legacy mortgage origination resulting in billions in litigation reserves, which means mostly hedge funds and PE firms. One of the main players in the space, Och-Ziff, decided to pull out of the landlord business in October of last year because, as Reuters reported, "the returns it is generating from rental income are less than expected and it is looking to take advantage of a recent rebound in home prices in northern California." In other words, selling while the selling is good. Of course, there is another, far more traditional way to offload risk while preserving some of the upside: dump the balance sheet exposure to others while giving them a fraction of the potential upside yield. This is precisely what the big banks were doing during the last housing bubble when massive residential mortgage-backed security portfolios were packaged, spliced, securitized (sometime without the feedback of firms like Paulson pre-shorting the MBS courtesy of firms like Goldman) and sold off to other yield-starved investors. Everyone knows how that ended. So fast forward to today, when this final missing link from the credit and housing bubble is finally here too, following news that mega-PE firm Blackstone is pushing forward with the first ever REO-To-Rental securitization.

Guest Post: A Community-Based Alternative To The Welfare State

Two of the key characteristics of an empire in terminal decline are complacency and intellectual sclerosis, what we have termed a failure of imagination. (The others are military over-reach, chronic deficits, a parasitic Elite that is immune to what's left of the rule of law, weak leadership, mass dependence on the Central State and excessive consumption.) It is important to discuss alternatives before the Status Quo devolves and collapses, so we have an intellectual framework to guide healthier, more sustainable alternatives once the current system implodes.