Presented with little comment but it seems that 2012 is no ordinary year for Japan... God knows what the people in this Department Store in Osaka were thinking when they came up with this advertising slogan.
Perhaps one of the most startling and telling charts of the New Normal, one which few talk about, is the soaring difference between bank loans - traditionally the source of growth for banks, at least in their Old Normal business model which did not envision all of them becoming glorified, Too Big To Fail hedge funds, ala the Goldman Sachs "Bank Holding Company" model; and deposits - traditionally the source of capital banks use to fund said loans. Historically, and logically, the relationship between the two time series has been virtually one to one. However, ever since the advent of actively managed Central Planning by the Fed, as a result of which Ben Bernanke dumped nearly $2 trillion in excess deposits on banks to facilitate their risk taking even more, the traditional correlation between loans and deposits has broken down. It is time to once again start talking about this chart as for the first time ever the difference between deposits and loans has hit a record $2 trillion! But that's just the beginning - the rabbit hole goes so much deeper...
To understand this endgame, we need to start with the financial and political basics of wealth and power in the U.S. Put these nine structural dynamics together and the endgame becomes clearly visible: Politically, a Tyranny of the Majority comprised of those who draw direct transfers/benefits from the Federal government, is ruled by the top half-of-1% financial aristocracy who own the majority of income-generating assets. The minority, who pay most of the taxes (the 24.5% between the majority and aristocracy), will see their taxes rise as the aristocracy buys loopholes and exclusions while the bottom 50% pay no income tax. Financially, the Federal government’s spending has outrun the tax revenues being collected. Structurally, Federal expenditures for entitlements (Medicare, Medicaid, Social Security, Veterans Administration, etc.) will rise as Baby Boomers retire en masse over the next 15 years, while tax revenues will stagnate along with earned income. There is no way to square these circles. What few dare admit, much less state publicly, is that the Constitutional limits on the financial Aristocracy and the Tyranny of the Majority have failed.
Just as we warned in our previous discussion, the Brits, concerned that the dreaded Piers Morgan may be forcefully removed from the USA, have now lodged their own petition. With over half the signatures required, the counter-petition to Home Secretary Theresa May begs her to: Stop Piers Morgan From Being Deported Back To The UK From America... "We got rid of him once and why should we have to suffer again. The Americans wanted him so they should put up with him. We washed our hands of him a long time ago." They do have a point. We hear Belize has a quietly-used compound going cheap?
A Canadian Summarizes America's Collapse: "Everyone Takes, Nobody Makes, Money Is Free, And Money Is Worthless"Submitted by Tyler Durden on 12/26/2012 - 13:55
On this lackluster Boxing Day dominated by illiquid moves in every asset class, we thought a few succinct minutes spent comprehending the US and European government policies of social welfare and their outcomes was time well spent. Canadian MP Pierre Poilievre delivers a rather epic speech destroying the myths of US and European 'wealth' noting that "Once the US citizen is in debt, the US government encourages them to stay in debt," noting that "the US government encouraged millions of Americans to spend money they did not have on homes they could not afford using loans they could never repay and then gave them a tax incentive never to repay it." His message, delivered seamlessly, notes the inordinate rise in the cost of all this borrowing, adding that "through debt interest alone, soon the US taxpayer will be funding 100% of the Chinese Military complex." From Dependence to Debt to the Welfare State and back to Dependence, this presentation puts incredible context on the false hope so many believe in the US and Europe. Everyone takes, nobody makes, work doesn't pay, indulgence doesn't cost, money is free, and money is worthless. Must watch.
Over the last few years, and at an increasing pace as of more recently, unions have become more and more confident of their ability to effect change and taken much more aggressive activist positions against the capitalist oppressors. The most recent examples range from California cities to Twinkies-maker Hostess Brands, and each time the stance from the unions appears to have been far more aggressive (and M.A.D. prone) than in the past. The question is why? Perhaps, as we tweeted following Hostess' liquidation:
Will the broke PBGC step in and fund Hostess' 18,000 workers suddenly vaporized pensions?
— zerohedge (@zerohedge) November 16, 2012
...It is the confidence of an all-powerful government at their back with the US Pension Benefit Guarantee Corporation, which is the backstop for private sector plans, providing cover. The problem is, as UBS explains, the PBGC has a huge deficit and is cashflow negative. This leads us to the uncomfortable expectation of further USD government support (bailout) or a more direct monetization by the Fed. PBGC could be impacted severely if a few large firms terminate their pensions. In this case, UBS expects PBGC to sell equities and buy long duration fixed income.
Slowly but surely, USDJPY has moved back above 85.50 to its highest (weakest JPY) in 27 months as the threat promise of central bank intervention has once again created more front-running. With the market attempting to price in Abe's extravagance, we wonder just how much bang for the buck his 'actions' will create when words are not enough. Will Abe 2.0 be the same as OMT, QE3, and QE4 with the event actually constituting the 'top' or peak impact? Critically though, once Japan actually formalizes what it will do, which will be limited by how much rates can rise on bonds before all government revenue is used to fund cash interest, JPY will spike again, facilitated by the record short-interest (per CoT data). More curious is which Goldman alum will be appointed as the head of the BoJ once Shirakawa's term expires in March. As Bloomberg noted this morning, Japan’s Chief Cabinet Secretary Yoshihide Suga said, during a speech in Tokyo this morning, the "next BoJ Governor will be a person who shares Abe’s views."
By the Deceptive means of Misinformation and Manipulation of economic data the Federal Reserve has set the stage for broad based moral hazard. Through Distortions caused by Malpractice and Malfeasance, a raft of Unintended Consequences have now changed the economic and financial fabric of America likely forever. The Federal Reserve policies of Quantitative Easing and Negative real interest rates, across the entire yield curve, have been allowed to go on so long that Mispricing and Malinvestment has reached the level that markets are effectively Delusional. Markets have become Dysfunctional concerning the pricing of risk and risk adjusted valuations. Fund Managers can no longer use even the Fed's own Valuation Model which is openly acknowledged to be broken.
UPDATE: ES tumbling (down 12 from opening highs) through post-crash lows.
In early trading the USD is being sold in favor of the Euro and real assets such as Oil (Middle-East tensions) and Gold are bid. Stocks are tailing lower - stable at around unchanged for now - but following the slow risk-off leak of Treasury yields. Volume is what you would expect on Boxing Day but EURUSD wins the craziest market of the day award for behaving like a gap-heavy penny stock when its the largest currency pair in the world... though USDJPY is starting to push higher (JPY weaker). In stocks, AAPL -1.5% and HLF +6%.
The fiscal cliff dominates the mainstream news, but it is more like a bump on the pathway to the real cliff. In essence, the path has turned down and we're picking up momentum, gaining speed as we head for the cliff. The real cliff is the gap between what has been promised and what can plausibly be collected in tax revenues: $86 trillion but one recent estimate, over $120 trillion by other guestimates. Understood in this way, we can see that raising taxes by $200 billion or cutting expenditures by $200 billion is not going to keep us from hurtling off the real fiscal cliff in a few years. The fiscal cliff is only one edge we're racing toward; there are others.
Three and a half years after the worst recession since the Great Depression, the earnings and employment gap between those in the under-35 population and their parents and grandparents threatens to unravel the American dream of each generation doing better than the last. We have noted a number of times that these divides are growing and warned of the social tension this could create and, as Bloomberg notes, it does not appear to be getting any better, Generation Y professionals entering the workforce are finding careers that once were gateways to high pay and upwardly mobile lives turning into detours and dead ends. "This generation will be permanently depressed and will be on a lower path of income for probably all of their life - and at least the next 10 years," as middle-income jobs are disappearing. A 2009 law school graduate sums it up rather succinctly: "I had a lot of faith in the system, the mythology that if you work really hard you can achieve anything, and the stock market always goes up. It was pretty naïve on my part."
In Late 2006, the S&P 500 futures market traded around 1435 and the commitment of traders was at an extreme net long position. The market fell shortly after only to manage a miraculous rise in the face of hedge funds going bust and an exploding and over-leveraged credit market. In mid-2008, the S&P 500 futures also traded around these levels, from where the epic collapse really began. Six years later, the S&P 500 futures traders are the most bullishly positioned they have been since those heady over-confident days. Still believe the talking heads that there is money on the sidelines waiting to be put to work? Still convinced that there will be some epic rally if the 'fiscal cliff' fallacy is resolved? Positioning (real money) trumps Sentiment (AAII surveys etc.) every day in our book. The Bernank will be pleased at his success.
Case-Shiller Posts 9th Consecutive Increase Driven By Phoenix, Detroit - Back To 2003 Levels, NSA DropsSubmitted by Tyler Durden on 12/26/2012 - 09:39
As was expected, the October Case Shiller data showed that the recent transitory pick up in the housing sector, now that both REO-to-Rent and Foreclosure Stuffing, not to mention unparalleled debt forgiveness by virtually every bank has been thrown at the housing problem, continues with a ninth consecutive month in Top 20 Composite Index increases, rising 4.3% in October. On the other hand, based on the NSA data, the 4th consecutive dead cat bounce may be coming to a much expected end with October NSA data posting the first sequential decline since March. What drove the pick up in Seasonally Adjusted data? Nothing short of yet another housing bubble in the much beloved speculative areas such as Phoenix and Detroit, where home prices rose by 21.8% and... 9.9%. Yes: apparently one can pay for mortgages with foodstamps now. Other places such as Chicago and New York were not quite so lucky, with the average price declining by 1.3% and 1.2% in the past 12 months. What remains unsaid - very much on purpose - is that the shadow inventory problem is only getting worse, as we reported a week ago, when we showed that nearly half the market cap of Bank of America is in 6 month + delinquent mortgages, or mortgages that are not yet in foreclosure but virtually certainly will be, and will also be discharged.
Just hours after Ackman announced his joining Einhorn's alleged Herbalife short, we jokingly tweeted our expectation of bandwagon-following 'value' investors imminent herding...
Ackman joins Einhorn in the HLF short. Next up: Titney Wilson
— zerohedge (@zerohedge) December 19, 2012
And sure enough, with the holidays providing just enough time to read the 300 pages and to form his own "blindingly obvious" conclusion, Whitney Tilson has jumped in short HLF. We can only imagine the cost of borrow and wonder on the post-OPEX timing of a short squeeze given the huge short interest and the fact that HLF has recently hired Boies, Schiller, and Flexner to defend its business model. HLF is trading up 2% in pre-market.
China Proposes Full Name Registration For Every User To Make Its Internet "Healthier, More Cultured And Safer"Submitted by Tyler Durden on 12/26/2012 - 08:55
With various "gun control" proposals flying fast and furious (precisely the reactionary kneejerk reaction Ron Paul warned would happen), some of which as brilliant as RFIDing every gun in existence, supposedly including the tens of millions of illegal and unregistered ones, it is perhaps appropriate to see how another authoritarian government - China - deals with its own equivalent of the touchy Second Amendment, its "First", or the right to free speech in a society which for decades has had none, and where the internet makes free speech regulation impossible (very much any gun control in a nation in which there is one gun for every person is impossible). China's solution, according to Reuters, the requirement of a real name registration for internet access for every person, "extending a policy already in force with microblogs in a bid to curb what officials call rumors and vulgarity...A law being discussed this week would mean people would have to present their government-issued identity cards when signing contracts for fixed line and mobile internet access, state-run newspapers said."