In lieu of a missing Friday humor piece, here is the Saturday edition, which is merely a non-fiction based compilation of this week's Top 10 Bloomberg headlines as they crossed the tape. The conclusion here is that The Onion has now permanently missed its IPO window, as reality is now in no need of embellishment.
You read about it earlier here. Now see how it happened in real time. The identity of the "transgressor(s)" has still not been released.
We have covered the great California gas rush in the past few days, and here is the confirmation. According to the AAA fuel gauge report, the average California gas price just hit an all time record of $4.614, and shows no sign of slowing down.
Much has been said about yesterday's laughable jobs report. Here is a little more, only this time not from some politicized CTRL-C/CTRL-V major who was forced to take out the HP-12C for the first time from their storage closet and pretend they have any idea about finance and economics, but from David Rosenberg.
Over the past few weeks, Spain has received worldwide attention due to its deteriorating economy and growing outbursts of massive social protests. Most notably, US presidential candidate Mitt Romney said in his debate with President Barack Obama last week that he did not want his country to “go down the path to Spain.” As the world fixes its eyes on the eurozone’s fourth largest economy, analysts continue to offer suggestions as to how to best tackle the Iberian country’s economic woes. However, the reason why Spain is a riot both financially and socially goes beyond matters of economic policy. Spain faces a graver problem, its political institutions. Perhaps the most lamentable element in Spain’s political class is that it is hard, almost anecdotal, to find elected officials with a track record outside the public sector. For too many years, the country has been governed by bureaucrats who have no experience whatsoever in the real world of business. The majority of Spain’s politicians do not know what it is to conceive an idea, to risk one’s own wealth, to deal with banks, workers and suppliers, and, ultimately, to experience failure and success. Sadly, the Spanish taxpayer-financed political establishment understands failure and success only in terms of which side of the aisle their members are seated in parliament.
Back in October of 2010, when we first exposed Bank of America as massively underreserved for putback, Rep and Warrant and various other forms of litigation, we predicted that once the precedent is set for ever escalating litigation against transgressions banks committed in the Old Normal (the biggest of which was the worst M&A deal of all time: BofA buying Countrywide and with it hundreds of billions in contingent liabilities), very soon banks would be swamped with a tsunami of litigation. And after all, it's only "fair" - the banking industry would not exist if its wasn't for the Fed and government's bailout and backstop of tens of trillions in liabilities at the peak. Now it's time for some "wealth redistribution" - only instead of said government-funded wealth tricking down to the common man, the only social group set to benefit are America's lawyers. Fast forward two years to October 2012, and what we predicted is precisely what has happened. As the chart below shows various "environment charges" aka charges related to mortgage put-backs, legal and foreclosure related issues, have soared to a record 16% of pre-provision earnings. As Goldman calculates, this is reducing EPS and returns by an average 17%! Where it this "profit" going? Mostly to various class cation suit organizing law firms and to pay for $800/hour legal retainers.
There is a popular belief in the Middle East that Washington’s foreign policy, particularly as it relates to this precarious region, is largely driven by America’s dependency on, and insatiable appetite for Arab oil. One can make a good argument for that. Had Syria been a major oil producing country chances are the US would have already dispatched military forces to impose a pax Americana and to put a stop to the horrific fighting that has been slowly, but without any doubt, ripping Syria apart and dismantling the infrastructures that make the Syrian state what it is today. Even if the war was to end today it would take years for Syria to return to its pre-war position from an economic and military perspective.
Just because the middle east did not have enough countries and/or terrorist organizations shooting at random things, in outright attempts of provocation or otherwise, here comes Israel to join the party. From Reuters: "The Israeli air force shot down a drone after it crossed into southern Israel on Saturday, the military said, but it remained unclear where the aircraft came from. "An unmanned aerial vehicle was identified penetrating Israeli air space this morning, and was intercepted by the Israeli Air Force at approximately 10 a.m. (0700 GMT)," the military said in a brief statement. Soldiers were searching the area where the drone was downed - in the northern part of the Negev desert - to locate and identify the drone, the statement said. The Negev desert is near Israel's southern borders with the Gaza Strip, Egypt, Jordan and the occupied West Bank."
According to the Paul Krugman, the “confidence fairy” is the erroneous belief that ambiguity over future government regulation and taxation plays a significant role in how investors choose to put capital to work. To the Nobel laureate, the anemic economic recovery in the United States shouldn’t be blamed on this “uncertainty” but rather a “lack of demand for the things workers produce.” The theory which puts a lack of aggregate demand as being the cause of economic recessions has the issue backwards. Demand by itself doesn’t add to the stock of goods in society; only production does. Because economic theory deals with the interactions of mankind it needs to be applicable to all times and places. On a desert island, only a true charlatan would insist that a “lack of demand” is holding the primitive economy back from its full potential. Desert islands are no different from today’s economy; both are still dominated by scarcity. If the world economy is ever going to recover, the obstacles put in business’s place have to be lifted to make way for investment in real, tangible goods and services. Consumption will come after.
We all know shorting volatility is dangerous. We learned our lessons from the financial crisis. We all meticulously read “The Black Swan” and then watched the scary movie adaption of the book starring Natalie Portman. We all know that this method produces a steady stream of smooth returns making people think you are a genius until the inevitable disaster forces you to pawn off your Nobel Prize. We all know that shorting volatility will cause you to go insane with a twisted psycho-sexual obsession to master the art of ballet. It’s picking up pennies in front of a convexity steamroller. Knowing these facts we would like to pose a question...Which is riskier right now? Shorting a collateralized far out-of-the-money S&P 500 index put or buying a “risk-free” US treasury bond? Hint: Now the market for safety has an efficient frontier on par with the penny in front of the steamroller trade? If you don’t find that scary then you’re not paying attention.
This is neither from the near (or distant) future, nor from a movie starring Will Smith in which he fights vampire zombies (at least not yet). It's from the here and now, Calabasas, CA to be precise. And it may be coming to a gas pump near you in the immediate future.
We have mentioned the little-known Belgian economist's works a couple of times previously (here and here) with regard his exposing the serious flaws in the Bretton Woods monetary system and perfectly predicting it's inevitable demise. Triffin's 'Dilemma' was that when one nation's currency also becomes the world's reserve asset, eventually domestic and international monetary objectives diverge. Have you ever wondered how it's possible that the USA has run a trade deficit for 37 consecutive years? Have you ever considered the consequences on the value of your Dollar denominated assets if it eventually becomes an unacceptable form of payment to our trading partners? Thankfully for those of us trying to navigate the current financial morass, Robert Triffin did. Triffin's endgame is simple. A rapid diversification of reserves out of the dollar by foreign central banks. The blueprint for this alternative has been in plain sight since the late 1990's, and if you watch what central banks do – not what they say – you can benefit.
While the 0.4% perfectly unmanipulated and totally coincidental swing in the unemployment rate in an Obama favorable direction one month before the election came at a prime time moment for the market, one hour ahead of the open, setting the market mood for the rest of the day (which despite all best efforts still closed red, valiant efforts by Simon Potter and the FRBNY's direct pipe to Citadel notwithstanding), there was one other, far more important data point released by the government's department of agriculture, sufficiently late after the market close to impact no risk assets. That data point of course was foodstamps (or the government's Supplemental Nutrition Assistance Program, aka SNAP), and we are confident that no readers will be surprised to learn that foodstamp usage for both persons and households, has jumped to a new all time record.... Finally, and putting it all into perspective, since December 2007, or the start of the Great Depression ver 2.0, the number of jobs lost is 4.5 million, while those added to foodstamps and disability rolls, has increased by a unprecedented 21 million.
While we are told to assume it is entirely transitory and speculation-driven, the price to drive your brand new GM Truck (leased for 30 years, interest-only via your EBT card) has never been higher. Do not worry though since this is only temporarily going to mean 'little Timmy' needs to go without food. As a Public Service Announcement, we have also estimated that the opportunity cost of every additional $1/gallon is just 16-20 $0.99 iGizmo apps you can do without for a week (but given sentiment surveys it would seem you do not need any further sedation).