How A Previously Secret Collateral Transformation With The Bank Of Italy Prevented Monte Paschi's Nationalization

The endless Italian bailout story that keeps on giving, has just given some more. It turns out Italy's insolvent Banca dei Monte Paschi, which has been in the headlines for the past month due to its role as political leverage against the frontrunning Bersani bloc, and which has been bailed out openly so many times in the past 4 years we have lost track, and whose cesspool of a balance sheet disclose one after another previously secret derivative deal on an almost daily basis, can now add a previously unannounced bailout by the Bank of Italy to its list of recent historical escapades.

Guest Post: The U.S. Economy Is Now Dangerously Detached From Reality

We now live in an entirely fabricated fiscal environment.  Every aspect of it is filtered, muddled, molded, and manipulated before our eyes ever get to study the stats.  The metaphor may be overused, but our economic system has become an absolute “matrix”.  All that we see and hear has been homogenized and all truth has been sterilized away.  There is nothing to investigate anymore.  It is like awaking in the middle of a vast and hallucinatory live action theater production, complete with performers, props, and sound effects, all designed to confuse us and do us harm.  In the end, trying to make sense of the illusion is a waste of time.  All we can do is look for the exits…

The Fed's Bailout Of Europe Continues With Record $237 Billion Injected Into Foreign Banks In Past Month

Last weekend Zero Hedge once again broke the news that just like back in June 2011, when as part of the launch of QE2 we demonstrated that all the incremental cash resulting form the $600 billion surge in the Fed's excess reserves, had gone not to domestically-chartered US banks, but to subsidiaries of foreign banks operating on US soil. To be sure, various other secondary outlets picked up on the story without proper attribution, most notably the WSJ, which cited a Stone McCarthy report adding the caveat that "interpreting the data released by the Federal Reserve is a bit challenging" and also adding the usual incorrect attempts at interpretation for why this is happening. To the contrary: interpreting the data is quite simple, which is why we made an explicit prediction: 'We urge readers to check the weekly status of the H.8 when it comes out every Friday night, and specifically line item 25 on page 18, as we have a sinking feeling that as the Fed creates $85 billion in reserves every month... it will do just one thing: hand the cash right over straight to still hopelessly insolvent European banks." So with Friday having come and gone, we did just the check we suggested. As the chart below shows, we were right.

Paul Krugman: "We Should Kick The Can Down The Road. It’s The Responsible Thing To Do"

The below article, recreated in its grotesque entirety, is a real, serious Op-Ed written by a supposedly real, non page-view trolling, Nobel-prize winning economist, in a serious paper, the New York Times. It can be classified with one word: jaw-dropping:"We’re not going to resolve our long-run fiscal issues any time soon, which is O.K. — not ideal, but nothing terrible will happen if we don’t fix everything this year. Meanwhile, we face the imminent threat of severe economic damage from short-term spending cuts. So we should avoid that damage by kicking the can down the road. It’s the responsible thing to do."

2013 Earnings Are Now Forecast To Be Less Then 2009 Earnings Were Projected To Be In 2007

Over the past few weeks, virtually all of the empty chatterboxes on financial comedy TV have been repeating ad infinitum just how much cheaper the market now is compared to its prior peak in 2007 because, get this, it trades at "only" a 15x multiple compared to the 18x or so reached at its peak in 2007. By doing so these same hollow pundits simply confirm just how painfully clueless their cheerleading is, as the market, or what's left of it in the "new Bernanke centrally-planned abnormal", never trades on current earnings but always future discounted EPS, or in other words, forward P/E, or any other valuation, multiples. And it is when one looks at the future on an apples to apples basis, that the market now is more expensive than it was back in 2007!

Days After Freezing Prices, Argentina Bans All Advertising

"We are from the government and we are here to help you"

- Anonymous government worker

A week after Argentina resorted to every failing authoritarian government's last ditch measure to (briefly) control inflation before runaway prices flood the nation and result in political and social upheaval, namely freezing retail prices - a decision which never has a happy ending, the country is pressing on through the rabbit hole and in the latest stunner of a government decree (which like Venezuela yesterday is merely a harbinger of what is coming everywhere else), has banned advertising in the Argentina's newspapers in an attempt to weaken what's left of a private, independent media, and to punish those who don't comply with the government's propaganda.

Guest Post: Is The NDAA Lawsuit Headed To The Supreme Court?

The NDAA lawsuit is one of the key topics we have written about over the past year or so.  For those of you that aren’t up to speed, one of the most popular posts we ever wrote was NDAA: The Most Important Lawsuit in American History that No One is Talking About.  Basically, Section 1021 of the NDAA allows for the indefinite detention of American citizens without charges or a trial.  Journalist Chris Hedges and several others sued Obama on the grounds of it being unconstitutional.  Judge Katherine Forrest agreed and issued an injunction on it.  This was immediately appealed by the Obama Administration to a higher court, which promptly issued a temporary stay on the injunction. Yesterday, oral arguments began in front of this aforementioned higher court; the 2nd Circuit.  As Chris Hedges states in the interview below, if they win the case then it will likely be brought in front of the Supreme Court within weeks.  On the other hand, if the Obama Administration wins and the Supreme Court refuses to hear the appeal, Hedges states: “at that point we’ve just become a military dictatorship.”

Blast From The Past - 6 Years Ago Today...

Six years ago today, with the S&P 500 around 1460 - having risen 20% without a correction for seven months - a handful of Wall Street's best and brightest joined CNBC's Larry Kudlow and Bob Pisani to discuss the Goldilocks economy, why the bears are wrong, and where the market is going next. Sometimes, we just need a reminder to snap us out of that recency bias... for example, Bob Pisani: "We have got a global rally going on... and the important thing is... there's a floor to the market - every time, for the last seven months, they sell the market down for 2 days, it comes right back... When you are in a global expansion like this, to sell...is foolish."

Weekly Bull/Bear Recap: Feb. 4-8, 2013

This objective report concisely summarizes important macro events over the past week.  It is not geared to push an agenda.  Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases. 

The Activist-Beleaguered CEO's Survival Guide

Excess cash on corporate balance sheets has been a hot topic the better part of the last decade, but ConvergEx's Nick Colas believes it's about to become even more important to capital markets.  U.S. companies have, after all, regained all the profitability they collectively enjoyed prior to the Financial Crisis.  Moreover, they've accomplished that by rationalizing their business models to succeed in a period of distinctly sub-par growth.  Combine that with markets that will likely offer only average returns, and activist investing seems like a worthwhile approach to alpha generation.  Sometimes, however, it pays to look at the world through the eyes of the fox rather than the hounds. As the Einhorn-Cook battle commences, we graciously offer up a few kernels of advice for other companies who get the "Where’s my money at?" call from an activist. E.g. #1 – The country’s central bank doesn’t think we are really out of the crisis – why do you?

Friday Humor: "When It Needs To Get There On Saturday"

Remember the popular myth that there are some things that the private sector can never, ever possibly replicate the public sector in because, you know, "they didn't build that" and they couldn't possibly build that, even after accumulating some $16,487,564,297,892.03 in debt - no, only the government can be that efficient? We do. And apparently so does FedEx, which does so with just the faintest of a smirk...

Venezuela Launches First Nuke In Currency Wars, Devalues Currency By 46%

While the rest of the developed world is scrambling here and there, politely prodding its central bankers to destroy their relative currencies, all the while naming said devaluation assorted names, "quantitative easing" being the most popular, here comes Venezuela and shows the banana republics of the developed world what lobbing a nuclear bomb into a currency war knife fight looks like:

VENEZUELA DEVALUES FROM 4.30 TO 6.30 BOLIVARS
VENEZUELA NEW CURRENCY BODY TO MANAGE DOLLAR INFLOWS
CARACAS CONSUMER PRICES ROSE 3.3% IN JAN.

And that, ladies and gents of Caracas, is how you just lost 46% of your purchasing power, unless of course your fiat was in gold and silver, which just jumped by about 46%. And, in case there is confusion, this is in process, and coming soon to every "developed world" banana republic near you.

200 Years Of Escalating Policy Mistakes

"Central Bankers and policymakers can’t stop themselves from interfering." To be fair on them (unusual in his case), SocGen's Albert Edwards admits the pressure to do something in the face of “bad” economic news is overwhelming. The general public or more inconveniently, the electorate, clamor for action from policymakers to counter any economic pain. Any ‘Austrian School’-type suggestion that it is best to let the cycle play out is derided as heartless and defeatist. Something can and must always be done. Whether intervention makes things worse in the medium to long run is an inconvenience that can be ignored until later. We feel Edwards pain as he "sheds tears of despair as [he] was reminded of the blundering incompetence of our overconfident policymakers, whose interventions, despite their best intentions, seem to bring about financial crises with increasing rather than decreasing regularity."

"China Accounts For Nearly Half Of World's New Money Supply"

After having less than half the total US deposits back in 2005, China has pumped enough cash into the economy using various public and private conduits to make even Ben Bernanke blush: between January 2005 and January 2013, Chinese bank deposits have soared by a whopping $11 trillion, rising from $4 trillion to $15 trillion! We have no idea what the real Chinese GDP number is but this expansion alone is anywhere between 200 and 300% of the real GDP as it stands now. And more: between January 2012 and January 2013 Chinese deposits rose by just over $2 trillion. In other words, while everyone focuses on Uncle Ben and his measly $1 trillion in base money creation in 2013 (while loan creation at commercial banks continues to decline), China will have created well more than double this amount of money in the current year alone!

USD Surges By Most In 7 Months As Stocks Stumble And Bonds Bid

Keep Calm and Keep Buying. We are sure this will be the message as for the first time this year, the Dow closed the week in the red. First time in 42 years that the S&P 500 started the year up six weeks in a row... as the S&P and Nasdaq managed modest gains (thanks to AAPL's help) - making new multi-year highs as yet another high stop-run was sent out early. After testing back under 13%, VIX popped back higher in the afternoon to close the week slightly higher. However, while stocks stumbled along sideways not really doing anything - every other asset class saw significant risk-off related moves. The USD saw its biggest weekly rise in 7 months! Treasury yields dropped 6-8bps - the biggest rally in bonds in 5 weeks. High-yield credit has suffered its biggest 2-week plunge in 9 months. WTI Crude saw its biggest weekly drop in 2 months. Given the USD strength, gold performed very well (ending the week unch). Stocks remain significantly dislocated from credit, rates, and FX markets in the medium-term (all of which closed the week with a risk-off shift). Volume, amid the blizzard, was dismal today.

Faith Vs Fate

The S&P 500 P/E ratio is testing 15x - its highest in 19 months. This takes the stock market's valuation back to its highest since the debt-ceiling debacle and USAAA downgrade (as if nothing ever happened). Since that time, expectations for GDP growth in 2013 has plunged from 3.2% to a measly 2.0%. The 'Market of Dreams' economy continues as Bernanke's "If you BTFD, we will recover" is the only mantra left. Was it only August 2007 that Bob Pisani was reminding us all that: "improved policies on the part of those steering the economy are the likely reason we have avoided recessions."

 

Guest Post: Time To Choose

Whether you're aware of it or not, a great battle is being waged around us. It is a war of two opposing narratives: the future of our economy and our standard of living. The dominant story, championed by flotillas of press releases and parading talking heads, tells an inspiring tale of recovery and return to growth. The other side, less visible but with a full armament of high-caliber data, tells a very different story. One of growing instability, downside risk, and inequality. As different as they are in substance, they both share one fundamental prediction – and this is why you should care: This battle is about to break. And when it does, one side will turn out to be much more 'right' than the other. The time for action has arrived. To position yourself in the direction of the break you think is most likely to happen. It's time to choose a side.

"No Easy Off-Ramps" - Compare And Contrast

"I will veto any effort to get rid of the automatic spending cuts" - Barack Obama, November 21, 2011

...

"The President will urge Congress to come together and act to ensure these devastating cuts to defense and job-creating programs don’t take effect." - White House statement, February 5, 2013

Farage Demolishes Europe's "Troll Patrol"

Whether it is Euro-Skeptic MEPs, tin-foil-hat-wearing bloggers, anarchic facebook-friends, or 'V-for-Vendetta'-atavar'd twitterati, the European Union is now engaging in a social media blast to "correct their misconceptions". In what appears to be a coordinated troll-patrol, Nigel Farage notes the "very very scared" leaders of the European Union are spending taxpayers money to counter growing skepticism at the unelected leaders dragging citizens into a United States of Europe. The outspoken British MEP makes it very clear he thinks this social media smear campaign is leading towards a 'mugabe-like' banana republic, as Europe's leaders, who he believes are the "most dangerous people in Europe in 70 years," are terrified at the citizenry's realization that none of this removal of sovereignty was ever voted for. Banana Republic indeed...