Archive - Jul 2010

Sometimes, when chasing the bouncing ball of fraud and corruption on a daily basis, it is easy to lose sight of the forest for the millions of trees (all of which have a 150% LTV fourth-lien on them, underwritten by Goldman Sachs, which is short the shrubbery tranche). Luckily, Charles Hugh Smith, of oftwominds.com has taken the time to put it all into such simple and compelling terms, even corrupt North Carolina congressmen will not have the chance to plead stupidity after reading this.

As the whole world prepares for years of austerity, now that virtually everyone is aware that sovereign debt levels are unsustainable and the drive to push public sector deficits down has reached a crescendo, one question remains open: what will happen to the private sector deleveraging commenced the world over in the aftermath of the Lehman bankruptcy. Goldman's Jan Hatzius takes a look at this question, and reaches some very unpleasant conclusions. Looking at the closed system of the financial balances of the private sector, the public sector and the rest of the world (i.e., private balance + public balance = current account balance), in which the push for deleveraging in the private sector, the rush to ramp up exports, and the imminent Age of Austerity all signal an upcoming unprecedented "demand shortfall for the economy as a whole", Hatzius concludes gloomily  that "given the forces of retrenchment and balance sheet repair, the risks to the growth of aggregate demand?as well as risk-free interest rates?over the medium term are tilted to the downside. Policymakers can provide some relief, but realistically will find it hard to neutralize the headwinds altogether" The economist also looks at what realist fiscal and monetary rabbits are left in the hat of the administration/Fed, and realizes that there is little that can be done to prevent what he dubs a "slowdown" and what everyone else whose bonus isn't tied in with perpetual growth assumptions, a new wave of the Second Great Depression.

A little-known fact which is key to the entire oil spill story ...

Cover it up boys, so no one knows how badly we scr*w!d up...

Another day, another executive forced to refute rumors of his organization's imminent bankruptcy, fueling further speculation that observations of fire may soon follow those of smoke. The head of Portugese Banco Comercial Portugues, the largest private bank in Portugal, Carlos Santos Ferreira, sent an email to his employees saying that text messages by "unscrupulous authors" "claiming the bank is on the verge of bankruptcy, are merely attempting to "undermine the confidence" of the bank and are groundless, and have been reported to the Portguese version of the SEC. Amusingly, Ferreira noted that ordinarily he does not comment on "rumors and hearsay, because this will give them credibility." As Portguese banks have been shut out of the interbank funding market for months, and rely exclusively on the ECB, we can see why the CEO of the BCP may be a little concerned about people being abnormally truthy these days.

"The short story is that a 2019 go-broke date for New Jersey pensions seems very reasonable."

Recent data from the Fed's balance sheet indicates that even with the Fed no longer printing money directly since March, a dramatic reduction in bank Excess Reserves to the tune of $200 billion over the past 2 months has provided the same net benefit in liquifying the markets. And since none of this money is making its way to end consumers and small business borrowers, it is more than realistic to speculate that banks are merely using the formerly "excess" cash to purchase treasuries, thereby continuing the Treasury purchasing infinite Ponzi loop.

All the charts that's fit to print, with Goldman's traditional upward bias. David Kostin looks forward: "next week 23 companies in the S&P 500 will report 2Q earnings, led by Alcoa, CSX, and Novellus on Monday and followed by bellwethers INTC, MAR, JPM, GOOG, BAC, C, and GE (see calendar page 3). Earnings revisions and sector performance have disconnected with positive revisions associated with more negative returns since the market peak. S&P 500 rallied 5% in the past few days off the YTD low."

A 3 minute historic overview of Google: The Most Powerful Company in the World?

The market valued Tesla Motors at an impressive $3.3 billion, with virtually the entire auto industry and its pet analysts pissing all over the deal from the greatest height possible. Applies IPO comes to mind. What happens when Obama’s massive electric car subsidies disappear? Oh, and Elon, don’t tell a divorce court that you’re broke a week before the market values your holdings in TSLA at $2 billion. Will Tesla will be joining the Tucker, the DeLorean, and the Pontiac in the dustbin of history.(TSLA)

From next January increases in UK's private pensions will be linked to the Consumer Price Index (CPI) instead of the Retail Prices Index (RPI). Ministers insist the switch in the way annual pension increases are ­calculated was a technical change that would have ­little impact on incomes. But a backlash is spreading among pensioners, savers and experts who say it's another covert raid on the savings of Middle Britain.

Nice stuff ...

D'oh!

As we close on another week replete with ugly economic data and the usual bizarro counterintuitive market, here is a summary of the 50 most underreported facts about the state of the US economy, courtesy of the Coto report. After reading these it almost makes sense that the market has become completely desensitized to the sad reality now pervasive in this country. Readers are encouraged to add their own observations to this list. Surely if the list is doubled, the market will go up to 72,000 instead of just 36,000.

"For the Chinese, restarting the creeping revaluation of the renminbi has many benefits. Near the top of the list is gently moving its manufacturing base toward higher value added items and shifting production from servicing exports to satisfying domestic demand. Way down the list is appeasing the international critics of Chinese policy. The promotion of the domestic market is already underway, but the pace will be glacial – at least from the point of view of bank traders and US politicians – taking at least a decade to have a major impact on the composition of the Chinese economy. And there is no guarantee that any shift is coming, as the Japanese economy remains basically unchanged despite the dramatic increase in the value of the yen. We can only hope that the authorities in Beijing have a more adaptive and global view than those in Tokyo have shown and will adjust their banking and financial support system to integrate the renminbi and the Chinese economy with that of the West. Although the renminbi could rise to the 4.00 area by the end of this decade, the impact of this move will be felt inside of China, not outside. Furthermore, we can be sure that the Chinese leadership will do its best to manage this process in a way that has the most positive feedback for the Chinese society. Although the stronger renminbi will be a boon for China’s neighbors in Asia, it offers no help to the US or Europe." - John Taylor