Archive - Mar 2011

I first published this essay in the Summer of 2009. At that time the whole world believed Obama’s Stimulus Program was working at that the stupid greenshoot recovery was underway. Today I’d like to reprint this essay because the same structural issues that plagued the US in 2009 are still valid and because this piece proved, two years ahead of time, that the US would suffer a massive economic collapse.

We have heard much from the propaganda machine just how much better the jobs situation has gotten under president Obama three years into his term. We would like to interject with two very simple charts...

Until the mass of overbuilt homes and commercial properties are liquidated, credit will remain tight and unemployment will remain high. What you thought you knew about the credit situation is wrong.

As the bruised and battered US consumer continues to be fornicated at the pump, there is, we are told, an amazing silver lining to this inflationary catastrophe: according to the American Public Transportation Association, as gas prices spike they bring with them the
savings for U.S. commuters who rely on public transportation, a transit
group said on Friday. See: and now the surge in price has been spun. Soon, when gas is $5 then $10/gallon, the administration will tell us how we are all saving so much money by using the subway... Of course until such time as the already insolvent MTA (and other regional transportation authorities) are "forced" to hike prices due to retaining those workers which even Wal Mart decided to pass on.

While we have presented the below charts in the past in some form or another on various occasions, since everyone's memory is at most 1 trading day strong these days, we are happy to recycle content while continuing to "surprise" our readers. Below, we present the chart showing European maturities over the next three years. It should be sufficient to convince anyone that while the US needs ongoing QE to not only to keep stocks rising past May/June (Fed's 3rd and only mandate) but to monetize trillions in gross debt issuance (without rates needing to surge to make up for demand shortfall as Bill Gross pointed out so well on Wednesday), Europe is in an even worse predicament. Among the Eurozone's banks, there is roughly $2.4 trillion in funding requirements until 2014. And as our disclosure yesterday on the massive Irish capital shortfall notes, nobody has yet answered the question where all this funding will come from, short of the ECB pulling a Fed, and starting to monetize everything from the bottom of the capital structure upward in the primary markets instead of only through secondary market interventions. Keep in mind this excludes actual sovereign funding needs. Which is not to say the US is immune from the same problem. It isn't. But looking at the problem globally confirms everyone's greatest nightmare: where, in the absence of ongoing central bank monetizations (with or without the assistance of major financial black holes like Europe's EFSF), will the world be able to find buyers for roughly $4-5 trillion in debt to keep the self-funded Ponzi going?

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 04/03/11

In what can be only described as a total gutting of all silver shorts everywhere, including those with infinite Fed funded balance sheets (wink wink Blythe), all one can do is commiserate. With silver hitting $35.55 intraday, not even a last ditch attempt to spread the ridiculous Chavez rumor once more (this time the two dictators will really get peace ironed out, we promise) will prevent a battery of margin calls from forcing all the silver market timers to liquidate assets to keep their primer brokers happy. That's ok: all those market timer will sooner, or much, much later, get the top right.

Wall Street's shadow king, Blackrock's Larry Fink who manages over $3 trillion, and is the world's biggest asset manager, appeared on Bloomberg TV in an interview with Erik Schatzker, and the first thing he said is that the "market likes totalitarian governments." That one statement explains everything one needs to know about the market performance over the past two years: there has hardly been a time in the past century when all the globalized regimes supporting stock markets and asset prices have been more "totalitarian" by Fink's, or any other definition, than they are now. And while the plutocracy may welcome the advent of the Communist States of Iosif Vissarionovich Bernankestein, the common folk, as they always do, ultimately revolt violently against any such attempt at supreme government. Zero Hedge regular Mike Krieger was quick to proclaim his condemnation: "This is how these elites think.  Even if markets did like totalitarian governments HUMANS DON’T.  This guy is pure scum and is exactly what is wrong with America and its policy today.   This is also the guy that told us to buy dollars and treasuries yesterday…" But such are the ways of a dying ponzi regime. Everyone knows the end is coming and is inevitable. And while Wall Street's self-anointed masters of the universe believe they will be able to avoid the ultimate unwind, they are wrong. Just like Gaddafi is finding out first hand right about now.

The race for a piece of the growing drone pie has begun...

The chart which we presented a few weeks ago courtesy of Sean Corrigan sees a few additional components added to it. Whereas before the chart focused on the Adjusted Austrian money supply and commodity prices, it now sees the addition of the S&P and Junk spreads. In a word: every single asset class correlates 1:1 with the Fed's balance sheet. If the Fed is really planning on ending QE2 on June 30, the market collapse will be epic. And, yes, this should not come as a surprise to anyone.

it's not just the Federal Reserve that is in denial but the commodity speculators, the equity investors and even the bond investors as the ALL believe they are going to get paid while MATH says that's not even remotely possible.

Morgan Stanley has compiled a convenient table looking at the impact of all prior oil crises, and how that reflected in peak oil production loss as well as the price of oil on a monthly, 3 month and 6 months basis. And while the biggest crises of modern days has so far been the Yom Kippur War with a total loss of 5 million mmb/d resulting in a 350% increase in the price of oil 6 months following, should the Libyan crisis escalate and impact even half of Saudi production (keep an eye on the March 11 organized protests), the current MENA crisis will promptly win the first prize for biggest oil surge. Should the past 6 month record be passed, Brent will likely be trading around $350 around July.

In addition to "stagflation" which we announced in January would be the word of the year, we now have a new contender in the running for what may soon be the most popular word for the next 10 months: "escalation." To wit: in addition to everything happening in MENA, escalation has now struck right in our own back yard, after Wisconsin governor Walker announced he would fire 1500 state workers unless democrats, who have been fled and are hiding in Illinois to avoid a critical vote on collective bargaining, return to the state. Reuters take on this word: "The threat of layoffs increased the stakes in a bitter battle between Wisconsin Republicans and Democrats, a fight being watched around the nation as other states like Ohio and Indiana weigh rolling back public employee union power as part of budget-cutting efforts." Of course, 'escalation' could go hand in hand with 'broke' which is the third and last "word of the year" contender: "Earlier this week, Walker declared the state
"broke" when he unveiled his proposed two-year $59.2 billion budget for
fiscal 2012-2013, which eliminates more than 21,000 positions and cuts
funding to education, cities and counties." Whether this will result in so far peaceful protests turning violent as "austerity" which was the word of 2010 comes to the shores of the US is for now unknown.

The little country that everyone forgot about after violent killings two weeks ago are now erased from the collective 15 minute memory, is now back on the map. Religious tensions in Bahrain continue to escalate as can be seen in the following speech by senior Shia cleric Sheik Isa Qassim, who essentially confirmed that there will be no dialogue between the protesters and the government: "Dialogue requires the agreement of two opposite sides that have
disagreement and are looking to reach an agreement. Therefore we see no
value in requiring us to sit with some groups or parliamentarians who
are in total agreement with the government. The opposition delegation will not be representing a sect, a
political party, an institution, or a group of parliamentarians; rather
they will have the confidence of the people who are raising legitimate
demands." So much for attempts to resolve things peacefully. Yet what could be the match that sets off the bomb is the announcement by the Bahrain Defense Force that Mohammed al-Buflasa, a Bahraini who was detained on February 15 after speaking in support of the Pearl Roundabout protesters, will be court-martialed. As the following annotated speech transcript by Qassim, the Shi'a will not stand for it. Will this be another weekend in which Bahrain deals with peaceful protests with live fire at the discontents? If so, it may be the end of the tenuous peace in the Saudi Arabia region.