Archive - Apr 2011

Well, how will Obama balance his budget? Without cutting any spending, he could simply double taxes for everyone – but that wouldn’t work; he’d have to tax the poor and the rich. Since the top 5% of wealthy Americans are already paying over 58% of total US taxes collected, raising their tax burden will likely force them to move to Canada (the land of lower taxes and really good money managers). Meanwhile, raising taxes for the poor isn’t really a good way to get reelected in 2012. So, what does Obama do? Using his Nobel Peace Prize as inspiration, he crafts a plan that will cut spending by $4 trillion over the next 12 years. Then, using his teleprompter for guidance, he orates this plan to congress and the American public in the smoothest of silk possible. It was a great plan, until his very own Vice President, Joe Biden, falls asleep during the speech and on national TV at that. But in hindsight, this was actually smart as it deflected attention away from the details, and as we all know – the devil is in the details.

Do you believe all fairy tales end well? Not this royal property bubble..

Interesting stuff ...

One clue: Exhibit A

The only things that are doing well are the stock and bond markets. But the markets and the economy are totally different things – except, over a very long period of time, there's no necessary correlation between the economy doing well and the market doing well. My view is that the market is as high as it is right now – with the Dow over 12,000 – solely and entirely because the Federal Reserve has created trillions of dollars, as other central banks around the world have created trillions of their currency units. Those currency units have to go somewhere, and a lot of them have gone into the stock market. As a general rule, I don't believe in conspiracy theories, and I don't believe anything's big enough to manipulate the market successfully over a long period. At the same time, the government recognizes that most people conflate the Dow with the economy, so it is directing money toward the market to keep it up. Of course, the government wants to keep it up for other reasons – not just because it thinks the economy rests on the psychology of the people, which is complete nonsense. Psychology is just about the most ephemeral thing on which you could possibly base an economy. It can blow away like a pile of feathers in a hurricane

Dear Congressman:

It’s here:  Your moment at the plate.   You’ve whiffed more than a few … and, yes, we’re counting.  But you’ve been gifted another at-bat, and the President’s tired.  Seventh inning stuff is coming out of his teleprompter, and this full-count fastball will be straight, level, and slow.  You won’t see another one like this for five years.

An embattled first term president is faced with an outcome that he must, at all costs, prevent, and he’s done very little ground work ahead of it.  He is about to become the first President in American history to preside over a default on the national debt, unless you vote to let him raise the limit on the financial burden we leave our children.  He would ultimately be crazy to deny any reasonable option, absolutely anything, rather than live with the outcome of his refusal.  Politically speaking, he’s whispered a prayer to the Greek God of Imprudence and Fiscal Insanity, raised a one-finger salute to the nation’s savers through the sunroof of a stolen golden Beemer, and revved it toward the draw-bridge that you were elected to control.

Now it's just getting plain silly. Following two margin hikes by the CME, one for 9% and one for 10% this week, now MF Global, run by former Goldman CEO Jon Corzine has joined the fray, and has hiked its silver margin to $25,397. As a reminder, the latest CME margin is $14,513, or about 6% of the contract value of $241,750 assuming a silver price of $48.35. So MF Global's is 175% of the CME! It is obvious that everyone is now hell bent on destroying the parabolic move higher in gold and silver, which is happening for a very good reason: deranged money printing. Although, as yesterday, we very much doubt MF Global, or anyone else for that matter will hike ES margins any time soon. After all, doing anything to stop the Weimar rally^TM in its tracks is treason of the highest degree under Bernanke's dictatorship and is punishable appropriately. In the meantime, can the exchange just make margin trading in commodities illegal and move to all cash? At least that way all the weak momo hands can be relegated to chasing Netflix and other bubbles, making their eventual pop all the more memorable.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 29/04/11

One group that we refuse to hold, however, is global small cap stocks and, in particular, U.S. small caps. On our data, U.S. small cap stocks are now as expensive as we have ever seen them. Perhaps more surprising still is the deafening silence about this distinctly frothy group. Although the S&P 500 price index is still some way below its all-time high, U.S. small caps are within spitting distance of theirs: a high that was last reached with a booming global economy, strong employment, and a debt-driven consumption binge in full swing.

Of course the Government is still borrowing $140Bn a month and the Fed is still "easing" by handing their Bankster buddies another $120Bn a month so our run rate, at the moment, is still $3.1Tn a year to keep all these plates spinning.

Earlier we observed the long-overdue (noted first here in March of 2009) allegations that Markit among any others may be involved in a massive CDS pricing collusion scheme. Now it is Markit's turn to provide its side of the story.

There is some money which is printed, but does not make it into the money supply. Consider the scenario that the Fed prints a dollar that is then either lost or destroyed. It then cannot be used to buy goods, or be lent out and thus does not create inflation. There is something else which can happen to our money which has the same net effect. Foreign central banks can take cash printed from the Fed and place it on their balance sheet. US dollars on foreign banks balance sheets gives investors confidence that their own currency will not be debased. In other words, the real threat of inflation is not the current printing of money which Bernanke et al have been doing. It is the previous printing of money which has been taken out of circulation. The threat is as great as its ever been. The amount of money in foreign reserves is about one third or more of M2, or every dollar which is held by US bank account (business or retail), and all currency combined.

Friedrich Hayek is generally regarded as the apostle of a brand of economics which holds that the market will assure the optimal allocation of resources — as long as the government doesn’t interfere. It is a formalized and mathematical theory, whose two main pillars are the efficient market hypothesis and the theory of rational expectations. This is usually called the Chicago School, and it dominates the teaching of economics in the United States. I call it market fundamentalism. I have an alternative interpretation — diametrically opposed to the efficient market hypothesis and rational expectations. It is built on the twin pillars of fallibility and reflexivity. I firmly believe these principles are in accordance with Hayek’s ideas. But we can’t both be right. If I am right, market fundamentalism is wrong. That means I must be able to show some inconsistency in Hayek’s ideas, which is what I propose to do.

And another economic fail, this time an attempt from Ireland to bury bad news on a royal wedding, later afternoon Friday:

• Ireland revises 2011 GDP growth to +0.8% from +1.7%; 2012 to +2.5% from 3.2%
• Irish govt revises 2013 deficit forecast to 7.2% from 5.8%; 2012 to 4.7% from 2.8%.
• Ireland revises 2011 debt/GDP forecast to 111% from 98.6%; 2012 to 116% from 102%

Which only means more stimulus. And since fiscal is out of the question (austerity remember, duh) it means monetary. Which means gold surges to $1,566.

Remember when every appearance of Obama and Geithner would send the market plunging before the institution of central planning? Well, we now have a new phenomenon: every time the Chairsatan opens his mouth gold surges. Pretty simple. The second Bernanke started delivering his prepared propaganda at the Community Affairs Research Conference, whose parallel chat session appears to have been overtaken by conscientious objectors, gold surged from the mid $1540s to $1,558. A few dollars here, a few dollars there, and pretty soon we are talking real money...