Archive - Jul 12, 2011

Art Cashin, the skeptical floor veteran, and always practical and easy-spoken observer of market moves and developments, shares his latest set of views on the happenings in Europe. Granted this is backward looking, as things in Europe change from one total mess to another in minutes, but still a good summary for new entrants into the utter chaos that is a EUR-driven market with 1.000 correlation to the European currency.

Who would have thought a few years ago that Moody's would be one of the biggest supporters of the gold bulls..."Moody's Investors Service has today downgraded Ireland's foreign- and local-currency government bond ratings by one notch to Ba1 from Baa3. The outlook on the ratings remains negative. The main driver of today's downgrade is the growing likelihood that participation of existing investors may be required as a pre-condition for any future rounds of official financing, should Ireland be unable to borrow at sustainable rates in the capital markets after the end of the current EU/IMF support programme at year-end 2013. Private sector creditor participation could be in the form of a debt re-profiling -- i.e., the rolling-over or swapping of a portion of debt for longer-maturity bonds with coupons below current market rates -- in proportion to the size of the creditors' holdings of debt that are coming due."

Anything that can empower or free us is removed, restricted or demonized, thus severely limiting our innate and natural ability to heal, grow and flourish. At best we are told we should restrict ourselves to applying band aids and hydrogen peroxide. Anything more than this should be left to the professional mind magicians and the grand keepers of the public myths.

Yesterday, when sharing our latest thoughts and observations on the $8.5 billion Bank of America settlement we said, "One thing is certain: the final BAC settlement, if one even comes to fruition, will not be $8.5 billion." Once again: we may have been correct...

• NEW YORK INVESTIGATING $8.5 BLN BANK OF NEW YORK MORTGAGE DEAL
• NEW YORK ATTORNEY GENERAL SEEKS DATA ON BANK OF AMERICA ACCORD
• NEW YORK PROBE IS PART OF MORTGAGE SECURITIZATION INVESTIGATION
• NEW YORK SENDS LETTER TO GOLDMAN SACHS, BLACKROCK, ING, INVESCO

BAC stock not liking this latest development at all.

History rhymes...

The only section that matters: "Some participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated, it would be appropriate to provide additional monetary policy accommodation....A few members noted that, depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run." Translation: QE3?

My take on what may happen to confidence.

There probably is a reason for the sudden move higher in gold, but we don't know or care. At this point the end of Ponzism is a given. Just a matter of time. Next stop for gold $2,000, then various multiples of $1,000 after. But first, the all time nominal high of $1,577 from May 2.

Banks versus nations and people...

It worked for Hank Paulson who showed up in Congress with a three page termsheet, delusions of grandeur, a scary story, and an easily frightened audience. Why should it not work for the president. As Reuters reports, "Barack Obama said in an interview on Tuesday that checks to recipients of the Social Security retirement program may not go out in early August if he and congressional leaders do not agree a debt deal. "I cannot guarantee that those checks go out on August 3rd if we haven't resolved this issue," Obama said in an interview with CBS, according to a transcript on the network's web site. "Because there may simply not be the money in the coffers to do it," Obama said." Is that so Mr. President? Please explain then how according to the most recent DTS the YTD (fiscal) amount paid out on Social Security is $469 billion, well below the amount collected from Federal Tax Deposits of $780 billion. As a comparison, this number is lower than the combination of Medicare and Medicaid ($638 billion YTD), and the combination of Defense and Education Payments ($480 billion). Indicatively, Federal salaries are a whopping $137.6 billion, or said otherwise, all of the SSN payments to date are just three times bigger than what the government pays its own employees. Perhaps a bigger issue is that the debt held by the public has increased by $720 billion YTD, a number which will soon grow to $1.5 trillion if the government does get debt hike it so desperately needs.

With the When Issued trading at 0.688% just before 1pm, some were expecting a relatively weak 3 Year auction to price. Instead, the Treasury managed to place the $32 billion in paper at a new 2011 low yield of 0.67%, nearly 2 bps inside the WI. The Bid To Cover was nothing to wrote home about at 3.219, the lowest since February, although certainly not a bad number. There was little else to cheer about: Dealers took down 49% of the total, with the Indirect share declining once again, from 35.6% to 34.5%. The offset was a surge in Directs bids which were responsible for 16.5% of the auction, the highest of 2011. Whether this is merely London-based Chinese proxies, or some other Vince Reinhartian contraption keeping rates low, is unknown. As a result of the auction which many were quite nervous about, the Green eurodollar pack was down 1.75 bps as was the Red (down 1.75 bps) and White (1 bp) after the auction after being down 3.5, 3 and 1.25 bps before the auction. Bottom line: good appearance by the Dealers in the post QE2 era. The question now is who do they offload to.

Thanks, Turbo Tim ...

But things are G-R-E-A-T for the top .1%!

"The rule of law has basically been thrown out the window. Money printing is the order of the day. And when politicians take control of central banks, which they have done in the United States and they are also doing in Europe, that basically destroys the currency. It puts the currency on the road to what I call the Fiat Currency Graveyard, so I expect there are going to be massive currency problems as we go forward. The financial crisis that we have been dealing with for the last several years has not been solved." So cautions James Turk, widely-respected precious metals expert and founder/chairman of GoldMoney. In this detailed interview (recorded in June), Chris and James explore the probable outcome of the current US debt-ceiling operatics, the likelihood of future Fed money printing, and strategies for preserving wealth. In short, James believes we are witnessing the decline of the world's major fiat currencies, and expects gold to be remonetized in the aftermath.

Call it the gift that keeps on giving (if one is a corporation that is): the US Tax system, so effective at extracting income tax from America's working class, is just as "effective" at redistributing said income tax at the corporate level. Case in point: News Corp, which after generating $10.4 billion in profits over the past 4 years, and which would have been expected to pay the IRS $3.6 billion at the statutory corporate tax rate, instead received $4.6 billion back from Uncle Sam. Bottom line: Murdoch's corporation had a cash paid tax rate of -46% between 2007 and 2010. The culrpit: two little somethings called Deferred Tax Assets and Net Operating Loss Carry-forwards.