Archive - 2011

Over one year after Zero Hedge made POMO, and the Fed's open market operations group a household name, and Brian Sack a household curse, the NYT has finally decided to write an expose on the people who are charged with enforcing America's transition to central planning. And they just happen to be the grizzled 40 year old Mr. Sack, a 34 year old supervisor, two 29-year olds and a 26 year old ... who goes to NYU. Yes, ladies and gentlemen, these are the people who are gifting billions in commissions to the Primary Dealers on a daily basis. You see, the FRBNY whiz-kids have a "computer algorithm that works out which [offers] to [lift]. The computer compares the offers from Wall Street against market prices and the Fed’s own calculation of what constitutes a “fair value” price." In other words, taxpayers are getting raped during each and every single POMO but that's ok - the Fed's algorithm, probably created by yet another ex-Goldmanite, determines that said raping is "fair" and with absolutely no transparency anywhere in the process, except of course the Fed telegraphing in advance what bonds will be monetized, there is no way to ever check... Because that kind of mutually assured destructive disclosure would mean the financial world would promptly implode in a case study of total protonic reversal. After all, only smart people (and we are talking Wall Street smart) can handle the responsible truth... of daily Primary Dealer Subsidies.

In what may one day be heralded as the formal proposal that proverbially started it all, the Commonwealth of Virginia introduced House Resolution No. 557 to establish a joint subcommittee to "to study whether the Commonwealth should adopt a currency to serve as an alternative to the currency distributed by the Federal Reserve System in the event of a major  breakdown of the Federal Reserve System." In other words, Virginia will study the fallback plan of a "timely adoption of an alternative sound currency that the Commonwealth's government and citizens may employ without delay in the event of the destruction of the Federal Reserve System's currency" and avoid or "at least mitigate many of the economic, social, and political shocks to be expected to arise from hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System." Most importantly as pertain to the currency in question, "Americans may employ whatever currency they choose to stipulate as the medium for payment of their private debts, including gold or silver, or both, to the exclusion of a currency not redeemable in gold or silver that Congress may have designated 'legal tender'." Whether this resolution will ever get off the ground, and actually find that the world is at great risk should gold not be instituted as a backstop currency, is irrelevant. The mere fact that it is out there, should provide sufficient impetus to other states to consider the ultimate Plan B.

We urge all legislators to carefully read this resolution.

Yum ...

Loughner's expression was impassive as he walked in [court], looked straight at the crowd at the back of the room packed with reporters, then turned around to speak to his attorney, Judy Clarke. He responded "yes" when asked if he understood his rights.

No government debt has ever been or can ever be repaid in full. This is especially the case when a government imposes a monopoly on what can be used as money by passing and enforcing “legal tender” laws. The US did this with the introduction of the Fed in 1913. Eventual default becomes an absolute certainty when government makes its own debt paper the ONLY “reserve” behind the “money” it alone can create. The US did this under President Nixon in 1971. The whole world went along with it because the US Dollar was the reserve currency and no government or people anywhere dared jettison it. The result is the global financial quagmire we see everywhere we look. - Bill Buckler

Our friends at GATA report an interesting development in its multi-year confrontation with the Fed, namely that the organization has "scored a small but perhaps auspicious victory over the Federal Reserve in our lawsuit seeking access to the Fed's secret gold files. The judge presiding over GATA's federal freedom-of-information lawsuit in U.S. District Court for the District of Columbia, Ellen Segal Huvelle, granted GATA's motion to order the Fed to produce in complete form for the judge's private review 20 gold-related documents the Fed has sought to keep secret. The judge ordered the Fed to deliver the documents by Friday." While this does not mean that the Fed will actually publicly announce that its gold vaults are in fact filled with GLD stock certificates, it does put the Fed in an unpleasant position to have to escalate its defense of its secrecy in an increasingly more sensitive topic, i.e., precious metals price manipulation with or without JP Morgan, and is a definite setback for Bernanke in his pretend push to make the Fed appear more transparent.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 10/01/11

• EPS reports adjusted $0.21 on expectation of $0.19
• Revenues of $5.65 billion miss expectations of $5.75 billion.
• Sees global aluminium growth rate 12% for 2011
• Sees global aluminium demand doubling by 2020
• Q4 Adjusted EBITDA of $782 million, 13.8% margin
• Q4 CapEx: $365 million
• Cash on hand of USD 1.5bln at quarter end
• Improved earnings were driven by higher pricing and continued strengthening in most markets and improved productivity
• Quarterly results were offset somewhat by a weaker USD and higher energy and raw material costs
• CEO says expects Chinese demand to slow.

The Bank of Portugal adds that foreign aid would cushion adjustment. And so bailout #3 is virtually in the books. Which means another country is now going to rely exclusively on the ECB. The half life between bailouts is collapsing. Next up Spain.

This country has not reached the level of control and fear seen in Orwell’s 1984 and V For Vendetta, yet. We are moving relentlessly in that direction. Surveillance, monitoring, spying, censorship, secret prisons, predator drones, and conforming to state rules and regulations put citizens further under the thumb of an all powerful state. The freedom to dissent, the freedom to be left alone, the freedom to speak out against injustice, the freedom to disagree with your government, and the freedom to present your ideas without fear of retribution or penalty are essential in a democratic society. The next phase of this Fourth Turning will surely include another downward spiral in financial markets as un-payable debts accumulate to a tipping point level. When ATM machines stop spitting out twenties, food shelves are bare and gas stations are shuttered, social chaos will ensue. The government will react with further command and control measures. In V For Vendetta, the government creates a terrorist incident in order to gain unquestioned control over the population. Americans will need to be more vigilant than they have been over the last ten years in keeping an eye on their government.

In short, the Banks’ authority to act as trustees under federal law does not insulate the assets the Banks hold in trust for the benefit of investors from state law requirements otherwise applicable to those assets.

In her weekly HF positional analysis, BofA' Mary Ann Bartels (whose recent technical predictions did not quite pan out) finds that Long Short hedge fund exposure has declined from 25% to 18% as of January 10, well below the 40% average, market neutrals are -3% net short (explaining the ongoing bloodbath in the space), and that macro HFs are long commodities and short US equities and 10 year Treasuries. All in all, exposure continues to be below average bullish levels, yet the market continues to go up. Cue in TrimTabs...

Those oberstabsfeldwebels of the unobvious from the San Fran Fed are back at it, issuing another blisteringly original, taxpayer funded, masterpiece which finds that "in the years leading up to the financial crisis of 2008–2009, a combination of factors including low interest rates, lax lending standards, the proliferation of exotic mortgage products, and the growth of a global market for securitized loans promoted increased household borrowing." In other words, easy credit led to an increase in household leverage... How truly unbelievable. But hark, it continues: "Homebuyers with access to easy credit helped bid up U.S. house prices to unprecedented levels relative to rents and disposable income...U.S. household leverage, as measured by the ratio of debt to disposable income, reached an all-time high of 130% in 2007." You don't say- the Fed's easy credit legacy led to the biggest credit bubble in history? Wow, and it was Alan Greenspan saying just a few days ago that the Fed had nothing to do with the credit bubble... But wait, there's more: " Going forward, households may keep trying to reduce excessive debt loads by increasing their saving." In other words, broke Americans who have no access to credit, will be forced to save. Thank god for such insightful, uber-brains as Reuven Glick and Kevin J. Lansing who were able write such a brilliant research paper, with such profoundly powerful conclusions.

If there is anyone watching this video of what happens to a banana republic when its ponzi stock market plunges, it is Ben Bernanke. The Princeton-educated depression era expert is certainly learning from the mistakes of the Bangladesh stock exchange (flash crashing 9.25% at last check before being halted), which despite US investment bank pitches to the contrary, never instituted its own plunge (and subsequent riot) protection team. And this is despite an identical situtation happening just three weeks earlier. Take home message: every ponzi scheme-based banana republic needs its own President's Working Group on Flash Crash prevention.

After the Fed bought over $1 trillion of US Treasury bonds in the past 2 years, it is now reverse payback time, in which the Fed gives the Treasury just a little more cash. The FRB announced that per "unaudited" 2010 results (obviously), the Fed is provisioning to pay the Treasury $78.4 billion, a 50%+ increase from the $47 billion paid to the Treasury in 2009. What is the basis of this payment? Why the Fed's charter of course: "Under the Board's policy, the residual earnings of each Federal Reserve Bank, after providing for the costs of operations, payment of dividends, and the amount necessary to equate surplus with capital paid-in, are distributed to the U.S. Treasury." Which means that as the Fed buys up ever more Treasurys, and as rates continue their inexorable rise higher, the Fed will continue to receive interest payments from the US Treasury, which, at the end of every year, it will promptly remit back to whoever the current incarnation of Tim Geithner is, in essence nullifying the "checks and balances" impact of cash out interest expense on Treasury, and thus government, deficit decisions. In fact, the greater the amount of debt issued, and therefore monetized, the less the Treasury actually has to pay in interest. And in the meantime, the higher interest rates go, the greater the duration-adjusted loss on Fed holdings. But who cares about those: after all, results are all "unaudited" and the Fed will hold all securities to the earlier of "maturity" or default - as if anyone doubts which will happen first.