Archive - Oct 2, 2012

The conventional validation for perpetual war in the Middle East does not hold when looked at rationally.  When the ideas of nationalism and statist glory are wiped away, the state appears as it really is: institutionalized exploitation of the masses by the few.  The undertaking of war masks this reality for a short period while accelerating the pace at which liberty is stripped away.  In the end, wars are waged to fulfill the sadistic desires of government leaders and to give them an opening to tighten their grip on society.  The parasitic class which makes up the state doesn’t just war with other states; it conducts war against the citizens it claims to protect.

Between Obama's (equity-market-driven) election odds at Intrade and IEM, WaPo's projections, and Gallup's poll results, it seems an incumbent victory is all but guaranteed - even after over-hyped video clips are distributed. Adam Parker, Morgan Stanley's erstwhile realist strategist digs through the empirical data and finds that Gallup's latest poll suggests the 2012 election will not be close. History is also on Obama's side - 10 incumbents have won while 3 (Hoover, Carter, and Bush Sr.) have lost since 1900. The trouble for equity investors is that, despite what you have been told (and we already warned) about election year cycles, the post-election incumbent-victory performance is on average a 4.5% loss over six months. So add this 'doldrum' hangover to the post-election European 'event risk', the US 'fiscal-cliff' and debt-ceiling debacle, and China's Politburo meeting on Nov. 6th and it looks like Thanksgiving can't come soon enough.

The Troika technical team was chased from their Greek offices on Tuesday by an angry mob of Muni workers (who proclaimed that "they got our labor rights and conditions back to the Middle Ages"). As KeepTalkingGreece notes, this is the third incident in 24 hours as since the team arrived they have had water bottle thrown at them as well as cars kicked and 'hurled coffees'. The clip below shows the Troika member looking rather anxious as he runs from the crowd (and NewsIt reported a female Troika member seeking refuge in a bookstore). It is not just the municipal workers who are in fear though, as GreekReporter notes the unbelievable story of the re-appearance of a 'mysterious' CD containing the names of 2000 ultra-rich Greek Swiss-bank account-holders is now back in the hands of the Greek government as they press for bilateral taxation on those huge deposits. It seems rich and poor alike are not happy with the Troika's exposure of tax cheats across the desparate nation.

In case there is still any wonder why absolutely nobody has no faith in the centrally planned house of cards that is the modern capital markets system, not retail investors, not institutional ones, not HFT vacuum tubes lately, and as of Monday, not even the Bank of International Settlements, aka the central banks' bank, here it is. In a report released yesterday, the BIS complained surprisingly loudly that in glaring disregard for the ever stricter demands of the Basel III rules (which incidentally will never be met), a very broke Europe continues to ignore every regulatory demand. To wit: "The EU’s plans for tightening bank capital rules fail to live up to the Basel III banking reform, an inspection team of global regulators has decided. The draft EU directive is “noncompliant” with the global deal in two important areas. Its definitions of top-quality capital are looser in at least seven ways and a loophole allows many big banks to assume that their sovereign debt holdings are risk-free."

In the ten years to 2010, the severely obese (Americans who are 100lbs or more overweight) increased about 70%. A new study from RAND Corporation (via ScienceDaily) found that "the proportion of people at the high end of the weight scale continues to increase faster than any other group of obese people, despite increased public attention on the risks of obesity."  On the bright side, as we noted here, the faster we get fatter, the sooner we die, and the lower the deficit (via entitlements) will be. Perhaps the way out of this fiscal mess is indeed to eat ourselves to an early death?

 Manufacturing Just Crashed And VCs Face A “Dismal Fundraising Climate”

Unless You're An Old, Out-Of-Touch Oligarch ... You're Probably a Terrorist

Somewhere deep in the bowels of the world’s Western central banks lie vaults holding gargantuan piles of physical gold bars… or at least that’s what they all claim.

Our analysis of the physical gold market shows that central banks have most likely been a massive unreported supplier of physical gold, and strongly implies that their gold reserves are negligible today. If Frank Veneroso’s conclusions were even close to accurate back in 1998 (and we believe they were), when coupled with the 2,300 tonne net change in annual demand we can easily identify above, it can only lead to the conclusion that a large portion of the Western central banks’ stated 23,000 tonnes of gold reserves are merely a paper entry on their balance sheets – completely un-backed by anything tangible other than an IOU from whatever counterparty leased it from them in years past. At this stage of the game, we don’t believe these central banks will be able to get their gold back without extreme difficulty, especially if it turns out the gold has left their countries entirely. We can also only wonder how much gold within the central bank system has been ‘rehypothecated’ in the process, since the central banks in question seem so reluctant to divulge any meaningful details on their reserves in a way that would shed light on the various “swaps” and “loans” they imply to be participating in. We might also suggest that if a proper audit of Western central bank gold reserves was ever launched, as per Ron Paul’s recent proposal to audit the US Federal Reserve, the proverbial cat would be let out of the bag – with explosive implications for the gold price.... We realize that some readers may scoff at any analysis of the gold market that hints at “conspiracy”. We’re not talking about conspiracy here however, we’re talking about stupidity. After all, Western central banks are probably under the impression that the gold they’ve swapped and/or lent out is still legally theirs, which technically it may be. But if what we are proposing turns out to be true, and those reserves are not physically theirs; not physically in their possession… then all bets are off regarding the future of our monetary system.

September 30 was the last day of Fiscal 2012 for the US which explains why despite the barrage of debt issuance in the past month, the year closed with total debt of just $16.066 trillion, a modest increase of just $50 billion in the month. Luckily, moments ago we got the first DTS of the new fiscal year, which eliminated any residual confusion we had. As of the first day of FY 2013, total US debt soared by $93 billion overnight, and is now a record $16,159,487,013,300.35. One can see why Tim Geithner wants to push all the debt under the coach for as long as possible (and the scariest thing is that the actual increase in Treasury cash was a mere $11 billion). But wait, there's more. As a reminder, final Q2 US GDP was recently revised lower by $20 billion, which if we extrapolate into Q3 (leading to a nominal GDP print of $15.71 trillion), means that as of today, total US Federal debt to GDP is 103%. And rising about 1.5% per month.

Presented with little comment - except to ask, on what basis should we 'believe' that this time is not like the others as Global PMIs plunge...

Volumes picked up for most of the day as US equity markets jerked lower - back to pre-QEternity levels - and AAPL slide ever so gently all day to touch its 50DMA. With about an hour to go, it was clear something had to be done and AAPL levitated on small-lots (as opposed to the bigger lots on the selling) as it pushed back up to VWAP automagically - and dragged the S&P futures back above its VWAP and into the green. Highest AAPL volume in almost a month but trade-size was average as S&P futures levitated 8 points in a straight line and VIX was banged back from 16.5% to 15.7% (down 0.6vols on the day). Stocks were in a world of their own in this liftathon - as Treasuries wiggled along at the low yields of the day and the USD rose all afternoon (from Europe's close). Oil tumbled under $92 and commodities in general slid slightly lower (though intraday vol was high). Staples and HealthCare remain the only post-QEternity sectors in the green. Finally, today's S&P futures action looked more like a EKG than equity trading and with volume leaking badly, things feel a little W&R-like.

U.S. Rep. John Boehner, speaker of the House of Representatives, received nearly twice as much financial support from donors tied to the energy sector than did the next-closest recipient, a report from the National Wildlife Federation finds. The 20-page report highlights the role it says oil companies play in U.S. politics, stating energy companies are working behind the scenes on Capitol Hill to influence legislation in favour of oil, natural gas and coal policies. The NWF's report, however, is non-partisan in its effort to showcase the energy sector's monetary influence over U.S. politics. Sen. Joe Manchin, D-W.Va., who serves on the Senate Energy and Natural Resources Committee, ranked No. 2 on the NWF's list. Of the top 10 lawmakers listed in the NWF report, however, Manchin is the only Democrat and received $480,050 compared to Boehner's $814,060.

It seems the underground economy in Spain is picking up. Hand-crafted T-Shirts have become all the rage as the youth of the country send a subtle message to their leaders... The good news - the shirts are still priced in EURs, likely signifying ongoing confidence in the failed monetary experiment. Although we are confident pricing in New Pesetas is available upon request.

It don't mean a thing if it ain't got that swing...

Here are a few interesting tidbits to chew on...