Archive - Oct 2012

Polticians lie. Obama and Romney are politicians. They talk. Therefore they lie. They lied big time during the debate. Are our choices between evil and lesser evil?

Maximum Caution Advised!

You read about it earlier here. Now see how it happened in real time. The identity of the "transgressor(s)" has still not been released.

We have covered the great California gas rush in the past few days, and here is the confirmation. According to the AAA fuel gauge report, the average California gas price just hit an all time record of $4.614, and shows no sign of slowing down.

Much has been said about yesterday's laughable jobs report. Here is a little more, only this time not from some politicized CTRL-C/CTRL-V major who was forced to take out the HP-12C for the first time from their storage closet and pretend they have any idea about finance and economics, but from David Rosenberg.

Over the past few weeks, Spain has received worldwide attention due to its deteriorating economy and growing outbursts of massive social protests. Most notably, US presidential candidate Mitt Romney said in his debate with President Barack Obama last week that he did not want his country to “go down the path to Spain.” As the world fixes its eyes on the eurozone’s fourth largest economy, analysts continue to offer suggestions as to how to best tackle the Iberian country’s economic woes. However, the reason why Spain is a riot both financially and socially goes beyond matters of economic policy. Spain faces a graver problem, its political institutions. Perhaps the most lamentable element in Spain’s political class is that it is hard, almost anecdotal, to find elected officials with a track record outside the public sector. For too many years, the country has been governed by bureaucrats who have no experience whatsoever in the real world of business. The majority of Spain’s politicians do not know what it is to conceive an idea, to risk one’s own wealth, to deal with banks, workers and suppliers, and, ultimately, to experience failure and success. Sadly, the Spanish taxpayer-financed political establishment understands failure and success only in terms of which side of the aisle their members are seated in parliament.

For those curious how the Fed's ongoing takeover of the US bond market looks like, below is a visual update.

Back in October of 2010, when we first exposed Bank of America as massively underreserved for putback, Rep and Warrant and various other forms of litigation, we predicted that once the precedent is set for ever escalating litigation against transgressions banks committed in the Old Normal (the biggest of which was the worst M&A deal of all time: BofA buying Countrywide and with it hundreds of billions in contingent liabilities), very soon banks would be swamped with a tsunami of litigation. And after all, it's only "fair" - the banking industry would not exist if its wasn't for the Fed and government's bailout and backstop of tens of trillions in liabilities at the peak.  Now it's time for some "wealth redistribution" - only instead of said government-funded wealth tricking down to the common man, the only social group set to benefit are America's lawyers. Fast forward two years to October 2012, and what we predicted is precisely what has happened. As the chart below shows various "environment charges" aka charges related to mortgage put-backs, legal and foreclosure related issues, have soared to a record 16% of pre-provision earnings. As Goldman calculates, this is reducing EPS and returns by an average 17%! Where it this "profit" going? Mostly to various class cation suit organizing law firms and to pay for $800/hour legal retainers.

There is a popular belief in the Middle East that Washington’s foreign policy, particularly as it relates to this precarious region, is largely driven by America’s dependency on, and insatiable appetite for Arab oil.  One can make a good argument for that. Had Syria been a major oil producing country chances are the US would have already dispatched military forces to impose a pax Americana and to put a stop to the horrific fighting that has been slowly, but without any doubt, ripping Syria apart and dismantling the infrastructures that make the Syrian state what it is today. Even if the war was to end today it would take years for Syria to return to its pre-war position from an economic and military perspective.

Just because the middle east did not have enough countries and/or terrorist organizations shooting at random things, in outright attempts of provocation or otherwise, here comes Israel to join the party. From Reuters: "The Israeli air force shot down a drone after it crossed into southern Israel on Saturday, the military said, but it remained unclear where the aircraft came from. "An unmanned aerial vehicle was identified penetrating Israeli air space this morning, and was intercepted by the Israeli Air Force at approximately 10 a.m. (0700 GMT)," the military said in a brief statement. Soldiers were searching the area where the drone was downed - in the northern part of the Negev desert - to locate and identify the drone, the statement said. The Negev desert is near Israel's southern borders with the Gaza Strip, Egypt, Jordan and the occupied West Bank."

History has shown us countless times that centrally-­?planned, command style economies do not produce long-­?term economic growth. We’ve seen this will the Soviet Union, the UK, the US-­?since the Tech Crash, and today in China.

Spain was already experiencing a banking crisis as well as a sovereign crisis. It’s now on the verge of a constitutional crisis (as well as its ongoing sovereign and banking crises).

Even domestic demand is getting hit, and the Draghi-Bernanke effect has kicked in.

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