Archive - Nov 15, 2012

A religious dictum

Tim Geithner will put a pen to the FHA bailout before the end of the year. It will be his last act as Treasury Secretary.

We all stand 'fingers-over-eyes and thumbs-in-ears' awestruck at the immense wreckage that the fiscal cliff titan will wreak upon the country. However, deep inside our socially responsible minds, all we can really think about is - what about my needs? The Pew Center On The States has just released a very broad and detailed look at just how the increased taxation and reduced spending will impact each and every state. Here, in two simple charts, is the answer.

Just before the US election, we laid out the details and implications of the 'other' major 'election' occurring in the world - that of China's Supreme Leader of Awesomeness. Last night the details were announced of the makeup of the new Politburo Standing Committee. As Bloomberg notes, the panel - the most powerful decision-making body in China - was reduced from nine to seven members and will be led (unsurprisingly) by Xi Jinping. Perhaps, in a lesson for our own politicians, the 'new' committee is 'bipartisan' with five members from Xi Jinping's own Jiang Zemin faction and two members from Hu Jintao's faction (more a balance of reformers and reactionaries). But, in a similar vein to the US, as The Diplomat's David Cohen notes,"If Xi is to achieve even the economic policy goals that already appear to enjoy consensus support in Beijing, he will need to find ways of overcoming some of the largest entrenched interest groups in contemporary China.  To do so, he may have to set about creating new entrenched interest groups."

Name the author: "No socialist has ever proposed that the “tens of millions”, i.e., the small and middle peasants, should be deprived of their property (“made to abdicate their property rights”). Nothing of the kind! Socialists everywhere have always denied such nonsense. Socialists are out to make only the landowners and capitalists “abdicate”. To deal a decisive blow at those who are defying the people the way the colliery owners are doing when they disrupt and ruin production, it is sufficient to make a few hundred, at the most one or two thousand, millionaires, bank and industrial and commercial bosses, “abdicate” their property rights. This would be quite enough to break the resistance of capital."

The key to understanding higher education in the U.S. is to grasp that it is at heart just another debt-dependent neofeudal cartel. In other words, it is just like sickcare and the national defense complex. The most implacable enemy of innovation is monopoly. If you're protected from real competition, then you have no incentive or need to innovate. That is the essence of cartel-capitalism and the neofeudal model. In the case of the higher education cartel, the Federal funding is both cash grants and loans issued to newly minted debt-serfs. Student loans cannot be discharged in bankruptcy like other debt; these loans have ballooned to about $1 trillion. This is the essence of the neofeudal model: a protected Elite parasitically extracts wealth from the debt-serfs below. Should the debt-serfs resist, the State steps in to coerce compliance. The problem with protected cartels (neofeudal fiefdoms) is that they are unsustainable.

One of the most commonly cited 'bullish' memes for stocks is the so-called Fed Model (or Equity Risk Premium) or more simply - the fact that earnings yields are not catching up to Treasury yields (i.e. why put your money in government bonds at such low rates when there is a smorgasbord of yummy equities with 'attractive' dividend yields). There are three key problems with this perspective: 1) No concept of 'risk' is imbibed in this return-based differential (as we have discussed before here and here); 2) Longer-term historical context is critical (as we discussed here - must read); and most importantly 3) Financial Repression breaks the 'Fed Model'. As Barclays shows in the following three charts (and we pointed out recently) normalization of the equity risk premium will not occur until Financial Repression ends. Brings a whole new meaning to 'Don't Fight The Fed' eh?

We hear a lot about billionaires, millionaires, and 250,000-aires but just where are all these tax-dodging blood-suckers skulking and just how many trips to Space on Virgin Galactic can the Top 25 Wealthiest people take per day?... Everything you wanted to know about the uber-wealthy is one simple mega-infographic.

As has been widely reported previously, while the NY Fed's deep underground gold vault remained dry during the Sandy flooding in downtown NY, one institution which got badly hurt was the DTCC, aka Cede & Co (profiled here in July of 2009 in " The Biggest Financial Company You Have Never Heard Of"), which is the entity serving as custodian of virtually every electronically traded security in the modern marketplace (equity, debt, derivative, synthetic, in fact anything which is not a physical asset in itself and is not in the hands, or safe, of the rightful owner). We put the emphasis on electronically, because DTCC is also the actual custodian of all physical proof of stock ownership, such as certificates, bond deeds, and the like. It is the largely irrelevant latter (because it has been several decades since anyone actually demanded a physical copy of the stock certificates backing their shares of company XYZ) that the DTCC got in trouble for when its securities vault got flooded, and in the process destroyed countless physical stock certificates. Note we did not use the word electronic because those are there and accounted for in numerous back up data sites, with full designation and attribution. In other words anyone who made a mountain out of this particular mole hill sadly has no idea how modern markets operate, since all that the DTCC needs to do to remedy the flooding damage is to notify transfer agents of this natural disaster, and then have duplicate stock certificates printed at a cost of 1 cent for every thousands or so print outs. Which is more or less what the DTCC also just said in its press release.

BP Employees Indicted for Manslaughter and Lying to Federal Investigators in Connection with the Gulf Oil Spill

Just as our political class in the US is spending its time focused on the tax-'em-til-they-bleed side of the equation as opposed to the cut-em-to-the-bone austerity side of the income statement; so the evidence is clear (thanks to the following chart) - austerity doesn't get you re-elected. When all that matters is your next government paycheck for your 'elected' position, far from being for the people, austerity is avoided as vehemently as possible. Not only does social unrest increase (as the 'people' have become used to unsustainable standards of living) but incumbent popularty sinks - rapidly.

Secession:  Exploding Movement, Tempest In a Teapot … Or Something Else?

It depends. 

Equity indices end the day marginally red as the machines tried every trick in the book to get markets up...(levering FX carry, spiking PMs, running HYG, spiking vol) to enable more selling - especially at the close when we saw notable size blocks being traded into that ramp to try and get green. VWAP was the anchor all day for S&P 500 futures (and since the synthetics are where the liquidity is - everything else followed) as stocks trend-reversed as normal on the EU close. In general volatility and high-yield credit had a significantly weak day but into the close managed to rise a little as risk-assets broadly recoupled with equity markets to close. Despite a lot of noise and chop stocks lost a little, Treasuries gained a little (-2bps on the week!), Silver scrambled back from its flash crash (but gold didn't do as well), and the USD ended today up a remarkably unchanged 0.04% (with EUR up 0.5% and JPY down 2.2% on the week). VIX ended back above 18% as AAPL just keeps falling with its 300DMA now in play.

Someone is lying here: either Hamas did not down an IDF drone, dubbed "Sky Light", and the clip below is one big fraud (unclear why Hamas would go to such a length to fabricate a downed drone video), or the IDF is lying when it said it "confirmed" that one of its drones had been shot down. Either way, we have a feeling that the airborne campaign is coming to an end, and that Israel may and likely will escalate to a full blown land invasion very soon unless something dramatically changes. We fail to see what catalyzes this.