Archive - Mar 2012

March 31st

RobertBrusca's picture

The real story of Germany, to be blunt, is that it is a parasite economy. Its domestic demand lags. It has a labor force with different values than most. It will live with low wage increases and low inflation. It has lured other EMU members into a currency bloc and let them run such persistently higher rates of inflation (with no criticism of it!) that Germany now OWNS any domestic demand that other EMU countries can generate. Germany is like the vampire squid economy of Europe. Now it’s kind of caught in its own huge blinding squirt of ink, since its banks have lent to these other EMU countries to finance their excessive consumption and Germany is entangled. But on the real-economy side of things, the German economy is eating their lunch, however, meager.

Europe: "€1 Trillion May Not Be Enough"

A core piece of last week's European newsflow was that following much pushback, Angela Merkel, who understands the underlying math all too well, finally dropped her opposition to expanding the European "firewall" in the form of a combined EFSF and ESM rescue mechanisms, to bring the total "firepower" to €800 billion (ignoring for a moment that when the true dry powder of the combined vehicle is just about €500 billion net as explained here, hardly enough to rescue Spain, let alone Italy). Yet as has been explained here repeatedly, and as Merkel has figured out, this is easily the most symbolic expansion of a rescue facility ever. Because while the ECB's agreement to allow Eurobanks to abuse its €1 trillion discount window for three years (which is what the LTRO is), following the replacement of JC Trichet with a Goldman apparatchik, at least infused the system with $1.3 trillion in new fungible liquidity (and resulted in a stock market performance boost for the ages, one which is now unwinding), the 'firewall" does not represent new money, nor is a "firewall" to begin with - it is merely one massive contingent liability which will remain unfunded in perpetuity. Slowly the German media is waking up, and in an article in Der Spiegel, the authors observe that "Even a 1-Trillion Euro Firewall wouldn't be enough." And they are correct, because the size of the firewall is completely irrelevant, as explained later. All the "firewall" does is shift even more backstop responsibility on the only true AAA-country left in the Eurozone, Germany. However, the main cause of problems in Europe - a massive debt overhang which can at best be rolled over but never paid down due to the increasingly lower cash flow generation of Europe's (and America's) assets, still remains, and will do so until the debt is finally written down. However, it can't because one bank's liability is another bank's asset. And so we go back to square one, which is that the system is caught in the biggest Catch 22, as we explained back in 2009. We are glad to see that slowly but surely this damning conclusion is finally being understood by most.

The Muppets Are Confused How Goldman Is Both Bullish And Bearish On Stocks At The Same Time

Ten days ago, Goldman's Peter Oppenheimer published the "Long Good Buy, The Case For Equities", a big research piece, full of pretty charts and witty bullets, which actively urged the rotation out of bonds and into stocks, yet not only marked the peak of the market so far, but drew ridicule even from the likes of CNBC. More importantly, it has generated a plethora of questions from the muppets (aka Goldman clients) themselves, who are wondering how Goldman can be both uber bullish, and yet still have a 1250 S&P 2012 YE price target, as per the other strategist, David Kostin ("We expect the S&P 500 will trade at 1325 by mid-year (-5.6%) and 1250 in 12 months (-10.9%)."), or said otherwise, just how is it that Goldman is having its cake and eating it too? Below is David Kostin's attempt to justify how the firm can pull a Dennis Gartman (and virtually any other newsletter and book seller - after all what better way to say one was right than to have all bases covered) be both bearish and bullish at the same time.

Chris Martenson Interviews Charles Biderman: The Problem With Rigged Markets

"Even Wile E. Coyote had to come back down to earth sooner or later", says Charles Biderman, founder of TrimTabs Investment Research. In his opinion, the prices of stocks and bonds - enabled by excessive financialization of our economy and central bank money printing - have been defying gravity for a dangerously long time.  If we continue to do all we can to preserve the status quo -- to maintain "phony" asset price levels as Charles calls them -- at best we will restrict overall growth and handicap the economy. The problem isn't so much the unfairness and malinvestment evident in a rigged market. As Charles shrewdly asks: what happens when the market becomes un-rigged? We've never experienced the unwinding of an entirely manipulated financial system, so we can't predict for sure. But at this point, a painful collapse of our markets and loss of the US dollar as the world's reserve currency seem entirely plausible.

March 30th

Massive $17 Trillion Hole Found In Obamacare

Two years ago, when introducing then promptly enacting Obamacare, the president stated that healthcare law reform would not cost a penny over $1 trillion ($900 billion to be precise), and that it would not add ‘one dime’ to the debt. It appears that this estimate may have been slightly optimistic… by a factor of 1700%. Because coincident with the recent Supreme Court debacle, in which a constitutional law president may be about to find that his magnum opus law is, in fact, unconstitutional, someone actually read the whole thing cover to cover, instead of merely relying on the CBO’s, pardon Morgan Stanley and Goldman Sachs’, funding estimates. That someone is Republican Jeff Sessions who after actually running the numbers has uncovered that the true long-term funding gap is a mind-boggling $17 trillion, just a tad more than the original sub $1 trillion forecast. This latest revelation means that total underfunded US welfare liabilities: Medicare, Medicaid and social security now amount to $99 trillion! Add to this total US debt which in 2 months will be $16 trillion, and one can see why Japan, which is about to breach 1 quadrillion in total debt (yen, but who's counting), may want to start looking in the rearview mirror for up and comer competitors. And while Obama may have been taking creative license with a number that is greater than total US GDP, he was most certainly correct when saying that Obamacare would not add a penny to US debt. Because the second the US government comes to market to fund a true total debt/GDP ratio of 750%, it is game over, and the Fed will have its hands full selling Treasury puts every waking nanosecond to have any time left for the daily 3pm stock market ramp.

Guest Post: Will India Stop Buying Gold?

We've read mixed reports about how lofty gold and silver prices are affecting demand in India. One month we're told demand is up, and the next it's supposedly down. I'm not suggesting that official reports are inaccurate, but it is admittedly confusing and doesn't help us understand the real trend in the country. Why should we care about the gold market in India? Well, let's face it; the nation is one of the biggest consumers of the metal, a major driver that can give us hints about demand and investment trends, along with what to perhaps eventually expect here in North America. But reading third-party reports about India is very different than getting information firsthand from a credible source in the country. I wanted to get to the bottom of what's really going on in India by talking to a reputable bullion dealer who could give me the inside scoop, an up-to-the-moment dispatch from the front lines, as it were. So I did just that.

Groupon TVIXes Muppets

It seems like yesterday that to much pomp and circumstance, Groupon came public. We can only hope that anyone who bought into the public offering sold long ago, because the company has just decided to TVIX the muppets:

  • GROUPON CUTS FORECAST - BBG
  • GROUPON REFUND RESERVE ACCRUAL INCREASED - BBG

But most importantly:

  • GROUPON SAYS MATERIAL WEAKNESS IN INTERNAL CONTROLS - BBG

We are fairly confident that the stock will continue imploding after hours until such time as confidence in the stock market returns.