Archive - Mar 2012

I can see why Obama likes him so much.  They both have the same moral compass.

The last time a story of Tungsten-filled gold appeared on the scene was just two years ago, and involved a 500  gram bar of gold full of tungsten, at the W.C. Heraeus foundry, the world's largest metal refiner and fabricator. It also became known that said "gold" bar originated from an unnamed bank. It is now time to rekindle the Tungsten Spirits with a report from ABC Bullion of Australia, which provides photographic evidence of a new gold bar that has been drilled out and filled with tungsten rods, this time not in Germany but in an unnamed city in the UK, where it was intercepted by a scrap metals dealer, and was supplied with its original certificate. The reason the bar attracted attention is that it was 2 grams underweight. Upon cropping it was uncovered that about 30-40% of the bar weight was tungsten. So two documented incidents in two years: isolated? Or indication of the same phenomenon of precious metal debasement that marked the declining phase of the Roman empire. Only then it was relatively public for anyone who cared to find out on their own. Now, with the bulk of popular physical gold held in top secret, private warehouses around the world, where it allegedly backs the balance sheets of the world's central banks, yet nobody can confirm its existence, nor audit the actual gold content, it is understandable why increasingly more are wondering: just how much gold is there? And alongside that - while gold, (or is it GLD?), can be rehypothecated, can one do the same with tungsten?

WE ARE NOT HUMAN BEINGS, BUT LIVESTOCK WHOSE MEAT THEY EXTRACT AS “RENT”

Those snapping up housing for cash are either buying to rent the homes or to speculate that a resurgent housing market will arise and they can "flip" for big profits. This segment simply isn't large enough to soak up all the millions of homes languishing in the "shadow inventory" of homes being held off the market in the vain hope prices will bubble higher. The general idea of lower home prices is that once prices fall to some magic threshold, buyers will jump in and liquidate the inventory. That notion makes two enormous assumptions: 1) Interest rates will stay near-zero when inflation is factored in. 2) Household income will stop declining. In other words, there are three inputs to housing affordability, and price is only one of them. Interest rates and disposable income are equally important.

In the last few months we have presented various analyses, both ours and those of Goldman and even Jon Hilsenrath, on why one of the core economic empirical relationships: Okun's law, is now broken. Subsequently we presented another parallel line of inquiry - namely that in order to preserve the illusion of a recovery, the Obama administration (with help from the Fed) has engaged in a quality-for-quantity job transfer, where America is creating increasingly more jobs of lower quality (the bulk of which are part-time), which in turn is leading to less proportional personal income tax revenues, and thus to a secular shift in an indicator which is even more important for US economic growth than simply the number of jobs "gained" each month - labor productivity. Today, JPM's Michael Feroli ties these two perspectives together in an analysis that has extremely damning implications for the US, and global, economic growth prospects. In a nutshell, Feroli finds that "Productivity, which used to be procyclical, has now turned countercyclical" which in turn means that "if labor is no longer a quasi-fixed factor of production this may eliminate one type of non-convexity in production, thereby reducing the likelihood that the economy has multiple equilibria and is subject to self-fulfilling prophecies" or said somewhat simpler: "the conditions for self-fulfilling prophesies in the macroeconomy may no longer exist." Still confused: central planning, and the Obama vote grab has killed the "virtuous cycle"... Which in turn means that everything America is trying to accomplish is now a lost cause, as every incremental dollar spent, whether by fiscal and monetary policy, is pursuing an outcome that is now theoretically and practically impossible to achieve!

More vertigo-inducing than all of the Eurozone bailout mechanisms combined.

I firmly believe we will see Europe start to crumble during the May-June window of time. We have a confluence of political (French, Greece, Irish elections), fundamental, seasonal, technical, and monetary factors (Operation Twist 2 ends in June) occurring in that time period make the possibility of a banking Crisis in Europe higher than at any other point in the last three years. 

Just this week we had: TVIX, MF Global & “customer money”, CPDO, Greek CDS auction, BATS.... I’m all for some complexity and innovation, but it does seem after a week like this, that the financial markets have become too complex, and some real effort should be made to simplify things and put everyone on an even playing field.

For those interested in what vile plans the evil, evil speculators were hatching in the last week (and historically) because as everyone indoctrinaged by the mainstream media knows it is all their fault gas is now over $4.00, not the Chairsatan's, nor was it his fault we had a housing or credit bubble - his own words from the second GW lecture - here is a complete breakdown of all relevant time series from the most recent Committment of Traders report.

Gretchen Morgenson has earned a Pulitzer-winning career from exposing abuse and conflicts of interest on Wall Street. In this interview, she confirms that there is indeed a second set of rules that our elite financial institutions enjoy, largely unfettered by the constraints that apply to the rest of us. Consequences for failure and fraud are very different under this second set of rules - in fact, they're practically rewarded.  Accountability, by all prudent measures, has become non-existent. The extraordinary measures the country deployed to deal with the great contraction in 2008 only served to exacerbate these imbalances. What's sorely needed now is a national dialogue on whether we're willing to allow this to continue. What benefits are we receiving by enabling these elite to enjoy such different standards? What type of system and rules might work better for our interests? Sadly, beyond the disorganized OWS outrage that has waned in visibility, there is no real cogent, organized public debate focused on this right now. A big reason is that Washington is actively avoiding such a dialogue. It was fundamentally complicit in creating the underlying factors resulting in the '08 collapse and it doesn't want brighter light helping the public understand that more clearly.

UPDATE: Bloomberg TV news of the 'smoking gun' added

The only thing that could top today's epic market insanity and hilarity, would be that Corzine is himself about to be Corzined. Just released from Bloomberg:

MF GLOBAL'S CORZINE ORDERED FUNDS MOVED TO JPMORGAN, MEMO SAYS
CORZINE'S `DIRECT INSTRUCTIONS' CITED BY CONGRESSIONAL PANEL
MF GLOBAL TRANSFER WAS USED TO COVER OVERDRAFT, PANEL SAYS
MF GLOBAL FINDINGS CITED IN MEMO OBTAINED BY BLOOMBERG NEWS

And so we can now add perjury to felony embezzlement. Which means we now have to wait to find just which MF'er (and JPM'er) will be given a promise of untold millions if they only get Fab Tourred for a few years, and spend 5-7 in minimum security state prison instead of brave Jonny.

Repeatedly, all we hear is that Zero Hedge is just some wing nut website. Always stretching the truth about the economy's woes, and constantly claiming hyperinflation is just around the corner. Ya, about that...

In a somewhat sad and shocking slap of reality to the face of our 'recovery' and 'freedom-based-debt-holdings', today's press-release-of-the-day (since we still haven't heard from BATS) goes to Sturm, Ruger (the 4th largest gun-maker in the US) who after receiving orders for over one million units in Q1 has temporarily suspended the acceptance of new orders.

While stocks staged an 'interesting' recovery this afternoon, it was not enough to save them from a fate-worse-than-death - a red-weekly-close! The only (and therefore) largest drop in the S&P 500 of the year (after GS long stocks call) was dominated (beta-adjusted) by the largest 30Y Treasury yield improvement of the year (after GS said get short Treasury futures). It seemed we reverted to good-is-good, but bad-is-better trading this afternoon (though technically we perfectly filled the ES day-session gap from Wednesday), as dismal global macro data spurred a surge in commodities, rally in stocks (carried by the QE-high-beta faves Energy/Materials/Financials but not Industrials notably), compression in Treasury yields, a drop in the USD as QE-hope was back on (and Lockhart helped a little in the last hour with some punchbowl temptations). Futures volume was below average but not dramatic though cash (NYSE) volumes were on the weaker side. The small drop in the USD was dwarfed by the pop in commodities as Silver outperformed but only Gold managed to get back into the green for the week. Oil popped $2-3 around the US open but remains down on the week. Treasuries are 15-20bps lower in yield from their Tuesday highs and 2s10s30s has dropped modestly on the week. AUD reverted from yesterday's late lows and rallied (mildly supportive of the equity move) but JPY kept on rallying (with a small selloff this afternoon) leaving the USD (DXY) in that same very narrow range for the week ending the week down 0.55%. Broadly speaking risk assets did not participate as positively as stocks this afternoon as HY (and HYG) underperformed stocks once again though VIX managed to end under 15% again as the TVIX compressed back down close to its NAV and VXX closed at new lows as the term-structure flattened a little more. Oh yeah, and BATS and AAPL flash-crashed...

We gotta chase those Crazy Shittily Diddily Dealhood Baldheads outta town...