Archive - Sep 2012

It took the ECB a year of endless behind the scenes Machiavellian scheming to restart the SMP program (which was conceived by Jean-Claude Trichet in May 2010, concurrent with the first Greek bailout). The markets soared with euphoria that this time will be different, and that the program which is a masterclass in central planning paradox, as it is "unlimited" yet "sterilized", while based on "conditions" none of which have been disclosed, and will somehow be pari passu for new bond purchases while it retains seniority for previous purchases of Greek and other PIGS bonds, will work - it won't, and the third time will not be the charm as we showed before. Yet it has been just 48 hours since the "bailout" announcement and already Europe is being Europe: namely, it turns out that nobody wants the bailout.

Bernanke knows this. I wish he would admit to it.

Problem: this marginal utility of debt has trended lower and lower over the years, and actually reached zero in 2009. Meaning: you can add as much debt as you want, and it still won’t give you any additional GDP. To repeat: no amount of additional debt seems to be able to get economic growth going again. That is a dramatic revelation. We might have reached the maximum debt-bearing capability of the economy. If true, no growth is possible unless debt-to-GDP levels fell back to sustainable levels (in order to restart the debt cycle). This could take years. At this point, the only way to reset the debt cycle is to get rid of debt.... The amounts needed for the Fed to be able to create inflation are much, much higher than what we have seen so far. And it is not guaranteed to work. Destroying the trust in the value of a fiat currency is a dangerous experiment with mostly adverse consequences.

A few months ago when the new French socialist president gave details of his particular version of the "fairness doctrine" and said he would tax millionaires at 75%, we said that "we are rotating our secular long thesis away from Belgian caterers and into tax offshoring advisors, now that nobody in the 1% will pay any taxes ever again." While there was an element of hyperbole in the above statement, the implication was clear: France's richest will actively seek tax havens which don't seek to extract three quarters of their earnings, in the process depriving France (and other countries who adopt comparable surtaxes on the rich) of critical tax revenues. It took three months for this to be confirmed, and with a bang at that. The WSJ reports that Bernard Arnault, the CEO of LVMH, and the richest man in France, has decided to forego hollow Buffetian rhetoric that paying extra tax is one's sworn duty, and has sought Belgian citizenship.

The last time we looked at monthly Chinese imports of gold from Hong Kong in 2012, the comparable country in question was Portugal (whose citizens, if not central bank, incidentally have run out of gold to sell), because that is whose total gold holdings (at 382.5 tons) Chinese imports had just surpassed. Fast forward a month later, and the update is even more disturbing. In July, Chinese gold imports from HK, after two months of declines, have picked up once more and hit a 3-month high of 75.8 tons. While it is notable that this number is double the 38.1 tons imported a year prior, and that year-to-date imports are now a record 458.6 tons, well over four times greater than the seven month total in 2011 which was 103.9 tons, what is far more important is that in the first seven months of 2012 alone China has imported nearly as much gold as the total holdings of the hedge fund at the heart of the Eurozone, elsewhere known simply as the European Central Bank, and just as importantly considering the import run-rate has hardly slowed down in August, which data we will have in a few weeks, it is now safe to say that in 2012 alone China has imported more gold than the ECB's entire official 502.1 tons of holdings.

Have you heard the news? Auto sales are booming. Total sales for the month of August were 1,285,202 vehicles, according to Autodata Corp, the highest monthly sales figure for any August since 2007, when 1.47 million autos were sold in the United States. Year to date auto sales have totaled 9.7 million and are on track to reach 14.5 million. Between 2006 and 2007, auto sales ranged between 16 million and 18 million. They crashed below 10 million in 2009. The Keynesians running our government have pulled out all the stops to restart this engine of consumer spending. First they wasted $3 billion of taxpayer funds on the Cash for Clunkers debacle. Almost 700,000 perfectly good cars were destroyed in order to keep union workers happy.  This Keynesian brain fart distorted the used car market for two years, raising prices for cars needed by the working poor. After that miserable failure, they realized the true secret to selling vehicles is to give them away to anyone that can scratch an X on a loan document, with 0% interest for 60 months, financed by Federal government controlled banking interests. Add in some massive channel stuffing and presto!!! – You’ve got an auto sales boom.... This is America, land of the delusional and home of the vain. The appearance of success is more important than actual success.

Miracles of cosmetic surgery.

Today's ZH articles in audio summary! "Brought to you by Sanity, a sub-division of Reality Inc." 8pm Everyday @ New York Time.

Where does the AUD.USD go from here?

Two different people, or the two faces of the same person? In a week dominated with news about Europe's "third time's the charm" monetization round, we leave it up to our readers to decide.

I was recently interviewed by a journalist for a local newspaper who was developing a story on the exponential rise of the “prepper lifestyle” in America, most especially in Western Montana.  Being an outsider to the Liberty Movement, she was naturally curious as to what motivated us to make what some in our culture would see as a drastic and bewildering leap away from the mainstream.  She was equally fascinated with our willingness to travel great distances and make substantial sacrifices to live in regions like the American Redoubt.  I will not deny, Montana has indeed become a “hotbed” of survivalism and Constitutionalism, or what the Southern Poverty Law Center would call “extremism and domestic terrorism”.  I lived in Pittsburgh for years while writing for Neithercorp and Alt-Market and rarely ran into like minded individuals aware of the tenuous status of our society.  Within days of moving to Montana, I was being recognized by complete strangers in supermarkets excited to discuss the inner workings of Keynesian monetary corruption, precious metals investment, and Alinsky disinformation tactics.  Yeah…I know…it’s weird. After living for a while in the Redoubt, you begin to forget that there are still many people in this country that are utterly oblivious to the epic dangers around them, as well as painfully helpless in knowing what to do when those dangers land on their doorsteps.  Speaking with the newspaper reporter, and my experiences at Paulfest in Tampa, Florida, reminded me that the world has yet to be reminded of the value of survivalism.  There is still a gap, a disconnect, a psychological twitch of the masses, and it compels me to explain, yet again, what they are missing.

Actually not really, but all one can do is laugh since in some centrally planned parallel universe, the entire world entering manufacturing contraction translates into a 4 year (and just shy of all time) stock market high...

A few hours after the US reported a jobs number which missed consensus estimates on broad weakness, which saw a nearly 400K increase in those no longer even caring about work, and which confirmed that the economic deteriorating is nowhere close to ending, stocks did their thing and with no news, and on no volume (the same reason why like Nomura, ever fewer banks can afford to keep trading desks), decided to surge into the close even as volume slid, with the NYSE trading its new post-Knight normal average of a few shares over half a billion. This sent the ES to a new post-2008 high. In other news, we are approaching 15x forward P/E even as the world's global economies are grinding to a screeching halt.Central planning is here to stay and the stock market will merely levitate ever higher on hope that the central bankers have it all under control.

For the first time since September of 2010, nearly two years ago, has the Case Shiller 20 City Index realized a year-over-year gain. Does this signify a sustainable turning point for the market? 

Curious why legendary hedge fund managers are shutting down shops left and right in disgust with the mockery that central planning and algorithmic short-termism had made of equity markets? Don't be: his name is Julian Marchese, he runs a "macro fund"... and he is 16. Don't get us wrong: we enjoy the next youth trading prodigy, and here the Schwab baby comes to mind, as much as everyone else. Our concern is when it is the people who have never even seen half of a business cycle that start running your money, and, probably worse, making money, which leads them to believe they know what they are doing, and gets gullible LPs to allocate capital to them based on a 3 month track record, when in reality the entire market is one merely primed for outperformance courtesy of central planner puts and priced to Bernie Madoff ponzi perfection, targeting a specific investor type. And here the Schwab baby comes to mind again.