Archive - Mar 12, 2013

The key point being made in The Global Endgame is that the entire global economy is in the final stages of the "winter" cycle of credit destruction and collapse of phantom collateral. The key dynamics here are debt saturation and diminishing returns: piling on more debt (i.e. borrowing more money) to stimulate spending only leads to fantastic excesses of speculation and mal-investment: $70,000 biopsies, $200 million fighter aircraft, $200,000 bachelor's degrees, McMansions in the middle of nowhere, and so on. The central banks are attempting to nullify the cycle of credit expansion and destruction by buying much of the sovereign debt being issued by profligate, hopelessly insolvent governments. Is pushing consequence forward the same as eliminating consequence? We will find out at some point in the near future.

Leverage, as measured by NYSE Margin Debt, rose a huge 31.6% year-on-year (YOY) and 10.2% month-over-month (MOM) to $364bn in January, compared to the July 2007 peak of $381bn. Net Free Credits at -$77.2mm (essentially cash balances in margin accounts) have plunged to levels (and at a rate) that BofAML believes generates a sell signal and typically result in market correction. The last time a (2-standard-deviation) sell signal like this was generated was on April 2010 and the S&P 500 subsequently corrected by 16% in two months. While the US equity market has not responded to at or near overbought or contrarian bearish sentiment levels very recently (remaining overbought for weeks) BofAML also notes a tactical sell signal was just triggered that is similar to those from September 14 and April 27, 2012 – both preceded market pullbacks.

On the first day of Conclave, we got no Pope decision as moments ago the Sistine Chapel chimney released black smoke. This is what happens when Goldman does not have a technocratic pope candidate who is, naturally, an immediate unelected shoo-in, guaranteeing the endless printing of diluted indulgences and Nominal Self-Flagellation Targeting.

First it was 900, then 1200, then 3000, and now the latest tally of dead pigs floating in the in Shanghai water supply nearly 6000. AP has the latest number: " The number of dead pigs found floating in a river flowing into Shanghai has reached nearly 6,000. The Shanghai municipal government said in an online announcement that 5,916 swine carcasses had been retrieved from Huangpu River by 3 p.m. Tuesday, but added that municipal water remains safe." At what point will the dead pigs begin to pose a health challenge? 10,000? 100,000? What is the maximum Chinese Surgeon General RDA of dead pig in one's drinking water? And whatever it is, how long until, pulling a page from Fukushima, it is quickly doubled? But perhaps the biggest question is what is causing this mass death phenomenon, and what does it mean for the quality and safety of other pigs in circulation?

It’s a pretty sad state of affairs in the Land of the Free when, in the last week alone, the political elite gave us bills which:

1. ensure the government cannot assassinate its own citizens with drones
2. impose price controls with insurance premiums
3. award the government with more power to initiate biosurveillance operations
4. create a quota system in the labor market

It really makes me wonder… how much more will it take for people to notice how rapidly they’re losing freedom, or how destructive the political leadership is?

Some have attributed the resurrection of the financial markets (or more appropriately the banks) from the March 2009 lows to the IASB/FASB changes to factual to fantasy accounting. The Telegraph reports today that from PIRC's and the Bank of England's Financial Policy Committee that while banker bonuses continue to rise (for now), 'hidden' losses among UK banks could total GBP60 Billion (USD 90 Billion). HSBC topped the list with GBP10.4 Billion in bad debts that have yet to be written off and while the 'accounting' bodies are suggesting they will address criticism of this farce, as one analyst notes, they "can still make unprofitable lending appear profitable." Regulators expect to hear plans from lenders on how they intend to fill these holes before the end of the month to coincide either with the FPC’s meeting on March 19 or a statement scheduled for March 27. While outright recaps are unlikely, banks are expected to restructure and set out plans to raise their capital levels over the next couple of years. More fantasy...

The Republican jerks have squandered an opportunity to come up with anything that is even remotely feasible.

“We’ve become more concerned recently”

The fiscal cliff is permanent and insurmountable. It stands at the edge of a $20 trillion abyss of deficits over the next decade. And this estimation is conservative, based on sober economic assumptions and the dug-in tax and spending positions of the two parties, both powerfully abetted by lobbies and special interests which fight for every paragraph of loophole ridden tax code and each line of a grossly bloated budget. Fiscal cliffs as far as the eye can see are the deeply troubling outcome of the Great Deformation. They are the result of capture of the state, especially its central bank, the Federal Reserve, by crony capitalist forces deeply inimical to free markets and democracy. Why we are mired in this virtually unsolvable problem is the reason I wrote this book. It originated in my being flabbergasted when the Republican White House in September 2008 proposed the $700 billion TARP bailout of Wall Street. When the courageous House Republicans who voted it down were forced to walk the plank a second time in betrayal of their principled stand, my sense of disbelief turned into a not-inconsiderable outrage. Likewise, I was shocked to read of the blatant deal making, bribing, and bullying of the troubled big banks being conducted out of the treasury secretary’s office, as if it were the M&A department of Goldman Sachs.

Still think this market is driven by humans? Behold European stock markets this morning as they collapsed into the pre-Daylight-Savings-Time European close and reversed to the second... and then a few minutes later as reality struck, as Nanex points out, HFTs went wild in FTSE and CAC Futures...

Since the second half of 2012, financial markets have recovered strongly worldwide. But this financial market buoyancy is at odds with political events and real economic indicators. In short, we are witnessing a rapid decoupling between financial markets and inclusive social and economic well-being. As a result, the income of the global elite is growing both rapidly and independently of what is happening in terms of overall output and employment growth. Demand for luxury goods is booming, alongside weak demand for goods and services consumed by lower-income groups. All of this is happening in the midst of extremely expansionary monetary policies and near-zero interest rates, except in the countries facing immediate crisis. Structural concentration of incomes at the top is combining with easy money and a chase for yield, driving equity prices upward. And yet, despite widespread concern and anxiety about poverty, unemployment, inequality, and extreme concentration of incomes and wealth, no alternative growth model has emerged.

A little while ago, Paul Ryan revealed his proposal for a US budget titled "the Path to Prosperity" which is a 91-page waste of time, because if America nearly fired more people than were employed as a result of an $85 billion reduction to the increasing US rate of spending, at least according to math and logic-challenged Maxine Waters, Ryan's suggestion to really gut spending by cutting $4.6 trillion from the deficit over the next decade would be Armageddon incarnate as interpreted by the Obama administration. Which, no matter what one thinks of Ryan's political views, is unfortunate as the fundamental ideas contained in the budget are spot on: America has an unsustainable spending problem which, however, simply can not be resolved, period. After all - why bother: Bernanke will fund US deficit spending until the very end. So while we present the budget in its entirety for those who need a handy paperback to print out, below we have cropped the key, read scariest charts, from Ryan's budget. They are self-explanatory.

Since a government austerity plan intended to reduce the risk of a debt crisis and ensure the backing of the ECB took hold last year, Italy's economy has tumbled into one of worst recessions of any euro zone country, and as NY Times reports, among Italy’s estimated six  million companies, businesses of all sizes have been going belly up at the rate of 1,000 a day over the  last year, especially among the small and midsize companies that  represent the backbone of Italy's shrinking economy. With policy "paralysis" now more likely following the recent inconclusive elections, Ken Rogoff warns, "this underscores the likelihood of Italy having a Japan-like decade with phenomenally slow growth," and adds that this raises concerns over "the long-run stability of  growth in the euro zone over all."  Italy’s longstanding problems have grown worse in the last year as tax increases and spending cuts were pressed by Mr. Monti. 50% of small companies - ones with fewer than 50 workers, which constitute the vast majority of Italy’s economy and long provided much of its vitality, that are buckling as banks halt lending and taxes rise - unable to pay their employees on time. With the European Union standing as America's largest trading partner, problems that plague Europe's economy will be felt across the Atlantic.

A record number of Americans may be collecting food stamps, but things for the 1% have rarely been better, as confirmed not only by the now daily tradition of record-er Dow Jones highs, but this time by Lamborghini sales, which according to AP soared by 50% in the US and up by 34% in the recession-riddled Europe.

The UK government appears to be contemplating changing the BOE's mandate so it can be freer tolerate greater near-term price pressures. The Tory-led government is commented to fiscal consolidation--austerity--the same kind of policies many want to see the US adopt, and needs greater monetary stimulus to avoid a deeper contraction in the UK economy.