Archive - Mar 2013

Do you ever get the feeling that no one in the Washington power elite is willing to seriously deal with the major economic threat to future prosperity facing the United States today: mounting government debt and the associated deficits? As a taxpayer, you did not borrow the funds, you did not spend the funds, and you have no moral obligation to repay the funds. Rothbard’s recommendation: “I propose, then, a seemingly drastic but actually far less destructive way of paying off the public debt at a single blow: outright debt repudiation.” Repudiation is not only a sound economic solution to our fiscal crisis, but it is also the morally correct solution.

"Whether its cash, gold, or digital-data bits, we all know that money makes the world go round; but what that money is worth depends on trust." In this fascinating documentary, National Geographic Channel takes you inside the heart of the money machine to places that you're not allowed to bring a camera (unless you're a blind-folded Bob Pisani)... straight into some of the world's largest vaults. America's Money Vault follows 55 million dollars worth of gold as it makes its way down into the most valuable gold vault in the world. Hidden deep under the streets of New York City, hundreds of billion dollars in gold bars - the wealth of nations - are tucked away in a bunker that is anchored to the bedrock of Manhattan Island itself. Following this introduction, tomorrow, we will reveal much more on the world's biggest vault.

Incase you didn’t notice, the sequester is in place cutting the rise in government spending by all of 2%. I woke up this morning expecting the planet to have reversed its rotation, it was no longer winter and I had aged 30 years. But no, everything was the same, except for the bullshit emanating from various pundits or websites. One thing I’ve learned to do, whether its Obama, Boehner, or Reid is just to tune them out. If there’s a national emergency then I don’t know what I’d do or who I’d tune in—Big Sis?  Good grief!

There was once a rough and logical correlation between the level of government borrowing, and the rate of interest on government debt. If the government borrowed more money, the cost of borrowing rose and the private market’s appetite for government debt fell. But that correlation totally broke down around the year 2000. In 2008 we hit the Minsky moment, and today we are in the deleveraging phase. The spread between government borrowing costs and government borrowing levels remains huge. And the long, slow grind back to a sustainable debt-to-GDP ratio is slow and depressionary. Japan hit their Minsky moment in the 1990s, and today still remain trapped in the deleveraging phase. The question that remains unknown is how the distortions will resolve. In the long run, the data is clear. The Greenspan-Bernanke era Federal Reserve wilfully built up bubbles and distortions, which grew out of control, and sucked the economy into a black hole. At the very best, this has led to a Japanese-style depression.

Since 2004, interest in 'stocks' and 'bonds' has plunged by more than 50%. Despite a renaissance for bonds in 2008, and stocks in 2009, the 'Great Rotation' appears to be 'out of investing'. Google Trends also shows that, as expected, 'Bonds' have been more popular than 'Stocks' since the crash - a development the Fed is so desperately trying to reverse, by imposing ever stricter central planning, ironically the reason why most have "just said no" to an authoritarian, inefficient, and farcical policy instrument formerly known as the market. Is it any wonder so many retail brokerages, commission-takers, and asset-gatherers are advertising day-in, day-out and constantly reassuring with the "it'll all be 'ok' in the long-run meme"?

We really hate to beat a dead horse, but we wouldn’t be doing my job for you if we didn’t point out some of the most intellectually dishonest, self-aggrandizing Bernanke-speak to come out of the Fed Chairman’s testimony this week. I know this goes without saying, but entrusting this man with your life savings is a dangerous course of action. I strongly urge you to consider diversifying into precious metals, productive farmland, or even a digital currency like Bitcoin. After all, you know the old saying – it’s time to be very concerned when the politicians and bureaucrats tell you to not be concerned.

Treasuries close today at the low yields of the week (down 11bps) but equities were not going to take any notice of that and pushed to hold green for the week (with the Dow and TRAN outperforming). S&P futures managed to touch the underside of their uptrend once again but not break back into it. Financials and Energy ended the week -0.5% while Discretionary rallied 1.5%. VIX ignored equity's strength and rose around 1.5 vols (with a notable bearish divergence into the close). The Dollar gained 1% on the week against the majors - helped by JPY's rapid sell-off today. This USDJPY shift today was the algo driver for stocks as everything else decoupled. Gold and the S&P 500 recoupled on the week. Credit markets in general tracked stocks but high-yield started to slide into the close. WTI was the worst commodity on the week, down 2.3%, as Silver and Gold lost around 0.5%. It seems only US equities know something about the weekend as everything else in Europe and US was decidedly not playing along.

For those technical analysis aficionados who enjoy charts that go "from the lower left to the upper right" as much as the next predictor of the future, may we recommend some deep OTM calls on GM's now endless channel-stuffing (a topic we have discussed to death and back here), which saw the bailed out company from the currently bailed out city, a near record 743K cars with dealers - the second highest ever. This is obviously an indication of soaring, if inverse, demand for the cars only federally-funded NINJAs can love.

No, American Banks DON'T Need to Be Big to Compete with Bigger Foreign Rivals

In September of 2008, Global Finance magazine published its 'World's Safest Banks 2008' list with this comment: "These 10 banks have demonstrated an appropriately prudent approach to risk in providing international financial services; More than ever customers are viewing strong credit quality as an important feature of the banks with which they do business." Things didn't work out quote as they expected...

Italian electors’ rejection of Brussels-imposed economic diktat is an extraordinarily important moment in the history of modern Europe - perhaps the best political news since the fall of the Berlin Wall. Given the power of unelected technocrats, it is easy to forget that sovereignty in Europe still resides with the nation state as expressed through elections. The problem for those unelected officials who conspired to capture the political system - think Jacques Delors, Jean Claude Trichet or Mario Monti - is the obvious failure of their great project. For the first time a majority of electors has decisively voted against the euro and rejected policies imposed by technocrats. What the eurocrats offer under the banner of "reform" is nothing of the sort but just an increase in their power and the destruction of the incredible diversity which made Europe an endlessly fascinating place. It is time to return to market prices and democracy and to accept that technocracy cannot work.

Washington is laying on the malaise pretty thick lately over automatic budget cuts set to take effect in March, with admonitions and partisan attacks galore.  Of course, those of us who are educated in the finer points of our corrupt puppet government are well aware that the public debate between Democrats and Republicans amounts to nothing more than a farcical battle of Rock’Em Sock’Em Robots with only one set of hands behind the controls.  The reality is, their decisions are scripted, their votes are purchased, and they knew months ago exactly how America’s fiscal cliff situation would progress.  The drama that now ensues on the hill is meant for OUR benefit and distraction, and no one else. There are plenty of irrelevant federal appendages out there that could be amputated, but probably won’t be, while other more useful programs will come under fire.  In the end, the budget cuts are not about saving money; they are about social maneuvering and political gain.  They will be used as an excuse for everything, and will produce nothing favorable, not because cuts are not needed, but because the people in charge of them are not trustworthy.

Banzai7: Ok

Presented with little comment except to note, each time the NYSE member firms margin-buying has become so vociferously positive over and above the Dow, things have not turned out so well...