Archive - 2013

Moody's has stepped forward with the first warning shot across the bow that:

• *MOODY'S: MORE MEDIUM TERM ACTIONS MAY BE NEEDED TO SUPPORT Aaa

Has contradicted itself (from September) on the debt-ceiling breach; and warns that while the deal 'mitigates' some fiscal drag, it does not remove it. To wit: the IMF piles on:

• *IMF SAYS `MORE REMAINS TO BE DONE' ON U.S. PUBLIC FINANCES
• *IMF SAYS U.S. DEBT CEILING SHOULD BE RAISED `EXPEDITIOUSLY'

Full statements below.

In broad strokes, this is the official playbook for political leaders in the Western world. Facilitating this is the ongoing monetary easing by the global Central Banks who have collectively pumped $10 trillion into the system since the Great Crisis began. In simple terms, Central Banks provide the glue to hold the system together while politicians meet and negotiate without ever really solving anything.

If you just want the facts, who can you trust?

One of the Fed Chairman's most memorable lines in recent history is that "gold is not money... it is tradition." Perhaps he was merely listening to the Fed's computers, Ferbus, Edo and Sigma, which we now know form the backbone of US central planning and whose DSGE model output is usually spot on until it happens to be catastrophically wrong, on the issue. Or perhaps that is merely what one is taught (and teaches) in the Princeton economics department. Whatever the reason for Bernanke's belief, don't show him this chart from a just released "Report of the Working Group to Study the Issues Related to Gold Imports and Gold Loans by NBFCs" in India, part of a coordinated campaign to minimize Indian gold demand and imports whose direct substitution to "(un)sound money" in the country is one of the reason being attributed for the nation's high current account deficit (as reported earlier) and why the finance minister said "demand for gold must be moderated." The chart shows the staggering eightfold increase in India's gold loans "which monetize the idle gold in the country", in just four short years. In short it proves that in India, gold is the only real money, and is the only fallback option in a country where inflation is still rampant, and where even simple peasants prefer to keep their wealth not in the local paper currency, which has been losing its value aggressively in recent years, but in the shiny metal. Must be "tradition."

In 28 seconds, Bloomberg TV's Scarlet Fu explains who really benefits from the 'deal' and Bernanke's ongoing 'wealth effect' policy. Simply put, taxes on 77% of Americans go up... and 20% benefit. "Fair-and-balanced" indeed. Blackrock's Larry Fink summed it all up nicely: "The American People are the Big Losers In The Cliff Deal"

Peer-to-Peer Lending and Crowd-Funding Have the Power to Change Finance

The recent fiscal cliff negotiations were almost a textbook case of the game theory's Prisoner's Dilemma... resulting in the same sub-optimal outcome. All the posturing and political strutting were more about trying to obtain personal advantage over the other players, not actually fixing anything. The fiscal cliff, in fact, stopped being about the US economy a long, long time ago. The uncomfortable truth that nobody in officialdom wants to admit (save outgoing Congressman Ron Paul) is that the fiscal situation is unfixable. Meanwhile, the debt ceiling has already been breached, and the Obama administration is scurrying to seize federal pensions as a temporary fix. Seriously, how long will it be before they start seizing private pensions, IRAs, etc.? How long before mutual funds and banks are required to hold a percentage of their assets in the 'safety and security' of US Treasuries? How long until everyone is involuntarily financing Uncle Sam?

While the predictions of Blackstone's Byron Wien (born in 1933), who may not be in the senate or "sleep-deprived", but this year will become an octogenarian, may have been all over the place in the past 10 years, some correct, but most miserably wrong (with a recent hit rate of about 25%), he always does provide entertainment value. Which is the only value in the latest release of his 10 forecasts for 2013. Naturally, take all of these with a salt mine.

In May Of 2010, I published a series of reader contributions on the cruise line industry as well some proprietary research on a particular company in said industry - Royal Caribbean Cruise Lines. The consistent, globally synchronized flood of money totally distorted market pricing and risk in public equities - thus often distorted practically applicability of hard core fundamental and forensic research.

2013 has begun just as 2012 progressed as Granite Construction just plunged 12.6% in under one second. As Nanex shows below, it is simply ludicrous. Of course, the algos (like every entity that comes close to 'failing' in the new normal) will never learn since, as usual, NASDAQ has decided to cancel the trades... *NASDAQ TO CANCEL SOME TRADES IN 'GVA' FROM 11:45-11:46ET AT/BELOW $32.72 11:45AM-11:46AM S.S.D.Y.

A Fiscal Cliff "deal" that reduces GDP and squeezes the consumers; a Fed whose policies have forced massive capital misallocation away from growth investment and are leading to an unprecedented corporate "revenue cliff"; and now, in the aftermath of the government response to the Newtown massacre which threatened to curb the second amendment, we get this via Reuters:

• BACKGROUND CHECKS FOR US GUN SALES REACHED RECORD IN DECEMBER AT 2.8 MLN CHECKS - FBI

Because when everything is an unintended consequence, nobody has to take any responsibility for anything. And so the New Normal marches on.

The Limerick King and Banzai7 look at the cliff farce and the road ahead...

We have become used to the whining of Chuck Schumer but when a House Republican blasts his own, it seems the dysfunction runs deep (or the fair did not quite meet the balanced). NY Rep. Peter King lashes out at the pork-laden 'deal' we all just witnessed (and the market cliff-gasm'd over) as the failure to vote on the relief measure for Superstorm Sandy prompted him to exclaim the GOP leadership has "turned its back on those people" who continue to suffer. As CNN reports, King said he was "chasing [Boehner] all over the House," and reminded House Republicans that they seem to "have no problem finding New York when they want money," and the frustrated Congressman added, "I would not give one penny to [The Republicans] based on what they did to us last night." Simply put, King proclaims that a number of Republicans may "kiss their seats goodbye...because if you can't provide the most basic assistance for your district, who needs you in Congress?"

The 'deal' didn't surprise CNBC's Rick Santelli as he notes the administration did the "easy thing" once again. However, he does think the coming battle in 6-8 weeks regarding the debt ceiling will be surprising to many and believes "there has to be an endgame to insanity." Rick's rightly cynical perspective on the euphoric opening gap today in stocks and bonds (and questioning the veracity of manipulated 'market' prices) appears as frustrating to him as "watching politicians all slap each other on the back while the country slips into a Grecian like formula."

It seems our premonition of Europe's year-end desperate need for Euros to prop up their ailing and illiquid books has indeed come to an end. EURUSD is heartily disagreeing with US equity exuberance and, more importantly, the all-important carry driver EURJPY is pointing to a decided risk-off aspect as Europe closes its first trading day of the year.