Archive - 2011 - Story

Once the domain of society – of the cooperative interaction that is its natural mode of economic organization and integration – the control of money has been usurped by the state and accordingly monopolized. Moreover, the monopolization is now a fait accompli due the state’s abandonment of gold, or any other commodity, as the monetary standard. Money has been positivized, in other words, in that it is now created not by “voluntary agreement between the parties immediately affected” but by the authoritarian degree of a third party. And it is because of this positivization that society’s money has effectively been stolen from it, toppling the first of civilization’s twin pillars.

PIMCO, which was one of the firms spearheading the putback push against BofA, has put together a useful and rather objective analysis though Executive Vice President, Global Structured Finance Specialist, Rod Dubitsky, titled "Foreclosure Flaws Trigger New Round of Uncertainty." While not surprisingly the baseline case presented by PIMCO is a moderate one, as the asset manager claims the most likely impact is "moderate" it does acknowledge that there is a possibility for substantial complications (although Fannie's recent bail out of BofA pretty much takes cares of that). The two main adverse consequences are "corrupted title" - a topic beaten to death previously, and, more importantly, "Tax issues relating to RMBS issuance entities" on which PIMCO says "Some have argued that assigning the note for the mortgage loan so long after closing would run afoul of REMIC rules, which could subject RMBS deals to adverse tax consequences." Of course, as an escalation of these developments would bring the entire $8 trillion RMBS structured finance industry to a halt, we are fairly confident that as more and more settlements are instituted, that the whole fraudclosure issue will be very soon completely forgotten.

Since CNBC has been issuing a non-stop barrage of its own version of reality vis-a-vis gold and other precious metals, it may be time for some counterpoint. For all those who believe that the drop in gold from levels which were virtually all time highs on Monday, is the equivalent of theapocalypse , we urge that you sell: volatility will be a key part of the game, and it may be prudent for timid elements to run into the levered safety of 5x beta stocks, trading at 100x forward P/E multiples, which are guaranteed to never go down. It will also likely shake out the weak hands, and certainly provide some cheaper entry points (something which we are confident Cramer's endless prattling on gold will do on its own sooner or later). That said, here are some amusing observations by Jeff Clark of Casey Research on how high gold could go in 2011. Keep in mind that just as all the program content on CNBC, this is nothing but pure abject speculation. In a world of central planning, none can predict the future with any does of certainty.

The Meredith Whitney "ubiquitous state default" case may have just gotten another leg up. According to just released Census Bureau data, in 2009 total state revenue plunged by 31%, from $1.6 trillion to $1.1 trillion. "The large decrease in total revenue was mainly caused by the substantial decrease in social insurance trust revenue. Social insurance trust revenue is made up of four categories — public employee retirement, unemployment compensation, workers compensation and other insurance trusts (i.e., Social Security, Medicare, veteran's life insurance)." But the drop in the top line did not stop states from spending more: in the same year, state government spending rose by 3%, while that pervasive source of backstop funding, the US government, saw its grants to states increase by 13% to $477.7 billion. At this point it is safe to say nobody believes there is a deficit that the US government can not fill.

The ongoing collapse in bond prices is making John Meriwether blush with envy at the wholesale wanton destruction of capital undertaken by Ben Bernanke. Keep in mind LTCM - the organization which proved definitively that Nobel prizes in economics are given only to the most consummate destroyers of value, logic, reason and humility - lost "just" $4.6 billion from its peak before it became the biggest systemic risk in the world back in 1998 and had to be rescued by a consortium of banks. The bottom line: with about $10 billion in SOMA losses today alone, Ben Bernanke has generated more than double the losses that nearly destroyed western finance 13 short years ago. And nobody cares.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 05/01/11

Two months ago Zero Hedge first touched upon the topic of relative "value deflation" whereby prices for products are kept constant, even as the actual product provided is far less. Back then we recalled the experience of one Walmart shopper who shared the following story: "I noted with interest that the Wal-Mart I shop at had cleared the shelves of "Great Value" brand coffee in 39 oz cans for about 2 weeks. Today the new can appeared, with the following differences: 1.) Can is now 33.9 oz, down from 39 oz. Also conspicuously missing is the conversion of 2lb, 7oz therefore no comparison in pounds is easily made. 2.) Price for this smaller can is up from $9.88 to $10.48, by my rustic math an approximate 20% increase! 3.) Contents of can are no longer 'Premium Columbian' Decaffeinated. Now labeled '100% Classic Decaf'." Indeed, for people attuned to change in prices much more than to changes in amounts, this is the best, if most despicable, way to mask what is rapidly becoming an accelerating inflation problem (and with food prices now officially at their highest levels ever merely compounding the problem). Today, with the traditional two month delay, the mainstream media finally draws attention to this increasingly more troubling development.

As only the deranged imagination of the Banzai7 Institute can conceive. Lemmings will be happy to know we are only at 6 out of 10 on the ponzinomics scale. BTFD.

Poor President Obama may be left without a single non-Wall Street based advisor in no time. After his trusty sidekick Robert Gibbs announced earlier he is bailing from the Titanic, Reuters has just reported that Paul Volcker, the only man in the past 30 years to have to deal with the problem of pernicious inflation, is about to take a hike too. While his role was simple: head of the White House advisory panel, he did at least attempt to do some things while there, namely take down prop trading. Of course, he failed, as all prop traders are now merely masked as flow traders, and even worse, are sitting smack in the middle of order flow, knowing full well who is buying what, and allowed to build or reduce securities inventories at will with full inside knowledge. But at least he tried. Unfortunately, Volcker's (hyper)inflation fighting skills will be needed again very soon, alas by then America will only have the deranged madman of a genocidal Rudy von Havenstein reincarnation to fall back on. Hopefully it can enjoy the gross lie that is the "wealth effect" before it becomes the "poverty effect."

Zero Hedge has always believed that one picture is worth ten bullet points, and ten thousand garbled, meandering, somnolent essays. On the other hand, take a picture, add a dose of sarcasm, and convert it into a aphoristic sketch, and the result is priceless, expressed in either fiat or gold. We presenting all you needed to know about finance explained in 69 priceless sketches that not even the Fed's infinite Mastercard debit account can buy.

With economic numbers in the US on the rise and surprising the market ever since the last Empire survey, the USD is on the rise. Many have placed bets on a weaker greenback and higher commodity prices. The rational is certainly understandable. I have been rather skeptical. While there is no doubt that the only way for the US to be competitive in the global economy would be a significantly weaker USD or protectionism, along with some reconsideration of certain social programs or union agreements, I have favored a stronger dollar because of the weakness of the USD and because I am highly doubtful that the current recovery is sustainable at all without massive stimulus. Truth be told it is the failure of QE 2.0 to bring lower rates in the US that made the USD turn. So I must admit while I had my eye on the right horse the catalyst was not the one I expected. - Nic Lenoir

After we read earlier that according to CRE experts TREPP, CMBS delinquencies have hit an all time record, we were confident that somehow Wall Street would do everything in its power to offload as much toxic crap from its books (and if inventory was missing, it would do its darnedest to create some) as possible, and start selling the most worthless piece of paper imaginable (see Howard Davidowitz). Sure enough, not much searching confirmed just that: per Bloomberg "Deutsche Bank AG, UBS AG and JPMorgan Chase & Co. are preparing the year’s first bond sales tied to commercial property loans, according to people familiar with the transactions. Deutsche Bank and UBS are teaming up to issue as much as $2.5 billion in commercial mortgage-backed securities linked to loans on office buildings, shopping malls and hotels in what would be the largest offering of its kind since the market froze in June 2008, according to a person familiar with the deal. JPMorgan plans to sell $1.5 billion in similar debt, a person familiar with that sale said." And investors, giddy with new costless capital and generous to waste 'other taxpayers' money' will line up in droves and gobble it up (many on margin), looking for a quick flip. Cue in the summer of 2007.

Political change flows from shared awareness. If one million people have acute situational awareness but remain isolated in their insight, then nothing happens on a political scale. When those same one million people become aware that a million others share their situational awareness and the understanding that the other million people are also aware of each other being on board, then a political movement is possible. The stock market is an interesting example of this phenomenon. Small investors (so-called retail investors) have been exiting the U.S. stock market for 34 straight weeks, pulling almost $100 billion out of the market. They are voting with their feet based on their situational awareness that the game is rigged, and that the rigging alone greatly increases the risks of another meltdown.

RanSquawk reports that the European Union has priced the marketed EUR 5bln 2015 bond, 2.5% interest, at 99.594 reoffer, swaps +12 BP, according to Leads. As a reminder, this is what Brian Yelvington had to say about this notable issue early today: "The €5B EFSF debt sale scheduled for today was reportedly 3x
oversubscribed with pricing expected to be mid swaps +15bp.  The
markets should keenly watch the actual pricing of the deal and its
secondary trading as well as the knock-on impacts on traditional Euro
sovereign issuance.  We still believe that a finite capped facility
that effectively crams down traditional issuance will cause further
pressure on spreads.  A new EU draft proposal suggests that bondholders
take losses on ailing banks rather than upstreaming the responsibility
to the sovereign level and bailouts being taxpayer funded."

In our now globally accepted bizarro world, where problems are priced in before they even appear, disclosing swans of assorted colors becomes a moot point. After all, all the bad news in the universe couldn't possibly matter as long as the irrational exuberance persists. That the higher stocks go, the farther they will crash eventually (and for those with their finger on the sell buttong, good luck selling into a bidless market) is a given, but maybe, just maybe the laws of gravity are different this time. On the other hand, maybe they are not. For those who are convinced that no matter the amount of data fudging, accounting fraud, and dollar debasement that the Fed endorses, nature will eventually take its course, may want to take a look at the below chart of 1 week, 1 and 3 month SHIBOR. In a nutshell: there is no marginal liquidity left in the world's fastest growing economy. Eventually this will dawn on the world. Until then, BTFD.