Archive - Jan 10, 2012 - Story

While we have seen these videos in the past they never cease to amaze, and confirm that when it comes to using raw materials to put together end products that absolutely nobody will likely ever want, the Chinese are second to none. We would love to juxtapose this video with a 'timelapse' of the the 10 years it will take New York construction workers to complete the Second Avenue subway.

Anyone anticipating more easing out of the ECB's Mario Draghi first thing tomorrow may be in for disappointment, according to Goldman (which certainly should know how its alumni think), which says that "We expect the ECB to leave policy rates unchanged at its monthly policy meeting on Thursday, and also expect no further announcement of non-standard measures at this point. Before taking further measures, the ECB will likely want to have more clarity on how the macro picture is evolving and how successful the measures taken in December have been in stabilising the situation. That said, the press conference may provide further indication of where the threshold for additional ECB action lies." It is unclear how the EURUsd will react to any such interim halt in currency devaluation, but it is likely that the record number of shorts in the currency will hardly be overjoyed.

We have often seen requests to show the price of gold going back as long as possible. Tonight we can oblige, with a gold price chart, indexed in 2010 British Pounds, going all the way back to 1265. To the surprise of many, the early 1980s gold price surge is not the only time in history when gold exploded as America's game with inflation was almost lost. It appears that based on the surge in gold back in the late 15th century, there was actually quite a serious need for Columbus to go forth and find a source of gold, because last we checked Ferdinand and Isabella did not have Bernanke's money printers back then. And yes, as Goldman says, there were no ETFs back in the 16th century to draw demand away from the real deal and into make believe exposure.

In under one hour, the New Hampshire GOP Primary polls close. The New Hampshire primary is the second contest in the state-by-state battle for the Republican presidential nomination to face Democratic President Barack Obama on Nov. 6. Romney narrowly won the first contest, the Iowa caucuses, on Jan. 3. According to Reuters, and pretty much all of the mainstream media, Mitt Romney is in charge, and Ron Paul and Jon Huntsman appeared to be in a battle for second place in New Hampshire, the small New England state known for its independent streak and outsized role in presidential campaigns. As for Mitt, "A multimillionaire who says his experience as head of private-equity firm Bain Capital would help him spur America's economy as president, Romney might face a bigger challenge in the next primary in South Carolina on Jan. 21, where the economy is weaker and conservatives make up a larger slice of the electorate." Because apparently people in New Hampshire are big fans of 25% IRRs predicated by 5x Debt/EBITDA LBOs. Or something. Follow the primary via the CNN live webcast below, through the WSJ live blog, or via Politico. Fox News is tracking New Hampshire exit polls here. Finally, the live tally of final results can be tracked using the interactive Google map below.

Because the latest fad amongst the voodoo shamanry known as econ Ph.Ds, especially those who have a blog in uber-liberal daily publications courtesy of a nominal gift from the status quo for valiant efforts in preserving the status quo, is to always and without fail assume that correlation is and always implies causation, we make, with the help of John Lohman, the following argument: since global leverage (via Debt-to-GDP) has a greater correlation to the "Temperature Anomaly" aka Global Warming, at 0.79, than CO₂ concentration, at 0.69, it is obvious that global warming is purely a function of ever increasing leverage, and not, as is widely accepted by various ecological consultancies, carbon dioxide concentration. And now you see how easy it is to make idiotic, and totally spurious statements (which however serve as fodder for even more idiotic peer-reviewed white papers and journal submissions this keeping lots of people employed while contributing absolutely nothing to society), which given enough time, will become religion to a new breed of shamans once the old ones are forcibly kicked out of their comfortable corner offices.

In the first few days of 2012, the US mint has already sold 4.3 million ounces in silver coins. This is more than in all individual months of 2011 except for January and September, when the mint sold 6.4 million and 4.5 million ounces. Is the retail love affair with physical silver coming back with a vengeance?

The Swiss had a rough couple of years; first the national airline crashes, then the banking secret, and, now, their central bank. It seems someone from inside the SNB finally woke up and skilfully played the Swiss media to work on Hildebrand’s expulsion. There is only one problem for the SNB: how to get out of the hole before the Euro blows up? The sharks are already circling their prey; the Swiss Franc decoupled from the Euro the moment SNB chairman Hildebrand resigned: The exchange rate got dangerously close to the “Rubicon” of 1.20 (the level the SNB vows to defend with utmost determination). The SNB is basically 100 pips away from extinction.

A few months ago we learned that outgoing Freddie CEO Ed Haldeman quit Freddie after just two years of work, pocketing over $4 million primarily to collect over $21 billion in bailout funds from the US government. Now, it is the turn of the other broke GSE: according to a just filed 8K, Fannie Mae CEO Michael Williams is also stepping down without a replacement, so obviously the decision was made in haste and is an indication that nobody at the helm of the two largest mortgageholders want to do anything with what Obama and the Chairsatan have in store for the two behemoths holdings over $6 trillion in mortgages in their books. Incidentally, according to Forbes, Williams made $4.84 million in comp last year. His claim to fame: receiving a total of $60 billion in Treasury bailout cash (net of $17.2 billion in dividend payments) - hard job that one.

Whoever says there are no winners in the European banking crisis apparently has never woken up with a horse's head in their bed. According to a new report by Italian anti-crime group SOS Impresa, as reported by Reuters, "Organised crime has tightened its grip on the Italian economy during the economic crisis, making the Mafia the country's biggest "bank" and squeezing the life out of thousands of small firms, according to a report on Tuesday." You mean kinda like Intesa credit cards demanding a 39.95% APR: we knew we had seen that "life squeezing" thing before somewhere. Of course at least with the mafia you know that it will never rely on fake Libor fixings to pretend it is alive, or need an ECB bailout the next day due to being overly invested in US subprime mortgages (unless of course Goldman's rolodex stretches even further than we thought possible). It sure does, however, bring a new definition to the term "shadow banking"... or is that the old one, where nobody cared about repos, money markets, overnight drafts, and hyperrehypothecation and all the complexity could be explained away with a baseball bat. Yet the conclusion, no matter how defined, still strikes us as hilarious: '"With 65 billion euros in liquidity, the Mafia is Italy's number one bank," said a statement from the group, which was set up in Palermo a decade ago to oppose extortion rackets against small business." Because as we pointed out yesterday, it was companies which were responsible for bailing out banks in Europe. How long then until La Cosa Nostra provides a lifeline to UniCredit, but only if half the BOD is replaced with guys in tracksuits and buzzcuts? Actually, not too long we would wager...

Nearly 10-years ago to the day, the government of Argentina collapsed. Beset by weighty deficit spending and a completely unrealistic currency peg to the US dollar, Argentina became the poster child for the golden rule of economics: ‘that which is unsustainable will not be sustained.’ It’s reversion to the mean. Within a matter of days, the country had burned through several presidents, the currency collapsed, inflation soared, unemployment shot up, crime rates spiked, and the government defaulted on its debt. After limping along for most of the last decade with a socialist agenda, the government of Argentina is at it again. The economy is rapidly deteriorating, and street-inflation has surpassed 25%.

Payback sure is a bitch. After being demonized for everything from the tiniest tick down in the EURUSD, to blowing out spreads in CDS, to plunging stocks across the insolvent continent, hedge funds, long falsely prosecuted for everything, even stuff they patently did not do, are about to have their day in the sun, precisely in the manner we predicted back in June of last year when we posted: "Greek Bailout #2 Is Dead On Arrival: A Few Good Hedge Funds May Have Called The ECB's Bluff, And Hold The Future Of The EUR Hostage." Back then we wrote: "we may suddenly find ourselves in the biggest "activist" investor drama, in which voluntary restructuring "hold out" hedge funds will settle for Cheapest to Delivery or else demand a trillion pounds of flesh from the ECB in order to keep the eurozone afloat. In other words, the drama is about to get very, very real. And, most ironically, a tiny David is about to flip the scales on the mammoth Goliath of the ECB and hold the entire European experiment hostage..." Sure enough, we were right yet again. Ekathimerini writes: "Hedge funds are taking on the powerful International Monetary Fund over its plan to slash Greece's towering debt burden as time runs out on the talks that could sway the future of Europe's single currency. The funds have built up such a powerful positions in Greek bonds that they could derail Europe's tactic of getting banks and other bondholders to share the burden of reducing the country's debt on a voluntary basis." Oh no, they will let it happen, but first Europe will pay, with real interest, for every single incident of hedge fund bashing and abuse over the past 2 years. We estimate the final tally, to US taxpayer mind you, will be about $20 billion, to remove the "nuisance factor" of hold out hedge funds. Congratulations Europe - you have proven to be a continent full of idiot "leaders" once again.

Not even an hour after we asked the question, The Hill gives us the answer: "The Obama administration will be asking Congress to raise the debt limit in the coming days, White House press secretary Jay Carney said on Tuesday. "I'm confident it will be executed in a matter of days, not weeks," he told reporters. The notification by the administration — which had been scheduled for last month — was delayed because Congress has been holding only pro forma sessions. The White House will be asking Congress to raise the U.S. borrowing limit by $1.2 trillion. The move would mark the third and final increase from the debt-ceiling deal reached last year by Congress." Of course, the optics of yet another debt-ceiling increase, even a preapproved one, are simply horrible during campaign season. But such is life. Here is the kicker though: the US has preapproval for $1.2 trillion in debt issuance, as per the August 2011 agreement. So far so good. The problem is that since then the US has issued $900 billion in debt in five short months! In other words, somehow the remaining buffer of just $300 billion, or a final debt ceiling of $15.5 trillion, is supposed to last the US until after the presidential election, because this topic flaring up just before Obama is due to hit the debate circuit will be reelection suicide. So our question is: how will the US, which has a gross debt issuance rate of over $100 billion per month on average, last for a year with just $300 billion in dry powder? And even if the $1.2 trillion count begins from the new request, it still means the new debt ceiling will be breached some time in August/September, as we expected last year when we did the calculation assuming a $180 billion gross issuance per month ($900 billion in 5 months). We can't wait to hear the OMB's explanation.

Those who depend on a strategy of pleading with central authorities to continue funding at old levels are doomed to disappointment--all systems follow an S-Curve of rapid expansion, stasis and decline. The Central State is no different. The solution is localism. By creating cheap housing with its own modest tax resources, then the village attracts young families, whose children will keep the village school from closing, and the commerce brought to the village and its post office will keep it above the "closure" threshold. Passively hoping that centralized concentrations of wealth and power will return to pre-eminence is a losing strategy, the equivalent of a cargo cult ritualistically hoping for a return to World War II-era bounty. Focusing local resources on obvious bootstrap solutions is the winning strategy, not just in the U.S. but globally.

We may well have reached the point where every single bond auction has to be a new record in something, or else (the else being the point where a reversal in yields becomes self-sustaining with trillions and trillions of ZIRP cash sloshing around and the smallest increases in rates could wreak havoc within the entire system)... Today, the record in the just completed $32 billion 3 Year auction was the record high Bid To Cover, which came at an all time high, obviously, 3.73, compared to 3.624 before, and 3.314 last 12 auction average. The bond priced at 0.37% (44.86% allotted at the high), with the low yield coming at a tiny 0.276%. Naturally, there always is more than meets the eye, with the bulk of the demand coming from Dealers, who took down 56.1% in the never-ending game of repo-mediated ponzi, while Indirects were accountable for just 38.%, and Directs coming at a 2 year low of 5.3%: this should probably be a warning sign to some. Probably a far more important question is why the Treasury is issuing debt in the first place: as Zero Hedge first (and so far only) pointed out last week, the Treasury has, or rather had, a $25 million buffer before it breaches the ceiling - in other words no capacity for gross issuance (not even net of the $77 billion Fed remittance). Simply said, this means every auction means more plunder from government retirement accounts - a replay of what happened in late July. Obviously, at some point the president will make it a point to push the interim debt ceiling higher, just probably not before the state of the union speech.