Archive - Feb 26, 2012 - Story

The real world revolves around cash flow. Families across the land understand this basic concept. Cash flows in from wages, investments and these days from the government. Cash flows out for food, gasoline, utilities, cable, cell phones, real estate taxes, income taxes, payroll taxes, clothing, mortgage payments, car payments, insurance payments, medical bills, auto repairs, home repairs, appliances, electronic gadgets, education, alcohol (necessary in this economy) and a countless other everyday expenses. If the outflow exceeds the inflow a family may be able to fund the deficit with credit cards for awhile, but ultimately running a cash flow deficit will result in debt default and loss of your home and assets. Ask the millions of Americans that have experienced this exact outcome since 2008 if you believe this is only a theoretical exercise. The Federal government, Federal Reserve, Wall Street banks, regulatory agencies and commercial real estate debtors have colluded since 2008 to pretend cash flow doesn’t matter. Their plan has been to “extend and pretend”, praying for an economic recovery that would save them from their greedy and foolish risk taking during the 2003 – 2007 Caligula-like debauchery.

Debt default means huge losses for the Wall Street criminal banks. Of course the banksters will just demand another taxpayer bailout from the puppet politicians. This repeat scenario gives new meaning to the term shop until you drop. Extending and pretending can work for awhile as accounting obfuscation, rolling over bad debts, and praying for a revival of the glory days can put off the day of reckoning for a couple years. Ultimately it comes down to cash flow, whether you’re a household, retailer, developer, bank or government. America is running on empty and extending and pretending is coming to an end.

It is only somewhat appropriate that the announcement of the resignation of Stratfor's CEO would come in the form of a leaked email that once again was intercepted by Anonymous.

Earlier today, Wikileaks made its latest startling release on Twitter, telling the media world to standby for a 'major announcement'. Alas, in keeping with the recent tradition from Wikileaks, the "release" was a dud and is merely the collected dump of all the emails previously hacked from Stratfor by Anonymous, as was noted here previously. Alas a quick perusal through the emails so far reveals absolutely nothing exciting, except for the communiques of a paid intelligence provider, which may at times have had a few delusions of grandure and a mistaken and rather overblown sense of self-importance (hardly unique). Yet one exchange that is rather interesting is the following email thread from 2009 which goes from discussing how the billionaires behind ACORN have lost all respect for Obama and Biden ("The billionaire (who also funds ACORN) is greatly disappointed over Obama's "weakness and wimpyness" towards China... She believes Biden is weasel and Obama is a pussy... The liberal factions in DC think Obama is being a pussy."), views on Rahm Emanuel ("I don't disagree that Biden is a weasel. I think Emanuel is emasculating Obama by selling him on clever Clintonesque tactics"), views on how Obama may get back into the thick of things: ("Obama needs to get in a fight and do something really mean and unfair to the right."), on Obama and the banks: ("he could also tell the banks to go screw themselves.") and from there going to analyzing the GOP field: ("The GOP folks I talk to are pushing Jeb Bush. I think that is a mistake. Who else is out there?") and culminating with the GOP frontrunning Mitt Romney - "Romney can't make it. Mormons are viewed as Voo Doo." Much more in the full email thread inside.

As we enter a week in which the expectations are high for yet another large expansion of central bank balance sheets, and ever more extreme monetary policy (thanks to the LTRO 2), we thought it appropos to listen to Grant Williams, of the famous "Things That Make You Go Hhhhm" newsletter, explain in its simplest terms, why it is still a good time to own gold. In two excellent and succinct presentations, Williams discusses the 'simplicity' of investing through the last four decades but ends by focusing specifically on the rotation to Gold at the start of the last decade (2000) and why the reason for rotating out of the precious metal has not occurred yet. Seeing the world of Gold as a battle between Too Much and Not Enough (and drawing on global supply, demand, and holdings flow) Williams lays out the reasons for owning gold, and how to know when to cover - as he narrows the five reasons to reconsider Buffett-and-Roubini's Barbarous Relic down to one simple rule - Central Bank Monetary Policy Changes.

Last week saw dramatic dispersion among the major FX pairs as global and local influences caused significant moves in most of the key crosses. Goldman takes a look back at the key drivers of that volatility and then focuses on the week ahead as the EU Summit at the latter end is the main event risk while ongoing macro developments will be focused on the incessant rise in Crude oil prices and whether we start seeing knock-on impacts in the real economy.

While we are aware of politicians' repeated vows about the uniqueness of the Greek case, we remain deeply skeptical. After all, hasn't it been a winning investment strategy to assume that the exact opposite of whatever Europe's elite says will become fact? The recently overheard and filmed conversation between Germany's and Portugal's finmins (http://t.co/iDA9HJPo) points in the direction of an imminent review of the Portuguese case and might be a harbinger of PSI, OSI etc à la Gréce. And why stop there? Why not relieve the Italians, Spaniards, Portuguese etc. of their troublesome load? Wouldn't it be nice to pull a Greek and finally make it for those pesky Maastricht criteria? But regardless of one's view on the ongoing crisis, it makes perfect sense to go where no investor has gone before. We did the unthinkable, read the unreadable and made it back alive to tell the tale: we ploughed through all of the individual bond prospectuses of our favorite list of countries in peril and actually found a lot of useful information for the investor. Given that the sovereign bonds of the Eurozone used to be looked at as riskless assets, it is safe to assume that the exercise hasn't been done by a lot of investors on a regular basis. Judging by the difficulty to even obtain the information, both the interest of investors to obtain it and that of issuers and underwriters to provide it has been and remains extremely limited.

Still confused why there are those who call America the USSA? Don't be. As the following animation from the NYT so vividly shows, government benefits across the US have nearly tripled from a modest 7.8% of all personal income in 1969 to a 'European' 17.6% in 2009. And this before Obama went to town (as a reminder total debt has risen by over $4 trillion under Obama - a significant portion of that has gone to fund social welfare). Thus, we are confident that as of this writing, the government accounts for at least 20% and possibly as high as a quarter of all personal income. One can use any word to describe that transition depending on one's personal political preferences, except for one: "sustainable."

Want to get into the head of a hedge fund manager, and see how they view the market: why just buy Apple of course, however good luck explaining to your LPs why you deserve 2 and 20 for "active asset management" aka just following the herd into the biggest hedge fund hotel in history (for at least 216 hedge funds it may be a tough sell). So for everyone else, Goldman's David Kostin (who still has a 1250 year end S&P target - the definitive indicator to sell everything will be when he too gives up) has compiled the data in all the just released 13Fs and has summarized the results as follows...

Continuing our series of charts worth a thousand words (first one here), below courtesy of Credit Suisse's William Porter we present the Euro Area as if it were a giant CDO. It should answer most outstanding questions.

At bottom, centralization is the foundation for the collectivist fallacy; that there is a “greater good” that must be maintained by the establishment.  This process makes the establishment indispensable in the minds of the public.  The elites in power today have chosen environmental dogma as their version of the “greater good”, because the “end of the world as we know” can be used to rationalize almost any brand of despotic behavior, from food and water rationing as a method for social conditioning, to population control or even depletion in the name of “saving the planet”.  Always beware the true motivations of any governing institution that seeks to assert itself as the purveyor of all that is “best” for the people.  Such groups are rarely if ever what they seem…

While we would be among the last to point out stock charts as an indicator of much significance in the New Normal, when the only thing that matters is how many trillion in liquidity the central banks have pumped into the market in the last few months (thus confusing economists and journalists that the nominal market is in fact the economy - just as the Chairsatan desires), the following chart from Grant Williams (whose latest "Things That Make You Go Hmmm" can be found here), which shows that the gaping spread between the DJIA and the Dow Transports is now the widest it has been in years. Soaring oil prices may not have infected stocks yet (and by stocks we obviously mean IBM and Apple), but those who think Dow Theory is even remotely relevant (hint: it isn't) should probably be concerned.