Archive - Aug 2012 - Story

The purpose of the list is to expose current partisan debate as corrupt and off-point. Economic policy makers across the political spectrum, including some commonly labeled “extreme” by more centrist politicians, are unwilling to acknowledge that fractionally reserved banking systems are the true source of the past generation’s credit build-up, the economic malaise it necessitated, the growing economic hardship it is creating, and the inescapability from deteriorating economic conditions through conventional policy means. The list challenges American policy makers to publicly identify and make illegal fractional-reserve banking, and further challenges them to lead the world in adopting sound money and credit practices that returns economic power to global economic actors following commercial rather than financial incentives.

As the 2012 presidential candidates prepare their closing arguments to America’s middle class, they are courting a group that has endured a lost decade for economic well-being. Since 2000, the middle class has shrunk in size, fallen backward in income and wealth, and shed some—but by no means all—of its characteristic faith in the future. These stark assessments are based on findings from a new nationally representative Pew Research Center "Fewer, Poorer, Gloomier" study and we present the only two charts that matter now.

UPDATE: Added Romney's Bernanke-Busting Clip

With Romney's comments (that QE2 didn't work, that he doesn't back QE3, and that Bernanke should go) somewhat cornering the Fed-Head's decision-making, CNBC's Rick Santelli's comments this morning are even more prescient. The Chicago truth-sayer vociferously noted the increasingly politicized Federal Reserve actions, highlighting Schumer's recent 'demand' that Bernanke do his job. With Bullard this morning noting that muddle-through was not enough to justify the size of QE3 the market seems to be anticipating, it appears any actions by the Fed in the near-term can only be seen as political. The only way to justify any sizable NEW QE is then surely for the market to crash - and with Spain's no-bailout-soon, and Merkel back in the headlines, who knows what's possible. One thing is certain: under Romney the country will need a Fed Chairman. And if it is not Bernanke, despite Glenn Hubbard's promises yesterday, one very likely name will be Hubbard's close friend and co-author: Goldman's Bill Dudley, who now runs the NY Fed. One wonders which choice will be worse for the country (if not for gold longs) - the Chairsatan or Bill Dudley? Of course, look for Obama to retaliate and promise to para-drop dolla dolla billz if elected. Critically, the wizened ex-Gold trader Santelli notes the precious metal knows this and is acting as a barometer of anxiety in this stand-off.

Within seconds of the non-news headline (via Bloomberg) hitting:

*EU SAYS IT'S NOT EXPECTING SPAIN AID REQUEST 'ANY TIME SOON'

The S&P 500 is crumbling, Oil is plunging, and EUR is selling off

Think NIRP is only allowed in select European countries. Moments ago the US Treasury sold a whopping for the series $14 billion in TIPS. The yield? A record low -1.286%, courtesy of TIPS being the only US debt instrument allowed to price at a negative yield (but not for long: JPM's new head of the London CIO divison Matt Zames who is also head of the TBAC is working hard at getting negative yields legalized across the board). The first time the Treasury sold TIPS at a negative rate was back in 2010, when it priced $11 billion at -0.55%. The comment back then: "It signals people’s expectation of the Fed being able to create some inflation with the QE program,” said Alex Li, an interest-rate strategist in New York at Deutsche Bank AG, which as a primary dealer is required to bid at Treasury auctions. “With nominal rates so low, in order have high TIPS breakevens you’ve got to have negative real yields on the five-year." It didn't then. It won't now. Of course, if the CPI were actually adjusted to reflect reality, then TIPS would be the best investment imaginable. As it stands right now, it will likely keep losing money until such time as the CTRL and P keys are finally superglued in the on position.

The biggest geostrategic change of the past decade overlooked by Washington policy wonks in their fixation on their self-proclaimed “war on terror” is that Latin America has been throwing off the shackles of the Monroe Doctrine. These ignored developments may well soon refocus Washington’s attention on the Southern Hemisphere, as Venezuela’s President Hugo Chavez reorients his country’s to China. So, where does Washington go from here? If it wants to preserve its increasingly tenuous foothold in a nation with the world’s largest oil reserves, it might begin by engaging in some honest diplomacy.

Because redemption requests are like cockroaches: once one appears, assume many, many more:

• CITIGROUP'S PRIVATE BANK SAID TO PULL $500M FROM PAULSON FUNDS - BBG
• CITIGROUP SAID TO REDEEM FROM PAULSON ADVANTAGE, ADVANTAGE PLUS - BBG

Is this the beginning of the end for the former Bear Stearns M&A banker and once infallible hedge fund manager? And to think he could have saved himself all the deep fundamental work telling him Las Vegas real estate is "cheap" and just bought Apple. Hey, everyone else is doing it. And everyone else can't possibly be wrong. As for Paulson, whose GLD holdings, which are not an investment but merely a gold denomination share class, will likely quite soon see a substantial hit as he is forced to unwind GLD holdings as more and more external investors redeem until finally JP is just left running his own and his employees' money.

The entire global financial "recovery" engineered by central banks and Central Planning is based on the absurd notion that if we spread unpayable debt over the entire body politic (be it a nation or regional entity such as the European Union) then that distribution will somehow make the debt payable and the phantom assets real. The debt remains unpayable and the assets (collateral) remain stubbornly phantom. As for adding more debt (selling Eurobonds, Treasury bonds, etc.), please note the diminishing return on additional debt: it is now negative.... Diminishing returns define the flailing financial system: the return on petrocapitalism is declining (how many barrels of oil or equivalent does it take to extract and process one barrel of shale-derived oil?), the return on more debt has turned negative, the yield on "saving" bankrupt States is marginal, and so on: spreading insolvency to the taxpayers does not magically create solvency, it only distributes insolvency to every nook and cranny of the economy.

All the debt remains painfully real; it is only the collateral that is illusory.

The last few days have been 'different'. Equities have relinquished their role as QE-sensitizers as Treasuries and precious metals have taken the reins. Perhaps though, as CNBC's Rick Santelli noted earlier, Gold and Silver are acting as barometers of anxiety - as opposed to clarifying QE expectations - as we see both Gold (> $1650) and Silver (> $30) break above their 200DMA and trade back to near five-month highs.

Real Capital Analytics (RCA) released their US commercial real estate transaction data for July last night. The only way to interpret the data is - ugly. After a dismal June (down 33% YoY), July did not see any bounce and in fact plunged 20% YoY with transactions totaling $14.6bn. As Barclays notes, the takeaway is generally negative, as the growth trend has weakened considerably since March ( which was +62% YoY). What is interesting to us is that with Treasury yields so low, the cap-rate 'spread' makes commercial real estate relatively attractive and yet no-one's buying.

Spam may or may not be a better investment than gold (tip: it isn't, and only those for whom the only solution to a record debt crisis is more debt can claim otherwise), but some things are certain: it is edible, it is cheap and it can be stored indefinitely. Which just happens to be great news for Spam maker Hormel, as these three qualities are precisely what saved its quarter. Per AP, strong sales of Spam and Jennie-O products helped Hormel Foods' net income rise in its fiscal third quarter. The meat producer's revenue came in just above Wall Street expectations.

Merkel must be back from vacation, cause Europe just fired up the all talk and no action rumor mill again.

• Spain in talks with Euro-Zone over terms of sovereign aid, according to "sources" - RTRS

So far so good - this is to be expected by the country whose bonds are trading lower only because this has been priced in for the past month.  But:

• No final decision has been made by Spanish authorities to request a bailout  - RTRS. So.... no news?
• No decision expected before September 12 at the soonest, politicial negotiations to intensify on September 14 or 15 - RTRS. So... no news because the ESM which is critical to the Spanish bailout is contingent on the German constitutional court. But hey - let's pretend like someone is doing something
• Preferred option is EFSF buying Spanish bonds on primary market, ESB buying in secondary market - RTRS. So... the EFSF whose 4th largest backer is Spain will be buying Spanish bonds, and the ECB, which Germany has just said 9 to, will be buying more bonds?
• Discussions being held at the technical level, focus on conditions, monitoring. So.... more talk and absolutely no action, with Spain as usual demanding no conditions to its bailout, while Germany and the Troika telling Rajoy he has to essentially resign and work for the IMF when he tells the world that Spain is broke.

One (and by one, we mean the incumbent presidential candidate) can only hope that consumer comfort tracked by Bloomberg is not a leading market indicator... Of course, with Wall Street now solidly on the side of Mitt Romney, and well aware it needs to crash the S&P ahead of November if Romney is to have a running chance, this may well be the case.

If there was ever a sign that our economy, from the bottom-up, is running on fumes, it was Big Lots' dismal earnings and even more dismal outlook. The discounter is now down 21% back to 12 month lows...

Looking at the headline number in the just released New Home Sales data one would be left with the impression that the tepid "recovery" in housing may be chugging along: after all with a seasonally adjusted annualized 372,000 new homes sold in July, this was an improvement to the revised 359K in June (ignoring that the US housing market at best continues to drag along the bottom). This impression, however, promptly changes when one looks at the underlying data. The reality: the actual number of new homes sold in July was 34,000, the same as in June, and the lowest since March. Of this, a massive 3,000 (yes, three thousand) homes were sold in the Northeast in the entire month. Where things get worse is when one looks at the number of new homes for sale. At 142,000 (of which just 38,000 actually completed), this was the lowest number. EVER. And finally, to ruin all hopes that the housing bottom may mean an actual pricing bottom, the median new home price slid to $224,200, down from $229,100 in June, and the lowest since January, while the average home price declined from $266,900 to $263,200. This was the lowest average price posted so far in 2012.