When it comes to corruption, cronyism and general muppetry in Washington D.C., the only real question is 'where does one start?' Yet one has to start somewhere to conclude with a list of the ten most corrupt and despicable marionettes in D.C. Which is precisely what JudicialWatch has done in its annual compilation of the "Top 10 Most Corrupt Politicians in Washington D.C." for 2011. And confirming what everyone knows, that both the left and right are merely irrelevant names for the same general social affliction, or should we call it by its true name - wealth pillage - the split is even between democrats and republicans. In no particular order, the winners of 2011 are...
If we had to summarize the Status Quo's confidence that no black swans will threaten its control in 2012, we might begin with its faith that the system's self-regulation will resolve all systemic challenges. Just as the Status Quo has placed all its chips on a single bet--that "growth" from debt-based consumption can be resumed with vast public borrowing and saving the predatory financial sector--it also bases its confidence on the system's self-regulation. If the banking sector is riddled with fraud and embezzlement, then some minor tweaking of regulation will solve all issues. If demand for debt has collapsed, then the solution is for the Federal Government to borrow 10% of GDP every year to compensate for the decline of private debt and spending. The faith is that extending and pretending will magically restore the "growth" the Status Quo needs to support its ballooning debt. Extending and pretending offers up the compelling illusion that the system's broken self-regulation is up to the task of fixing systemic problems. In the darkness overhead, we can hear the beating of unseen wings that promise to make a mockery of the Status Quo's supreme Imperial hubris.
As EURUSD leaks very gently lower into the new year (but stocks popped excitedly across quiet European markets that lacked a bond market supervisor to keep them honest), we thought it might be interesting to look at the relative strength of the Euro against six different measures. From FX option risk-reversals to ECB's European Bank Lending statistics, QE and sovereign risk relationships to Fed/ECB balance sheet dynamics, and finally from futures commitment of traders data to EUR-USD swap spread frameworks, the results are unsurprisingly mixed with a bias towards EUR weakness. Between the European auctions (and redemptions) of the next two weeks, and the FOMC meeting on the 24-25th January, we face quite a rude awakening from the low volume holiday week malaise.
As US markets remain in hibernation for a few more hours, Goldman picks out the five critical questions that need to be considered in the context of 2012's economic outlook. Jan Hatzius and his team ask and answer a veritable chart-fest of crucial items from whether US growth will pick up to above-trend (and remain 'decoupled' from Europe's downside drag), whether inflation will find its Goldilocks moment this year and if the US housing market will bottom in 2012 (this one is a stretch). Summarizing all of these in a final question, whether the Fed will ease further, the erudite economist continues to expect an expansion of LSAP (focused on Agency MBS) and an official re-adjustment to an inflation targeting environment. Their view remains that a nominal GDP target combined with more (larger) QE improves the chances of the Fed meeting its dual mandates (unemployment target?) over time but expectations for this radical shift remain predicated on considerably worse economic performance in the economy first (as they expect growth to disappoint). We feel the same way (worse is needed) and recall our recent (firstly here, then here and here) focus on the shift in the balance of power between the Fed and ECB balance sheets (forced Fed QE retaliation soon?).
As expected yesterday, when the US went out full bore with a Japan-lite approach of McCollum-like strategy of leaving Iran no option but to keep escalating until finally the US has enough public support grounds for a response, in under 24 hours Iran has launched a second missile, this time not a medium-range SAM to a long-range shore-to-sea missile. Needless to say, the US 5th Navy is watching these quite welcome developments with great interest. From Reuters: "Iran said on Monday it had successfully test fired a long-range missile during its naval exercise in the Gulf, flexing its military muscle to show it could hit Israel and U.S. bases in the region if attacked. The announcement came amid rising tension over Iran's disputed nuclear programme which Western powers believe is working on developing atomic bombs. Tehran denies the accusation and last week said it would stop the flow of oil through the Strait of Hormuz if the West carried out threats to impose sanctions on its oil exports." At this point it is glaringly obvious to all but the most confused that the US is consistently pushing Iran to escalate further and further, until such time as the US ships stationed in Bahrain say enough and decide it is time to sink some boats.
Following today's release of European manufacturing PMI data we are sadly no closer to getting any resolution on which way the great US-European divergence will compress. Because all we learned is that, very much as expected, Europe managed to contract for a fifth month in a row, with the average PMI in Q4 2011 the weakest since Q2 2009, essentially guaranteeing a sharp recession once the manufacturing slow down spills over to GDP. The only silver lining was that the contraction across the continent was modesty better than expected, however if this merely means that the band aid is being pull off slowly and painfully instead of tearing it off is up for question.
One of the biggest headlines that floated under the radar late last week was the announcement by Spain that its budget deficit would soar well higher than the expected 6% of economic output and instead be at 8% of GDP, which while ignored by the broader media was certainly noted by the EURUSD which tumbled on the news. Probably the most humorous response came from the neo-feudal viceroy of the PIIGS Olli Rehn who was displeased. From Reuters: "The European Commission regretted missed fiscal targets announced in Spain on Friday, but hailed the government's announcement of an austerity plan intended to slash the Spanish public deficit. "I regret the sizable fiscal slippage" to a deficit of 8.0 percent of GDP instead of 6.0 percent initially targeted, Economic Affairs Commissioner Olli Rehn said, while welcoming the new measures announced from Madrid." We in turn regret that a year after adopting so-called austerity, Spain still has not understood that it means cutting the deficit, not blowing it up. Because just like in Greece, sooner or later the Germans will come knocking and demanding every last shred of sovereign independence from its bevy of debt/bailout slaves. Unfortunately today's news will not help: in another piece of news that many hope slip under the low volume radar, the government just said that the revised number could well be re-revised even worse as soon as a few days later.
For those claiming the ECB's deposit facility soared in the last days of 2011 primarily due to year end window dressing (for Tier 1 pig lispticking purposes or otherwise) they were right. Just barely and negligibly, but right. According to the ECB, the deposits as of January 1, 2012 were €414 billion, a drop from €446 billion as of New Year's Eve, and just modestly off the all time record €452 billion. Alas, that does mean that all the other cash from the LTRO is there to plug capitalization holes for good, as was asserted here previously. As a reminder, ECB deposit facility usage as of December 21 or the day of the LTRO was €265 billion, which means that €150 billion of the total free cash uptake is locked up in the "out of one pocket and into another" pyramid scheme. The first print of 2012 is shown on the chart below.
Presenting NSSM 200: "Implications of Worldwide Population Growth For U.S. Security and Overseas Interests"Submitted by Tyler Durden on 01/01/2012 - 17:58
One of the topics touched upon by Eric deCarbonnel in the earlier article discussing the potential, if not necessarily probable absent further validation, implications of the Exchange Stabilization Fund, is that of the nature of AIDS. Which got us thinking. While we won't necessarily go into the implications proposed by none other than Chuck Palahniuk in his book Rant (word search Kissinger, especially what Neddy Nelson has to say on the topic), it made us recall that particular National Security Study Memorandum, aka NSSM 200, better known as "The Kissinger Report" authored on December 10, 1974 and immediately classified under Executive Order 11652 until 1989, titled simply, "Implications of Worldwide Population Growth For U.S. Security and Overseas Interests." What did the report say and why is it relevant, especially in our day and age when so many believe that all important substance - black gold - may have peaked? Well, since it has 123 pages full of very, very curious information as pertains to how US foreign policy is truly styled, we will leave it up to our readers to make their own conclusions, but here are some preliminary observations to help them on their way...
If there is only one question we would love to have answered early as we make our investment allocation decisions in 2012, it is this: which way will the following chart compress, because compress it will: will the US finally catch up with the European contraction, or will Europe, mysteriously, and against all conventional wisdom rise from the ashes, recouple with the US, and pretend as if 2011 never happened?
With two days left until the GOP primary circus is fully underway, here are, courtesy of Reuters, the key facts to keep in mind as all that endless talk finally shifts to action. From Reuters: "Voters kick off the 2012 nominating process to pick the Republican Party's challenger to Democratic President Barack Obama with the Iowa caucuses on Tuesday, followed by primaries in New Hampshire and South Carolina on Jan. 10 and Jan. 21. The three contests are some of the most watched events in the election process. Here are a few facts about them."
Because on the tenth birthday (and with trillions of dollars pledged to keep it alive, we use the term very loosely) of the most loathed currency in the history of the world, we find out that in the heads of the fat, bald, corpulent, and corrupt eurocrats, the zEUR0.pk is somehow represented by a hot woman. Our prediction: the 20th anniversary of the euro will star the Michael Jackson zombie from Thriller...dancing around on centrally planned puppet strings of course.
How Jim O'Neill still has a job is beyond us. Not only is he the head of the worst performing vertical at Goldman Sachs, not only is he the creator of the Bloody Ridiculous Investment Concept (BRIC), but now this? Come on...
Iran Makes First Nuclear Fuel Rods, Fires Mid-Range SAM In Retaliation For Full Blown US Financial BoycottSubmitted by Tyler Durden on 01/01/2012 - 12:44
The political press has been abuzz with over the much anticipated signing of the NDAA by Barack Obama on Saturday: this move was not surprising because Obama had already made it clear he would go ahead and enact the law, even though he added some 'stern' language that is supposed to legitimize what some say is a precursor to the establishment of martial law in the US. To wit: "The fact that I support this bill as a whole does not mean I agree with everything in it. In particular, I have signed this bill despite having serious reservations with certain provisions that regulate the detention, interrogation, and prosecution of suspected terrorists." And yet he signed it (full text of Obama's statement on the NDAA, sent while on vacation in Hawaii, can be found here). Perhaps the reason for that unpopular move were some of the more nuanced contents of the Bill, among which is the decision to fully boycott not only Iran, but any bank, including central bank, and other financial institution found to deal with Iran. Which incidentally means most of Russia and China, and probably half of Europe, as all petrodollars generated by the country's petroleum export industry first have to make their way via the international financial community back into the country. The history buffs out there will realize that this form of couched antagonism is nothing short of the US approach to Japan during World War II, which was essentially provoked into attacking Pearl Harbor - read the details of the October 7, 1940 McCollum Memo here, and especially bullet point 10. And unfortunately, it appears that within 24 hours or so, Iran may have already taken the bait. As Reuters and BBC report, Iran has both test-fired a medium-range SAM during the ongoing wargames exercise previously discussed here, as well as made a formal announcement it has made and tested domestically made nuclear fuel rods: precisely the event that the Israel or US-borne Stuxnet was designed to prevent. So as the tennis match of escalation keeps on growing the ball is now once again in the US' court.
When it comes to the fabled President's Working Group on Capital Markets, also known as the Plunge Protection Team, the myths about the subject are certainly far greater than any underlying reality. To be sure, vast amounts of popular folkflore has been expounded into the public arena, with most of it being shot down simply due to it assuming conspiracy theories of such vast scale that the human mind is unable to grasp the complexity, and ultimately the inverse Gordian Knot makes an appearance with the claim that vast conspiracies are largely untenable simply because it is impossible to keep a secret from so many people for so long. Yet what if the secret is not a secret at all but is fully out in the open, and is only a matter of interpretation, and contextualizing? Why just 3 years ago it would appear preposterous to allege the capital markets are a ponzi and that the Fed does everything in its power to keep stocks higher. Well, what a difference three years make: now the Chairman himself in a Washington Post OpEd has admitted that the sole gauge of Fed success is the loftiness of the Russell 2000, neither unemployment nor inflation really matter now that the Fed's third mandate has been fully whipped out. Furthermore, Keynesian economics, and the entire top echelon of the educational system have also been accurately represented as a paradigm which merely perpetuates the status quo as the alternative is the realization that the whole system is a house of cards. As for the global capital markets being nothing short of a ponzi, we merely point you to the general direction of Europe, the ECB and the continent's banks, where the monetary interplay is nothing short of the world's biggest pyramid scheme. Yet the PPT, or whatever it is informally called, does not exist? Consider further that only recently did it become known that the former SecTres Hank Paulson himself was exposed as presenting material non-public information to a bevy of Goldman arb desk diaspora hedge funds, headed by with none other than the head of the President's Working Group on Capital Markets Asset Managers committee David Mindich. So, if contrary to all the evidence that there is some vast underlying pattern, if not a conspiracy per se, one were to take the leap of faith and take the next step, where would one end up? Well, most likely looking at the Exchange Stabilization Fund, or ESF, which Eric deCarbonnel has spent so much time trying to unmask. Is it possible that the ESF, located conveniently at the nexus between US monetary policy, foreign policy and last but not least, a promoter of the interests of the US military-industrial complex, is precisely the organization that so many have been trying to expose for years? Watch and decide for yourself.