On Thursday, we were the first to expose GM's latest strong car sales data as nothing more than the latest in a long series of accounting gimmicks known as 'channel stuffing' when excess inventory is offloaded to a vendor channel, in this case GM dealers, while allowing the company to book revenue, and, of course, profits (most likely on a FIFO basis thus further making numbers a complete myth in a time of once again surging input costs). The problem with channel stuffing is it can only go on for so long before the intermediary collapses under its own weight due to so much excess inventory the only next possible step is wholesale dumpin, in the process destroying the brand. Sure enough, it took about 24 hours for this latest speculation to be proven right as GM announce it was "temporarily" halting production of its Volt electric car. Per The Hill: "We needed to maintain proper inventory and make sure that we continued to meet market demand," GM spokesman Chris Lee said in a telephone interview." Translated into English, this means that GM has flooded dealer floors with so many of the spontaneously combusting cars that it has managed to bring demand to zero.
Two weeks ago we penned "As US Debt Hits New Record, Fiscal 2012 Tax Revenues Are 10% Higher Than Debt Issuance" which unfortunately was very wrong: we completely forgot that tax revenues in the US are a two way street particularly from January through the end of tax season on April 15, when income and employment tax withholdings are offset by tax refunds as consumers rightfully claim (and in the process pad TurboTax revenues simply for having under-exempted themselves) what was overcollected by the government. Unfortunately, it also means that we showed the US in a far better fiscal light than it is in reality, because contrary to our conclusion that tax revenues are higher than debt issuance in fiscal 2012 (starting October 1, 2011), the reality is not only a mirror image, but worse, with total debt issued now surpassing net revenues (withholdings net of refunds) by a whopping 15%! In other words, for $710.7 billion issued in debt YTD (debt has risen from $14.79 trillion to $15.5 trillion), net tax revenues have risen only by $607 billion. Which means that contrary to conventional wisdom that the US collects in taxes modestly more than it issues, at least through the peak of tax refund season that is certainly not the case. It also means that little by little that neo-Keynesian ideal (where we hope we jest but are no longer sure) of all deficits being funded purely by debt issuance, is slowly coming true.
Iran Supreme Leader Khamenei Leads In Iran Parliamentary Election, As Iran Announces Huge Oil Field DiscoverySubmitted by Tyler Durden on 03/03/2012 - 12:32
The results from Iran's parliamentary election, whose outcome will have virtually no impact on the country's foreign, nuclear or Iran policy, and thus change the country's course vis-a-vis Israel and the US, are in, and following a supposedly high turnout as big as 64% which critics have blasted as a sham (unlike American low turnouts which are 'pristine', yet where both "opponents" end up paid representatives of the banker class) has seen support for president Mahmoud Ahmadinejad's party slide, at the expense of a surge in popularity for the ultra conservative Supreme Leader Ayatollah Ali Khamenei. Reuters summarizes the results as follows: "Interior Minister Mostafa Mohammad Najjar put the turnout at 64 percent after more than 26 million votes had been counted, telling state television the Iranian nation had disappointed its enemies by voting in such numbers. The figure was close to the 65 percent predicted for weeks by hardline conservative leaders and media. Najjar said 135 seats had been won outright so far, with 10 going to a run-off. Final results were not expected on Saturday. According to a Reuters tally of the results announced in 126 seats, 81 went to Khamenei supporters, 9 to Ahmadinejad's faction, 7 to reformists and 7 to independents, with the allegiance of the remaining winners unclear." However, as noted above, "the vote will have scant impact on Iran's foreign or nuclear policies, in which Khamenei already has the final say, but could strengthen the Supreme Leader's hand before a presidential vote next year. Ahmadinejad, 56, cannot run for a third term." Instead, it is all about internal politics and is a buildup to next year's presidential election in which Ahmadinejad can not run, thus opening the door for Khamenei to take all power. Needless to say, if the "western" world thinks the current conservative president is bad, his ultra-conservative replacement will hardly make things better.
Natural gas prices are depressed and expected to remain so for the short to medium term, so investing in natural gas options or a natural gas exchange-traded fund is not likely to bring home the big bucks anytime soon. Domestic natural gas equities are an even riskier idea - most producers are scaling back production and selling assets as they hunker down in preparation for a tough few years. In this case, the way to profit is by understanding how natural gas' changing role is impacting North America's energy machine as a whole. Cheap natural gas is prompting utilities to switch from coal to gas where possible. The confluence of cheap natural gas and a risky global economy has droves of investors turning their backs on green energy, the sector that was such a market darling only a few years ago. Farther down the road, North Americans are debating - and in places implementing - a range of strategies to take advantage of the continent's newfound abundance of natural gas, from natural-gas-powered transport trucks to exportation of liquefied natural gas (LNG). Isaac Newton showed us that for every action there is an equal and opposite reaction. That is why every downside force in the energy sector creates upside opportunities elsewhere. The challenge is finding them. It takes an understanding of the entire global energy machine to figure out what areas are benefitting from the changing landscape.
We are in “The Lull” which has been caused by the injection of capital by the Fed and by the ECB. This is exactly, exactly, what took place I remind you during the weeks after the subprime mess exploded. Massive injections of capital, run-ups in equities, compression in bonds, higher prices for commodities and then the reversal of course took place. When easing ends then the course back tracks and I predict a re-do of this in the coming months. It will not take some trigger event, though there may well be one, to cause this; just the easy money being placed and no more manufactured money to follow.
“As the well runs dry the throat parches and dehydration begins.”
American investor (and longtime CM.com member) Erik Townsend has spent the past several years living internationally, with an eye to which countries may be good alternatives if economic crisis and/or Peak Oil start to materially impact life in the US. His main observation as an expat? Through its misguided policies, the US has been exporting inflation to the rest of the world, raising prices all over the globe (as an example, he cites a $57 chicken pot pie from the menu at a 'working class' restaurant in Australia). This inflation is affecting the rest of the world harshly, but is not yet being felt in the US due to our ability to export it as the issuer of the world's reserve currency. Our immunity will not last forever though, and when it ends, a massive upwards spike in prices is going to hit US markets.
In the neverending saga that is the Greek exchange offer we have a new and very important player: the head of the Greek debt management agency, Petros Christodoulou, who is now actively threatening any Greek hold out hedge funds against doing what is in their LPs' best interests (suing Greece and the EU and holding out for par recoveries - as discussed here), by using not only the now trite and idiotic Mutual Assured Destruction clause which only those stuck in 2008 believe is remotely credible, but by advising hedge funds (which are actively forming ad hoc hold out committees as we speak, just as we predicted 6 weeks ago) that "there is just no money for holdouts...We are prepared for legal challenges but the risk here is that people are trying to be too smart." Oh, so now if one does what is in their interest, and dare hold out against collectivist fascist interests, they are "trying to be smart." We wonder if Mr. Christodoulou learned such brute force negotiating tactics at one of his former employers: JP Morgan or Goldman That's right - as we wrote over two years ago, the man who is now negotiating for Greece's and Europe's life (because a failed PSI will not only trigger CDS, more importantly it will result in an out of control default of Greece and likely its exist from the Euro and the Eurozone - two things that Germany would be delighted to see) is a former employee of the two companies that just so happens are the co-chairmen of the US Treasury Borriwng Advisory Committee, or as we have also called it before, "The Supercommittee That Really Runs America." Is the pattern finally emerging?
Back on May 25 2010, just as the Greek fiesta was starting to unravel, we wrote the following: "Total US debt per today's Daily Treasury Statement was $12,989,095 million. Also today, the US Treasury auctioned off $42 billion in 2 Year debt. This means that as of this moment, assuming the new debt were to settle today, the US has $13,031,095 billion in debt: congratulation America - you have now passed lucky $13 trillion in total debt. But don't worry, we won't stay here for long. At the current rate of issuance, $14 trillion will be passed in 8 months, and $15 trillion in another 7. By the end of 2011, we estimate total US sovereign debt to be about $15.5 trillion. For some recent vivid examples of prosperity courtesy of runaway debt issuance, please see Argentina, Japan and Greece." We apologize profusely, as we were off by two months.
Back in October, when Greece was rewarded with further bond haircuts for progressively missing its economic targets, even after having gotten caught on at least one occasion making its economy appear worse than it was, we said that it is only a matter of time before "Portugal, Ireland, Spain and Italy will promptly commence sabotaging their economies (just like Greece) simply to get the same debt Blue Light special as Greece." In the aftermath of this statement, we got the Irish and the Portuguese proceeding to slowly but surely do just that. Today, it was Spain's turn to make it 3 out of 4 after as Reuters noted so appropriately, "Spain defies Brussels on deficit target" clarifying that "Spain set itself a softer budget target for 2012 on Friday than originally agreed under the euro zone's austerity drive, putting a question mark over the credibility of the European Union's new fiscal pact. Prime Minister Mariano Rajoy insisted he was acting within EU guidelines because the plan was still to hit the European Union public deficit goal of 3 percent of gross domestic product (GDP) in 2013." That Italy is sure to follow is absolutely guaranteed, however just because the ECB is now indirectly monetizing BTPs the true impact will be delayed far more, and instead of taking prompt steps to remedy the situation, the European complacency will be accentuated by the fact that bond yields are very low, and supposedly indicates the true state of the economy. No. All it indicates is the conversion of future inflation (courtesy of €1 trillion in new money in the past 3 months) for a very temporary respite before all hell ultimately breaks loose as countries pretend everything is ok as bond yields are pushed artificially low. And in doing nothing, the fundamentals in the economy only get worse and worse. Germany knows this very well, and the Economist explains the reaction to Spain's surprising statement today perfectly...
"How Did You Not Notice 24-Year-Olds Were Being Paid $2 Million A Year Who Clearly Didn’t Know Anything?”Submitted by Tyler Durden on 03/02/2012 - 15:09
Michael Lewis' scathing, aphoristic, uber-sarcastic style need no introduction. As such we will leave this brief clip from Slate, in which The Big Short author is asked how to avoid a new financial crisis, without much commentary (the answer is that under the current status quo system it is impossible to guarantee no more financial collapses, even if Glass-Steagall were to be unwound, but that is the topic for another story), suffice to point out the punchline: "future generations will wonder, “How did you not notice 24-year-olds were being paid $2 million a year who clearly didn’t know anything?” That pretty much sums it up right there.
Not the US Dollar of course: why would the only country to successfully overthrow the chains of banker tyranny and default in their face want to ever have anything to do with the USD, the source of all the world's problems. No, the dollar in question is that of Canada. According to the Globe and Mail tiny Iceland, "is looking longingly to the loonie as the salvation from wild economic gyrations and suffocating capital controls...And for the first time, the Canadian government says it’s open to discussing idea. There’s a compelling economic case why Iceland would want to adopt the Canadian dollar. It offers the tantalizing prospect of a stable, liquid currency that roughly tracks global commodity prices, nicely matching Iceland’s own economy, which is dependent on fish and aluminum exports." Yes, yes, there are all the fundamental reasons, but more importantly, it is a huge slap in the face of those statists (and the United States of course) who keep repeating no matter the facts that the USD will never lose its reserve status. Here's a hint: it can and it will. And so much for the thought experiment of printing endless amounts of currency in non-reserve format and getting away with everything unpunished. Finally, there is this startling dose of reality from an earlier and calmer time, when S&P, back in 2006, released its long-term baseline scenario of sovereign debt ratings. This oddly prescient table speaks for itself.
While 9/11 was far more traumatic for many Americans than for myself, it really messed me up emotionally for a while. I thought about joining the armed forces or the newly created Department of Homeland Security. I almost quit my job to get a graduate degree in something I could do to help fight the “war on terror.” The city of my birth was attacked and two great symbols I had seen repeatedly growing up had suddenly vanished. I never once questioned anything about 9/11 for many, many years. I was emotionally reprogrammed. I now realize that was the intent and I am not happy about it. Look, I will be the first to say I have no idea what really happened on that day, but I can tell you one thing. I am 100% convinced that it wasn’t 19 cave dwelling Al Qaeda members who hate us for our “freedoms.” I can also tell you that two planes didn’t take down three buildings. The real reason I am writing this piece today is because of a very, very important article from the NY Times, parts of which I have quoted at the top. The article shows how two former Senators have said in sworn statements that they believe the government of Saudi Arabia was directly involved in the attacks. Now, such speculation is not new; however, let’s not forget the very close relationships that many of the elite in the U.S. have with the Saudi government. Furthermore, let’s analyze some of the passages in the article in a little more detail.
Remember Greece, where everything is supposedly fixed, except that nothing is until Greek bondholders all agree to get nothing for something? Or in other words, where Germany is hoping it can assign blame to hedge funds for not allowing the 75% PSI trigger threshold to be reached so there is a faceless monster that can be accused to achieving Germany's political goals? No? As the following reminder from Germany's Economy Minister Roseler shows, whose report has been acquired by Bloomberg, if not German anger then certainly confusion, is seething: "For the Greek government, the programs “obviously have no priority,” the ministry said. “This is unacceptable from the German standpoint." Wait, you mean a record February collapse in the Greek economy is inadmissable? Sure enough, Greek CDS, contrary to expectations for a no trigger event, just hit an all time high earlier at 76 points up front (i.e., more buyers than sellers), as basis player are loading up on protection and preparing for the March 8 PSI deadline.