Cash For Clunkers

India's Jewellers End Gold Strike As Government Caves On Excise Duty: Pent Up Gold Demand To Be Unleashed

A month ago, after causing a spike in cotton prices following the imposition of an export ban, India promptly overturned said surprising move following a surge in protest from not only various trade local groups, but more importantly China, whose already razor thin margins would become negative if input costs soared even further. The whole process lasted about 72 hours from beginning to end. Days after, desperate to fund ongoing budget shortfalls, the government shifted its attention to price controls in a market it knew China would absolutely not mind to having the price kept artificially low - gold. What happened then was an announcement by the government to impose to levy an excise duty on unbranded jewelry. The response was swift - a countrywide strike among India's jewellers who all went dark, crippling demand from one of the traditionally strongest gold markets in the world. And all this happening at a time when the wedding season is at its peak, with Akshaya Tritiya, one of the biggest gold buying festivals later in the month, making the period crucial for jewellers. As of hours ago, the Indian finance ministry has caved, and while it took three days to end the cotton export ban, it took three weeks to end the excise duty proposal, India's Finance Minister Pranab Mukherjee said that the government would consider scrapping a budget proposal to levy an excise duty on unbranded jewellery. The result will be three weeks of pent up demand for precious metals being unleashed suddenly, likely pushing spot gold far higher, to where it would be had this latest artificial price control never been established.

Guest Post: Asleep At The Wheel

Americans have an illogical love affair with their vehicles. There are 209 million licensed drivers in the U.S. and 260 million vehicles. The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Germany has 540; Japan has 593; Britain has 525; and China has 37. The population of the United States has risen from 203 million in 1970 to 311 million today, an increase of 108 million in 42 years. Over this same time frame, the number of motor vehicles on our crumbling highways has grown by 150 million. This might explain why a country that has 4.5% of the world’s population consumes 22% of the world’s daily oil supply. This might also further explain the Iraq War, the Afghanistan occupation, the Libyan “intervention”, and the coming war with Iran. Automobiles have been a vital component in the financial Ponzi scheme that has passed for our economic system over the last thirty years. For most of the past thirty years annual vehicle sales have ranged between 15 million and 20 million, with only occasional drops below that level during recessions. They actually surged during the 2001-2002 recession as Americans dutifully obeyed their moron President and bought millions of monster SUVs, Hummers, and Silverado pickups with 0% financing from GM to defeat terrorism. Alan Greenspan provided the fuel, with ridiculously low interest rates. The Madison Avenue media maggots provided the transmission fluid by convincing millions of willfully ignorant Americans to buy or lease vehicles they couldn’t afford. And the financially clueless dupes pushed the pedal to the metal, until everyone went off the cliff in 2008.

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Is This Recovery?

Are we really in an economic recovery or is it a figment of the Fed's quantitative easing? This will be the biggest factor in the 2012 elections.

Cash For Clunkers - ECB Style

Overnight, Peugeot, the struggling European car-maker, announced dismal results and significant over-capacity in Europe pushing its stocks down 6% (down almost 13% since last week). The somewhat unsurprising twist was that the CFO said they were approaching the ECB about collateralized loans. As Bloomberg notes:

  • *PEUGEOT DISCUSSING WITH ECB, PRESENTING COLLATERAL, CFO SAYS
  • *PEUGEOT PRESENTING COLLATERAL ABOVE EU1 BLN TO ECB

So the ECB has now managed its other unintended consequence - to replace the entire bank intermediation credit creation channel (ring any bells?) as Europe embarks on its own 'Cash-for-Clunkers', ECB-Style.

Guest Post: Illusion Of Recovery - Feelings Versus Facts

The last week has offered an amusing display of the difference between the cheerleading corporate mainstream media, lying Wall Street shills and the critical thinking analysts. What passes for journalism at CNBC and the rest of the mainstream print and TV media is beyond laughable. Their America is all about feelings. Are we confident? Are we bullish? Are we optimistic about the future? America has turned into a giant confidence game. The governing elite spend their time spinning stories about recovery and manipulating public opinion so people will feel good and spend money. Facts are inconvenient to their storyline. The truth is for suckers. They know what is best for us and will tell us what to do and when to do it....  The drones at this government propaganda agency relentlessly massage the data until they achieve a happy ending. They use a birth/death model to create jobs out of thin air, later adjusting those phantom jobs away in a press release on a Friday night. They create new categories of Americans to pretend they aren’t really unemployed. They use more models to make adjustments for seasonality. Then they make massive one-time adjustments for the Census. Essentially, you can conclude that anything the BLS reports on a monthly basis is a wild ass guess, massaged to present the most optimistic view of the world. The government preferred unemployment rate of 8.3% is a terrible joke and the MSM dutifully spouts this drivel to a zombie-like public. If the governing elite were to report the truth, the public would realize we are in the midst of a 2nd Great Depression.

GM Channel Stuffing Resumes, January Dealer Inventory Second Highest Ever

Just as we thought GM's channel stuffing days may be coming to an end, and the company may finally be normalizing its inventory management, here come January numbers, where we learn that in addition to car sales declining by 6% compared to a year ago, at 167,962 vehicles sold (of note: "Retail deliveries declined 15 percent compared with the same month a year ago and accounted for 70 percent of GM sales"), it was the all critical month end dealer inventory that caught our attention. And unfortunately as the skeptics expected, GM is back to its old tricks, as dealer inventories rose once again, this time by over 36k units, or the second highest in its post-reorg history, to a near record 619,455 vehicles stored with dealers. This is just the second highest ever in fresh start GM history, second only to November's 623,666. The January-end number represents 89 days supply, but more importantly the recent spike in restocking, which was seen with all other major car dealers, explains the ongoing "expansion" in the US economy as measured by indices such as the ISM. Eventually, when the end demand for these dealer parked vehicles does not materialize, the New Orders so diligently tracked by economists everywhere will slip back under 50, but before that we are confident that the administration will come up with some new Cash for Clunkers plan to take demand from the future and to push it into the days leading into the election, probably funded once again by other taxpayers who don't quite see the fascination with owning a GM car.

One Third Of Americans Already Done With All Holiday Shopping

While everyone was celebrating "record" black Friday sales, we noted that the bulk of this was due to sales channels taking on negative margins, and due to a "cash for clunkers" like effect in which future sales were pulled forward. Sure enough, we now learn that this is precisely the case, after Reuters reports that "more than a third of U.S. shoppers are already done with most of their holiday shopping, a survey showed on Monday, signaling that retailers need to offer bigger incentives to win sales in the few weeks before Christmas... About 32 percent of people surveyed by America's Research Group said they finished a majority of their Christmas shopping in November. Last month included Black Friday, the day after Thanksgiving when stores pulled out all the stops on discounts to woo shoppers during their biggest season of the year. More than 6 percent completed most of their holiday shopping in the first weekend of December." In other words so much for holiday shopping as a driver of stocks, as there is no way that the remaining two thirds of shoppers can carry the entire season regardless of what massive discounts retailers provide. This is also quite disturbing for US GDP which relies primarily on PCE as a driver to growth (although when that fails retailers can pretend they are stocking up on inventory), and will likely mean that banks which most recently (as of a week ago), had an upgrade round to Q4 GDP will be forced to promptly cut it back down. Lastly, as Rosenberg noted yesterday, once the bills come in January, that's when the wheels will really come off, just in time for the non-extension in the payroll tax.

The Black Friday Shopping Hangover Is Coming: David Rosenberg Explains

Last week, while the market was soaring as news of the upcoming Fed's FX swap lines was being leaked, the general media's narrative goalseeked to the stock spike was that it was a function of "record" Black Friday sales. Alas, as often the case, there is some unpleasant fine print to go alongside this seemingly bullish proclamation. David Rosenberg explains why the shopping bonanza hangover is coming, and why, just like in the cash for clunkers case, it means that a late November shopping record means an imminent plunge in retail traffic...as soon as the bills come in.

Guest Post: The Future Of Work

"What is the future of work?" Given the "recovery’s" stagnant job market and the economy’s slide into renewed contraction, it’s a timely question. To answer it, we must first ask, what’s the future of the U.S. economy? In broad brush, the Powers That Be have gone "all in" on a bet that this recession is no different than past post-war recessions: all we need to do to get through this “rough patch” is borrow and spend money at the Federal level, and the household and business sectors will soon recover their desire and ability to borrow more and spend it all on one thing or another. We don’t really care what or how, because all spending adds up into gross domestic product (GDP). In other words, we're going to “grow our way” out of stagnation and over-indebtedness, just as we’ve done for the past fifty years. Unfortunately, this diagnosis is flat-out wrong. This is not just another post-war recession, and so the treatment—lowering interest rates to zero and flooding the economy with borrowed money and liquidity—isn’t working. In fact, it’s making the patient sicker by the day. The best way to eliminate the signal noise of official propaganda (“The stock market is rising, so everything’s great for everyone!” etc.) and the high keening wails of Keynesian cargo  cultists is to construct a model of the underlying fundamental forces that will shape the future. The best way to do that is to glance at a few key charts.

Guest Post: Bad Moon Rising

It seems like history is accelerating. Momentous events have been occurring regularly since 2007. Our political and financial leaders are blindsided on a daily basis by each new crisis. The majority of the American public continues to be apathetic, willfully ignorant, and constantly absorbed by their array of electronic gadgets and mindless drivel spewed at them by media conglomerates. Rather than think critically, most Americans allow left wing and right wing mainstream media to formulate their opinions for them through their propaganda and misinformation operations. Linear thinkers, who make up the majority of the political, social, media and financial elite in this country, believe the world progresses and moves ever forward. In reality, the world operates in a cyclical fashion, with generations throughout history reacting to events in a predictable manner based upon their stage in life. The reason the world has turned so chaotic, angry and fraught with danger since 2007 is because we have entered another Fourth Turning. Strauss & Howe have been able to document a fourfold cycle of generational types and recurring mood eras in American history back 500 years. They have also documented the same phenomenon in other countries.

Guest Post: It's A Long, Hard Road

If there has been one consistent theme since day one at CI, it has been our perhaps near myopic focus and focal point highlight of importance that is the macro credit cycle.  Does this play into long wave and perhaps Kondratieff cycle or Austrian economics type of thinking?  Call it what you will, but elements of all of these schools of thought very much overlap.  Right to the point, we believe THE key thematic construct to keep in mind as a macro cycle decision making overlay and character point dead ahead is the now more than apparent collision of the generational long wave credit cycle with the current short term business cycle of the moment.  Without trying to reach for melodrama, this is the first time a multi-decade long wave credit cycle has collided with the short-term business cycle since the late 1920’s/early 1930’s.  Most decision makers and Street seers of the moment have absolutely no experience with this type of a generational collision.  Moreover, our illustrious academician Fed Chairman has never even considered long wave or credit cycle based Austrian economics thinking in his and the broader Fed’s policy making – absolutely key and crucial mistake.  Although it’s just our perception, this will be Bernanke’s legacy Waterloo.  It also tells us directly that his only policy tool ahead will be more money printing.

Here Is What Just Happaned

What just happened? The Central Banks have agreed to either create programs to lend in $'s or in the case of the ECB, expand their existing 7 day program. It is definitely globally co-ordinated, but for any central bank to offer a USD program, they need to work with the Fed, so assuming the ECB decided to work with the Fed, it seems like a no brainer to involve the other central banks. Bank of England is an obvious candidate - look at the share price declines of Barclay's and RBS. The Swiss Central Bank was likely to join already, but a day with UBS announcing a $2 billion loss, they had extra reason to go along. Japan always seems to be up for a good intervention. So it is globally co-ordinated, that is important, but it was also and easy and obvious co-ordination. What is the next action?  I suspect we will see some effort to push sovereign CDS spreads tighter.  Would it be something as intelligent as immediately forcing all sovereign and bank cds to be cleared?  Heck no, that might annoy someone.  It is more likely to be announcement of banning naked shorts, increased margins, and the ability for the EFSF if not central banks themselves to sell protection.  CDS would gap tighter and bonds are unlikely to react much.  When the ECB intervened in the Spanish and Italian bond markets, the initial reaction in the bond market was big.  Over 1% in yield terms across the board in a very short time frame.  The CDS never reacted as positively.  In any case, the market remained dubious of the effectiveness and we have seen yields rise in spite of continued buying.  CDS shorts will be painful if this occurs, but it won't fix anything long term.  There is nothing about the budget problems in various countries that are affected by CDS.  It also means that auctions are likely to do less well as the short covering bid dries up and that moves down will be exaggerated, just like the moves up. 

Guest Post: Keynesian Solutions - After Total Failure -Try, Try Again

The Keynesians had their chance. They controlled the Presidency and both houses of Congress. A Keynesian runs the Federal Reserve. They implemented everything they proposed. The $862 billion porkulus program, the $700 billion TARP program, home buyer tax credits, energy efficiency credits, loan modification programs, zero interest rates, QE1 and QE2. They increased social welfare transfers for Social Security, Unemployment Compensation, food stamps, Medicare, Medicaid, and Veterans by $600 billion since 2007, a 35% increase in four years. No one has foiled their plans. The Tea Party didn’t really exist until 2010. They didn’t lose the House until November 2010. They cannot blame the Tea Party extremists, but they do. The Keynesians have successfully increased Federal spending by $1.1 trillion, or 41% since 2007, and are running deficits exceeding 10% of GDP, but they call the Tea Party extremists. Domestic investment is still 9% below 2008 levels as the Federal government has crowded out the small businesses that create the jobs in this country. And now the Keynesians declare we need more stimulus, more programs, more debt, more quantitative easing and lower interest rates. It just wasn’t enough the first time. None of the Keynesian solutions worked during this crisis, just as they didn’t work during the Great Depression. The solution was simple, yet painful. The banking system needed to be saved, not the banks. The bad debt needed to be purged from the system. Wall Street criminals needed to be prosecuted. Bondholders and stockholders needed bear the losses from their foolish investments. Saving and investment in the country needed to be encouraged, while borrowing and consuming needed to be discouraged. Our leaders have failed to lead.

Guest Post: Who Are The Extremists?

 

The Debt Ceiling Reality Show approaches its grand finale in the next week. The world breathlessly awaits the shocking conclusion. The debt ceiling will be raised. The world will be saved. Wall Street will rejoice. Americans can focus on the important stuff again, like Casey Anthony’s upcoming book, who will win this week’s Toddlers and Tiaras pageant, and the latest app created for their iPads. Based on my observations over the last few weeks, I’m absolutely sure that 90% of the politicians in Washington DC would lose on Are You Smarter than a 5th Grader? What the public doesn’t see is the rooms filled with PR maggots in the bowels of Congress generating talking points and testing them in over night polls of the public. Their sole purpose is to generate a message that will convince the public the fiscal debacle is the fault of the other party. The goal is to gain an advantage in the next elections. The long term future of our country is unimportant to the soulless autobots that get paid to misinform and mislead the masses. Leaving unborn generations with an un-payable debt so we can selfishly cling to benefits promised to us by corrupt politicians who only made the promises so they could be elected, is the ultimate in egocentric myopia.