It seems like it was only yesterday (actually it was early November) when infamous CFTC commissioner, legendary threat to gold manipulators nowhere, and Alexander Godunov impersonator, Bart Chilton made a very dramatic exit stage left. At the time, we asked rhetorically if said dramatic depature was just for show. The rhetorical answer to the rhetorical question: of course it was, confirmed moments ago when Chilton became just the latest "regulator" to take the great revolving door out of a worthless public service Washington office into a just as worthless, but much better paying private-sector Washington office. Presenting the latest employee of DLA Piper, the largest law firm in the US, and possibly the world, by number of partners - Bart Chilton, poet.
For five long years, we have pursued the fantasy that we could return to "growth" without having to fix or change anything. The core policy of the fantasy is the consensus of "serious economists," i.e. those accepted into the priesthood of PhD economists protected by academic tenure or state positions: what we suffered in 2009 was not the collapse of leveraged crony-state financialization but a temporary decline of "aggregate demand" and productive capacity. The five-year fantasy that free money would fix all the distortions and systemic problems is drawing to a close. Why can't the fantasy run forever? The two-word answer: diminishing returns. Handing out subprime auto loans works at first because it pulls demand forward: anyone who wants or needs a new car buys one now, rather than put the purchase off a year or two. Eventually the marginal buyers default and demand falls off, and the distortions cause an even greater collapse in demand and auto loan quality.
So you want to be a mortgage banker? then listen now to what i say Just get liability insurance... and get ready to pay and pay...
UPDATE: Mt. Gox website and feed is now offline
Much as we are not surprised, given our previous discussion of the end of major Bitcoin exchange Mt. Gox, this evening's release by Coinbase must be the final nail in the final coffin of the Tokyo-based firm...
"The purpose of this document is to summarize a joint statement to the Bitcoin community regarding Mt.Gox. ... As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today. "
So much for the strict, evil Volcker Rule which was a "victory for regulators" and its requirement that banks dispose of TruPS CDOs. Recall a month, when it was revealed that various regional banks would need to dispose of their TruPS CDO portfolios, we posted "As First Volcker Rule Victim Emerges, Implications Could "Roil The Market"." Well, the market shall remain unroiled because last night by FDIC decree, the TruPS CDO provision was effectively stripped from the rule. This is what came out of the FDIC last night: "Five federal agencies on Tuesday approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs) from the investment prohibitions of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker rule." In other words, the first unintended consequences of the Volcker Rule was just neutralized after the ABA and assorted banks screamed against it.
The so-called Volcker Rule for policing banking practices, approved by a huddle of federal regulating agency chiefs last week, is the latest joke that America has played on itself in what is becoming the greatest national self-punking exercise in world history. The Glass Steagall Act of 1933 was about 35 pages long, written in language that was precise, clear, and succinct. It worked for 66 years. The Volcker rule comes in the form of nearly 1,000 pages of incomprehensible legalese written with the “help” of lobbyist-lawyers furnished by the banks themselves. Does this strain your credulity? Well, this is the kind of nation we have become: anything goes and nothing matters. There really is no rule of law, just pretense.
Does the FDA think you're too stupid to have access to your own genetic information? It sure seems so. On November 22, 2013, the FDA sent a warning letter to the well-known consumer genomics company 23andMe, ordering it to "immediately discontinue marketing" its only product. For those of you who are not familiar with 23andMe, the company provides a "DNA Spit Kit" and "Personal Genome Service" (PGS) that supposedly reports on 240+ health conditions and traits and helps clients track their ancestral lineage. 23andMe is information, not a medical device. This is really a first amendment issue, and the FDA should not be in the business of regulating freedom of speech and information.
We all intuitively grasp the meaning of diminishing returns: Either it takes more effort to maintain a project’s payoff, or the payoff declines even though the effort invested remains constant. The key driver of diminishing returns is easy to understand. We naturally continue to do more of what was successful in the past. As the returns decline, we redouble our efforts, confident that what worked in the past will once again be successful if only we invest more labor, energy, and capital. However, the status quo's default diversion of 'money/credit' to support diminishing returns has two costs: the opportunity costs of what else did not get financed because available resources were poured down the rat hole of failing programs, and the largely hidden increase in systemic fragility as productive investments are starved by the diversion of resources to the rat holes of diminishing returns. This dynamic leads to the final phase of doing more of what has failed spectacularly.
It just keeps getting worse and worse for Bill Ackman. A few weeks after the epic humiliation, not to mention even more epic losses, he suffered on his now defunct JCP long position (despite ample warnings by the likes of Zero Hedge who said long ago JCP is merely a melting icecube and fast-track Chapter 11/7 candidate) all those who predicted (such as Zero Hedge back in January) that an epic HLF short squeeze would result in the aftermath of Ackman's Herbalife short announcement leading to Ackman's ultimate capitulation, have been proven correct. Moments ago, in a letter to investors, Bill Ackman just announced that he has covered over 40% of his Herbalife short position, with his forced buy-in explaining the endless move higher in Herbalife stock in recent weeks. The explanation of being forced out of nearly half of his position is amusing: "we minimize the risk of so-called short squeezes or other technical attempts by market manipulators to force us to cover our position." So Ackman is forced out by his Prime Brokers so as not to be forced out by market manipulators? That's an interesting explanation for what is a far simple situation: booking your paper losses.
- House GOP banking on Plan C (Politico)
- Pimco shook hands with the Fed - and made a killing (Reuters)
- BlackBerry's Torsten Heins has a $55 Million golden parachute (Reuters)
- JPMorgan Urged to Pay More in Mortgage Deal (NYT)
- Soros Adviser Turned Lawmaker Sees Crisis by 2020 (BBG)
- U.N. Members Agree on Syria Disarmament (WSJ)
- U.N. Says Humans Are 'Extremely Likely' Behind Global Warming (WSJ)
- The non-falsifiable threats emerge: Shutdown Would Shave Fourth-Quarter U.S. Growth as Much as 1.4% (BBG)
- Swaps Rules Worry Industry: Coming Regulations Have Market Players Concerned About Possible Disruption (WSJ)
The Obamacare that consumers will finally be able to sign up for next week is a long way from the health plan President Obama first pitched to the nation. As Politico notes, millions of low-income Americans won’t receive coverage. Many workers at small businesses won’t get a choice of insurance plans right away. Large employers won’t need to provide insurance for another year. Far more states than expected won’t run their own insurance marketplaces. And a growing number of workers won’t get to keep their employer-provided coverage. But, apart from that - and all the exemptions - six more days and we will all get to see the shiny new exchanges; which may (or may not) prove Sen. Barraso right when he said "It was bad policy and bad politics. They got it wrong on all accounts."
Greed; corporate arrogance; lobbying influence; excessive leverage; accounting tricks to hide debt; lack of transparency; off balance sheet obligations; mark to market accounting; short-term focus on profit to drive compensation; failure of corporate governance; as well as auditors, analysts, rating agencies and regulators who were either lax, ignorant or complicit. This laundry list of causes has often been used to describe what went wrong in the credit crunch crisis of 2008-2010. Actually these terms were equally used to describe what went wrong with Enron more than twenty years ago. Both crises resulted in what at the time was the biggest bankruptcy in U.S. history — Enron in December 2001 and Lehman Brothers in September 2008. Naturally, this leads to the question that despite all the righteous indignation in the wake of Enron's failure did we really learn or change anything?
Over two years ago we highlighted just how out-of-touch with reality our central planners are when we exposed Bill Dudley's infamous inflation comments. Now it seems, Argentina is taking over the mission of totalitarian supreme command (or government gone mad). While not publicly admitting they have a problem, despite the price of bread doubling to 20 Pesos in the last year alone, Bloomberg reports the government plans to apply a 1974 law that forces holders (on penalty of fines and prison) of wheat and flour suitable for bread-making to sell it in the domestic market. This entirely un-free-market response to the dreadful reality in the nation comes on the heels of the freezing of prices on 500 goods at Supermarkets back in February and, unbelievably, suggestions that citizens combat higher prices by "baking bread at home." How long can a country plunge into a hyper-inflationary spiral before the people 'coup-like-an-Egyptian'?
The market deals extremely poorly with paradigm shifts or cycle changes. One reason for this is that there has been no need for any strategy except for the just-buy-the-dip mantra. This may have ended and that could be the best signal to the markets since the global financial crisis started. Sorry to be the messenger, but the only way for investors to understand risk and leverage is by having them lose money. Essentially then, the balance of this year could be an exercise in re-educating the market to long-lost concepts such as loss, risk, inter-market correlations and price discovery. We even predict that high-frequency trading systems will suffer, as will momentum-based trading and, most interestingly, long-only funds. Why? Because, at the end of the day, they are all built on the same premise: predictable policy actions, financial oppression and no true price discovery. We could be in for a summer of discontent as policy measures and markets return to try to search out a new paradigm. This will be good news for all us.
And What About Your Smart Meter?