Corruption

The big driver of market declines Friday was led by the Non-Farm Payrolls report. The jobs data was a dreadful miss which leads to the major “disconnect” we’ve been seeing between stock prices and overall economic data which we posted just last week. This is the nagging and confounding reality of the QE and ZIRP grand experiment for many investors.

Instead of Changing their Behavior to Prevent Another Crisis, the Powers-That-Be Double Down On the Strategies that Caused the Financial Crisis In the First Place

Witches Brew: Part 4 - Reality Bites

• The Specter of Things to Come

The road to ruin is on plain display and the playbook is easily seen at this juncture. Let’s take a look at how that playbook will unfold. Contrary to popular outrage of the SOLUTION being IMPOSED it is the correct one once the insured depositors where PROTECTED.  In this edition the elites suffered FIRST followed by the private sector depositors who foolishly believed false BALANCE sheets which were POLITICALLY CORRECT but PRACTICALLY incorrect fictions approved by fiduciarily (regulations and regulators allowed ONGOING insolvent operations rather than protect the public by ending and prohibiting them) challenged governments (work for the banks and crony capitalists not for the public at large).

A cache of 2.5 million files of cash transfers, incorporation dates, and links between companies and individuals has cracked open the secrets of more than 120,000 offshore companies and trusts. The secret records obtained by the International Consortium of Investigative Journalists (ICIJ) lay bare the names behind covert companies used by people from American doctors to Russian executives and international arms dealers in more than 170 countries (as shown in the map below). One wonders how and why this sudden (and timely) leak of documents occurred. If we were a tinfoil-hat-wearing conspiracy theorist we might suspect that this is a staged coup to create a witch-hunt against all offshore capital (legitimate or illegitimate) - and an attempt, as with Cyprus, to push money out of banks and into circulation (pushing the velocity up) as all other monetary policy 'tricks' have failed. While 'offshore' is synonymous with 'tax cheat', there is nothing illegal in moving assets offshore. In fact, as Simon Black notes, given that there is going to come a time, likely soon, that retirement savings will be targeted; diversifying abroad is one of the sanest things you can do to protect yourself against the real criminals.

The breakdown of sound money has now finally generated a cruel endgame. The fiscal and central banking branches of the state have endlessly bludgeoned the free market, eviscerating its capacity to generate wealth and growth. This growing economic failure, in turn, generates political demands for state action to stimulate recovery and jobs. But the machinery of the state has been hijacked by the various Keynesian doctrines of demand stimulus, tax cutting, and money printing. These are all variations of buy now and pay later - a dangerous maneuver when the state has run out of balance sheet runway in both its fiscal and monetary branches. Nevertheless, these futile stimulus actions are demanded and promoted by the crony capitalist lobbies which slipstream on whatever dispensations as can be mustered. At the end of the day, the state labors mightily, yet only produces recovery for the 1 percent.

Everyone learned a lesson from Cyprus, painful ones. German politicians learned a lesson too: that it worked!

Physical gold and silver demand remains robust in many markets internationally. Demand from the Middle East remains robust as seen in the near record imports of gold and silver into Turkey. Turkey’s gold imports climbed to an eight-month high in March as prices averaged the lowest since May, according to the Istanbul Gold Exchange. Silver imports rose 31% from a month earlier according to Bloomberg. Gold imports increased to 18.26 metric tons, the most since July. That’s up from 17.34 tons in February and compared with 2.91 tons a year earlier, data on the exchange’s website show. The country shipped in 120.8 tons last year. Turkey was the fourth-biggest gold consumer in 2012, according to the London-based World Gold Council. Bullion averaged $1,593.62 an ounce last month and is trading about 17% below the record nominal high of $1,921.15 set in September 2011.

In the theory of rational expectations, human predictions are not systematically wrong. This means that in a rational expectations model, people’s subjective beliefs about the probability of future events are equal to the actual probabilities of those future events. Now, we think that rational expectations is one of the worst ideas in economic theory. It’s based on a germ of a good idea - that self-fulfilling prophesies are possible. Mainstream economic models often assume rational expectations, however. And if rational expectations holds, we could be in for a rough ride in the near future. Because an awful lot of Americans believe that a new financial crisis is coming soon - 75 percent of respondents said that it’s either very or somewhat likely that the country could have another financial crisis in the near future.

We now know that when it comes time to STEAL, the STEALING will only hit those who are not well connected with the corrupt elite. It will be the people.

• The revolving door continues: Mary Schapiro joins Promontory Financial (WSJ)
• First Peek at Health-Law Cost (WSJ)
• Abe warns over Japan inflation target: warns 2% inflation target may not be reached within two years (FT)
• BoJ's Kuroda tested by divided board (Reuters)
• Nanjing poultry butcher fourth person infected with H7N9 bird flu (SCMP)
• What time do top CEOs wake up? (Guardian)
• Cyprus Seeks More Time to Meet Targets in Talks With Troika (BBG)
• Investors Ignore Negativity at Their Peril (WSJ)
• Apple bows to Chinese pressure (FT)
• One can only laugh: North Korea to restart nuclear reactor in weapons bid (Reuters)
• Visa Demand Jumps (WSJ)
• Bloomberg's refutation of Stockman: yes, yes but... look over there, stocks are up! (BBG)

David Stockman’s New York Times Op-Ed has ruffled a lot of feathers. Paul Krugman dislikes it, saying Stockman sounds like a cranky old man, and criticising Stockman for throwing out a load of meaningless numbers that sound kind of scary, but are less scary in context. What Krugman overlooks is Stockman’s excellent criticism of crony capitalism, financialisation, systemic rot and Wall Street corruption of Washington, something Stockman has seen from the inside as part of the Reagan administration. There are plenty of other writers who have pointed to this problem of propping up casino finance, including myself. But very few of them are doing so on the pages of the New York Times. In the long run, I think it will become patently clear that throwing liquidity at the financial system won’t solve anything other than immediate liquidity concerns. The rot was too deep. The financial sector needed real reform in 2008. It still needs it today.

Our April Fool's wish: someone in the inner circle of power would finally tell the truth. In an unprecedented abandonment of his carefully scripted responses to Congressional questions, Federal Reserve Chairman Ben Bernanke unleashed what appeared to be a heart-felt and spontaneous disavowal of the financial and political systems of the United States.

By manipulating the price of money through sustained and historically low interest rates, Greenspan and Bernanke created an era of asset mis-pricing that inevitably would need to correct.  And when market forces attempted to do so in 2008, Paulson et al hoodwinked the world into believing the repercussions would be so calamitous for all that the institutions responsible for the bad actions that instigated the problem needed to be rescued -- in full -- at all costs. David Stockman, former director of the OMB under President Reagan, lays out how we have devolved from a free market economy into a managed one that operates for the benefit of a privileged few.

Amidst the debacles, fiascos, and nightmares is a scrappy industry that uses ingenuity and the right amount of hops to beat Wall-Street-engineered giants.

"The world is a very risky place right now for an investor," is the cautious manner in which Grant Williams (of Things That Make You Go Hhmm infamy) begins this excellent presentation, even though he notes that "the general perception is that there is very little risk," as all markets from equities to bonds (and even risk itself) are priced as though 2007/8 never happened. It appears, Williams notes, given the market's perceptions that, "all the problems are behind us." He chides, "Nothing could be further from the truth." Williams focuses on the corruption of traditional price signals by Central Banks' ZIRP (and LSAP) policies, financial repression, and the possibility that the gold leasing market is about to fall apart - because one of these days, someone is going to ask for their gold back and be told they can't have it.