Fail

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.

A few days ago we presented some speculation on what the final deployment of the 50 year old USS Enterprise aircraft carrier in the Arabian Sea may mean from a strategic standpoint, today we get to hear it from the US Navy itself. And just when we thought we had heard it all, we now get confirmation that the farcism that has defined capital markets for the past 3 years is slowly migrating to military planning. "The carrier and its entourage of support ships are in the Atlantic Ocean, somewhere east of Florida, with land completely out of sight. But for the purposes of the drill, they’re cruising near the fictitious Treasure Coast. Maps displayed on the bridge’s monitors show the contours of the Eastern Seaboard, the Gulf of Mexico and a good chunk of the Midwest, but all state borders have been removed and replaced with a handful of countries that come with their own boundaries and political allegiances. Enterprise and its strike group are focused on Garnet and North Garnet, countries that support terrorism on the Treasure Coast. They’re fundamentalist Shahida states — a faux-theocracy — and they want to reunite with Pyrope, one of the nine other made-up countries. On Enterprise, intelligence analysts evaluate the situation, fighter squadrons plan sorties, and the ship’s newspaper, “The Shuttle,” prints an extra section that details the international political situation. It’s a novella set at sea that grows more complex as hours past. “Those pesky Garnetians,” strike group commander Rear Adm. Walter Carter Jr. told sailors after a day packed with maneuvers, launches and landings."

macroandcheese.org

A lot of stuff in here this morning.

As an ever greater portion of the world succumbs to authoritarian control (whether it is of military disposition, or as we first showed, a small room of economists defining the monetary fate of the future as central banks now hold nearly a third of world GDP within their balance sheets) we can't help but be amazed as the population simply sits idly by on the sidelines as the modern financial system repeats every single mistake of the past century, only this time with stakes so high not even Mars could bail out the world. Unfortunately, with the world having operated under patently false economic models spread by hacks whose only credibility is being endorsed by the same system that created these models over the past century, the only temporary solution to all financial problem is to "try harder." Sadly, the final outcome is well known - a global systematic reset, in which the foundation of all modern democracies - the myth of the welfare state (which at last check, was about $200 trillion underfunded on an NPV basis globally and is thus the most insolvent of all going concern entities in existence) is vaporized (there's that word again) leading to global conflict, misery and war. Sadly that is the price we will end up paying for over a century of flawed economic models, of "borrowing from the future", of ever more encroaching central planning, and of an economic paradigm so flawed that as Bill Buckler puts it, "Keynes’ response to those who questioned the “longer-term” consequences of his advocacy of credit-creation as a basis for money was - “In the long run, we are all dead”. It is difficult to overemphasise the venal arrogance of this remark or the destructiveness of its legacy." Alas, the last thing the central planning "fools" (more on that shortly) will admit is their erroneous hubris, which in the years to come will claims millions of lives. In the meantime, we can merely comfort ourselves with ever more insightful analyses into the heart of the broken system under which we all labor, such as this one by SocGen's Dylan Grice, whose latest letter on Popular Delusions is a call for "honest fools" - "Frequently, when we make mistakes we try to correct them not by changing the flawed thinking which led to the mistake in the first place, but by reapplying the same flawed thinking with even more determination. Behavioural psychologists call it the “lost pilot” effect, after the lost pilot who tried to reassure his passenger: “I have no idea where we’re going, but we’re making good time!” Policy makers on both sides of the Atlantic are treating today’s malaise with the same flaky thinking which created it in the first place. How can that work?" Simple answer: it can't.

According to the Bank of International Settlements, as of June 2011 total over-the-counter derivatives contracts have an outstanding notional value of 707.57 trillion dollars, ( 32.4 trillion dollars in CDS’s alone). Where does this kind of money come from, and what does it refer to? We don’t really know, because over-the-counter derivatives are not transparent or regulated. With regulated economic markets, when an underlying real asset is impaired (i.e. the company in question is bankrupt, the mortgage has defaulted, etc.), market value is assessed, default insurance is paid up to replacement or full value, bond holders and stock holders make claims on remaining value and the account is closed. There is no need for bailouts because order and proportion of compensation has been established and everything is attached to the value of the underlying asset. When the unreal, counterfeit economy intrudes, you now have a situation where a person can put in an unregulated, but recognized, claim to be paid a thousand times over in case of impairment. Say market participants have negotiated for a bankrupt company a 70% payback for bondholders and (36% payback for insurance claims), and I come with not one but rather 1,000 CDS claims demanding to be paid for each CDS.

It appears that Greece will not even have to wait until the dreaded March 20 funding D-Day. As was earlier reported, Greek PM Lucas Papademos may resign if he is unable to persuade his coalition unity government to agree to further Troika demands for additional austerity. It now appears that there will be no agreement, and thus the primary demand from the Troika for further cash disbursement will not be met. The FT reports: "All three party leaders in Greece’s teetering national unity government have opposed new austerity measures demanded by international lenders, forcing eurozone finance ministers to postpone approval of a new €130bn bail-out and moving the country closer to a full-blown default. Representatives of the so-called “troika” – the European Commission, European Central Bank and International Monetary Fund – have demanded further cuts in government jobs and severe reductions in Greek salaries, including an immediate 25 per cent cut in the €750 minimum monthly wage, before agreeing the new rescue. But representatives of all three coalition partners, including centre-left Pasok of former prime minister George Papandreou and the centre-right New Democracy of likely successor Antonis Samaras, said they were unwilling to back the government layoffs." Now we have been here before, and as a reminder the last time Greece threatened to pull out of Europe with the G-Pap referendum threat back in the fall, G-Pap was promptly replaced with the Trilateral Commission member and former ECB Vice President, Lucas Papademos. The problem is that for him to obtain power, he needed to form a coalition government. Well, that now appears to be in tatters, as not one party is willing to break to the Greeks that the minimum wage of €750 will be cut even further. The question is who will blink first this time, as it is quite likely that neither the Troika nor Greece want an out of control default. Unless, of course, this was Germany's plan B to the imposition of a Greek commissar all along...

EURUSD longs just got punk'd again, with the EURUSD surging to over 1.32 on the fake BLS number (1.2 million labor force decline, whatever, with ), when it collapsed by 100 pips as the news we tweeted earlier that Greek PM Papademos may resign today throwing the entire Greek bailout out of the window, if his talks for further austerity fail. From Kathimerini: "Papademos is expected to meet PASOK’s George Papandreou, New Democracy’s Antonis Samaras and Giorgos Karatzaferis of the Popular Orthodox Rally (LAOS) on Saturday. The three politicians will have to agree on measures that will satisfy Greece’s lenders and pave the way for a new bailout.  Sources told Kathimerini that the troika is demanding that the minimum wage of 751 euros per month (gross) be reduced and that labor costs in the private sector drop by 25 percent in a bid to help Greece regain competitiveness. Skai TV and radio reported on Friday that should the leaders fail to agree a deal, he will tender his resignation on Monday." And just to make the confusion complete, Jean Claude Juncker just announced there would be no Eurogroup meeting on February 6. So while the market is celebrating the rotation of banker jobs with minimum wage jobs, Greece may be on the verge of blowing up Europe.

The vast majority of professional investors are unable to contemplate truly dark times for the markets. After all, the two worst items most of them have witnessed (the Tech Bust and 2008) were both remedied within about 18 months and were followed by massive market rallies.Because of this, the idea that the financial system might fail or that we might see any number of major catastrophes (Germany leaving the EU, a US debt default, hyperinflation, etc.) is on par with Bigfoot or Unicorns for 99% of those whose jobs are to manage investors' money or advise investors on how to allocate their capital. 

The most eagerly awaited IPO of the decade has just filed its S-1 statement (link). Some real time observations:

• Symbol: FB
• Proposed maximum aggregate offering price: $5 Billion
• 845 million monthly active users (MAU)
• 483 million daily active users (DAU)
• Users generated on average 2.7 billion Likes and Comments per day in Q4 2011. Er..."liking" is monetizable?
• 100 billion friendships
• 250 million photos uploaded per day
• FB generated $3.7 billion in Revenue in 2011, up from $2 billion in 2010
• FB generated $1 billion in net income in 2011, up from $606 billion in 2010, a 40% growth rate, compared to the 165% growth rate from 2009's $229MM.
• EBIT margin peaked at 52.3% in 2010 ($1MM in EBIT on $2 billion in revenue), has since declined to 47.3% or $1.756Bn on $3.711Bn in Revenue
• $3.9 billion in cash and marketable securities
• Peaked model? - MAU additions peaked in 2010 when FB added 248MM to a total of 608MM; in 2011 it added 237MM to 845MM

Borrowing money based on imaginary future surpluses is a higher form of counterfeiting. And that is precisely what the U.S. is doing, borrowing immense sums at every level, private, corporate and State/Federal, all leveraged against phantom future surpluses, even as the economy requires some 10% of its supposed output (GDP) to be borrowed and spent on consumption each and every year just to run in place, i.e. the Red Queen's Race (Bernanke, Goldilocks and The Red Queen January 10, 2011). In other words, the U.S. economy is running a massive deficit, and squandering the vast sums being borrowed on consumption and mal-investments. Once you rely on more borrowing against imaginary future surpluses to fund your current expenses, then eventually the costs of servicing that debt exceeds any possible future surplus. The last-ditch "fix" is to simply print units of money (or borrow it into existence like the Federal Reserve)--counterfeiting, pure and simple-- and deceive the market for a time via the illusion that the freshly printed units of money are actually backed by productive value or surplus. As history has shown, eventually the market discovers the actual value of this counterfeit money, i.e. near-zero, and the system implodes. Once there is no more "free money" to fund consumption and mal-investment, then the reality of systemic insolvency is revealed to all. You cannot counterfeit actual surplus value generated by productive assets, you can only counterfeit proxy claims on future surplus.

You're about to hear a big boom come from across the Atlantic, but I've yet to hear a peep from the rating agencies. And many of you guys think they were delinquent during the other credit bubble!!!????

No sooner have the supposedly close (and yet so far away) Greek debt negotiations increased haircuts but added desperate incentives such as GDP Warrants, then The Guardian is reporting that Greek PM Papademos is calling crisis meetings with Greek political party leaders as tensions are clearly growing between Greeks and their EU overlords/partners. The 'increasingly intransigent' negotiating team sent by Brussels is demanding even more severe austerity measures before sanctioning the new bailout funds. The incredulity at the complete mis-communication and increasing bifurcation is nowhere more clear than the divergence between FinMin Venizelos saying "We are one step [away]. I would say it is a formality away from finalizing (the debt relief agreement)," and the disbelief by Greek MPs that "The troika doesn't appear to be willing to accept any concessions whatsoever on reducing the minimum wage and scrapping bonuses," said the government aide. "No political party is willing to move either, saying wage cuts are a red line they are simply not going to cross. You tell me how this is going to be resolved. We have no idea and we're very worried."

Your article gives the appearance of having been ghost written by Andrew Levander and/or the JP Morgan legal department.

Back in January 2010, when in complete disgust of the farce that the market has become, and where fundamentals were completely trumped by central bank intervention, we said, that "Zero Hedge long ago gave up discussing corporate fundamentals due to our long-held tenet that currently the only relevant pieces of financial information are contained in the Fed's H.4.1, H.3 statements." This capitulation in light of the advent of the Central Planner of Last Resort juggernaut was predicated by our belief that ever since 2008, the only thing that would keep the world from keeling over and succumbing to the $20+ trillion in excess debt (excess to a global debt/GDP ratio of 180%, not like even that is sustainable!) would be relentless central bank dilution of monetary intermediaries, read, legacy currencies, all to the benefit of hard currencies such as gold. Needless to say gold back then was just over $1000. Slowly but surely, following several additional central bank intervention attempts, the world is once again starting to realize that everything else is noise, and the only thing that matters is what the Fed, the ECB, the BOE, the SNB, the PBOC and the BOJ will do. Which brings us to today's George Glynos, head of research at Tradition, who basically comes to the same conclusion that we reached 2 years ago, and which the market is slowly understand is the only way out today (not the relentless bid under financial names). The note's title? "If 2011 was the year of the eurozone crisis, 2012 will be the year of the central banks." George is spot on. And it is this why we are virtually certain that by the end of the year, gold will once again be if not the best performing assets, then certainly well north of $2000 as the 2009-2011 playbook is refreshed. Cutting to the chase, here are Glynos' conclusions.