Gold Collateral Situation: "It's Very Complicated"

... what has been different about the current negative GOFO episode is that while in the past GOFO spiked negative and promptly reverted to normal, short-end GOFO rates (1-3 Month) have been negative now for the longest period on record: 25 consecutive work days. And it's only getting worse: after the 6 Month GOFO rate also slid below 0% in mid-July, only to recover positive for the next two weeks, as of today it has again turned negative for the second day in a row while the short-end procurement situation has gone from bad to worse.

David Stockman: Hedge Funds, Prime Brokers, And The Whirligig of Wall Street Finance

As David Stockman, Reagan's infamous Budget Director, writes in his bestseller, The Great Deformation: The Corruption Of Capitalism In America – "the last thing hedge funds do is hedge."  The hedge fund complex is "not so much a conventional industry as it is a giant moveable trade": Wall Street trading desks frequently morph into independent hedge fund partnerships, and senior hedge funds often sire “cubs” and then sons of cubs. The protean ability of this arrangement to spawn, fund, and replicate successful momentum trades cannot be overstated, and has "generated trillions of permanent momentum-chasing capital." Ultimately, he warns, "apologists for the Fed’s evisceration of the capital markets could not see... they had unleashed the financial furies in the violent momentum trading modus operandi of the hedge fund casino."

The Lie Must Go On: BLS "Catches" BLS At Misrepresenting 2013 Job Gains By Over 40%

In April, according to JOLTS, there were 108K job additions. According to the NFP data, the job gain was 199K or 84% more than per JOLTS
In May, according to JOLTS, there were 109K jobs additions. According to the NFP data, the job gain was 176K or 62% more than per JOLTS
In June, according to JOLTS, there were 120K jobs additions. According to the NFP data, the job gain was 188K or 57% more than per JOLTS
Adding across for all of 2013, JOLTS would have us know that only 837K jobs were added (or 140K per month average). Compare this to the 1,185K new jobs according to the Establishment Survey (198K per month average).

-> A 42% difference!

Guest Post: Trying To Stay Sane In An Insane World - Part 2

This insane world was created through decades of bad decisions, believing in false prophets, choosing current consumption over sustainable long-term savings based growth, electing corruptible men who promised voters entitlements that were mathematically impossible to deliver, the disintegration of a sense of civic and community obligation and a gradual degradation of the national intelligence and character. There is a common denominator in all the bubbles created over the last century – Wall Street bankers and their puppets at the Federal Reserve. Fractional reserve banking, control of a fiat currency by a privately owned central bank, and an economy dependent upon ever increasing levels of debt are nothing more than ingredients of a Ponzi scheme that will ultimately implode and destroy the worldwide financial system. Since 1913 we have been enduring the largest fraud and embezzlement scheme in world history, but the law of diminishing returns is revealing the plot and illuminating the culprits. Bernanke and his cronies have proven themselves to be highly educated one trick pony protectors of the status quo. Bernanke will eventually roll craps. When he does, the collapse will be epic and 2008 will seem like a walk in the park.

Guest Post: Still Waiting

We do not inhabit a “normal” economy. We live in a financialised world in which our banks cannot be trusted, our politicians cannot be trusted, our money cannot be trusted, and – not least thanks to ongoing spasms of QE and expectations of much more of the same – our markets cannot be trusted. At some point (though the timing is impossible to predict), asset markets that cannot be pumped artificially any higher will start moving, under the forces of inevitable gravitation, lower.

US Retail Investors (Alone) 'Rotate' All-In

With revenues fading, profit margins collapsing, and only financial institutions' entire lack of transparency providing any lift in EPS, the 'great rotation' continues to provide enough cognitive dissonance to sink a boat for the asset-gatherers. The trouble, as we showed previously, is this 'rotation' is dominated by US retail investors (more specifically non-US domiciled and non-retail investors are rotating away from US equities). The US retail investor has shifted in a great-rotationary manner by the greatest amount since Feb 2000 - just as the last great bubble burst. US equities are the 3rd most over-crowded speculative long asset in the world after Crude Oil and the Brazilian Real. It seems the Fed is getting just what it wants but, just as Kyle Bass warned, "investors should be really careful doing what the central bankers want them to do."

From Less Repo, To Less Collateral Transformation, To Less Quantiative Easing In One Shadowy Step

First it was the TBAC's May presentation "Availability of High Quality Collateral" piggybacking on reasoning presented previously by Credit Suisse. Then JPM's resident "flow and liquidity" expert Nikolaos Panigirtzoglou rang the bell on regulatory changes to shadow banking and how they would impact the repo market and collateral availability (and transformation) in an adverse fashion. Now, it is the turn of Barclays' own repo chief Joseph Abate to highlight a topic we have discussed since 2009: the ongoing contraction in quality collateral as a result of transformations in shadow banking and the Fed's extraction of quality collateral from traditional liquidity conduits (i.e., QE's monetization of bonds). To wit: "Several recent regulatory proposals will increase the pressure on banks to reduce assets that carry low risk weights. Repurchase agreements are a large source of banks’ low-risk assets, and we expect banks to reduce their matched book operations in response to these proposals."

Sleepy Week Opens Without Now Traditional Overnight Futures Levitation

Compared to last week's macro-event juggernaut, this week will be an absolute bore, although with a bevy of Fed speakers on deck - both good and bad cops - there will be more than enough catalysts to preserve the "upward channel" scramble in the S&P and the zero volume levitation to new all time daily highs despite the lack of daily bad news. Speaking of Fed speakers, we have Fisher today, Evans’ tomorrow followed by both Plosser and Pianalto on Wednesday.  The key overnight data point was the continuation of July PMIs out of Europe, this time focusing on the service industry. As Goldman summarizes, the Final Euro area Composite PMI for July came in at 50.5, marginally above the Flash reading and consensus expectations (50.4). Relative to the June final reading, this was a sold 1.8pt increase, and building on consecutive increases in the past three months, the July Euro area PMI stands 4.0pts above the March print. Solid increases were observed across all of the EMU4 in July, most notably Italy. The July reading is the highest Euro area PMI level observed since July 2011.

Guest Post: Enron Redux – Have We Learned Anything?

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?

Doubling Down On All-In: Spot The (Somewhat) Odd One Out

Today's broad "rewriting of history" GDP revision is set to "boost" US GDP by about 3% cumulatively (or about the size of Belgium's economy) and shave off 1-2% from US GDP. That's great. For the sake of the world, however, we hope that the rest of the developed (and less than developed) world's countries promptly follow in America's footsteps and fudge their own numbers post haste because things are rapidly getting out of hand, as the following chart conveniently reminds. Nowhere is this more so than in Japan, where as has been the case now for almost a year, Goldman Sachs, the central bank and local government (in order of decisionmaking importance) have all doubled down on their "all in" bet that the only thing that fixes recorder debt is moar recordest debt.

Lakshman Achuthan: The US Entered Recession Last Year And "Is Worse Than Japan In the 90s"

Despite Tom Keene's best efforts to appear fair-and-balanced, this brief interview on Bloomberg TV places ECRI's Lakshman Achuthan in the uncomfortable position of destroying every propagandized 'fact' that the mainstream media is entrusted with disseminating to the Pavlovian investing community. From recessions with job growth ("a US recession began in 2012") to the wealth divide and from GDP revisions to job quality differentials, Achuthan warns the US is becoming Japan, "U.S. growth over the last five years is weaker than Japan during the Lost Decades." Keene's insistence that things are on-the-up (though admitting that Achuthan's call on the decline in growth was correct) is met with the rhetorical question, "you wouldn't have four years of zero-interest rate policy and quantitative easing if everything was okay."

Here We Go Again: Step Aside RMBS, Rent-Backed Securities Are Here, And With Them The Beginning Of The End

Earlier today, when we reported that median asking rents in the US had just hit an all time high, we had a thought: how long until the hedge funds that also double down as landlords decide to bypass the simple collection the rental cash flows, and instead collateralize the actual underlying "securities"? One look at the chart below - which compares the median asking "for sale" price in black and the median rent in red - shows why. The last time there was a great divergence (to the benefit of housing), Wall Street spawned an entire Residential Mortgage-Backed Securities industry where Paulson, Goldman willing sellers would package mortgages, often-times synthetically, slice them up in tranches of assorted riskiness, and sell them to willing idiots yield-starved buyers. As everyone knows, that particular securitization bubble ended with the bankruptcy of Lehman, the bailout of AIG and the near collapse of the financial system. As it turns out, the answer to our original question was "a few hours" because securitizations are back, baby, and this time they are scarier and riskier than ever.

Guest Post: Think Those Are Dollars In Your Wallet? Think Again!

Here’s a question– if you’re in the Land of the Free, do you think those green pieces of paper in your wallet are dollars? They’re not. Those green pieces of paper are Federal Reserve notes. “Notes” in this case meaning liabilities to the central bank of the United States. That makes you, me, and anyone else holding those green pieces of paper essentially creditors of the Federal Reserve, whether we signed up for it or not. And at this point, thanks to a long-standing policy of wanton money printing, the Fed has more liabilities than ever before in its history. By an enormous margin. Given that the Fed’s assets are so closely tied to the finances of the US government, the outlook should concern independent, thinking people. The US, Japan, and Europe are already too indebted to bail out their central banks. An insolvent government cannot bail out an insolvent central bank.

Gold And The Endgame: Inflationary Deflation

Excessive monetary stimulus and low interest rates create financial bubbles. This is the biggest debt bubble in history. It is a potent deflationary force and central banks are forced into deploying increasingly aggressive (offsetting) inflationary forces. The avoidance of a typical deflationary resolution to this economic long (Kondratieff) wave is pushing the existing monetary system beyond the point of no return. The purchasing power of the developed world’s currencies will have to bear the brunt of the “adjustment”. Preparations for this by the BRICS nations, led by China, are advancing rapidly. The end game is an inflationary/currency crisis, dislocation across credit and derivative markets, and the transition to a new monetary system. A new “basket” currency is likely to replace the dollar as the world’s reserve currency. The “Inflationary Deflation” paradox refers to the coming rise in the price of almost everything in conventional money and simultaneous fall in terms of gold.