McKinsey

While Angelo Mozilo is working on his tan and pretending he did not engage in blatant 10(b)-5 fraud for years and years. Oh well, justice is served.  Don't look for the Gerson Lehrman IPO any times soon.

• RAJARATNAM GETS 132 MONTH PRISON TERM FOR INSIDER TRADING. - BBG

Yesterday it was Evans saying explicitly it was QE3 or bust. Today it is Lockhart's turn to stop just short of reiterating what is now getting prices in every single day: "As you know, the FOMC stated after its last meeting the intention to keep the policy rate at near zero for two more years. Also, the current policy is to maintain the Fed's balance sheet scale for the foreseeable future. I support this position. Given the weak data we've seen recently and considering the rising concern about chronic slow growth or worse, I don't think any policy option can be ruled out at the moment. However, it is important that monetary policy not be seen as a panacea. The kinds of structural adjustments I've been discussing today take time, and I am acutely aware that pushing beyond what monetary policy can plausibly deliver runs the risk of creating new distortions and imbalances." He is aware, yet he will gladly vote for it when the time comes. And the time will come very soon because as he just said during his speech Q&A, "slow growth is now a bigger problem than inflation"... which as we showed yesterday is 4%, and "that we have a jobs crisis." Net net: one more dove doing what he does best - beg for more inkjet cartridges.

They say that the simplest analysis is always the most powerful one. That appears to certainly have been the case with our presentation of global banks' Tangible Common Equity ("TCE") ratio to total assets from last Thursday, and specifically our observation of the glaringly obvious, namely that of the 30 most undercapitalized banks in the world, Canadian ones represented a whopping 33% of all. Note: this was not an attack on Canada, this was not some hedge-fund inspired start of a bear-raid on the Canadian banking system, this was nothing but an attempt to warn our readers of, again, what is out there for anyone (who is not blinded by cognitive bias) to see for themselves. Alas, the reaction to that post, particularly in the Canadian media, has been swift and severe, provoking such respected publications as The Globe And Mail to pen not one but two responses, one being the by now so-oft discredited attempt to ignore the message and target the messenger (Who is Zero Hedge, and why should we care?), followed by a more coherent attempt to debunk the claim that a painfully low TCE ratio is never a good thing (Is Zero Hedge looking at the wrong numbers?). The argument of G&M's Boyd Erman boils down to the statement that TCE is not a fair indicator of balance sheet stress and instead one should focus on a "Tier 1" approach of risk estimation, one that includes Risk Weighted Assets. Here we could provide the reference to Lehman's Tier 1 ratio, which was well in the double digits on the day when it filed for bankruptcy, even as the bank's true leverage was about 40x, a number which eventually brought on the biggest bankruptcy in history. We could but we won't, instead we will ask, rhetorically, who is John Paulson, and why should the Globe and Mail care?

First they cut the rating of the US, then the went and downgraded Google, now S&P is going for the "treason trifecta" by just releasing a report which literally takes the US to the toolshed. Among many other things, the rating agency just cut US growth for the next 3 years. To wit: "While July data finally showed a slight improvement in the U.S. economy, it's not enough to support expectations that the second half of the year will see a bounce in growth. We now expect to see an even slower recovery than the half-speed we earlier expected. We now expect just 1.9% growth in the third quarter and 1.8% in the fourth, to bring 2011 calendar year growth closer to 1.7% instead of 2.4% we earlier expected. We also downwardly revised growth expectations for 2012 and 2013, as a more drawn-out recovery is factored into our forecast." We wonder how soon before the realization that the US is in fact contracting will force S&P to downgrade America even further, a move which will force Moodys and Fitch to come up with a AAAA rating for the US in order to keep the weighted average rating at current levels. It gets even worse though as S&P now openly brings the 2008 analogy: "The markets' violent swings in early August resurrected fears of the market meltdown, such as the one in 2008 when Lehman Brothers went under and Reserve Fund broke the buck. Currently, the crisis is considered to be much more severe, with U.S. sovereign debt at risk of default. The low Treasury yields indicated that markets were expecting Congress to come to its senses and reach a deal. However, the wait and the last-minute deal, which left a lot to be desired, only increased worries that the government will do more harm than good. Confidence in the recovery and in U.S. policymaking has hit new lows. After U.S. sovereign debt lost its triple-A status and financial markets unwound, consumer confidence hit a 31-year low and manufacturing sentiment readings contracted." And the kicker: S&P, yes S&P, makes fun of the Fed, and specifically the "transitory" nature of the economic collapse: "Continued weak growth after sharply downward GDP revisions has made the "temporary argument" a less plausible explanation for the slew of bad news for the first half of the year. At least the GDP revisions make the persistently high unemployment rate make more sense. But the revised data also indicate a much weaker outlook than we previously expected. As the boosts from rebuilding inventories and fiscal stimulus unwound, consumer spending and housing couldn't cover the hole, because the former is still working off excess debts and the latter excess supply. The recovery comprised a first-half average growth of just 0.8%." And that is how you respond to endless scapegoating that now blames the S&P for the collapse. Look for S&P to make the FBI's most wanted list very shortly.

Essentially, growth is not the problem for China, but nor is it the solution.

The The more disturbing jobs numbers are coming from the long-term unemployment.  A year after the official end of the recession, more than two million Americans have been out of work for 99 weeks or longer.  Some call the long-term unemployment the newest form of workforce discrimination as employers tend to favor job candidates already have a job.  

Enough bullshit, it's time to expose the real unemployment scandal...

Some thoughts by David Schawel at Economic Musings who follows up on our observations from a week earlier regarding the possibility for a major Treasury collateral scramble if and when Basel III is ever implemented, and the implications for US Treasury demand. "In my opinion, the implications of this are crystal clear: banks will obviously need to dramatically ramp up their holdings of these securities (mainly treasuries) in order to comply with the LCR ratio. This could provide a significant tailwind to treasury demand over the near to intermediate term. S&P says it best, “We believe there is a risk that this standard is too conservative- to the point where it could create a shortage of liquid assets…"

Gold’s continuous ten-year rise hasn’t sheltered it from controversy. Despite producing consistent returns in virtually all currencies year after year, some market pundits still question its validity as an asset class. It’s true that gold doesn’t pay any interest, and it’s also true that much of the gold produced throughout history still exists in some form today. But these characteristics shouldn’t inhibit it from performing as a monetary asset. Cash, after all, doesn’t pay real interest either, and there is more fiat money in existence today than ever before. So why does gold still receive such harsh criticism?

We believe much of it stems from a widely held misconception that gold is forming a financial bubble. It’s a fairly straightforward view – that gold buyers are merely foolhardy speculators buying on a whim with no rationale other than to sell to the ‘greater fool’ at higher prices in the future. It’s a view that assumes that gold has no intrinsic value and is simply a speculative asset that has captured investors’ imaginations.

We don’t take these views on gold lightly. We’ve seen bubbles before and fully know how they end. We have no interest whatsoever in participating in some sort of speculative frenzy – that’s a recipe for disaster in the investment business. Thankfully, however, our gold investments present no such risk. As our analysis has revealed, gold is actually a surprisingly under-owned asset class – and one that has generated far more attention in the media than it probably deserves. While its exemplary performance since 2000 is certainly worthy of discussion, gold simply hasn’t commanded enough investment to warrant the bubble fears it seems to have aroused among market pundits and business commentators. The truth about gold is that most people simply don’t own it…yet.

Former hedge fund analyst Danielle Chiesi compared insider dealing to an orgasm. If that's true, then Wall Street must be experiencing one giant orgasm...

How about our friends at JP Morgan (JPM), one of our favorite financial holdings, who just reported that they did not lose money on a single trading day in the ENTIRE 2nd HALF of 2010, making $76 Million dollars per day on the average for all of 2010.

In Britain, they call it "DADA." It means Decide. Announce. Defend. Abandon. In America we call it "NIMBY" - "not in my back yard." It applies to all kinds of infrastructure construction, from airports to roads. But it is electric and gas utilities that feel the brunt of local opposition. These localized forces of "no" have caused the buildup of a substantial backlog of infrastructure projects, not only for sexy green-energy technologies but also for the traditional needs of energy production and distribution - pipelines, power lines, replacement of aging equipment and the construction of new facilities to meet new loads and move the energy infrastructure into the 21st century. It also includes old-fashioned technology - meters, switches, transformers - to get new green electricity to the consumer. A new study, from a group advocating upgrading energy facilities, says the pent-up need for utilities to start these projects is so great that if the impediments can be dealt with, 250,000 jobs can be created almost immediately, without action from Congress or a raid on the federal treasury.

A brand new study released by the World Economic Forum (WEF) in collaboration with McKinsey (which is a must read if only for its plethora of charts which we are certain will be used and reused in thousands of posts and articles over the next year), finds that while global credit stock doubled from $57 trillion to $109 trillion in just 10 years (from 2000 to 2010), it will need to double again to an incredible $210 trillion by 2020 in order to provide the necessary credit-driven growth (in a recursive way, whereby credit feeds growth, and growth requires additional credit issuance) for world GDP to retain its current growth rate. And while the goal seeked conclusion is obviously nothing but propaganda for the banking syndicate meant to facilitate the need for endless credit issuance spin (after all how on earth can world GDP growth occur based on something productive like manufacturing when there is only $100 trillion of free cash chasing worthless and rapidly amortizing assets), the study did warn (timidly) that leaders must be wary of new credit "hotspots" of excess lending, as the world emerges from a financial
catastrophe blamed in large part "to the failure of the financial
system to detect and constrain" these areas of unsustainable debt. In other words: credit doubling blew up the world financial system, but if you promise to behave this time, go ahead and double the world debt again.

We have been inundated with reader requests to present some more data on just who these suddenly infamous "expert networks" are. Below we present what is arguably the world's largest expert network, the Gerson Lehrman Group, which boasts a roster of over 200,000 expert consultants in its network. Access to GLG is typically confined to ultra high net worth clients, read hedge funds, who can afford to pay hundreds of thousands of dollars per quarter, and comp the company's consultant to the tune of between $250 and $1,000 per hour, which is why so many readers may have never heard of GLG and its comparable companies.

A couple of luminaries share their perspectives on recent developments in the precious metal space. First, we have Jim Rickards sharing his thoughts on what today's Comex margin hike means for trading. And second, and just as important, is Peter Schiff, who grades WB president Robert Zoellick's call for a new gold standards, and its implications for the future. Both are as always insightful and enlightening.