Ratings Agencies

Guest Post: The Three Ds: Delegitimization, Definancialization, Deglobalization

I tend to be years early on identifying trends, but three that will make a difference going forward are what I call "The Three Ds": Delegitimization, Definancialization and Deglobalization. Broadly speaking, the global economy and thus globalization and its sibling, financialization, depend on the legitimacy of centralized institutions. These include nation-state governments, international organizations such as the IMF, central banks, the mainstream global media, and various Central State agencies tasked with reporting data accurately, for example the Securities and Exchange Commission (SEC) in the U.S. and equivalent agencies in other trading blocs. By far the grandest experiments in legitimization of the past 20 years are the European Union (EU) and its common currency, the euro, and China's one-party rule combining a command economy with a quasi-free enterprise model, i.e. "Capitalism with Chinese characteristics." The vortex of insolvency gripping Europe is rapidly chewing through what remains of the legitimacy of the euro and the EU institutions tasked with overseeing the financial sector...As for the euro and the EU's grand integration experiment, we can turn to George W. Bush's inimitable phrase for a summary: this sucker's going down. The subprime mortgage meltdown offers a cogent preview of Europe's future.

Obama Redirects From A Broke US Government By Playing The Class Warfare Card, Focuses On "Millionaires And Billionaires"

In what appears to be an increasingly tenuous attempt to redirect focus from terminal federal government failure through the imposition of yet another round of class antagonism, Barack Obama, as part of his earlier address to the nation, stressed that more revenue "must be part of any deficit-reduction deal" and criticized Republicans for protecting tax breaks for "millionaires and billionaires" in the process even invoking users of corporate jets (despite that fact that he himself boasted using the $56,000/hour taxpayer funded Air Force one to travel the 110 mile distance between Washington DC and Williamsburg, VA). As the WSJ puts it: Obama "staked out his position in budget negotiations, which have reached a critical phase and increasingly appear to hinge on which side wins the public-relations battle." Well-aware of the dead end trap that Bernanke finds himself in namely that monetary policy alone is now (or ever) powerless to fix the economy (although it sure would do miracle for the Russell 2000... and hyperinflation), and that a fiscal stimulus is currently unpassable, Obama dragged out the strawman, suggesting "that some initiatives designed to stimulate the economy in the short term should be included in a final deal, singling out a yearlong extension of the payroll-tax break for employees, which expires in January." The bottom line is that as the $4 trillion budget cutting goal is completely unattainable (something the Republicans have claimed is a priority in allowing a debt ceiling hike, yet which is nothing but a PR bluff), Obama has instead once again resorted to what he does best: foment class antagonisms within America, by singling out the rich versus the poor. Ironically, as a WSJ commentator puts it so eloquently, "Obama clearly wants all Americans brought down to a shared level of misery --- except, of course, our federal overlords who will continue to demand their own personal jets, international family travel at taxpayer expense, lifetime health benefits while being excused from the ravages of ObamaCare, and of course their recurring exemptions from all other laws that they impose on us lowly serf taxpayers. Obama wants class warfare? Well he got it: Americans vs their elitist, corrupt, irresponsible, thieving government." One can hope that the final outcome of said warfare here will be more effective than any and everywhere else, where said "governments" continue to dangle the carrot of (insolvent) entitlement program elimination should the population dare to change the status quo.

Reggie Middleton's picture

Hey Mr. & Mrs. investment committee members, here's a strong investment idea. Let's take 30% of our money off of the table after losing 48% of it already, and reinvest 70% of it back into the original investment pool, but this time accept 20% in equity risk just as the country we're investing in is about to undergo a nasty, self-imposed austerity driven recession while our new fixed income position is subordinated in real time by the IMF, and soon likely to trade underwater just about as quickly. Now, where's my damn bonus??? I have an appointment with the Azimut dealer!

The Unwind Begins: Eurogroup President Juncker Redirects From A Broke Europe By Throwing US And Japan Under The Insolvency Bus: "The Debt Level Of The USA Is Disastrous"

The first rule of media (especially when dealing with an idiot audience that has a 7 second attention span): when all else fails, redirect. That's precisely what Eurogroup president, and certified, sanctimonious, pompous liar, Jean-Claude Juncker just did today, as it is becoming increasingly clear that nobody in Europe has any clue just what the Greek bailout #2 will look like now that the ECB and Germany are at polar opposites on how to proceed, the ECB thinks it is a rating agency and can dictate what an Event of Default is, and German bankers are willing to cede to private involvement in the bailout, but in a way that is voluntary. The problem is that these three are very much mutually exclusive. So what does Juncker go ahead and do - he redirects to highlighting the problems of the US: "The debt level of the USA is disastrous," Mr. Juncker said. "The real problem is that no one can explain well why the euro zone is in the epicenter of a global financial challenge at a moment, at which the fundamental indicators of the euro zone are substantially better than those of the U.S. or Japanese economy." That may well be the defining moment: by now everyone knows that the global economy is a massive pyramid scheme. Yet to this point, those in control have at least kept their mouths shut. However, when in order to explain one's insolvency, those at the very top of the control pyramid have no other choice than to point out just how broke others are (when in reality it is all one big, interconnected, "globalized" and truly insolvent Ponzi), then the unwind has begin.

IMF Says Is Open To Delaying Greek Bailout Loan Repayments

The soap opera begins early today (at least in the US), after the Irish Times reports that the IMF is open to delaying Greece's repayment of its international loans but believes a major restructuring of its debt would create untold problems in the euro zone, a senior IMF official said today. "Athens has made progress in tackling its debt crisis but cannot afford to relax the pace of reforms, Bob Traa, the International Monetary Fund's senior representative in Greece, told a banking conference. "If you want a debt restructuring that will really make a difference, it will need to be very large. Such a large debt restructuring would create untold problems not just in Greece, but also in the euro zone," Mr Traa said. But he did hint that the IMF was open to other solutions. "Stretching out payment terms, for instance in loans from euro area partners and the IMF, is a reasonable thing to think about because we have amortisation right at the end of the programme. This is a technical issue we can think about," he said." Unfortunately, as the rating agencies have made clear by now, such a move would be considered a technical default, and thus is unworkable as the very simple matter at the heart of the whole eurozone crisis is the forced marking of debt from mythical par levels (where the ECB has it) to market values (around half): a development which would lead to the insolvency of the ECB, something discussed minutes ago. All Europe wants is a phase transition that allows it to keep marking Greek bonds at par, and how this is achieved is irrelevant.

Don Coxe On Everything From The Markets Rolling Over, To Persistent Food Inflation, To The Coming US Sovereign Debt Crunch

There is a plethora of original insight in Don Coxe (BMO Capital Makets) among them observations on sovereign risk moving from east to west, state finances (or lack thereof), the ongoing correction in financial stocks which portends nothing good for the equity investors, the ongoing violence in MENA, why this inflationary spike in food may last far longer than previous ones, and naturally, some very spot on thoughts on gold, which conclude with: "The only gold bubble likely to burst is the bubbling ridicule of gold."

Guest Post: On The Ethics Of Mortgage Loan Default

Is it ethical for the American homeowner whose mortgage has been securitized to default, even If they are not financially distressed? First, consider it is unlikely that marketable, fee simple, insurable title can be obtained as a result of fulfilling the obligations of the related promissory note. On the contrary the titles to some 60 million homes in America are badly clouded. Secondly, encouraging investment in an asset class that has been artificially inflated, then deliberately destroying the price of the asset, as part of a separate profit making scheme is unethical, and any agreement based on this type of fraud is grounds to consider the original debt instrument used in the agreement null and void. Fortunately these grounds are unnecessary, as increasingly US courts are ruling that these mortgages are already invalid for numerous other reasons.

Reggie Middleton's picture

I called it the coming RE Depression in 2007! I put MY money where my mouth was and sold off all of my investment real estate. I put YOUR money where my mouth was and shorted all that had to do with real estate (REITs, banks, builders, insurers). I called almost every major bank collapse months in advance. I warned the .gov bubble blowing does not = organic economic recovery. Now I'm saying we need to, and will, continue what's left of the crash of 2009, with ample global company. There will be no RE recovery this year, and there will be a crash. OK, you heard it here!

Moody's Warns Of Greek Default Spillover As Greece Opposition Leader Rejects New Austerity Package

The Greek bankruptcy, pardon, sovereign liability management exercise, pardon reprofiling, is once again front and center in the news this morning, after Moody's had some words of caution about a broad spillover effect in Europe should Greece file. From Reuters: "A Greek debt default would hurt other peripheral euro zone states and could push Portugal and Ireland into junk territory, Moody's said on Tuesday, warning it would classify most forms of restructuring as a default.  "A Greek default would be highly destabilising and would have implications for the creditworthiness of issuers across Europe," Moody's Investors Service's chief credit officer in the region, Alastair Wilson, told Reuters in a telephone interview. "This would result in more highly polarised credit worthiness and ratings among euro zone sovereigns, with the stronger countries retaining very high ratings and the weaker countries struggling to remain in investment grade." And yet a Greek bankruptcy seems increasingly more inevitable after a brand new fissure has now appeared in the government, after the chief opposition, New Democracy, party leader Antonis Samaras said he would oppose the latest round of austerity which, nonetheless, must pass in order for Greece to not run out of funds in 2 months, as we previously reported, and finally set off the dominoes. While the political bickering will likely hit fever pitch, and result in new and increasingly more violent protests in Athens, it is likely that austerity will pass as western banks are licking their chops at acquiring Greek "privatized" assets, at least when it comes to infrastructure and real estate, banks not so much, at below cost prices.

Reggie Middleton's picture

Hey, on the positive side, LinkedIn is better off that Facebook. You see, Facebook will have to register the whole computer capable populace of the world to justify the Au plated, Goldman Goldilocks fairytale other wise known as marketing materials. LinkedIn will just have to grow revenues 300% or so for about about a decade to make this JPM/MS fairytale have a happy ending. No matter what, I betcha there will be a moral to these stories for investors, though!

Reggie Middleton's picture

Last night, I spent an interesting time with the esteemed and world reknown macro economist, entrepreneur, NYU professor and strategist, Dr. Nouriel Roubini. Nouriel is a very, very bright guy. He has to be, he agrees with many of my viewpoints :-) On a more serious note, this article is the first installment of the valuation of real world, real assets and properties that are actually up for sale. I plan to walk my readers through the potential absurdity that is investing in a bubble that has not finished popping.

Paul Ryan Speaks On The "Catastrophic Trajectory" Of US Debt

I’ll come to the point. Despite talk of a recovery, the economy is badly underperforming. Growth last quarter came in at just 1.8 percent. We’re not even creating enough jobs to employ new workers entering the job market, let alone the six million workers who lost their jobs during the recession. The rising cost of living is becoming a serious problem for many Americans. The Fed’s aggressive expansion of the money supply is clearly contributing to major increases in the cost of food and energy. An even bigger threat comes from the rapidly growing cost of health care, a problem made worse by the health care law enacted last year. Most troubling of all, the unsustainable trajectory of government spending is accelerating the nation toward a ruinous debt crisis. This crisis has been decades in the making. Republican administrations, including the last one, have failed to control spending. Democratic administrations, including the present one, have not been honest about the cost of the tax burden required to fund their expansive vision of government. And Congresses controlled by both parties have failed to confront our growing entitlement crisis. There is plenty of blame to go around. Years of ignoring the drivers of our debt have left our nation’s finances in dismal shape. In the coming years, our debt is projected to grow to more than three times the size of our entire economy. This trajectory is catastrophic.