ratings

Back in late 2006 and early 2007 a few (soon to be very rich) people were warning anyone who cared to listen, about what cracks in the subprime facade meant for the housing sector and the credit bubble in general. They were largely ignored as none other than the Fed chairman promised that all is fine (see here). A few months later New Century collapsed and the rest is history: tens of trillions later we are still picking up the pieces and housing continues to collapse. Yet one bubble which the Federal Government managed to blow in the meantime to staggering proportions in virtually no time, for no other reason than to give the impression of consumer releveraging, was the student debt bubble, which at last check just surpassed $1 trillion, and is growing at $40-50 billion each month. However, just like subprime, the first cracks have now appeared. In a report set to convince borrowers that Student Loan ABS are still safe - of course they are - they are backed by all taxpayers after all in the form of the Family Federal Education Program - Fitch discloses something rather troubling, namely that of the $1 trillion + in student debt outstanding, "as many as 27% of all student loan borrowers are more than 30 days past due." In other words at least $270 billion in student loans are no longer current (extrapolating the delinquency rate into the total loans outstanding). That this is happening with interest rates at record lows is quite stunning and a loud wake up call that it is not rates that determine affordability and sustainability: it is general economic conditions, deplorable as they may be, which have made the popping of the student loan bubble inevitable. It also means that if the rise in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill.

All you need to read and some more.

All you need to read.

The global economy remains on shaky ground.  China’s manufacturing activity contracted for its 5th straight month, the US recovery is still very early to call, and the euro zone debt crisis may not be finished. Eurozone PMI data is due later today which will show how the economy is doing after Greece averted default earlier this month. Thomson Reuters GFMS have said that gold at $2,000/oz is possible - possibly in late 2012 or early 2013. Thomson Reuters GFMS Global Head of metals analytics, Philip Klapwijk, featured on Insider this morning and advised investors to "buy this gold dip”.  Gold should be bought on this correction especially if we go lower still as we may need a shake-out of "less-committed investors." Klapwijk suggested that a brief dip below $1,600 is on the cards but the global macro environment still favours investment, notably zero-to-negative real interest rates and he would not rule out further easing by either the ECB or the Fed before year end.

All you need to read.

The concept of government power is a strange and complex cipher.  The existence of governments has always been predicated on assumptions of necessity, but few societies have ever truly considered what those necessities might be.  What is government actually good for?  What do they do that is so important?  And, what happens when a government fails in the roles and duties that a culture deems vital?  We tend to view government as an inevitability of life, but the fact is, government is NOT a force of nature, it is a creation of man, and it can be dismantled by men just as easily as it can be established. In America, many people see government as an extension of the Republic, or even the source, and an animal that feeds at the behest of the common citizen.  An often heard argument against the idea of drastic change or even rebellion within the establishment system is the assertion that the government “is us”.  That it is made of Americans, by Americans, and for Americans.  That there is no separation between the public, and the base of power.  This is, of course, a childish and fantastical delusion drawn from a complete lack of understanding as to how our system really operates today.  How many people out there who make this argument really believe at their very core that they have any legitimate influence over the actions of the state?  I wager not many…    At bottom, to cling to the lie that the government as it stands is a construct of the people is an act of pure denial designed to help the lost masses cope with underlying feelings of utter powerlessness.  

Banzai7 News declares Wall Street win in Illinois...

Fourteen months, one MF Global carcass and $1.6 billion in "vaporized" funds later, does the CFTC still regulate the futures markets by fax?

All you need to read.

The next country that could follow Greece out of Valhalla and down to meet Poseidon at Hades gates is Portugal. They trod the path once before but look likely to be headed out on a second journey. The country’s private and household debt are approximately 300% of the total GDP of Portugal and their economy is contracting; around 4.00% by some estimates. While the European Commission estimates a debt to GDP ratio of 111% for this year; the actual data tells another story. Further aggravating a future restructuring are the CDS contracts with a net position of $5.2 billion and a gross amount of $67.30 billion which is about twice the amount of the net exposure for Greece.

Heading into the North American open, EU stocks are seen lower across the board as market participants reacted to cautious comments from Moody’s rating agency on Spain, which noted that Spain’s fiscal outlook remains challenging despite easier targets. Still, the ratings agency further commented that easier targets do not affect Spain’s A3 government bond rating with a negative outlook. Separately to this, a BHP Billiton executive said that Chinese demand for iron ore is flattening, while according to China's state-backed auto association, China's vehicles sales this year will probably miss their growth forecasts. As a result, basic materials sector has been the worst performing sector today, while auto related stocks such as Daimler and VW also posted significant losses. The ONS reported that inflation in the UK fell to 3.4% in February, down from 3.6% in January. However, higher alcohol prices stopped the rate declining further. Going forward, the latter half of the session sees the release of the latest US housing data, as well as the weekly API report.

The market is ripping. That much is obvious. What some may have forgotten however, is that it ripped in the beginning of 2011... and in the beginning of 2010: in other words, what we are getting is not just deja vu (all on the back of massive central bank intervention time after time), but double deja vu. The end results, however, by year end in both those cases was less than spectacular. In fact, in an attempt to convince readers that this time it is different, Reuters came out yesterday with an article titled, you guessed it, "This Time It's Different" which contains the following verbiage: "bursts of optimism have sown false hope before... Today there is a cautious hope that perhaps this time it's different." (this article was penned by the inhouse spin master, Stella Dawson, who had a rather prominent appearance here.) So the trillions in excess electronic liquidity provided by everyone but the Fed (constrained in an election year) is different than the liquidity provided by the Fed? Got it. Of course, there are those who will bite, and buy the propaganda, and stocks. For everyone else, here is a rundown from David Rosenberg explaining why stocks continue to move near-vertically higher, and what the latent risks continue to be.

...We find, in the case of Belgium, a 40% Debt/GDP miss from what is bandied about by the Europeans. Then it should be noted that in the case of Dexia, Fortis et al that the guarantee of contingent liabilities may not be the amount of money that is required and so the situation could still worsen from here. Belgium, in fact, is not much better off than Greece and, as their economy sinks into recession, the numbers and ratios are bound to get worse. Not only do I expect further downgrades for this country by the ratings agencies but I also expect a further rise in yields as the more sophisticated investors grasp the reality of Belgium’s issues and respond accordingly.

Americans have an illogical love affair with their vehicles. There are 209 million licensed drivers in the U.S. and 260 million vehicles. The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Germany has 540; Japan has 593; Britain has 525; and China has 37. The population of the United States has risen from 203 million in 1970 to 311 million today, an increase of 108 million in 42 years. Over this same time frame, the number of motor vehicles on our crumbling highways has grown by 150 million. This might explain why a country that has 4.5% of the world’s population consumes 22% of the world’s daily oil supply. This might also further explain the Iraq War, the Afghanistan occupation, the Libyan “intervention”, and the coming war with Iran. Automobiles have been a vital component in the financial Ponzi scheme that has passed for our economic system over the last thirty years. For most of the past thirty years annual vehicle sales have ranged between 15 million and 20 million, with only occasional drops below that level during recessions. They actually surged during the 2001-2002 recession as Americans dutifully obeyed their moron President and bought millions of monster SUVs, Hummers, and Silverado pickups with 0% financing from GM to defeat terrorism. Alan Greenspan provided the fuel, with ridiculously low interest rates. The Madison Avenue media maggots provided the transmission fluid by convincing millions of willfully ignorant Americans to buy or lease vehicles they couldn’t afford. And the financially clueless dupes pushed the pedal to the metal, until everyone went off the cliff in 2008.

• There is no Spanish siesta for the eurozone (FT)
• Greece over halfway to recovery, says PM (FT) - inspired comedy...
• Sarkozy Trims Gap With Rival, Polls Show (WSJ) - Diebold speaks again
• IMF’s Zhu Sees ‘Soft-Landing’ Even as Property Slides: Economy (Bloomberg)
• Obama Uses Lincoln to Needle Republicans Battling in Illinois (Bloomberg)
• Three shot dead outside Jewish school in France (Reuters)
• Osborne Seeks to End 50% Tax Spat With Pledge to Aid U.K. Poor (Bloomberg)
• Monti to Meet Labor Unions Amid Warning of Continued Euro Crisis (Bloomberg)