Do we need bounty hunters? How about 70% tax rates?
There are two economies--the real one, which is in decline, and the "let's pretend" one touted by the State and corporate propaganda machines. Children love to play "let's pretend." Let's pretend the economy is "recovering." Why does this "recovery" remind me of an addict who's conning his caseworker? (Yes, I'm really in recovery--those aren't tracks, they're insect bites....) Let's play pretend that jobs are really really coming back...Let's pretend that households, corporations and government are reducing their debt...Let's pretend that wages are rising...Let's pretend your purchasing power isn't in a free-fall...Let's pretend unemployment is falling...Let's pretend corporate profits are the most important metric of our financial well-being...Let's pretend those great profits trickle down to the greater good...Let's pretend the corporate profits trickle down via the "wealth effect" to pension funds that benefit workers everywhere...How much longer are we willing to play "let's pretend"? Eventually we'll have to return to the grown-up world and deal with reality.
Gold and silver closed higher yesterday (+0.45% and +0.65%) after S&P, somewhat belatedly, cut its outlook for the US from stable to negative. While the move seemed to surprise some, many market participants have been warning that this was inevitable for some time. Despite somewhat sensationalist reporting, gold did not surge, nor did equities “plummet”. However, both acted as they are expected to with more risky equities selling off internationally and safe haven gold rising marginally in all currencies. Gold was particularly strong in euros due to eurozone contagion fears and rose from €1,035/oz to over €1,050/oz. In dollar terms, soon after rising nearly $20 per ounce, gold gave up the gains with very determined selling seen at the $1,500/oz level. $1,500/oz will likely be reached in the coming days and the question is do we see profit taking and a correction at this level or does gold surprise most market participants again by continuing to rise to the $1,600/oz level.
Friedberg Mercantile Group Q1 Commentary: Views On Asset Allocation And Gold In A Stagflationary EnvironmentSubmitted by Tyler Durden on 04/18/2011 16:44 -0500
Importantly, this inflationary episode, which threatens to last as long as the U.S. does not raise nominal interest rates above present rates of inflation (or, more to the point, real rates above the growth rate of the economy), has serious recessionary consequences, especially when wage and salary costs lag prices. In other words, what is being touted as a constructive element, the fact that labour costs are not showing signs of inflation, is reason to believe that the economy will soon be hit by another wave of retrenchments, as consumers are hit by shrinking real paycheques. Recessionary pressures in the U.S., adumbrated by downward revisions to second-quarter GDP forecasts in recent weeks, are being reinforced by economic weakness in the U.K., which is already undergoing a more severe bout of inflation, and the Eurozone (with the exception of Germany), which is in the grips of extremely high unemployment and negative growth per capita and stifled by excessive debt, rising taxes, and, believe it or not, low money supply growth. Consider, too, that most of the emerging markets are engaged in belated and not always conventional forms of monetary tightening in a desperate but ultimately futile hope of reducing inflationary pressures without disrupting real economic growth, and the resulting mix, you might guess, can only spell global economic trouble.
The Treasury's prepared statement is out 25 minutes following the S&P planned downgrade, which only those who don't get inside information were surprised by.
- US Treasury's Miller says S&P negative outlook underestimates ability of US leaders to come together to deal with US fiscal challenges
- Both political parties now agree it is time to begin bringing down deficits as a share of GDP.
- US economy is strengthening as it emerges from recent recession.
But the comment of the day comes from Hugh Johnson (no seriously): "This is tape bomb. It doesn't come as a complete surprise to the markets however seeing it in black and white print it is going to shake the market up for sure. You see the dollar down a bit, gold getting bid...and a break of 1298 on the S&P could send it to 1285 in the course of the week."
The negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years. The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012. Some compromise that achieves agreement on a comprehensive budgetary consolidation program--containing deficit reduction measures in amounts near those recently proposed, and combined with meaningful steps toward implementation by 2013--is our baseline assumption and could lead us to revise the outlook back to stable. Alternatively, the lack of such an agreement or a significant further fiscal deterioration for any reason could lead us to lower the rating.
In recent years, instability in the price of energy sources and basic feedstocks — including oil and natural gas — has prompted companies to place more emphasis on supply chain market intelligence and business intelligence.
Everybody spins. Including Nobel economists.
Obama Confirms Leadership Failure, Pulls Out Mother Of All Mutual Assured Nukes: "Raise Debt Ceiling Or Risk Global Recession"Submitted by Tyler Durden on 04/15/2011 14:33 -0500
And people made fun of Hank Paulson for threatening with eternal damnation if congress didn't stamp his multi-trillion blank check to bail out his former co-workers from Goldman. In a step that makes the Kashkari-Paulson threat seem like amateur hour, the teleprompter just received its latest high frequency directive from the Wall Street superiors, promptly delivering the latest MAD message to what continues to be perceived as an idiot audience: "Failure by Congress to raise the U.S. debt limit "could plunge the world economy back into recession," President Barack Obama declared Friday, and he acknowledged that he must compromise on spending with Republicans who control the House to avoid such a crisis. Obama urged swift action, saying he doesn't want the United States to get close to a deadline that would destabilize financial markets. He said he was confident Congress ultimately would raise the limit. "We always have. We will do it again," said Obama, who voted against raising the debt limit as a freshman senator from Illinois." The statement merely underscores that the president is now in contention for the Nobel Prize in hypocrisy: after all compare this statement to Obama's now supremely ironic remark from March 20, 2006: "The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better." They sure do. And in order to replace the current failed leadership, they will gladly start with a new president.
More Faux Hawkishness: Plosser Says Fed Needs To Begin Reversing Accommodative Policy In Not Too Distant FutureSubmitted by Tyler Durden on 04/14/2011 12:37 -0500
The key paragraph from the just released speech being delivered by Fed faux hawk Charles Plosser at the 20th Annual Hyman Minsky conference is the following: "It is no secret that I have long advocated that the Fed make explicit
its commitment to a numerical inflation objective. It is consistent with
the view of central bankers and monetary economists around the world
and widely viewed as a best practice of central banking.... These advantages persuade me that the Fed should adopt an explicit
numerical inflation objective. Moreover, in my view, now is an opportune
time to do so. The apparent strengthening of the U.S. economy suggests
that, in the not-too-distant future, monetary policy will have to begin
reversing course from a very accommodative policy stance. As we
choreograph that exit, I believe that the Fed should do all it can to
underscore its commitment to maintaining price stability." Key word here being "apparent" as yet another economist confused cause (loose monetary policy impact on the Russell 2000) and effect (equating the stock market with the economy). Perhaps the Fed economists should observe the dramatic paring of economic outlooks by all sellside analysts, in line with our expectations from January 2011. Take away the trillions in free money and everyone knows, but nobody wants to say, what will happen. We, for one, can not wait to listen to Fed president speeches following a 20% drop in the stock market...
And so Olli Rehn, piggybacking on all the recent nuclear hysteria, takes Mutual Assured Destruction to a whole new mushroom cloud level:
- REHN SAYS A DEBT RESTRUCTURING COULD CAUSE A 'CHAIN REACTION'
This is better known as "MAD - Fission" Fusion
Presenting John Paulson's Complete Les Echos Interview In Which He Is Bearish On Housing, Bullish On GoldSubmitted by Tyler Durden on 04/13/2011 16:47 -0500
Two days ago John Paulson had an extended interview with Les Echos which however received little coverage in the US, supposedly since the interview was in French, and also because it was behind a paywall. Since the interview does provide some incremental perspectives by Paulson, it is useful to recreate it in its entirety. Specifically, Paulson is now far more bearish on US housing, blaming it on FrankenDodd, and he continues to be as bullish as ever on gold. To wit: "Over time, the price of gold will rise in proportion to the creation of paper dollars. In an inflationary environment where the demand for protection increases, the price of gold can rise even further. Historically, gold has always been a safe haven against inflation and a safe haven in times of political instability. Today we face both risks." As for whether or not we will have QE3: Paulson is not the guy to ask. He is as confused as the Fed presidents.
David Stockman concludes his two part series on Crony Capitalism (part one here) with this scathing take down of the Federal Reserve. Hopefully this is nothing new to anyone at this point... "The destructive result of the Federal Reserve’s earlier housing and consumer credit bubble became the excuse for embracing a destructive zero interest rate policy which is self-evidently fueling even more destruction. This destruction is namely, the exploitation of middle class savers; the current severe food and energy squeeze on lower income households; the illusion in Washington that Uncle Sam can comfortably manage $14 trillion in debt because the interest carry is close enough to zero for government purposes; and the next round of bursting bubbles building up among the risk asset classes... So in the present circumstances, ZIRP and QE2 amount to a monetary Hail Mary. There is no monetary tradition whatsoever that says the way back to U.S. economic health and sustainable growth is through herding Grandma into junk bonds and speculators into the Russell 2000."
Central Banks Favour Gold and AAA Rated Government Debt – Reserve Currencies of EUR and USD QuestionedSubmitted by Tyler Durden on 04/13/2011 07:07 -0500
Stocks are higher in Europe after gains in Asia despite losses on Wall Street yesterday. Gold and silver are showing tentative gains after 1% declines yesterday. With America set to have the largest budget deficit of any of the developed economies, a whopping budget deficit of 10.8pc of GDP this year alone, gold and silver’s medium term prospects remain positive. The IMF has warned that the U.S. lacks credibility regarding its debt and must implement stringent austerity measures. This is one of the primary factors which strongly suggests that, contrary to the consensus, a double dip recession looks increasingly likely in the U.S. This would be negative for the dollar and US treasuries and lead to higher gold and silver prices due to safe haven buying. Central banks are questioning the dollar and the euro as reserve currencies due to the massive liabilities and debt levels confronting the US and the Eurozone (see News below). This is set to lead to central banks continuing to be net buyers of gold for the foreseeable future
Recently Jan Hatzius cut his Q1 GDP as was reported first on Zero Hedge, to 2.5%, even as the Goldman chief economist is still (we give it 2 weeks) keeping his FYE GDP outlook constant (who says bulge brackets don't believe in hockeysticks). Following the just released ugly trade data which as we suspected would lead to even more GDP downgrades, Dudley's successor is out with yet another warning that should come as manna from heaven to those who continue to believe in non-dilutable assets: "Through February, the trade data suggest a large drag on GDP growth in the first quarter and suggest downside risk to our 2.5% forecast." Gee whiz, Jan, if Q1 when the bulk of the tax stimulus is concentrated (which was the reason for Goldman's December bullish 180 on the economy) is unable to post an economic improvement, what is left for the rest of the year, when no more fiscal stimulus is projected, and when, gulp, QE3 is ending? We can't wait to hear your explanation for this.