Guest Post: Treasury Bears And Extinction Events

Tyler Durden — Sat, 04 Feb 2012 03:10:24 +0000

Submitted by JM

Treasury Bears and Extinction Events

The real meaning of a treasury bear market may not be a flight out of treasuries into another asset class. Rather it real import could be the lack of liquidity available anywhere for nearly any asset class.

History seldom repeats precisely, but it does rhyme as they say. And there are different types of bear markets: bear steepening and bear flattening. Despite the complications, history and imagination are our only guides.

Bear Market in Treasuries

First for some rough context, monthly yield curves for the 1977-1982 Bear market are shown against the yields curves of January 1977 and December 1986 (in red). What you see is a massive sell-off across the curve combined with flattening and inversion of the short end.

See the close up below for something more digestible. There was serious volatility, mostly at the wings. Yields on the 1Y exploded from 8.16% in June 1980 to 16.52% in September 1981. Yields on the 30Y moved from 9.17% in August 1979 to 14.68% in September 1981.

Takeaways

This section is premised on ample liquidity. It is all I’ve ever known in Treasuries, but it may not be appropriate.

Roll-down wasn’t possible at the mid-curve, but it was possible to get roll-down on the front end. It was a high-risk play, because the volatility was amazing and would rip your face off. In just a couple of months, the whole curve could invert on you.
You could make money shorting 20s30s, but I can’t imagine anybody doing that more than as a punt. I don’t know if traders then bought or sold things like a 10s20s30s butterfly.
A major point is that you really had to stick your neck out to make money in Treasuries. The “old” adage now is nobody ever got fired for buying treasuries—although it isn’t quite true. Seems that there was likely an even older adage about treasuries and how awful they were.

Presumptions of Liquidity

Liquidity acts in a financial system like ample water, ambient temperature, and clean air act in an ecosystem. It makes trading strategies proliferate. Further, it makes meaningful intermediation possible, fostering the growth in high yield bonds and marketable loans. Yes, derivatives like vanilla stock options and others too.

A financial system without liquidity is like a tropical ecosystem dried into a desert. Without liquidity, it is an open question whether the arbitrage pricing revolution will outlast the antiquated mark-ups of reinsurers. Liquidity makes random processes stationary, which is crucial to make the probabilistic foundations of risk neutral pricing work. Is it intuitively possible to price (and even more buy and sell) credit and interest rate risk without some liquidity in the underlying? How can a bank generate carry when the curve is flat and there is no appreciable differential anywhere that has a minimum tolerance of liquidity?

I put together an impressionistic schema to convey my point about liquidity. It not only demonstrates instruments stop functioning, but even wholesale trading strategies have to be abandoned. Traders will not only have a limited palette of instruments; for survival, they will also have to simplify trading strategies to those that are proven across extremely wide environments. In financial markets, liquidity is what makes innovation possible. Innovation adds complexity and diversity to an ecosystem, but it doesn’t make the system robust. Even miniscule changes in environment cause life to revert back to sparsely populated rhythms.

Marc Faber: "Ron Paul Would Be A Very Good President"

Tyler Durden — Fri, 03 Feb 2012 23:23:38 +0000

While Marc Faber shares the usual stock of insightful market commentary, together with timing inflection points, and extended thoughts in the attached Bloomberg TV clip, it is the fact that he has officially joined Bill Gross, and so many others, in supporting the candidacy of Ron Paul as president. It is rather sad that only those who see beyond the surface of the current pyramid scheme facade, are bold enough to endorse the only man who is right for the White House. Fast forward to 15 minutes into the video to hear Marc Faber: "Ron Paul would be a very good president."

Other recent Ron Paul endorsements:

Nassim Taleb: "Ron Paul Is The Only One I Trust"
Bill Gross: "I Am A Little Ron Paulish"
Jim Rogers: "I Am Jim Rogers And I Support Ron Paul"
Peter Thiel
Stephen Colbert

and of course,

Snoop Dogg

DOJ's Latest "Beat Down" on Swiss Banks

Bruce Krasting — Fri, 03 Feb 2012 22:21:24 +0000

DOJ's Latest "Beat Down" on Swiss Banks

Courtesy of Bruce Krasting

Wow! The Department of Justice took an extraordinary step yesterday. It indicted Swiss private bank, Bank Wegelin, for aiding and abetting in US income tax fraud.

This is a big deal.

I’ll try to keep this fascinating story brief.

Bank Wegelin (W) has been around for 270 years. In Switzerland, it is referred to as a “Private Bank”. There are dozens of Private Banks in the country (less every week).

Private Banks do private things and charge big fees. Up until four years ago, the Swiss Private Banks were doing private things for private clients from all over the world, including many US names.

The DOJ sued the big Swiss bank, UBS, over this private business. UBS folded when the DOJ threatened a criminal complaint. (UBS would have had to close all its US businesses had a criminal complaint prevailed.) It ended up costing the bank $780 large and, for the most part, the DOJ got the “names” it was after.

Having blown UBS to smithereens, the DOJ set its sights on the other Swiss Banks. It targeted eleven Private Banks. W was on the list.

Talk of a settlement, including big buck fines and the release of more "names", has been in the press for a few months. Treasury Secretary Geithner met with Eveline Widmere-Schlumpf (Swiss Finance Minister) in Davos last week. It seemed like progress was being made on the thorny problem of the private banks:

Widmere-Schlumpf:

“We’re hoping that we’ll reach an agreement with the U.S. within the next couple of months”

I was surprised when the non-USA assets of W were “sold” to Notenstein Private Bank on January 27. Notenstein is 100% owned by Raiffeisen Bank (R). This sale should have been a tip off that the conversation between Geithner and Widmere-Schlumpf was not as friendly and optimistic as the public comments suggested.

The Senior Managing Partner of W, Konrad Hummler (KH), commented on the sale of his bank: (Apparently he was surprised too)

“I never could have imagined that we, as owners of Switzerland’s oldest bank, would have ever considered selling”

KH was clear that the sale was a reaction to the pending DOJ hammer blow:

“The extraordinarily difficult situation and threat to the bank brought about by the legal dispute with the US”.

With the non-US assets stripped out of W, the DOJ suit is functionally against a dead person.

Note: Wegelin had no physical assets in the USA. It did have a bank account in the US holding $16.2mm. That was seized yesterday. But that amount is peanuts. The DOJ wants much, much more.

There's an unusual part to this which I find curious. W had an ‘old school’ way of doing business. To give assurances to its private customers that the bank was solid, and their money was safe, the Board of Directors of W assumed personal liability for the affairs of the bank.

No one has lost a Franc in the account transfers from W to R, so it would appear that those directors are now free from any liability. However, the DOJ has named EXECUTIVE X as a plaintiff in the charges files yesterday. So it would appear that Konrad Hummler’s (KH) problems are not over.

It just so happens that KH is also the Chairman of the Neue Zuricher Zeitung (NZZ), an influential Swiss rag. KH has a long history in Swiss banking. He used to run Swiss Bank Corp., which he later sold to UBS. He was the former head of the Swiss Private Bankers Association. He was an adviser to the Swiss National Bank for seven years! (He lost that job in April, 2011 as the DOJ noose was getting tighter.) This guy is wired.

The DOJ might also pursue the former assets of W. This could be problematic. The timing (and the surprise) of the sale of W's non-US assets to Raiffeisen Bank (R) might have pissed off the folks at the DOJ. There are (unconfirmed) reports in the Swiss press that the sale price for W's non-US assets was CHF 700mm ($725mm). That might explain the actions DOJ took. That’s a lot of loot.

Will the DOJ go after R? This would seem unlikely. R has a very big presence in Switzerland. It is a retail bank with three million customers and branches all over. It is affiliated with Raiffeisen Bank International (RI). RI is a very big bank in Eastern Europe with 13mm customers . Of further interest is that both R and RI are part of Unico Banking Group.

This consortium includes the big Dutch bank, Rabo and also the French bank, Credit Agricole. Maybe I’m nuts, but I don’t see the DOJ messing with a hornets' nest this size.

I think the DOJ's steps yesterday were just “shock and awe”. This puts more pressure on the remaining Private Banks. The DOJ blew up W in a rather spectacular fashion. Other Swiss bankers in the DOJ's cross-hairs must be crapping in their pants. Many of them are gathering up client dossiers - and getting ready to write big checks.

The DOJ is like a Rhinoceros. It's not very good looking, and when it puts its head down and charges into the brush, it tramples anything in its way. Nothing can stop it.

This matter will come to a head pretty soon. If it doesn’t, the DOJ will knock off the next Private Bank on the list.

Fines will get paid. Names will be turned over. Some individuals will be prosecuted. The “names” have some explaining to do. At the top of this list is the good old IRS. Other interested parties will include creditors, wives, ex-wives, ex-wives’-lawyers, current-wives’-lawyers, business partners, employers, the press, relatives and friends.

After a while, this will all be forgotten. Sort of. The door for Americans to hide money away from the IRS is closed. Sort of. The foreign banks won’t want American customers; it’s too much of a hassle. If you do find a Banca di..... outside of the USA, you will have to plunk down a SS card, and agree to have info given to the IRS.

The door is closed for all electronic money. But the door is not completely closed. This story is as old as the Egyptians. Folks have been cheating their partners, wives and the taxman forever. It’s not likely to stop.

I understand that cash boxes are filling up with bills in some locations. In a zero interest rate environment, that makes some sense. Sort of. It makes infinite sense if rhinos are around.

On second thought, this episode will not be forgotten. Many people have already been trampled. More are in harm's way. Such is life. It has left a scar on the US image in some of the financial centers. The US played hardball and won. You don’t win many friends playing hardball. But this had nothing to do with friends. (Switzerland was once a friend of the USA.) It was always about the money.

There are many pieces of this story that would make for a good movie. For the life of me, I can’t figure out who are the good guys. Maybe that's the point.

Note: Tyler Durden sent me a note with a link to a ZH piece from 2009.

This is a rant by Konrad Hummler, the "Boss" at Wegelin. ZH was three years ahead of the curve on this one.

http://www.zerohedge.com/article/farewell-america-switzerland

Israel Puts Global Facilities On High Alert Following Warning Of Rising Iran Strike Threat

Tyler Durden — Fri, 03 Feb 2012 22:06:03 +0000

While the world rejoices in the aftermath of the enjoyable diversion in which a fake market surges on fake, politically-motivated data, which incidentally refutes the warning voiced last week by the Fed Chairman who has a far better grasp of the economy than the BLS, warned last week, the confluence of real events continues to indicate that something is brewing in the middle east. Only this time it is not the US adding another aircraft carrier to the three already situated by the Straits of Hormuz. This time the smoke and fire come from Israel. ABC reports that "Israeli facilities in North America -- and around the world -- are on high alert, according to an internal security document obtained by ABC News that predicted the threat from Iran against Jewish targets will increase. "We predict that the threat on our sites around the world will increase … on both our guarded sites and 'soft' sites," stated a letter circulated by the head of security for the Consul General for the Mid-Atlantic States. Guarded sites refers to government facilities like embassies and consulates, while 'soft sites' means Jewish synagogues, and schools, as well as community centers like the one hit by a terrorist bombing in Buenos Aires in 1994 that killed 85 people." Hopefully the head of security's prediction track record is better than that of the CBO, and that the very act of prediction does not in effect "make it so." At least courtesy of this latest escalation by Israel we get a clue of what to focus on, if not so much who the actual aggressors will be. In the meantime, Iran, which has been dealing with hyperinflation for weeks now, and likely has bigger problems to worry about than focusing on "soft sites" will naturally sense this escalation as the provocation it may well be meant to be, respond in kind, which will lead to further responses of definite attacks imminent by Iran's adversaries, and so on, and so forth, until finally the dam wall finally cracks.

Regarding who may be attacked, ABC had this to say:

The head of Shin Bet, Israel's internal security service, told an audience at a closed forum in Tel Aviv recently that Iran is trying to hit Israeli targets because of what it believes are Israeli attacks on it nuclear scientists. Yoram Cohen said that Iran's Revolutionary Guard, the same militant wing of the government linked to the recent alleged plot against the Saudi ambassador to the U.S., is working tirelessly to attack Israeli and Jewish targets abroad in order to deter Israel.

And just how is attacking Jewish targets abroad detering Israel? Oh wait, the assumption is that Iran is completely irrational and willing to provoke anyone for the sake of converting itself into one big lake of glass. Or so the public should believe. Got it.

Naturally, the 'response' is already in play.

Local and regional law enforcement and intelligence officials in U.S. and Canadian cities, including New York, Los Angeles, Philadelphia, and Toronto have been monitoring the situation closely for several weeks, and have stepped up patrols at Israeli government locations and Jewish cultural and religious institutions. They have issued awareness bulletins reminding officers to stay vigilant.

Federal officials in those cities told ABC News that they have also increased their efforts to watch for any threat stream pointing to an imminent attack on either Israeli facilities, Jewish cultural or religious institutions or other "soft targets."

"When there is posturing like this, we always pay extra attention to any threat streams," one federal official said.

"The thwarted assassination plot of a Saudi official in Washington, D.C., a couple of months ago was an important data point," added the official, "in that it showed at least parts of the Iranian establishment were aware of the intended event and were not concerned about inevitable collateral damage to U.S. citizens had they carried out an assassination plot on American soil."

"That was an eye opener, showing that they did not care about any collateral damage," the federal official said.

After the disruption of the alleged plot, regional intelligence centers issued bulletins similar to the recent Israeli warning.

Here is what has to be accepted as fact for the narrative to work:

"In the past few weeks, there has been an escalation in threats against Israeli and Jewish targets around the world," one regional document noted. "Open source has reported many demonstrations against Israel are expected to be concentrated on Israeli embassies and consulates. Such demonstrations have occurred internationally as well as domestically. These demonstrations could potentially turn violent at local synagogues, restaurants, the Israeli Embassy and other Israeli sites. … Law enforcement should be vigilant when making periodic checks at all Jewish facilities.

Once that is engrained in the public conscience, the letter's climax become a foregone conclusion:

"In conclusion, we operate according to the information that Iran and Hezbollah are working hard and with great intensity to release a 'quality' attack against Israeli/Jewish sites around the world."

We've seen this play by play many times before and frankly at this point the posturing is getting just silly. What we do want to find out, however, is how will Russia get involved in all of this. Because if recent actions are any precedent, we fully expect Putin to send an aircraft carrier, purely symbolically, in the Arabian Sea himself, just to indicate that any invasion, pardon, liberation, of Iran crude, will first have to go through him. And not to mention China... or India.

Finally, because some have expressed curiosity why the USS Enterprise, the oldest aircraft carrier in the US Navy, will be the 3rd "supporting" carrier in the Straits area, when it is due for decommissioning next year, here is one video with a theory, whether correct or incorrect, on why events may be transpiring the way they are.

Weekly Bull/Bear Recap: Jan. 30 - Feb. 3, 2012

Tyler Durden — Fri, 03 Feb 2012 22:02:37 +0000

Submitted by Rational Capitalist Speculator

Bull

+ The U.S. economy is now in a sustainable expansion:

The January U.S. non-farm payrolls report shines, while prior months are revised higher by 60K. A gain of 243K marks the strongest pace of job creation since April. Furthermore the unemployment rate falls to 8.2% from 8.5%. Job creation was widespread. The key cog for a sustainable recovery is now in place.
Improvement in the Chicago Fed Midwest Manufacturing index and Dallas Fed Manufacturing survey culminate in a strong national ISM reading of 54.1, the highest since June of 2011 (with positive backlogs to boot). Looking ahead, a resurgence in business spending in December (Core Durable Goods orders are revised higher to 3.1% from 2.9%), within a stronger factory orders number of 1.1% signal further growth for the beacon of the U.S. recovery in the months ahead.
The service sector, which accounts for close to 90% of the economy, is reaccelerating. January’s print is the strongest in 11 months, led by New Orders, Production, and Employment sub-indicies.
Consumption remains healthy, as car sales have their best January in 3 years. On the horizon, the payroll tax credit is set to be extended, relieving the economy of excessive fiscal contraction. Who knows, we might even get further tax cuts!
Don’t look now, but the ECRI’s leading indicator growth rate is higher for the 3rd consecutive week and is now at its highest level since late August. ECRI, it’s time to admit that you and the rest of the bears were wrong.
Consumer confidence continues to recover. While the Conference Board showed a setback, Bloomberg’s Consumer Comfort index just hit its highest monthly average in more than half a year.

+ The global economic outlook is improving:

In Europe, Germany’s unemployment rate hits a record low and her economy reverts back to growth according to the Markit PMI. For the Eurozone as a whole, Chris Williamson, Chief Economist at Markit says, “Euro area manufacturing has started 2013 surprisingly well, suggesting the region may avoid a slide back into recession.”
UK consumer confidence rises to the highest in 7 months on lower inflation.
Russia reports better than expected economic growth, with GDP rising 4.3% vs. expectations of 4.1%.
In Japan, industrial production surges 4%.
China PMIs point to a soft-landing for the most important link of the global recovery. Premier Wen is looking to stimulate the small business sector.

+ In Eurozone political and financial news, European nations take one step closer to integration with 25 out of 27 nations signing the new fiscal compact treaty. Moreover, leaders signal strong resolve to save the region, as talk of initiating a €1.5 Tn bailout fund is making the rounds. Meanwhile, the Spanish 10-yr yield breaks under 5%, the Italian 10-yr yield breaks under 6%, the Belgian 10-yr yield breaks under 3.7%, and the French 10-yr yield breaks under 3%. Markets signal that a strong firewall is in place for a Greek and/or Portuguese default. As a hefty insurance policy, the second LTRO on February 29th will likely be more than double the size of the first one (@ ? €1Tn), thus reinforcing the firewall for the banking system from a Greek or Portuguese default. Besides, the Greek default has been on investors’ radars for so long, even martians on Pluto know that Greece is defaulting. A climax would result in a rally as uncertainty is lifted.

Bear

- The end game is coming into view for the Eurozone:

Germany has demanded that Greece cede its budgetary sovereignty to the EU, a request Greece has declined. Furthermore, stiff resistance from Greek political leaders to implement further austerity makes for another “Papandreaou referendum-like” showdown with the troika. And for the trifecta, the Hellenic republic has warned that it may need even more bailout cash.
Portuguese bond yields are repeatedly hitting record highs; hard default #2 is rapidly approaching.
In Ireland, a solid majority demand a referendum (guaranteeing a defeat for the army of unelected technocrats in Brussels). As Hollande eloquently stated, “Where democracy retreats and politics pulls back, the markets advance.”
Hollande is creating daylight between himself and Sarkozy in the French presidential election (here’s a primer on what he wants to do).

- On the region’s economic front, austerity is biting, hard. Italian business confidence slumps to the lowest in 2 years. While Germany is benefiting from a weaker Euro, it’s coming at the expense of the rest of the Eurozone; the region’s unemployment rate remains near the highest since 1998. French consumer spending dives 0.7% vs. expectations of a gain of +0.2%. Even worse, German December retail sales tank 1.4% vs. expectations of a 0.5% gain (the 4th decline in last 5 prints); so much for a low unemployment rate. Meanwhile, on the financial front, banks are using some of the LTRO money to buy sovereign bonds; but that’s about it. They continue to de-leverage, cutting off credit to the Eurozone and undermining any recovery in the region. Furthermore, post-crisis highs in FX swaps between the ECB and the Fed point to tight liquidity conditions, despite unprecedented worldwide coordinated monetary loosening.

- The throes of stagflation are in plain view; China “unexpectedly” holds off on reducing reserve requirements for banks, opting instead for reverse-repurchase contracts. Simultaneously, here’s what a popping housing bubble looks like. Protests are progressively more intense.

- On the U.S. economic front, the S&P Case-Schiller index flags a deepening double-dip for the 99%’s largest asset. Lower home prices will anchor consumer confidence over the medium-term. Over the short-term, rising gas prices are starting to damage confidence; the Conference Board’s survey disappoints, printing 61.1 vs. expectations of 68.0 (led by a decline in the present situation).

- Israel/Iran continues to bubble underneath the facade of bullish sentiment. No groundbreaking announcements were made after the UN inspection. Instead, it’s looking increasingly clear that the U.S. is no longer in control of the situation; an Israeli unilateral attack could come in as soon as 3 months.

Friday Humor Part Dois - Banco de Portugal "Wink Wink" Edition

Tyler Durden — Fri, 03 Feb 2012 21:00:38 +0000

Rarely do we have two Friday Humor pieces in a row, but the following seminar announcement from the Banco de Portugal, of all places, is truly priceless...

Source: Banco de Portugal

h/t Harold

BaNZai7'S SOPA BoWL WaRM-UP 2012

williambanzai7 — Fri, 03 Feb 2012 20:58:11 +0000

.

.

Deconstructing The "Massive Beat" in Employment Data

ilene — Fri, 03 Feb 2012 20:57:34 +0000

Deconstructing The "Massive Beat" in Employment Data

Courtesy of Lee Adler of the Wall Street Examiner

The headlines are blaring of a massive surge in January employment that blew away analysts expectations. Frankly, I find it hard to believe that any analysts would not have expected this "news." The real time Federal Withholding Tax daily data for January, which I dutifully cover each week in the Treasury updates, showed a massive surge beginning in late December. Since everybody didn't get a 10% raise, the analysts might have inferred that more people were working. Whether that's a sustainable trend or not is another question, but for January at least, there should have been no mystery.

I like to look behind the headlines at the real unadjusted, unmassaged, unmanipulated numbers to get some idea of what's really going on. Here's where things get strange. Total reported employment and full time employment plunged in January, as is normal for that month. So the Gummit survey data doesn't square with the tax collections. Had we based our forecast for the headlines (which is the only thing that matters to the market in the short run) on the withholding data, we would have gotten it right, but for the wrong reasons. It's a head scratcher that suggests that the Gummit's employment numbers shouldn't be trusted, which isn't news. What we do know for sure is that there was a gigantic surge in withholding taxes from late December to mid January, and that surge disappeared completely in the last week.

So there's no question that things were fantastic in January, although why and how that happened is a mystery. Last week's action suggests that the good news may not persist in February. We also know that the big beat in the headline numbers was an accident. The seasonal adjustment fudge that the Gummit adds to the mix grossly overstated what the actual survey data showed. Here's a picture. The red line is the actual survey numbers. The blue line is the fake seasonally adjusted number.

Remember: Red... actual. Blue... fake.

Just so you know your eyes aren't playing tricks on you, let's zoom in to just the past 13 months.

There you have it. The headline, fake, number was up by 243,000, purportedly the biggest increase since 2006. But what's this? The actual survey number showed a decrease of 2.7 million jobs. In the world of seasonally adjusted government data, down can be up.

To be honest though, that's a good number for January. Last year the drop was 2.9 million, in 2010 it was also 2.9 million, and in 2009 it was 3.7 million. This year also compares well with the bubble years of 2005 (-2.7 million) and 2006 (-2.7). So looking at the top line, the bottom line is that it was a good report, just not the blowout positive number that the headlines reported. It wasn't a gain, but it was a much smaller loss than in the worst years of the slump, and about as good as any non-recession year.

I like to look at full time employment. There again the seasonal fudging overstated the case. The numbers were not good. Full time jobs declined by 1.2 million in January. That's worse than last year at 834,000, and 2010 at 1.1 million. But it is better than the 2.6 million drop in 2009 and the 1.7 million drop in 2008. Does that mean this year was just right?

The year to year gain was 1.5 million or just under 1.4%, which was a little less than last year's 1.5%. Is that a good thing?

To put this in perspective, the actual survey data says that 111.9 million people had full time jobs in January. That compares with a peak level of 119.3 million in January 2008. They call that a "recovery?"

I wonder whether these numbers can be trusted at all, given the huge surge in withholding taxes in January. From that perspective, the BLS data would seem to understate the gain. But was the gain in taxes really about more jobs, or something else? What was behind that surge in tax collections is a mystery. Apparently, it may have had more to do with bonuses and sales commissions than a big increase in the number of jobs.

There may be a hint of that in the average weekly earnings report which showed a jump of 1.8% between December and January. Apparently some people got big paychecks during the period. I wouldn't attribute it to a sudden increase in inflation, at least not yet.

In the end, it's hard to give any of these reports much credence. The blowout headline numbers are misleading, although the tax withholding data showed that some people clearly enjoyed a windfall from late December through the latter part of January. But then that disappeared last week. The chances are that these employment numbers will be heavily revised, and if last week's tax data is indicative of what's ahead this month, the "good news" won't be sustained.

Given the confusion inherent in these numbers, the proof of whether there's any real improvement in the employment trend may not come until this summer when peak employment levels are normally reached. In 2009, 2010, and 2011, peak full time employment stalled at about the same level each July. This year and last year the seasonal lows have trended upward. So if the economy really is growing, given the running head start off the lows I would expect full time employment to leap past last year's highs in May or June. If that does not happen, then we have gained nothing. The initial indications will come in the rate of growth in February and March. Those are numbers to watch. If the growth rate holds up, then the economy is growing, but if those growth rates slow, then we're probably running in quicksand.

Meanwhile, the government's own survey data show that 7.4 million fewer people have full time jobs today than was the case 4 years ago. Those 7 million jobs were the fake jobs spawned by the housing and credit bubbles. Those jobs were vaporized when the bubble economy collapsed. They are NEVER coming back. The "new normal" is just the old normal without the added froth. What we are left with is the bitter reality of fewer people carrying the tax load and more people needing government assistance. We have yet to see any real proof that the trends are improving enough to ameliorate those burdens on the economy.

Get regular updates on the US housing market, and stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Get the research and analysis you need to understand these critical forces. Click this link to try WSE’s Professional Edition risk free for 30 days!

Europe Celebrates Its Latest Recession With Record High Gas Prices

Tyler Durden — Fri, 03 Feb 2012 20:55:04 +0000

Just when you thought it was safe (well not really) to dip your toe back in the ocean of European equities on the back of the LTRO-enthused hope that credit contraction will cease and growth will return, we note another (perhaps more instantaneous) drag on the economic fortitude of the long-suffering people of the EU. Belgium's Beursduivel notes that the national average price for a liter of petrol (gas) has reached a Euro-zone record high of EUR1.76 which equates to a US (not imperial) gallon cost of (drum roll please) USD8.75 (given current EURUSD levels). As Greece, for example, basks in the hope of the failing Troika talks, they unfortunately will have to pay significantly more (double from 3 years ago) for their driving (or boat fuel) as despite the faltering economies across Europe, the price of petrol, diesel, and LPG are also near record highs - and all this without an actual Iran invasion.

Chart: Bloomberg

TrimTabs Explains Why Today's "Very, Very Suspicious" NFP Number Is Really Down 2.9 Million In Past 2 Months

Tyler Durden — Fri, 03 Feb 2012 20:01:32 +0000

We have examined the nuance of the euphoric jobs data this morning from every angle and by now there should be plenty of 'information' for investors to make their own minds up on its credibility. However, the avuncular CEO of TrimTabs, who despite channeling Lewis Black lately, likely knows this data a little better than the average Jim on the street having collected tax witholdings data for the past 14 years, is modestly apoplectic at the adjustments. In one of his more colorful episodes, and rightfully so, Charles Biderman notes that "Either there is something massively changed in the income tax collection world, or there is something very, very suspicious about today’s BLS hugely positive number," adding, "Actual jobs, not seasonally adjusted, are down 2.9 million over the past two months. It is only after seasonal adjustments – made at the sole discretion of the Bureau of Labor Statistics economists – that 2.9 million fewer jobs gets translated into 446,000 new seasonally adjusted jobs." A 3.3 million "adjustment" solely at the discretion of the BLS? And this from the agency that just admitted it was underestimating the so very critical labor participation rate over the past year? Finally, Biderman wonders whether the BLS is being pressured during an election year to paint an overly optimistic picture by President Obama’s administration in light of these 'real unadjusted job change' facts. Frankly, in light of recent discoveries about the other "impartial" organization, the CBO, we don't think there is any need to wonder at all.

TrimTabs believes the job growth picture lies somewhere in between TrimTabs estimate and the BLS’. Looking forward to February and March, we will have a much cleaner picture of job growth as we move away from the effects of tax law changes, bonus season, and enormous seasonal adjustments.

A comparison of TrimTabs’ real-time withholding tax based employment results versus the BLS’ preliminary and revised results from January 2011 through January 2012 are summarized in the following table:

and from details from his blog (for the press corps to perhaps dig a little deeper):

Obviously I am quite suspicious of the numbers that I see in today’s BLS press release. Remember most financial journalists and even stock market strategists do nothing more than rewrite government press releases. So do not expect very few others to question the good news.

For those of you who care, look at Table B-1, Total Nonfarm Employment in today’s BLS press release. Start with the non seasonally adjusted table that shows that in November 2011, there were 133.172 million actual jobs. Actual jobs dropped by 220,000 jobs in December and actual jobs dropped an additional 2.7 million in January. Only as a result of unknown seasonal adjustments, could the BLS report 243,000 new hires in January.

Yes, the labor market contracts during the winter and expands in the spring and summer. Could this number be manipulated? Of course it could. Is it? I don’t know. Am I the only suspicious soul out here? Hope not. Certainly feels lonely right now.

Finally, and this is a repeat of what we said prior using SIFMA data (so originating at the US banksthemsleves), for the US unemployment to be declining, Federal tax withholdings have to be rising: there is no way around it! Instead, as the chart below shows, trailing quarterly collections have just turned negative.

Q.E.D.

Friday Humor: Waiting For "Magic" Is Now An Investing Strategy

Tyler Durden — Fri, 03 Feb 2012 19:47:02 +0000

It has long been known that under central planning "Hope" (that Bernanke sees the printer's shadow; that the economy implodes so Bernanke can print; that the economy surges so that Bernanke can still print; that Brian Sack fat fingers in a few million extra shares of NFLX, speaking of which the Fed's Other Assets are now $160 billion) is one of the dominant investment strategies. To this roster of unorthodox investment practices, we can now add magic. Because when analyzing the capital shortfall at Deutsche Bank (whose assets are 84% of German GDP), arguably the bank with most to lose when Europe is gripped by out of control default contagion (right after Allianz and Generali, or A&G, of course), Credit Sights makes the following observation: "The capital shortfall of €3.2 bln identified by the EBA's capital exercise at 30 September 2011 has magically disappeared... This illustrates the capacity of banks to improve capital ratios without raising new capital." We agree:expecting nothing short of magic is by far the best means to achieve the €21 trillion in deleveraging needed to make the world viable from a solvency standpoint, forget about growing. As for "magic" as an (inverse) bailout strategy, surely this opens up unlimited potential untapped avenues of value uncreation - just consider the endless opportunities of "magically vaporized" as an official explanation for what will happen to your money when this latest Ponzi bubble bursts...

Full blurb from Credit Sights:

Is China's Yield Curve Signaling A Harder Landing?

Tyler Durden — Fri, 03 Feb 2012 19:31:21 +0000

Following our note on the flattening (and update on the steepening) in the Chinese yield curve (RMB 10Y - 2Y to be specific) last November, we have continued to keep an eye on the relationship between the Shanghai Composite and the bond market for signals that all is not well in the recent 'soft-landing' rally. While Chinese shares have seen their best January ever, the RMB curve has flattened quite notably. As Morgan Stanley points out in an FX Pulse update today, the yield curve is an early indicator for local shares, which should not be a surprise given the still restricted Chinese capital account. While we have seen this kind of divergence in the US (where given free capital flows the relationship between yield urves and the equity market has loosened over the past 30 years), in China the relationship is still tight and further flattening of the Chinese curve would call into question the equity market rally (and soft-landing thesis). The flattening RMB yield curve suggests the local bond market has become skeptical of Chinese growth prospects. Should the RMB curve flatten further from here, the anticipated decline of commodity currencies (AUD most specifically for US equity carry traders) could be sooner than expected.

(note: we know the illiquidity in the short-end of the RMB curve and have attempted to adjust for it in the data)

Chart: Bloomberg

Less than One-Fifth of All Americans Favor Military or Covert Action Against Iran … Less than Half of Israelis Want to Attack

George Washington — Fri, 03 Feb 2012 19:11:03 +0000

Preface: Roubini says that attacking Iran would lead to global recession. The IMF says that Iran cutting off oil supplies could raise crude prices 30%. War with Iran would kill the American economy. and see this and this).

So yes, this is a newsworthy economic and financial story.

THE AMERICAN AND ISRAELI BEAT THE WAR DRUMS … BUT THE PEOPLE WANT PEACE

The American and Israeli Beat the War Drums ... But the People Want Peace

While the same neoconservatives who pushed the Iraq war are now loudly beating the drums of war against Iran, neither the American or Israeli people want war.

A new United Technologies/National Journal “Congressional Connection Poll,” finds that only 13% Americans think the U.S. should “take covert action against Iran such as sabotage and assassination of scientists working on their nuclear program”.

Only 17% support “tak[ing] military action against Iran, including bombing weapons facilities inside the country.”

And most Israelis are against war with Iran as well.

As University of Maryland professor of government, and senior fellow at the Brookings Institution, Shibley Telhami and director of the Program on International Policy Attitudes, Steven Kull, note in the New York Times:

Despite all the talk of an “existential threat,” less than half of Israelis support a strike on Iran. According to our November poll (.pdf), carried out in cooperation with the Dahaf Institute in Israel, only 43 percent of Israeli Jews support a military strike on Iran — even though 90 percent of them think that Iran will eventually acquire nuclear weapons.

Most important, when asked whether it would be better for both Israel and Iran to have the bomb, or for neither to have it, 65 percent of Israeli Jews said neither. And a remarkable 64 percent favored the idea of a nuclear-free zone, even when it was explained that this would mean Israel giving up its nuclear weapons.

The Israeli public also seems willing to move away from a secretive nuclear policy toward greater openness about Israel’s nuclear facilities. Sixty percent of respondents favored “a system of full international inspections” of all nuclear facilities, including Israel’s and Iran’s, as a step toward regional disarmament.

Given that the elites who profit from war will do their best to try to pretend we must attack Iran to protect ourselves, we must all be wary of a false flag attack against Iran. Indeed, it almost seems as if some have already hinted in that direction.

Why of course the people don’t want war … But after all it is the leaders of the country who determine the policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship … Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country.

- Nazi leader Hermann Goering

The European Default Line

MacroAndCheese — Fri, 03 Feb 2012 18:59:22 +0000

By S J Morton

macroandcheese.org

What the heck is going on in Europe, and why are the peripheral countries putting up with it?

Let’s review what has happened over the past dozen years. When the Euro was created, Eurozone countries signed on and began using the common currency. They all agreed to follow certain rules, such as maintaining annual deficits of less than 3%, etc. Sensing that Greece and Portugal were now fungible with Germany, investors poured money into the peripheral countries. Hundreds of billions of euro rushed into these countries, mostly from European banks, leading to bubbles all over the place.

The European banks knew what they were doing, it was caveat emptor. They invested in real estate projects, made construction loans, funded small businesses, and stuffed themselves with zero percent BIS sovereign bonds. They thought they couldn’t lose.

But the banks lost. Fine, welcome to investing. But rather than take the hit, those banks were bailed out by their own governments, who told Ireland, Greece, and Portugal, no no no, you can’t default, you can’t leave, we’ll lend you more money so you can make your payments. You just have to follow a few rules, like ratchet up your taxes and slash your spending, so you can pay us back.

So rather than the banks losing money that was foolishly invested, the citizens of the PIIGS countries are on the hook, effectively forever. Sure, Greece will get a break on the bonds it issued, but there was no choice about that, the game had gotten so far out of hand that Greece had no hope of ever paying the money back. But Ireland and Portugal are slated to pay back every dime.

Not only are the PIIGS citizens in debt for probably the rest of their lives, but also they're stuck with a horribly strong currency that makes it all but impossible to compete with their neighbors. Devaluing their currency is the only thing the weak countries can do short of slashing jobs and lowering salaries, and they’re already teetering on the edge of a depression.

Yesterday I attended a presentation by a prominent European economist from one of the strong European countries. He claimed Greece would have no reason to leave the Eurozone, since their imports were two times larger than their exports. If they were to revert to their old currency, the cost of imports would soar, he said, and they don’t have an export sector large enough to benefit from a weaker currency.

But that is exactly wrong! Of course they have no export sector, the Euro is too expensive for them, that’s the whole problem. With a weaker currency they could rev up exports and manufacturing, add jobs, and finally compete. The devaluation would increase exports, while at the same time reducing imports and bringing their current account back in line.

C’mon, PIIGS, default already. Jettison the Euro—it was a bad idea anyway, it’s time to move on. And by all means, don’t agree to make the rich countries’ banks whole when they get burned on a sure thing.

Janet Tavakoli | Super Bowl Spirit and a "Football" side note on David Einhorn

rcwhalen — Fri, 03 Feb 2012 18:52:49 +0000

Latest from Janet Tavakoli -- Chris

Super Bowl Spirit and a "Football" side note on David Einhorn

My favorite football introductory book is an out-of-print book by Joe Namath, FOOTBALL for Young Players and Parents. You may enjoy my favorite lines as you get in the mood for the Super Bowl (below after the side note):

Side note on David Einhorn: Of course I’m talking about American-style football, not soccer aka football. You may recall Harvard educated David Einhorn’s Alfred E Newman worthy quip in defense of his U.K. insider trading—“This resembles insider dealing as much as soccer resembles football." It’s an insult to the global financial community’s intelligence on many levels, unless he meant to say that his actions were exactly insider trading.

That wasn’t his only silly remark. After he received material non-public insider information, he claimed that his prior request not to be wall-crossed should have covered him, and others should have protected him from material information. If only saying the magic word like abracadabra in advance could make future unpleasant developments go away. According to Einhorn’s nonsense, all you would ever have to do is say you don’t want to be wall-crossed to be absolved of trading on material non-public information gleaned in a subsequent conversation. As if.

Then there was Einhorn’s assertion that his trading on this information wouldn’t have been a problem in the U.S. It would likely have been an even bigger problem in the U.S. Greenlight owned more than 10% of the shares of Punch, and if this had happened in the U.S. with shares of a U.S. company, Einhorn would have been an insider by definition. He received material non-public information. I’m surprised his shareholders didn’t challenge his perception on this point, since it likely would have been a much bigger problem in the U.S.

As for governance at Greenlight, Einhorn admitted he didn’t consult lawyers or compliance before he commenced trading. This is one of the weaknesses of the hedge fund model. “It’s okay ‘cause I said so and I run the joint,” just doesn’t cut it.

Finally, the financial press talks about David Einhorn’s many good qualities, and I have no quibble with that. But the press seems to have amnesia when it comes to the fact that he served on the Board of Directors of infamous New Century—smaller than but just as corrupt as Countrywide—from early 2006 until its bankruptcy in March 2007. I cheered when the Ohio Attorney General kicked the corrupt mortgage lending carpetbaggers from New Century out of Ohio in March of 2007 and barred New Century from doing business in the state. New Century could no longer originate new mortgages, could no longer collect fees, could no longer foreclose, and could no longer evict consumers. New Century was sued in several states for alleged fraud on borrowers.

Excerpts from Joe Namath’s, FOOTBALL for Young Players and Parents

“The thing is, a team game is so much fun. You’re working together. You’re really sharing an adventure.”

“You learn you can do your best even when it’s hard, even when you’re tired and maybe hurting a little bit. It feels good to show some courage.”

“Maybe you’re falling down, some guy is trying to block you—and here comes the runner. TACKLE him! I don’t care how. GET him. Desire is vital for a tackler.” [Not the best advice for Strauss-Kahn…]

“The first thing I tell every young quarterback is this: have a mental checklist when you come out of the huddle. You want to know EXACTLY what you are going to do.”

“Turn your head quickly to where you have to go. The rest of you will follow.”

“The best way, in O.J.’s words, is to ‘fake them tight.’ Fake the tackler just a bit, then cut close to him, even if he gets an arm on you.” [It worked for O.J. later in his criminal trial.]

“You don’t have to knock the guy flat. All you have to do is hit him in the right spot at the right time.” [Great advice for girls in martial arts / self-defense. The goal is to get away, not get fancy.]

“Every now and then we see a young runner who has a big head. He’ll think he’s so good carrying the ball that he doesn’t have to block. All that means is he won’t play very long. [Long only funds that never hedge.]

“If you’re the first guy to the ball carrier, you TACKLE him. If two or three of your buddies arrive, maybe one of them can strip the ball and cause a fumble.”

“Make him REALLY worried. Get him backing up. Get him running back toward the goal line.”

“Really you catch a football with your EYES. And your MIND. You watch it so hard, you just concentrate on it so much, that there is no way you can drop it.”

“A good pass receiver doesn’t want to catch MOST passes. He wants to catch EVERY SINGLE PASS. There really isn’t any excuse for dropping a pass.”

“A linebacker can’t afford to have tunnel vision. You have to see many things at the same time.”

“The key to this—for a linebacker—is to get a good jam on your man. Maybe you’ll be covering a tight end, maybe a back. But the first thing you do is JAM the guy.”

“Get it in your mind that nobody is going to stop you. Throw guys, run over guys, JUMP over guys. Whatever you have to do to get the quarterback.”

“You will learn that the guy who stays cool and calm, the guy who can keep thinking when everything is crazy around him, that’s the guy who comes out on top.”

Guest Post: Counterfeit Value Derivatives: Follow The Bouncing Ball

Tyler Durden — Fri, 03 Feb 2012 18:36:48 +0000

Submitted by Zeus Yiamouyiannis from Of Two Minds

Counterfeit Value Derivatives: Follow The Bouncing Ball

Here is how the counterfeit value derivative con works. It’s a game of “I pretend, you pretend, we all pretend, and the taxpayer will pay in the end”.

1) I’ll create an instrument, say a credit default swap (CDS), an unregulated insurance with no capital requirements, with a certain “notional” value. Notional value is just something I assign. It does not have to be attached to or backed by any real asset or actual money/principal, but I can pretend as if it is. (Notional amount.)

2) As a seller, I will just declare that this swap covers the full value X of this company, contract, etc. if credit event Y happens. I receive lucrative insurance premiums and fees for my unbacked promise. The CDS’s value is based in nothing more than my promise to pay. I don’t have to have adequate capital reserves on hand, but I can pretend as if I do perhaps with some mini-reserves based on objective-seeming risk ratios calculated by my mathematical models. (credit default swap.)

3) As a buyer, you can then buy as many of these CDS’s as you want, even for a single default. If you are really sure something is going to tank you can insure it 30 times over (or a 100 or 1,000) and get 30 (or 100 or 1,000) times the return when it goes bust! In regulated insurance it is unacceptable to insure beyond the full replacement value of the underlying asset. Not so with CDS’s. The seller has gotten 30x the premiums and the buyer gets 30x value in the event of default. As a buyer of this phony “insurance” you don’t have a stake in the affected properties, but you can essentially pretend you do.

4) As buyer and seller of CDS’s either one of us can assign our risks to a third party through another contract, and pretend as if we are covered in case our own game playing blows up in our faces. This allows us to retain even less reserve capital and spend freed-up funds on more high-risk, high-(pseudo) return speculation. (The monster that ate Wall Street.)

5) We can purchase and sell of these derivative contracts to each other at unlimited rates to generate massive volume and huge fees and profits. We can simply hyper-cycle risk and take our chunk each time.

According to the Bank of International Settlements, as of June 2011 total over-the-counter derivatives contracts have an outstanding notional value of 707.57 trillion dollars, ( 32.4 trillion dollars in CDS’s alone). Where does this kind of money come from, and what does it refer to? We don’t really know, because over-the-counter derivatives are not transparent or regulated.

With regulated economic markets, when an underlying real asset is impaired (i.e. the company in question is bankrupt, the mortgage has defaulted, etc.), market value is assessed, default insurance is paid up to replacement or full value, bond holders and stock holders make claims on remaining value and the account is closed. There is no need for bailouts because order and proportion of compensation has been established and everything is attached to the value of the underlying asset.

When the unreal, counterfeit economy intrudes, you now have a situation where a person can put in an unregulated, but recognized, claim to be paid a thousand times over in case of impairment. Say market participants have negotiated for a bankrupt company a 70% payback for bondholders and (36% payback for insurance claims), and I come with not one but rather 1,000 CDS claims demanding to be paid for each CDS.

Where does that money come from? Well if it were regulated insurance, I would have to be invested in the company in some way, my bond or stock payout would be limited by the actual asset value of the company, and my insurance payout would be limited as well. However, since I am unregulated and unrestrained, the money due me has to come from the CDS seller and my contractual agreements with that company (say AIG).

AIG could easily have sold 1,000 different unregulated insurance policies to the same person or a million CDS’s to a hedge fund, and when AIG could not pay up, it was threatened with insolvency, under which both its regulated and unregulated insurance policies and investments would become impaired. In fact there is abundant evidence that hedge funds (i.e. Magnetar) did in fact multi-insure certain portfolios while simultaneously pressuring the portfolio managers to select risky investments to ensure that the portfolios would crash. This is the opposite of a traditional “stake,” and this is the disease that modern derivatives bring—profit from intentional market destruction.

This chaotic state of affairs and its cascading implications for other interlinked parties and counterparties (read “too big to fail banks”), essentially resulted in economic extortion to force a huge public bailout of the whole crooked mess (totaling somewhere in the neighborhood of 10 – 14 trillion dollars in giveaways, loans and guarantees starting in 2008 in the U.S. alone.) Instead of agreeing to the extortion temporarily to prevent collapse and then aggressively pursuing orderly investigation, prosecution, and receivership, regulators and world leaders have simply covered up the events and even rewarded the perpetrators.

No wonder the market goes up dramatically when there is talk about another quantitative easing (Fed bailout) or emergency rescue (government/taxpayer bailout). These financial game players already know that an open public spigot is on its way, pouring real capital directly into their pockets.

In regulatory actions and legal courts, unregulated insurance claims should simply be declared null and void when applied to real assets and real compensation. “You have no stake, therefore you have no claim. Your agreement was with a third party that did not have adequate capital to pay for a contract with you. Take them to court.” Or “You have an imaginary claim for imaginary damage. Here’s your imaginary money. Your deal was private and unregulated, then it should be settled in private between companies without public intervention or support.”

Did that happen? No, because AIG had collapsed its unregulated private and regulated public functions and Congress had allowed it to do so with the repeal of the Glass-Steagall Act. Because the wall came down between regulated and unregulated activity, transparent and “shadow” markets, traditional and investment banking, this private fiat virus broke quarantine and the resulting contagion cannot be put back in the lab.

Because world leaders and their regulators blinked and did nothing, counterfeit private fiat (backed by nothing) has metastasized and infiltrated “genuine” public fiat (backed by country’s productivity if not by gold), and more and more actual money and productivity in the form of austerity is being thrown at a gargantuan and unrecoverable sea of counterfeit obligation.

How can you exceed 700 trillion dollars in unregulated derivatives alone? This is easy when market players are buying and selling from each other and when people can buy an infinite number of claims, insurances, and guarantees on credit events rather than assets. When banks are allowed to mark-to-model and then claim somehow that their back-and-forth trading and abstract multiplication of asset value is real, then all bets are off (or “on” depending upon which side of the fence your sitting).

Is it any wonder that the market for derivatives has grown another 100 trillion over the last two years? “We’ll concoct value and you’ll pay us real money for it? Of course we are going to keep doing it! Why not another 100 trillion!”

This probably is not going to stop until there is massive world-wide outcry and political change, a “black swan event,” or both. Let’s hope the first gains steam along with some long-overdue accountability for fraudsters before these nefarious banks destroy the body politic with their hubris and greed.

Recent related entries:

Fraudulent Debt = Counterfeit Money

Our Counterfeit Economy

Counterfeit Money, Counterfeit Policy.

Greece Draws The Line As Unity Government Leaders Refuse To Cede To Further Troika Austerity Demands

Tyler Durden — Fri, 03 Feb 2012 18:02:38 +0000

It appears that Greece will not even have to wait until the dreaded March 20 funding D-Day. As was earlier reported, Greek PM Lucas Papademos may resign if he is unable to persuade his coalition unity government to agree to further Troika demands for additional austerity. It now appears that there will be no agreement, and thus the primary demand from the Troika for further cash disbursement will not be met. The FT reports: "All three party leaders in Greece’s teetering national unity government have opposed new austerity measures demanded by international lenders, forcing eurozone finance ministers to postpone approval of a new €130bn bail-out and moving the country closer to a full-blown default. Representatives of the so-called “troika” – the European Commission, European Central Bank and International Monetary Fund – have demanded further cuts in government jobs and severe reductions in Greek salaries, including an immediate 25 per cent cut in the €750 minimum monthly wage, before agreeing the new rescue. But representatives of all three coalition partners, including centre-left Pasok of former prime minister George Papandreou and the centre-right New Democracy of likely successor Antonis Samaras, said they were unwilling to back the government layoffs." Now we have been here before, and as a reminder the last time Greece threatened to pull out of Europe with the G-Pap referendum threat back in the fall, G-Pap was promptly replaced with the Trilateral Commission member and former ECB Vice President, Lucas Papademos. The problem is that for him to obtain power, he needed to form a coalition government. Well, that now appears to be in tatters, as not one party is willing to break to the Greeks that the minimum wage of €750 will be cut even further. The question is who will blink first this time, as it is quite likely that neither the Troika nor Greece want an out of control default. Unless, of course, this was Germany's plan B to the imposition of a Greek commissar all along...

Anonymous Hacks, Records Conference Call Between FBI And Scotland Yard

Tyler Durden — Fri, 03 Feb 2012 17:38:32 +0000

Whether this is a real hack, or merely an attempt by the FBI to pursue its own ulterior motives is unclear (especially with the broad media coverage it is getting and the fact that the YouTube recording of the call is still online), but supposedly the Anonymous hacker group managed to enter and record a 16 minutes conference call between the FBI and Scotland Yard. Per AP: "Anonymous published the roughly 15-minute-long recording of the call to the Internet early Wednesday, gloating in a Twitter message that "the FBI might be curious how we're able to continuously read their internal comms for some time now." The FBI said the information "was intended for law enforcement officers only and was illegally obtained" but that no FBI systems were compromised. Scotland Yard said that they'd seen no immediate information that their operations had been compromised - but that the force was still checking. The bureau said that "a criminal investigation is under way to identify and hold accountable those responsible." It's not entirely clear how the hackers got their hands on the recording, which appears to have been edited to bleep out the names of some of the suspects being discussed. Amid the material published by Anonymous was an email purportedly sent by an FBI agent to international law enforcement agencies. It invites his foreign counterparts to join the call to "discuss the ongoing investigations related to Anonymous ... and other associated splinter groups. The email is addressed to officials in the U.K., Ireland, the Netherlands, Sweden and France, but only American and British officials can be heard on the recording." The message contained a phone number and password for accessing the call." The full recording can be heard below and a standalone mp3 can be found here.

On This Day In The History Of Ponzi Schemes

Tyler Durden — Fri, 03 Feb 2012 17:12:47 +0000

As America embarks on its latest pre-IPO tech bubble, driven by a fundamentally broken Ponzi system which relies on the marginally disappearing greater fool, it is time to look back in time to this day in 1637, when the granddaddy of all irrationally exuberant bubbles died: the Dutch Tulip Mania.

Source: Wikipedia

What was tulip mania, you ask?

Tulip mania was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed. At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble.

And for fun here are a few recent 'exciting' opportunities...

UniCredit +89% in the last 3 weeks

FriendFinder +120% in the last week

And everyone's favorite Zynga +81% in 3 weeks.

Charts: Bloomberg

Rates Low Thru '16?

South of Wall Street — Fri, 03 Feb 2012 17:06:01 +0000

www.southofwallstreet.com

In putting together the upcoming newsletter (free on the site) – I thought I’d share the graphic below released by the FOMC following the last meeting. While “Rates low thru ’14? was the gist of the headline – over 1/3 of the participants see ’15 and beyond as appropriate. The implications are severe from multiple fronts - a few to think about:

While the case can be made for multiple expansion and the relative valuation of Equities to Fixed Income – there is going to be serious pressure in liability-sensitive corporate America.
For the long the Index crowd, what happens to equity valuations if higher discount rates are thrown in your DCF model?
How many greeters can Walmart hire if the baby boomers are forced to work thru retirement based on the fact that they can’t live off the income from their nest egg? Grandma and Grandpa are moving in folks.
The same baby boomers chasing yield in equities can’t recover from another ’08 – yet they’re being set up for disappointment once again.
We’re in a Balance Sheet Recession, no question about it, and while goons pushing investment products have forward looking views of 3 weeks – lower yields and lower equity multiples are ahead.
Happy Friday… I guess