en Ex-Goldman Banker Confirms "Profits Above Principles" With 100%-Plus Business Loans <p>Confirming every Wall Street stereotype that "ethics are all well and good, but money is more important," the <strong>ex-Goldman Sachs banker who wrote a book on whether the bank always put "profits above principles" has started a firm charging extremely high rates of interest (above 100% in some cases) for struggling small businesses</strong>... oh the irony.</p> <p>&nbsp;</p> <p><a href=""><em>As Bloomberg reports,</em></a></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Steven Mandis was working on a book about whether Goldman Sachs Group Inc. (GS) put profit above principles when he hit upon a new way to make money.</p> <p>&nbsp;</p> <p>The former Goldman Sachs banker<strong> decided two years ago to get into lending money to struggling small businesses</strong>, a niche on Wall Street where brokers offer loans with<strong> interest rates that can climb past 100 percent</strong> to dentists with bad credit and pizzeria owners behind on their bills. To some, it’s the new face of subprime.</p> </blockquote> <p>Doing god's work?</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>“If I’m going to do something, I want to focus on a really big problem so it would mean something,” Mandis said. “And small businesses, I mean, this is the heart of everything.”</strong></p> <p>&nbsp;</p> <p>Small-business lending has yet to recover from the financial crisis. Loans of less than $1 million are down 22 percent from 2007 because of tighter lending standards, Federal Reserve research shows. Even as banks have pulled back from funding businesses directly, Wall Street investors funneled at least $1.7 billion in financing over the past two years to the high-rate lenders rushing in to fill the gap, according to data compiled by Bloomberg.</p> <p>&nbsp;</p> <p>Investors seeing a chance to profit from the risky loans include Chase Coleman’s Tiger Global Management LLC, early Facebook Inc. backer Accel Partners and Doug Naidus, a former head of mortgages at Deutsche Bank AG, whose World Business Lenders LLC charges as much as 125 percent. </p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p><strong>“This is like a payday loan for a business,” </strong>said Pat Fossett, a bankruptcy lawyer in Corpus Christi, Texas, making a comparison to costly cash advances for workers. <span style="text-decoration: underline;"><strong>“Unless they’re making a large profit to pay that high interest, they’re shooting themselves in the foot.”</strong></span></p> </blockquote> <p>For the good of America...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>“There’s this obligation to try to do something to solve a problem in America in my own way,”</strong> he said. “Providing capital to people to grow their businesses and to give jobs to people is I think a good thing.”</p> </blockquote> <p>Not everyone's so excited...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Goins borrowed $122,000, agreeing to pay back $165,920 in about 11 months, according to a copy of the contract. While Stiles was aware of the loan terms, she said they turned out to be more onerous than she thought. Goins furloughed employees so it could afford the sums that Kalamata took daily and then weekly from the company’s bank account, she added.</p> <p>&nbsp;</p> <p><strong>“I don’t think it’s fair,” Stiles said. “He’s taking advantage of the small-business owners because of the interest rate that he charges.”</strong></p> </blockquote> <p>But Mendis defends it thus...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>“When you put it in a percentage, it sounds big and eye-popping, but you need to have a relative sense of it all,” Mandis said. “Should we let that company just go bankrupt?”</strong></p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p>Whether the detritus of firms should indeed BK or not - especially if they can't function without the need to pay triple-digit interest rates for liquidity - is a tough question. Shamefully, in our new normal, everyone's a winner, there are no consequences, and 'entrepreneurs' believe very idea can be worth a billion dollars (or $5 billion in the case of CYNK) at the flip of a switch. Perhaps the real risk-adjusted cost of capital Mendis is offering should send a message to some that their idea/business is FUBAR... or perhsps he is just another Wall Street extractor.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="267" height="193" alt="" src="" /> </div> </div> </div> Deutsche Bank Federal Reserve goldman sachs Goldman Sachs New Normal Fri, 11 Jul 2014 01:09:43 +0000 Tyler Durden 490814 at Bubbles, Bubbles Everywhere <p><em>Submitted by <a href="">Michael Snyder of The Economic Collapse blog</a>,</em></p> <p><strong>Is there any doubt that we are living in a bubble economy?&nbsp;</strong> At this moment in the United States we are simultaneously experiencing a stock market bubble, a government debt bubble, a corporate bond bubble,&nbsp;<a href="" target="_blank" title="a bubble in San Francisco real estate">a bubble in San Francisco real estate</a>, a farmland bubble, a <a href="" title="derivatives bubble">derivatives bubble</a> and a student loan debt bubble.&nbsp; And of course similar things could be said about most of the rest of the planet as well.&nbsp; In fact, the total amount of government debt around the world has risen <a href="" title="by about 40 percent">by about 40 percent</a> just since the last recession.&nbsp; But it is never sustainable when asset prices and debt levels increase much faster than the overall level of economic growth.&nbsp; History has shown us that all financial bubbles eventually burst.&nbsp; <strong>And when these current financial bubbles in America burst, the pain is going to be absolutely enormous.</strong></p> <p>You know that things are getting perilous when even the New York Times starts pointing out financial bubbles everywhere.&nbsp; The following is a short excerpt from a recent <a href="" target="_blank" title="NotQuant article">NotQuant article</a>...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><a href="" target="_blank" title="The New York Times">The New York Times</a> points out that just about everything on Earth is expensive by historical standards. &nbsp; And then asks the seemingly obvious&nbsp;question: <em>&nbsp;</em>Does that make it a bubble?</p> <p>&nbsp;</p> <p><em><strong>Welcome to the Everything Boom &mdash; and, quite possibly, the Everything Bubble. Around the world, nearly every asset class is expensive by historical standards. Stocks and bonds; emerging markets and advanced economies; urban office towers and Iowa farmland; you name it, and it is trading at prices that are high by historical standards relative to fundamentals</strong>. The inverse of that is relatively low returns for investors.</em></p> <p>&nbsp;</p> <p><em>&ldquo;</em>Quite possibly?&rdquo; &nbsp;We&rsquo;re not sure what definition of the word &ldquo;bubble&rdquo; they&rsquo;re using. &nbsp; But in our book when the price of literally everything blasts upwards, obliterating&nbsp;the previous ceilings of historical benchmarks, it&rsquo;s a pretty good indication that you&rsquo;re in a bubble.</p> </blockquote> <p>Of course when most people think of financial bubbles the very first thing they think of is the stock market.&nbsp; And without a doubt we are in a stock market bubble right now.&nbsp; The Dow has risen <strong>more than 10,000 points</strong> since the depths of the last recession.&nbsp; And it is nearly 3,000 points higher than it was at the peak of the last stock market bubble in 2007 when our economy was far stronger than it is now...</p> <p><a href="" rel="attachment wp-att-7530"><img alt="Dow Jones Industrial Average 2014" class="aligncenter size-large wp-image-7530" src="" style="width: 600px; height: 398px;" /></a></p> <p>But of course these stock prices <a href="" target="_blank" title="do not reflect economic reality">do not reflect economic reality</a> in any way whatsoever.&nbsp; Our economy has not even come close to recovering to the level it was at prior to the last financial crisis, and yet thanks to massive Federal Reserve money printing stock prices have soared to unprecedented heights.</p> <p>At some point a massive correction is coming.&nbsp; No stock market bubble lasts forever.&nbsp; For a whole bunch of technical reasons why serious market turmoil is on the horizon, please see a recent Forbes article entitled &quot;<a href="" target="_blank" title="These 23 Charts Prove That Stocks Are Heading For A Devastating Crash">These 23 Charts Prove That Stocks Are Heading For A Devastating Crash</a>&quot;.</p> <p>The bubbles in the financial markets have become so glaring that even the central bankers are starting to warn us about them.&nbsp; For example, just consider&nbsp;<a href="" target="_blank" title="what the Bank for International Settlements is saying">what the Bank for International Settlements is saying</a>...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The Bank for International Settlements has warned <strong>that &ldquo;euphoric&rdquo; financial markets have become detached from the reality of a lingering post-crisis malaise</strong>, as it called for governments to ditch policies that risk stoking unsustainable asset booms.</p> <p>&nbsp;</p> <p>While the global economy is struggling to escape the shadow of the crisis of 2007-09, capital markets are &ldquo;extraordinarily buoyant&rdquo;, the Basel-based bank said, in part because of the ultra-low monetary policy being pursued around the world. Leading central banks should not fall into the trap of raising rates &ldquo;too slowly and too late&rdquo;, the BIS said, calling for policy makers to halt the steady rise in debt burdens around the world and embark on reforms to boost productivity.</p> <p>&nbsp;</p> <p>In its annual report, the BIS also warned of the risks brewing in emerging markets, setting out early warning indicators of possible banking crises in a number of jurisdictions, including most notably China.</p> <p>&nbsp;</p> <p>&ldquo;Particularly for countries in the late stages of financial booms, the trade-off is now between the risk of bringing forward the downward leg of the cycle and that of suffering a bigger bust later on,&rdquo; it said.</p> </blockquote> <p>Sadly, just like in 2007, most people are choosing not to listen to these warnings.</p> <p>Another very troubling bubble that is brewing is the massive bubble of consumer credit in the United States.&nbsp; According to&nbsp;<a href="" target="_blank" title="the Wall Street Journal">the Wall Street Journal</a>, consumer credit in the United States increased at a 7.4 percent annual rate in May...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The Federal Reserve reported Tuesday that consumer credit&mdash;consumer loans excluding real estate debt&mdash;in May increased at an annual rate of 7.4% to a record $3.195 trillion. Most of that gain came from a 9.3% increase in nonrevolving credit, the bulk of which is accounted for by auto and student loans. Revolving credit, which is primarily credit-card debt, expanded at a more muted 2.5% rate after jumping 12.3% in May.</p> </blockquote> <p>That might be okay if our paychecks were increasing at a 7.4% annual rate, but that is not the case at all.&nbsp; In fact, median household income in America <a href="" title="has gone down for five years in a row">has gone down for five years in a row</a>.&nbsp; As the quality of our jobs goes <a href="" target="_blank" title="down the drain">down the drain</a>, our paychecks are shrinking even as our bills go up.&nbsp; This is putting an incredible amount of stress on tens of millions of American families.</p> <p>And when you look at the overall debt bubble in this country, things become even more frightening.</p> <p><a href="" title="In a previous article">In a previous article</a>, I shared a chart which shows the incredible growth of total debt in the United States.&nbsp; Over the past 40 years, it has gone from about 2.2 trillion dollars <strong>to nearly 60 trillion dollars</strong>...</p> <p><a href="" rel="attachment wp-att-7531"><img alt="Total Debt" class="aligncenter size-large wp-image-7531" src="" style="width: 600px; height: 398px;" /></a></p> <p>&nbsp;</p> <p><strong>Is this sustainable?</strong></p> <p><strong>Of course not.</strong></p> <p><strong>None of these financial bubbles are.</strong></p> <p><strong>It is not a question of &quot;if&quot; they will burst.&nbsp; It is only a question of &quot;when&quot;.</strong></p> <p>And some believe that we are rapidly approaching that point.&nbsp; In fact,&nbsp;<a href="" target="_blank" title="Marc Faber">Marc Faber</a> believes that we are seeing signs that it may be starting to happen already...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>It&rsquo;s the question investors everywhere are wrestling with: Are asset prices in a bubble, or do they simply reflect the fact that the global economy is growing once again?</p> <p>For <a data-nodeid="10000347" href="" target="_self" title="Marc Faber">Marc Faber</a>, editor of the Gloom, Boom &amp; Doom Report, the answer is clear. In fact, he says the bubble may already be bursting.</p> <p>&nbsp;</p> <p>&ldquo;I think it&rsquo;s a colossal bubble in all asset prices, and eventually it will burst, and maybe it has begun to burst already,&rdquo; Faber said Tuesday on CNBC&rsquo;s &lsquo;<a data-nodeid="48227449" href="" target="_self" title="Futures Now">Futures Now</a>&lsquo; as the <a data-gdsid="593933" data-inline-quote-symbol=".SPX" href="" target="_self" title="S&amp;amp;P 500">S&amp;P 500</a> lost ground for the second-straight session.</p> </blockquote> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="284" height="282" alt="" src="" /> </div> </div> </div> Bond Capital Markets Central Banks China Consumer Credit Federal Reserve Global Economy Marc Faber Monetary Policy New York Times None Real estate Reality Recession Student Loans Wall Street Journal Fri, 11 Jul 2014 00:31:07 +0000 Tyler Durden 490813 at Been Waiting to Short? <p><iframe src="//" width="640" height="480" frameborder="0"></iframe></p> <p>&nbsp;</p> <p><img src="" width="300" height="150" style="max-width: 100%; height: auto; font-family: 'Lucida Grande', Verdana, sans-serif; font-size: 13px; line-height: 17.328125px;" /></p> Fri, 11 Jul 2014 00:13:28 +0000 Pivotfarm 490812 at The Polar Vortex Is Back... In The Middle Of July <p>While every single economist and "<em>straight to CNBC</em>" pundit was quick to blast the atrocious economic performance in Q1 as solely due to the "harsh weather", what has emerged in various retail earnings reports so far in Q2 is that, drumroll, they lied. In fact, as one after another "stunned" retailer admits, the depressed spending observed during Q1 continued, if not deteriorated even further, in the second quarter. Which means only one thing, the same thing we said back in January: as a result of Obamacare, the declining credit impulse resulting from the Fed's tapering, and a ongoing contraction in global trade as the world slides back into recession, the US economy is on the verge of stalling and may well enter into a tailspin if one or more exogenous events take place in a centrally-planned world that is priced to perfection.</p> <p>To be sure, one of the potential scapegoats we highlighted previously was the replacement of the polar vortex with what we dubbed the "<a href="">solar vortex</a>", ala El Nino, which as we further reported, has already been blamed <strong><em>in advance </em></strong>by the <a href="">Bank of Japan for a spending collapse </a>set to take place in the second half of 2014, the year when the Japanese economy now almost certainly re-enters recession.</p> <p>But just to make sure that the abysmal Q1 GDP which has now spilled over into Q2 and will likely see the US economy growing in the mid-2% range, has a sufficiently broad "excuse" in the third quarter of the year, here comes - <strong>in the middle of July </strong>- <em>the polar vortex 2.0.</em>&nbsp; As <a href="">WaPo reports</a>, "However you choose to refer to the looming weather pattern, unseasonably chilly air is headed for parts of the northern and northeastern U.S at the height of summer early next week."</p> <p><a href=""><img src="" alt="(, adapted by CWG)" width="603" height="250" class="wp-image-43982 size-full" /></a></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Bearing a haunting resemblance to January’s brutally cold weather pattern, a deep pool of cool air from the Gulf of Alaska will plunge into the Great Lakes early next week and then ooze towards the East Coast.</p> </blockquote> <p><a href=""><img src="" alt="6-10 day outlook from National Weather Service Climate Prediction Center" width="599" height="633" class="size-full wp-image-43997" /></a></p> <p>The atmospheric impact will not be nearly as dramatic, but still temperatures are forecast to be roughly 10 to as much as 30 degrees below average.</p> <p><a href=""><img src="" alt="Temperature anomalies (or difference from normal) Tuesday midday from European model (" width="603" height="452" class="size-full wp-image-44012" /></a></p> <p>This means that in parts of the Great Lakes and Upper Midwest getting dealt the chilliest air, highs in this region could well get stuck in the 50s and 60s – especially where there is considerable cloud cover.</p> <p><a href=""><img src="" alt="GFS model forecast highs Tuesday (" width="599" height="449" class="size-full wp-image-44011" /></a></p> <p>&nbsp;</p> <p>And focusing on next week specifically, "Wednesday morning’s lows may drop into the&nbsp; 40s over a large part of the central U.S."</p> <p>&nbsp;<a href=""><img src="" alt="GFS model forecast lows Wednesday morning (" width="602" height="451" class="size-full wp-image-44010" /></a></p> <p>&nbsp;</p> <p>Highs may struggle to reach 80 in D.C. next Tuesday and Wednesday with widespread lows in the 50s (even 40s in the mountains).</p> <p><a href=""><img src="" alt="GFS model 7-day forecast (" width="600" height="232" class="size-full wp-image-44014" /></a></p> <p>More from <a href="">WaPo</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>What’s behind this unusual winter weather pattern primed for&nbsp;the dog days of summer? &nbsp;A lot of it is simply chance (randomness), but&nbsp;<a href="">Weather Underground’s meteorologist Jeff Masters says</a> Japan’s typhoon Neoguri is&nbsp;playing a role in the pattern’s evolving configuration:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>….the large and powerful nature of this storm has set in motion a chain-reaction set of events that will dramatically alter the path of the jet stream and affect weather patterns across the entire Northern Hemisphere next week. Neoguri will cause an acceleration of the North Pacific jet stream, causing a large amount of warm, moist tropical air to push over the North Pacific. This will amplify a trough low pressure over Alaska, causing a ripple effect in the jet stream over western North America, where a strong ridge of high pressure will develop, and over the Midwestern U.S., where a strong trough of low pressure will form.</p> </blockquote> <p>What amazes me most about the pattern is not so much the forecast temperatures, but&nbsp;the uncanny&nbsp;similarities in the&nbsp;weather patterns over North America seen in both the heart of winter and heart of summer. All of the same features (refer to the map at the top of this post) &nbsp;apparent in January are on the map in mid-July: low pressure over the Aleutians (blue shading), a large hot ridge (yellow and red shading) over the western U.S., the huge cold low or vortex over the Great Lakes (blue and green shading), and then the ridge over northeast Canada (yellow and red shading).</p> <p>&nbsp;</p> <p>It’s not at all clear what this&nbsp;means or what, if anything, it portends. &nbsp;Weather patterns cycling through&nbsp;a certain circulation regime can repeat (and we’ve seen this pattern multiple times since November-December), but with <a href="">El Nino forecast to develop</a>, the global configuration of weather systems is likely&nbsp;to change.</p> </blockquote> <p>So the question is: just how profound of an adverse impact on Q3 GDP (because remember: weather anomalies are never additive to GDP; only <em>wars </em>can do that in a Keynesian world) will the second, summertime coming of polar vortex have on the US economy? Judging by the laughable farce that the economic profession has devolved to, desperately seeking to "explain away" any deviation from a priced to perfection growth rate, if only that of the Fed's balance sheet, not to mention why its forecasts are always wrong we are likely to find out very soon.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="719" height="760" alt="" src="" /> </div> </div> </div> Bank of Japan El Nino Japan Obamacare Recession Thu, 10 Jul 2014 23:55:34 +0000 Tyler Durden 490811 at Where The Wealth Is (and Is Not) <p>On the heels of <a href="">Wal-Mart explaining that America is anything but recovering</a>, we thought a look at the state of the union's wealth would be useful. To wit, the following map of household incomes shows <strong>where the "haves" and the "have-nots" reside</strong>...</p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="471" /></a></p> <p><a href=""><br /></a></p> <p><a href=""><em>Source: Visualizing Economics</em></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="856" height="672" alt="" src="" /> </div> </div> </div> Thu, 10 Jul 2014 23:25:03 +0000 Tyler Durden 490810 at Time For Regime Change At The Eccles Building: Interest Rate Pegging Is Destroying Capitalism <p><em>Submitted by <a href="">David Stockman of Contra Corner blog</a>,</em></p> <p><strong>The S&amp;P500 jerked higher yesterday afternoon&nbsp;when the Fed minutes revealed no new information on the dreaded day when interest rates begin to rise. In other words, the stock market is one sick puppy&mdash;utterly&nbsp;addicted to&nbsp;the Fed&rsquo;s baleful&nbsp;regime of ZIRP.</strong></p> <p>And it is a regime.&nbsp;We are now in month 68 of essentially zero interest rates in the money markets. There is nothing like it in&nbsp;post-war history.</p> <p><img alt="" src=";type=image/jpeg&amp;chart_type=line&amp;recession_bars=off&amp;log_scales=&amp;bgcolor=%23e1e9f0&amp;graph_bgcolor=%23ffffff&amp;fo=verdana&amp;ts=12&amp;tts=12&amp;txtcolor=%23444444&amp;show_legend=yes&amp;show_axis_titles=yes&amp;drp=0&amp;cosd=1954-07-01&amp;coed=2014-05-01&amp;width=670&amp;height=500&amp;stacking=&amp;range=&amp;mode=fred&amp;id=FEDFUNDS&amp;transformation=lin&amp;nd=&amp;ost=-99999&amp;oet=99999&amp;scale=left&amp;line_color=%234572a7&amp;line_style=solid&amp;lw=2&amp;mark_type=none&amp;mw=1&amp;mma=0&amp;fml=a&amp;fgst=lin&amp;fq=Monthly&amp;fam=avg&amp;vintage_date=&amp;revision_date=" style="width: 600px; height: 448px;" /></p> <p>The argument for the dangerous absurdity of providing zero cost funding to carry-traders and speculators is that the US economy was&nbsp;smacked&nbsp;by a 100-year flood type event during the 2008 financial crisis and, therefore,&rdquo;extraordinary monetary accommodation&rdquo; is required to heal the damage.&nbsp; But that is a bogus rationalization.</p> <p><em><strong>The financial crisis was caused by the Fed, and then became an excuse for extending and intensifying&nbsp;an interest rate pegging regime that has been in place for 27 years</strong></em>&mdash;essentially since the Greenspan Fed panicked after the Black Monday stock market meltdown in October 1987. Indeed, Bernanke didn&rsquo;t gum about the &ldquo;zero-bound&rdquo; inadvertently; it was, in fact, the end game of the Greenspan Fed&rsquo;s core premise: Namely, that the business cycle can be flattened (if not eliminated)&nbsp;and macro-economic performance improved by pegging prices in the money markets; and that there will be no untoward effects from supplanting market price signals and allocations with a regime of administered money.</p> <p>In truth, the Fed&rsquo;s quarter century march to yesterday&rsquo;s pathetic rerun of yet another episode of &ldquo;lower for longer&rdquo; has produced virtually the opposite of the Greenspan Fed&rsquo;s premise. That is, macro-economic performance has worsened, while the negative&nbsp;side-effects&mdash;serial financial bubbles and massive extension of debt and leverage in all sectors of the US economy&mdash;have been monumental.</p> <p>As to the macro-economic effects, you can&rsquo;t find any discussion of them in the Fed&rsquo;s minutes because they are essentially a short-term economic weather report. <strong>But the ticks in the U-3&nbsp;unemployment rate or blips in the monthly rate of gross capital spending tell almost nothing about the trend performance and health of the national economy.</strong> Janet Yellen was perhaps unintentionally correct in her &ldquo;noise&rdquo; comment, but simply neglected to note that this characterization applies not just to last month&rsquo;s CPI, but to the entirely of the &ldquo;incoming data&rdquo; which the Fed obsesses about.</p> <p><u><strong>At the end of the day, there are two core indicators of the trend in macroeconomic performance and health that are never noted by the monetary central planners in the Eccles Building: Namely, the rate of net capital investment growth&mdash; because that establishes the foundation for future productivity and real wealth gains; and full-time bread-winner jobs&mdash; because that measures the gains in main street living standards.&nbsp;In particular, part-time jobs in bars and restaurants generating annualized pay rates of less than $20k are cyclical noise,&nbsp;not indications of sustainable economic growth.</strong></u></p> <p>After a temporary but unsustainable spurt in CapEx during the&nbsp; Greenspan tech bubble, <em><strong>net investment after allowance for capital consumption</strong></em> in the current reporting period has been dismal for 17-years. And the relevant figure is net investment, not the Keynesian measure of gross capital spending embodied in the GDP equation and endlessly jabbered about on bubblevision.&nbsp;The truth is, during the last 15 years, the highs in real domestic net investment have been getting lower and the lows have also been posting lower. Indeed, after 68 months of ZIRP real net business&nbsp;investment is 20% lower than it was at the turn of the century.</p> <div class="wp-caption alignnone" id="attachment_14195" style="width: 490px"><a class="image-anchor" href=""><img alt="Real Business Investment - Click to enlarge" class="size-medium wp-image-14195" src="" style="width: 600px; height: 355px;" /></a><br /> <p class="wp-caption-text">Real Business Investment &ndash; Click to enlarge</p> </div> <p>Likewise, not withstanding last Friday&rsquo;s swell jobs report headlines, the level of&nbsp;full-time, family supporting &ldquo;breadwinner&rdquo; jobs in the US economy is still&nbsp;4.4&nbsp;% below the 2007 peak; and&nbsp;the&nbsp; ballyhooed June number was actually 4 million below the level attained way back in early 2001.&nbsp;&nbsp;The irony of this dismal condition of jobs in construction, manufacturing, the white collar professions, distribution and transportation, FIRE, business management and core&nbsp;government employment is that more&nbsp;&ldquo;jobs&rdquo;&nbsp;has&nbsp;been the ultimate and incessant&nbsp;justification for interest rate pegging and ZIRP.</p> <div class="wp-caption alignnone" id="attachment_14099" style="width: 490px"><a class="image-anchor" href=""><img alt="Breadwinner Economy Jobs - Click to enlarge" class="size-medium wp-image-14099" src="" style="width: 600px; height: 370px;" /></a><br /> <p class="wp-caption-text">Breadwinner Economy Jobs &ndash; Click to enlarge</p> </div> <p>So there is just no way to argue that the Fed&rsquo;s long march to ZIRP has enhanced the foundational performance of the macro-economy. And that means, in turn, that the Fed is up to something altogether different. In effect, it&nbsp;is involved in a giant and futile&nbsp;game&nbsp;of tilting at short-run cyclical windmills on the implicit theory that the American economy is a fragile flower that will tumble into recession the minute the Fed loosens its grip on the money market dials.</p> <p><strong>This is patent nonsense.</strong> The mild recession cycle of 2001-2002 and the deep but brief plunge of 2008-2009 represented the liquidation of bloated inventories, jobs and marginal output that had built-up during the Fed enabled dotcom and housing/credit bubbles, respectively. During the so-called &ldquo;recovery&rdquo; period of 4-5 years after each of these cycles, it was not interest rate pegging and its ultimate manifestation in ZIRP that did the trick.</p> <p><u><strong>In fact, the above&nbsp;graphs make&nbsp;absolutely clear that low interest rates did not stimulate capital spending or real job creation.&nbsp;</strong></u>What pick-up in&nbsp;activity&nbsp;that did occur under these foundational headings represented the ordinary workings of the capitalist economy. Not&nbsp;withstanding the&nbsp;cyclical windmill tilting in the Eccles Building, and the massive diversion of capital resources and&nbsp;financial activity to the Wall Street casino that is the inexorable&nbsp;result of free money to the carry-trade gamblers, the natural forces of capitalist&nbsp;regeneration did propel the US economy sluggishly forward during the so-called recoveries.</p> <p>In&nbsp;short, the 27 year regime of interest rate pegging has done nothing to flatten the business cycle, but, instead, has actually&nbsp;intensified it by fueling malinvestment-riven financial bubbles that inevitably need to be liquidated.&nbsp; On an all-in basis, therefore, administered prices in the money markets have increased cyclical instability and detracted from trend performance of the fundamentals.</p> <p>As defective as it is, even the real GDP measure doesn&rsquo;t lie.&nbsp;During the last 14 years, real GDP growth has averaged only 1.8 percent annually&nbsp;or barely half of the trend during the prior 50-years.</p> <p>At the same time, interest rate-pegging and ZIRP have destroyed the most important price in all of capitalism&mdash;namely, the cost of short-term money used to fund speculation in the financial markets&mdash;whether through old-fashioned margin credit or other leverage or through more sophisticated forms of options and structured finance trades.</p> <p><strong>In any event, honest price discovery throughout the whole range of financial assets has been destroyed because Fed enabled and subsidized speculation has caused cap rates to be artificially repressed and asset prices to be vastly inflated by one-way trading in the Wall Street casino.</strong></p> <p><strong><u>So maybe its time for a new&nbsp;version of the old regime at the Fed. That is,&nbsp;for the Eccles Building to eschew interest rate-pegging and ZIRP entirely, and thereby allow financial markets to once again engage in honest price discovery and two-way trading; and to allow the natural business cycle to meander along its own capitalist path as determined not by the 12 members of the monetary politburo, but the 317&nbsp;million consumers, producers, investors, entrepreneurs&nbsp;and even speculators who comprise the&nbsp;real main street economy.</u></strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="420" height="292" alt="" src="" /> </div> </div> </div> CPI Free Money headlines Janet Yellen Main Street Meltdown Recession recovery Structured Finance Unemployment Thu, 10 Jul 2014 22:50:30 +0000 Tyler Durden 490809 at Barack Obama: "Don't Get Cynical, Get Hopey" <p>Today, Obama did more of what he has been born to do: preach from a teleprompter, this time at the <a href="">Paramount Theater in Austin. </a>Here are the choice excerpts from the speech transcript. They hardly need commentary:</p> <p>* * * </p> <p>Sometimes people say thank you for something I've done or a position I've taken, and some people say, "<strong>You're an idiot." (Laughter.) And that's how I know that I'm getting a good representative sampling because -- (laughter) -- half the letters are less than impressed with me.</strong></p> <p>* * * </p> <p>The crisis in 2008 hurt us all badly -- worst financial crisis since the Great Depression. But you think about the progress we've made. Today, our businesses have added nearly 10 million new jobs over the past 52 months. (Applause.) Our housing is rebounding. Our auto industry is booming. Manufacturing is adding more jobs than any time since the 1990s. The unemployment rate is the lowest point it's been since September of 2008. (Applause.) ... <strong>some of it had to do with decisions we made to build our economy on a new foundation. </strong>And those decisions are paying off. We're more energy independent. For the first time in nearly 20 years, we produce more oil here at home than we buy from abroad. (Applause.) The world's largest oil and gas producer isn't Russia; it's not Saudi Arabia -- it's the United States of America. (Applause.)</p> <p>In education, our high school graduation rate is at a record high; the Latino dropout rate has been cut in half since 2000. (Applause.) More young people are graduating from college than ever before.<br />&nbsp;<br />AUDIENCE MEMBER: Si se puede!</p> <p>OBAMA: <strong>Si se puede</strong>. (Laughter.)</p> <p>* * * </p> <p>So when folks say they're frustrated with Congress, let's be clear about what the problem is. (Applause.) <strong>I'm just telling the truth now. I don't have to run for office again, so I can just let her rip. </strong>(Applause.) And I want to assure you, I'm really not that partisan of a guy. My favorite President is the first Republican President, a guy named Abraham Lincoln. You look at our history, and we had great Republican Presidents who -- like Teddy Roosevelt started the National Park System, and Dwight Eisenhower built the Interstate Highway System, and Richard Nixon started the EPA.</p> <p>The statement I'm making is not a partisan statement, it is a statement of fact. (Applause.) So far this year, Republicans in Congress have blocked or voted down every serious idea to strengthen the middle class. They have said no --</p> <p>AUDIENCE: Booo!</p> <p>OBAMA: Don't boo now, because what I want you to do is vote. (Applause.)</p> <p>They've said no to raising the minimum wage. They've said no to fair pay. They said no to unemployment insurance for hardworking folks like Kinsey's parents who have paid taxes all their lives and never depended on anything and just needed a little help to get over a hump. They said no to fixing our broken immigration system that we know would strengthen our borders and our businesses and help families. (Applause.)</p> <p>* * * </p> <p><strong>And what it does, is it just feeds people's cynicism about Washington. It just makes people think, well, nothing can happen, and people start feeling hopeless. </strong>And we have to understand, in the face of all evidence to the contrary in Washington, we can do better than we're doing right now. (Applause.) We can do better than what we're doing right now.</p> <p>We know from our history, <strong>our economy does not grow from the top down, it grows from the middle up. It grows from a rising, thriving middle class. </strong>It grows when we got ladders of opportunity for everybody, and every young person in America is feeling hopeful and has a chance to do what they can with the God-given talents that they have. That's what we're fighting for. That is what you should be fighting for. (Applause.)</p> <p>And that's the reason -- that's the reason why my administration has taken more than 40 different actions just this year to help working Americans -- because Congress won't.</p> <p>* * * </p> <p>As long as Congress will not increase wages for workers, I will go and talk to every business in America if I have to. (Applause.) There's no denying a simple truth: <strong>America deserves a raise, </strong>and <span style="text-decoration: underline;"><strong>if you work full-time in this country</strong></span>, you shouldn't live in poverty. That's something that we all believe. (Applause.)</p> <p>* * *&nbsp; </p> <p>Now, here's where it gets interesting. There are a number of Republicans, including a number in the Texas delegation, who are mad at me for taking these actions. <strong>They actually plan to sue me. </strong>(Laughter.) Now, I don't know which things they find most offensive -- me helping to create jobs, or me raising wages, or me easing the student loan burdens, or me making sure women can find out whether they're getting paid the same as men for doing the same job. I don't know which of these actions really bug them. (Laughter.)</p> <p>The truth is, even with all the actions I've taken this year, I'm issuing executive orders at the lowest rate in more than 100 years. So it's not clear how it is that Republicans didn't seem to mind when President Bush took more executive actions than I did. (Applause.) Maybe it's just me they don't like. I don't know. Maybe there's some principle out there that I haven't discerned, that I haven't figure out. (Laughter.) You hear some of them -- "sue him," "impeach him." Really? (Laughter.) Really? For what? (Applause.) <strong>You're going to sue me for doing my job? Okay.</strong> (Applause.)</p> <p><strong>I mean, think about that. You're going to use taxpayer money to sue me for doing my job</strong> -- (laughter) -- <strong>while you don't do your job</strong>. (Applause.)</p> <p>* * *</p> <p>So rather than wage another political stunt that wastes time, wastes taxpayers' money, I've got a better idea: Do something. (Applause.) If you're mad at me for helping people on my own, let's team up. Let's pass some bills. Let's help America together. (Applause.)</p> <p><strong>It is lonely, me just doing stuff. </strong>I'd love if the Republicans did stuff, too. (Laughter.) On immigration issues, we've got -- and to their credit, there are some Republicans in the Senate who actually worked with Democrats, passed a bill, would strengthen the borders, would help make the system more fair and more just. But the House Republicans, they haven't even called the bill. They won't even take a vote on the bill. They don't have enough energy or organization or I don't know what to just even vote no on the bill. (Laughter.) And then they're made at me for trying to do some things to make the immigration system work better. So it doesn't make sense.</p> <p>AUDIENCE MEMBER: (Inaudible.)<br />&nbsp;<br />OBAMA: I'm sorry, what are you yelling about now? Sit down, guys. I'm almost done. Come on, sit down. I'll talk to you afterwards, I promise. I'll bring you back. I'm wrapping things up here.<br />&nbsp;<br />AUDIENCE MEMBER: (Inaudible.)<br />&nbsp;<br />OBAMA: I understand. See, everybody is going to start -- I'm on your side, man. Sit down, guys, we'll talk about it later, I promise.</p> <p>So, look, here's what we could do. We could do so much more -- <strong>you don't have to escort them out. They'll sit down. I promise, I'll talk to you afterwards.</strong></p> <p>* * * </p> <p>Let's rally around a patriotism that says we're stronger as a nation when we cultivate the ingenuity and talent of every American, and give every 4-year-old in America access to high-quality education -- good-quality preschool. (Applause.) Let's redesign our high schools to make them more relevant to the 21st century economy. Let's make college more affordable. Let's make sure every worker, if you lose your job, you can get a good job training that gives you an even better job. (Applause.)</p> <p>Let's embrace the patriotism that says it's a good thing when our fellow citizens have health care. It's not a bad thing. (Applause.) That's not a bad thing. It's a good thing when women earn what men do for the same work. That's an all-American principle. (Applause.) Everybody has got a mom out there or a wife out there or a daughter out there. They don't want them to not get treated fairly. Why would you be against that?</p> <p>* * * </p> <p>There are plenty of people who count on you getting cynical and count on you not getting involved so that you don't vote, so you give up. <strong>And you can't give into that. America is making progress, despite what the cynics say</strong>. (Applause.) Despite unyielding opposition and a Congress that can't seem to do anything, there are workers with jobs who didn't have them before; there are families with health insurance who didn't have them before; there are students in college who couldn't afford it before; there are troops who served tour after tour who are home with their families today. (Applause.)</p> <p><strong>Cynicism is popular. </strong>Cynicism is popular these days. It's what passes off as wisdom. But cynics didn't put a man on the moon. Cynics never won a war. Cynics didn't cure a disease, or start a business, or feed a young mind. <strong>Cynicism didn't bring about the right for women to vote, or the right for African Americans to be full citizens</strong>. <strong>Cynicism is a choice.</strong><br />&nbsp;<br /><strong>Hope is a better choice. </strong>Hope is what gave young soldiers the courage to storm a beach. Hope is what gave young people the strength to march for women's rights and civil rights and voting rights and gay rights and immigrant rights. (Applause.)<br />&nbsp;<br />Hope is what compelled Kinsey to sit down and pick up a pen, and ask "what can I do," and actually think maybe the President might read that story and it might make a difference. (Applause.) And her voice rang out here in the Paramount Theatre. And it's her voice and your voice that's going to change this country. <strong>That's how we're going to make sure that we remain the greatest nation on Earth -- not by asking what we can do for ourselves, but what we can do for each other and what we can do for our country.</strong></p> <p>And so, as President, I'm going to keep a promise that I made when I first ran: Every day,<strong> I will keep asking the same question, and that is, how can I help you? </strong>And I'll keep treating your cares and your concerns as my own. <strong>And I will keep fighting to restore the American Dream for everybody who's willing to work for it.</strong></p> <p>And I am going to need you to be right there with me. (Applause.) <span style="text-decoration: underline;"><strong>Do not get cynical. Hope is the better choice.</strong></span></p> <p>Thank you, Texas. Thank you, Austin. God bless you. (Applause.)&nbsp; </p> <p>END</p> <p>* * * </p> <p>Or, all the above, summarized in one sentence: <em><span style="text-decoration: underline;"><strong>it's the Republicans fault, and ban cynicism.</strong></span></em> (with a gratuitous JFK paraphrase thrown in for good measure)</p> <p><em>Full transcript word cloud:</em></p> <p><a href=""><img src="" width="600" height="272" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="400" height="300" alt="" src="" /> </div> </div> </div> Barack Obama Great Depression Saudi Arabia Unemployment Unemployment Insurance Thu, 10 Jul 2014 22:13:38 +0000 Tyler Durden 490798 at Las Vegas Is More "Screwed"; Drought Drains Lake Mead To Lowest Since Hoover Dam Built <p>Two weeks ago<a href=""> we highlighted just how &quot;screwed&quot; Las Vegas is due to the catastrophic drought that is occurring </a>(combined with almost total ignorance that this is a problem). As Bloomberg&#39;s James Nash reports, about 55% of Nevada, already the nation&rsquo;s driest state, is under &ldquo;extreme&rsquo;&rsquo; or &ldquo;exceptional&rsquo;&rsquo; drought conditions, the worst grades on the U.S. Drought Monitor; but recently the situation has got even worse. <strong>Lake Mead, the man-made reservoir that supplies 90 percent of the water for 2 million people in the Las Vegas area, has been reduced by drought to the lowest level since it was filled in 1937</strong>, according to the federal government who explained &quot;It concerns us all very much,&quot; as it is a resource used by 3 states. Simply put, <span style="text-decoration: underline;"><strong>The shortfall is endangering water supplies to the residents and 43 million annual visitors to the driest metropolitan area in the country.</strong></span></p> <p>&nbsp;</p> <p><a href=""><img height="290" src="" width="600" /></a></p> <p>&nbsp;</p> <p>We <a href="">discussed in detail just how dire the water situation is in Las Vegas here</a>, but as Bloomberg reports, things are deteriorating fast...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Lake Mead, the man-made reservoir that <strong>supplies 90 percent of the water for 2 million people in the Las Vegas area, has been reduced by drought to the lowest level since it was filled in 1937</strong>, according to the federal government.</p> <p>&nbsp;</p> <p>The lake, now at 39 percent of capacity, has been dropping since 2012, according to U.S. Bureau of Reclamation data, as much of the western U.S. has suffered the most serious drought in decades. <span style="text-decoration: underline;"><strong>The shortfall is endangering water supplies to the residents and 43 million annual visitors to the driest metropolitan area in the country.</strong></span></p> <p>&nbsp;</p> <p>Lake Mead, created by the Hoover Dam in 1936 and 1937, holds mountain snowmelt from the Colorado River for farms, homes and businesses predominately in southern Nevada, southern California and most of Arizona. No metropolitan area depends on the lake more than Las Vegas, which lacks groundwater or other local sources.</p> <p>&nbsp;</p> <p>&ldquo;This is significant because it&rsquo;s a resource used by three states,&rsquo;&rsquo; said Rose Davis, a spokeswoman for the bureau. &ldquo;We all have to keep an eye on it because it&rsquo;s the major water source for three areas.<span style="text-decoration: underline;"><strong> It concerns us all very much.&rsquo;&rsquo;</strong></span></p> <p>&nbsp;</p> <p><strong>The lake&rsquo;s surface, which reached a record high of 1,225 feet above sea level in July 1983, is now at about 1,083 feet, according to the bureau. If the level drops below 1,050 feet, one of the two intakes that feed water to Las Vegas will become inoperable</strong>. At 50 feet lower, the other would fail. Since 2008, contractors have been boring through rock to create a third conduit to draw water from as low as 860 feet.</p> <p>&nbsp;</p> <p><strong>About 55 percent of Nevada, already the nation&rsquo;s driest state, is under &ldquo;extreme&rsquo;&rsquo; or &ldquo;exceptional&rsquo;&rsquo; drought conditions, the worst grades on the U.S. Drought Monitor, </strong>a federal website. Portions of California, New Mexico and Colorado also are in the &ldquo;exceptional&rsquo;&rsquo; category, according to the monitor.</p> <p>&nbsp;</p> <p>Nevadans have cut back on water use since the magnitude of the drought became clear, according to data from the Southern Nevada Water Authority.</p> <p>&nbsp;</p> <p><strong>The region reduced daily usage 4.6 percent per person, to 124 gallons in 2013, from 130 gallons in 2012,</strong> authority spokeswoman Nicole Lise said by e-mail. In Los Angeles, personal consumption in 2013 was 129 gallons, according to the Department of Water and Power.</p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p>As we concluded 2 weeks ago, the bottom line - get there now, watch the fountains, drink the water, swim in the lake... (and sell your house)</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="982" height="474" alt="" src="" /> </div> </div> </div> Fail Las Vegas Mexico Personal Consumption Thu, 10 Jul 2014 21:31:55 +0000 Tyler Durden 490797 at The Current Repo Fails Issue Rebukes Any Notion That The Fed Is In Control <p>As <a href="">we have discussed at length, the issue of the surge in Treasury fails (and the Fed&#39;s panicked &quot;sell your bonds&quot; response)</a> suggests things are far less &#39;stable&#39; than they would like the world to believe. Simply put, <a href="">&quot;Repo Matters&quot; as Alhambra&#39;s Jeffrey Snyder discusses below</a>:</p> <p><strong>The current repo fails problem &ldquo;directly rebukes&rdquo; the idea that the Fed has &ldquo;all possible scenarios covered.&rdquo;</strong></p> <ul> <li>For the Fed to have all scenarios covered would mean that the NY Fed&rsquo;s SOMA portfolio has to maintain a &ldquo;broad enough inventory&rdquo; to satisfy the market</li> <li>&ldquo;That, on its face, is a patently unrealistic assumption since it will be impossible to predict exactly what repo markets need in even the immediate future, let alone during any drawn out &lsquo;normalization&rsquo;&rdquo;</li> <li>Recent spike in repo fails is important because RRP is supposed to &ldquo;directly alleviate a collateral shortage of this kind&rdquo;</li> <li><strong>To lose control of short-term rates during an anomaly would be &ldquo;potentially dangerous&rdquo; especially if it were to take place during &ldquo;normalization, where instability would be beyond elevated&rdquo;</strong></li> <li>Where the Fed failed to &ldquo;enforce a floor during the worst days of panic in 2008 and into 2009&rdquo; there is &ldquo;much confidence here that flaws have been found and addressed positively&rdquo;</li> </ul> <p><strong>The question for financial participants is whether or not a less solid and shrinking repo market is unrelated to continuous and orderly function. History suggests, decidedly, it is not.</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>For central banks, it seems to follow that they are content, at least outwardly, to simply manage expectations with the idea that will be enough to create and maintain &ldquo;resiliency.&rdquo;</p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>By persisting with the PR campaign that the world is fixed and close to attaining near-perfection that is supposed to be enough to offset very real weakness in liquidity and emergency balance sheet capacity?</strong></span> Then again, if you actually believe that of the economy and markets then the chances for a financial &ldquo;shock&rdquo; are probably trivial in your estimation. But it pays to remember that last year&rsquo;s bond selloff was also &ldquo;unexpected&rdquo; as well.</p> <p>&nbsp;</p> <p><strong>It&rsquo;s not exactly the idea of currency elasticity imagined when the Fed was first dreamed up, but then again that function was also mostly PR.</strong></p> </blockquote> <p>As Snyder concludes,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The FOMC wants, actually needs, to instill confidence that it can transform itself from its QE legacy (however much tarnished it has grown). <span style="text-decoration: underline;"><strong>This only heightens the idea that stability is a paperlike illusion that may be undone with only the slightest &ldquo;shock&rdquo; or disruption &ndash; the hidden asymmetry that is the hallmark of fragility</strong></span>. This severely, in my opinion, undermines the credibility of even the idea of the rate floor.</p> </blockquote> <p>* * *</p> <p>The Fed&#39;s market domination has meant massive collateral shortages (<a href="">as we have detailed previously</a>) and now more even that during last year&#39;s taper-tantrum, <strong>the repo market is trouble</strong>.</p> <p>*&nbsp; *&nbsp; *</p> <p><span style="text-decoration: underline;"><strong>But why do I care about some archaic money-market malarkey? </strong></span>Simple, Without collateral to fund repo, there is no repo; without repo, there is no leveraged positioning in financial markets; without leverage and the constant hypothecation there is nothing to maintain the stock market&#39;s exuberance (as we are already seeing in JPY and bonds).</p> <p>Crucially, it should be inherently obvious to everyone that the moves we see in the stock market is not about mom and pop choosing to invest in the stock market (or not) as the &#39;cash on the slidelines&#39; fallacy is &quot;completely idiotic&#39; but about the marginal leveraged machine (or human) quickly jumping oin momentum.</p> <p><strong>The spike in &quot;fails to deliver&quot; highlights a major growing problem in the repo markets that provide that leverage... <span style="text-decoration: underline;">and thus the glue that holds stock markets together.</span></strong></p> <p>Wondering why JPY and bond yields have diverged so notably from stocks in recent days... repo effects (it&#39;s just a matter of time before it hits stocks)...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 313px;" /></a></p> <p>&nbsp;</p> <p>And while the world breathlessly ignores it because stocks are going up for now,<a href=";sid=auJxnhL3YKQg"> here&#39;s what it meant in 2009</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;If you have fails, then the market isn&rsquo;t functioning properly,&rdquo; </strong>said Eric Liverance, head of derivatives strategy at UBS AG in Stamford, Connecticut, another primary dealer. &ldquo;That is what we saw last fall when we had massive fails. If you can lend a bond out and count on it coming back the next day, then those are properly functioning markets and it enhances liquidity.&rdquo;</p> <p>&nbsp;</p> <p><strong>&ldquo;That is telling you that dealers really don&rsquo;t know what all this will mean,&rdquo;</strong></p> <p>&nbsp;</p> <p><strong>&ldquo;People are being prudent and saying I am not going to have a Treasury short now and I&rsquo;ll wait to see how this pans out over the next two months.&rdquo;</strong></p> <p>&nbsp;</p> <p><strong>&ldquo;The market&rsquo;s heightened state of anxiety looks likely to produce unintended and unfortunate consequences,&rdquo;</strong> said Ciaran O&rsquo;Hagan, the Paris-based head of fixed-income at Societe Generale. &ldquo;The fails penalty adds to the security of the market at the cost of liquidity. All this suggests that liquidity will be hurt across the board for U.S. Treasuries.&rdquo;</p> </blockquote> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="956" height="507" alt="" src="" /> </div> </div> </div> Bond Central Banks fixed Repo Market Thu, 10 Jul 2014 21:08:16 +0000 Tyler Durden 490796 at Guest Post - Rethinking the Concept of Retirement <p style="text-align: center;">Rethinking the Concept of Retirement</p> <p style="text-align: center;">By Mrs. Cog</p> <p style="text-align: center;">&nbsp;</p> <p style="text-align: center;">&nbsp;</p> <p><strong>Cognitive Dissonance:</strong><em> Lately Mrs. Cog and I have been thinking about the expected fallout of the unfolding global financial/social/political crisis. Slowly but surely we are visiting, and re-visiting, the concept of 'retirement', something we were both sold on as 'real' all our 'working' lives. Considering many of us are depending upon various retirement income streams, especially those income streams not based upon actual cash in hand but rather on promises made by private corporations and public entities, it might be in our best interest to revisit our basic assumptions and premises. Simply put, we're not in Kansas anymore.</em></p> <p><em><strong>Mrs. Cog</strong> shares her thoughts on this subject below.</em></p> <p><em><br /></em></p> <p style="text-align: center;"><em>To subscribe to ‘Dispatches’, a periodic newsletter from Cognitive Dissonance and <a href="" target="_blank">TwoIceFloes</a> Creations, please <a href="" target="_blank"><strong>click here</strong></a>.</em></p> <p>&nbsp;</p> <p>It’s a funny thing how certain concepts have permeated throughout our culture and are just simply accepted as ‘normal’ without question. Even when faced with the reality that a given ‘normal’ situation is in jeopardy or worse, may all together cease to exist, we as a society still measure and plan our lives based upon what we thought was supposed to happen. If we feel we are entitled to it, then not only do we cling to it, but we do so with anger and righteous indignation.</p> <p>One of the most brilliant public relations campaigns launched in modern times is the concept of retirement. The idea of working hard all our lives while carefully saving and investing so that we may spend our twilight years financially independent while relaxing, playing and enjoying all the things life has to offer as a reward is romantic and hard to resist. The people who believe this is still the norm will be the same ones who claim <em>“I did everything right. I played by all the rules. It's not fair. I was robbed.”</em></p> <p>To add insult to injury, those of us who will not benefit from this version of the bought and sold concept of retirement were a party to watching the generations before us experience precisely that. In the world’s greatest recorded wealth cycle and bubble of all ages, where the world eventually levered over a quadrillion dollars in bets, the wealth effect has been tremendous and many in the Western world were able to jump on for the ride. Overdue for the boom to go bust, the latter generations will not enjoy the picturesque golden years in style and comfort as sold to us in the retirement brochures.</p> <p>&nbsp;</p> <p style="text-align: center;"><img src="" alt="Life Choices" title="Life Choices" width="800" height="532" /></p> <p>&nbsp;</p> <p>Even as the more aware and savvy among us understand the wheels are coming off the economic bus presently on a worldwide centrally planned disaster tour, the continuity bias is astounding as I watch those with assets address this as an “<em>extra rough patch</em>” to get through rather than the clear paradigm shift it has been telegraphed to be. Furthermore, even those who see what is now underway and acknowledge this as a game changer think they can game the system, escape the worst of it or hedge enough to have one of their winning bets fall somewhere solid.</p> <p>No, it isn’t fair. But blaming the generations who prospered before us or the central planners and bankers who we enabled will not bring back that comfy old age experience we had hoped and planned for. As painful of a time as this will be, perhaps this is a good time to think about "<em>if not retirement, then what</em>”.</p> <p>For a brief time it may appear that working a low wage job in a position perceived far beneath our qualifications is the only future the system has left for us. And it may very well be so if we still allow the same system that sold us on ‘retirement’ to define what we will do, or be, without it.</p> <p>Perhaps it's time to give deep consideration to rethinking any concept that depends upon the way the system is <em>supposed</em> to work. Public and private pensions, social security and annuity payments will not be getting the job done. We fully expect IRA and Roth retirement investment vehicles will be largely forced to convert some or all holdings into U.S. Treasuries……for your own safety of course. Capital controls and changing the financial and social rules will become the new normal. Cash and any residual savings can simply be ‘bailed in’ to ‘bail out’ the big boys through the banks and brokerages that hold the funds.</p> <p>Finally even if these retirement vehicles could be liquidated and placed in currency stacks before us, after we pay <em>outrageous</em> penalties and taxes of course, there is no sure way to preserve it. Certainly there are no ‘good’ (read relatively ‘safe’) investments to grow it. The overt and stealth creation of money at the Federal Reserve will continue to erode the purchasing power of all who depend upon the money to be there when it matters the most.</p> <p>If we put all emotion aside for the moment we can see that the government, while seeing itself as separate from the people, will gladly point out that it is of and for the people. So whatever the ‘collective’ needs to sacrifice in order to keep it going is the right thing to do. There is logic to this viewpoint if one believes the alternative is chaos and anarchy and lives in fear of those scenarios. Many involved in public policy setting do not think people are capable of governing themselves, let alone protecting themselves. This now seems to include planning for their elder years, both how one might live as well as die.</p> <p>&nbsp;</p> <p style="text-align: center;"><img src="" alt="Soup" title="Soup" width="800" height="537" /></p> <p>&nbsp;</p> <p>So what is the alternative? How might we view our elderly future? What can be done?</p> <p>With our eyes wide open, questioning everything is a good start. Rethinking our needs and wants, reevaluating our priorities, and assessing what we might <em>really </em>value versus what society has told us is important. These are no small tasks and indeed can be a most humbling process to consider, but the upside of doing so could make all the difference.</p> <p>While Cog and I continue to question and rethink our plans, these are the ways we have gone about replacing the concept of retirement with a different type of perceived security.</p> <p>1. <strong>Getting our money out of money</strong> has perhaps been the most difficult step to take. The world still operates with money and the US dollar still spends. Sure, things cost a bit more, but nothing has spun out of control on a day to day basis to change the function of money just yet. But because the US dollar ‘trigger event’ and its timing will remain unknown to us plebs until it unfolds, we are erring on the side of caution and assume there won't be time to re-jigger our finances then.</p> <p>What does this mean? We begin by only keeping enough cash in the bank to cover bills and immediate shopping and spending needs. Savings accounts and money markets don't earn interest, so they were eliminated.</p> <p>2. <strong>Minimizing our counter-party risk</strong> was similar to a Wild West shoot out. Everywhere we looked targets had to be taken out. The rules for musical chairs (Calvinball style) say that whoever doesn't possess a seat when the music stops loses. And furthermore the rules can be changed at any time. So as we looked at just where our assets were distributed it turned out that most, if not all, of them were dependent upon a third party (oftentimes several layers of third parties) to do (or be) something in order to return the value of our investment to us.</p> <p>Most obvious to us were brokerage accounts and safety deposit boxes that we closed out. Eliminating counter-party risk involves taking possession of any assets and items that will store earnings and wealth. Taking possession of precious metals, aka stacking gold and silver, is the most common way discussed. More contrarian ‘experts’ are now coming forth to say farm land, useful tools and investing in the knowledge of an valuable trade or skill are some of the best assets one can possess, none of which depends upon another party.</p> <p>3. <strong>Arranging not to be at the mercy of rising interest rates</strong> is a key element to forwarding our plan for independence. This means getting rid of any debt which may be subject to rate increases. Ben Bernanke may have stated that interest rates will not rise in his lifetime, but he has been mistaken and/or disingenuous in the past. I cannot adequately express the personal relief it has brought us to not be subject to credit card interest or the worry about resets on mortgages with an ARM in five years.</p> <p>When the day finally arrives when interest rates begin to raise substantially, certain costs will go up in tandem. Government entities on the Federal, State and local levels will get socked with rising interest payments payable on new or reissued bonds, and all taxes will rise accordingly. The same is true of corporations that depend upon debt issuance such as utilities. Supplying ourselves with alternatives at today's prices may be a bargain in hindsight.</p> <p>4. <strong>Creating streams of income not reliant on a collapsing job market or an employer with constraints</strong> is providing us continuity in a rapidly changing landscape. Charles Hugh-Smith has recently written about the emergence of a new type of entrepreneur he has labeled Mobile Creatives. <a href=""></a> That article is a fascinating analysis of an emerging class of workers; this idea seeks to eliminate income dependency upon the state and corporations.</p> <p>5. <strong>More self sufficient living arrangements</strong> was an essential step in preparing for our second half of life from several aspects. We collapsed previously diversified ‘retirement’ funds into a home with some land that has no debt as well as resources and tools that supply us with the ability to feed ourselves. By doing so, we now enjoy a much healthier lifestyle while converting our ‘money’ into tangible assets that will retain value for us.</p> <p>6. <strong>We have taken charge of our health (care)</strong> because the current system is so dysfunctional and the previous methods for doing so (a good health insurance plan and reliable medical care) are now largely obsolete. Cog and I have made the decision to take complete responsibility for our own wellness. What this translates into is no dependency upon prescription or regular over the counter medicines. Nature provides far more potent remedies including powerful antibiotics and anti-cancer substances. We have elected to maintain our high deductible ‘health insurance’ policies in case the need for emergency medical treatment arises. Most important we do not mentally or emotionally rely on the members of the medical profession to keep us well or ‘heal’ sickness. I personally feel this has been the most empowering of all the steps we have taken to become more self-reliant.</p> <p>Without question there are things we cannot provide for ourselves. No man is an island. As we get older, we recognize that we may need help with things and act accordingly by trying to assist others in the spirit of the Golden Rule.</p> <p>There is little doubt that the years ahead bring promises of drastic and unknown changes. By addressing our future years and making changes while we are able, we are both less dependent upon our community and have an increased ability to contribute. It is never too late to reevaluate the way we take responsibility for ourselves.</p> <p>&nbsp;</p> <p>Mrs. Cog</p> <p>07-10-2014</p> <p>&nbsp;</p> <p style="text-align: center;"><img src="" alt="Old Age" title="Old Age" width="800" height="531" /></p> Ben Bernanke Ben Bernanke Cognitive Dissonance Federal Reserve Guest Post Musical Chairs New Normal None Precious Metals Purchasing Power Reality Thu, 10 Jul 2014 20:36:16 +0000 Cognitive Dissonance 490794 at