Last June (the 24th to be precise), it was announced that 60 million barrels of oil would be released from world reserves, with about half of that amount being taken from the SPR. Oil was trading at $91 when the announcement was made but actually rose in price - hitting $97 - before dropping to $88 once the surplus oil was introduced on July 15. 60 million barrels = $3 lower price. Hardly bang for the buck - especially as oil was back above $100 before the end of the year. As much as the SPR is seen by many to be the panacea for high prices, the lack of available additional supply from the world’s biggest producers is a far bigger concern; one which my friend Ronni Stoeferle from Vienna wrote a fantastic report on recently entitled “Nothing To Spare” (you can email Ronni HERE for a copy of the report which is an incredibly detailed piece of work). In it he took an in-depth look at some of the supply constraints facing the world and his conclusions are, to say the least, troubling.
Minutes ago Apple announced that first thing tomorrow it will "host a conference call to announce the outcome of the Company’s discussions concerning its cash balance. Apple® will not be providing an update on the current quarter nor will any topics be discussed other than cash." As a reminder, Apple has just about 100 billion in cash. Everyone expects a dividend. So what happens when everyone finally gets what they have been expecting for so long? Will it mean the end of the growth phase and the advent of the "MSFT" anti-growth curve? Also, which bank will claim the commission for advising Apple on how to spend a cash amount that while nearly a third of Greek GDP, is less than half of the US February budget deficit (in other words, Apple could fund just 12 days of the US spending burn rate in February)? Finally, was the pre-election administration at all involved in the making of this decision - remember the company was expected to announce a cash-related decision a month ago, and nothing happened. Why now? All shall be revealed tomorrow at 9 am.
The surprising tale that I will attempt to pen in this blog entry has a very familiar cast of characters; the Obama Administration, the Housing Bubble, "Toxic Mortgages", and Too Big To Fail "TBTF" Banks among others. While the headline of TBTF banks in a $25bil mortgage settlement is known to many, the underlying details of the settlement are less known and quite appalling when you pull back the covers. The wounds on past and present homeowners are still fresh from the housing crisis. As Jonathan Laing points out in this weekend's Barron's cover story, "five million of the country's 76million mortgage holders have lost their homes to foreclosure or lender ordered short sales since 2006, and an estimated 14million more own more on their homes than their properties are currently worth. In all, some $7.4 trillion in homeowners' equity has been destroyed according to Mark Zandi..."
Back in May of last year, just after the now historic silver slamdown of "Silver Sunday" on May 1, 2011, when the metal imploded by nearly 20% in the span of seconds, a move that some considered 'normal', primarily the CFTC, we presented the extended biopic of the infamous "Silverfinger": Bunker Hunt, who attempted to corner the silver market, and succeeded, if only briefly (and they say Playboy has no good articles). Today, courtesy of Grant Williams, we have dredged up the following clip from the archives, which is a 10 minute overview of just how there is really nothing new ever in the silver market, bringing up memories of Silver Thursday, March 27, 1980, and raising questions whether last year the move in precious metals was not due to the same attempt to corner the silver and gold markets as happened 30 years prior. A far more important question perhaps is how was it that tried a redux of the Hunt brothers (and Warren Buffett of course), and when will someone take their place next?
We have long argued that at its core, modern society, at least on a mathematical basis - the one which ultimately trumps hopium every single time - is fatally flawed due to the existence, and implementation, of the concept of modern "welfare" - an idea spawned by Otto von Bismarck in the 1870s, and since enveloped the globe in various forms of transfer payments which provide the illusion of a social safety net, dangles the carrot of pension, health, and retirement benefits, and in turn converts society into a collage of blank faces, calm as Hindu cows. Alas, the cows will promptly become enraged bulls once they realize that all that has been promised to them in exchange for their docility and complacency has... well... vaporized. It is at that point that the final comprehension would dawn, that instead of a Welfare State, it has been, as Bill Buckler terms it, a Hardship State all along. Below we present the latest views from the captain of The Privateer on what the insoluble dilemma of the welfare state is, and what the key problems that the status quo will face with its attempts at perpetuating this lie.
One of the big stories of the week was that Morgan Stanley “reduced” its exposures to Italy by $3.4 billion mostly by unwinding some swaps they had on with Italy. Morgan Stanley booked profit of $600 million on the unwind. The timing couldn’t have been worse coming on the heels of the “Darth Vader” resignation at Goldman Sachs, attracting more attention to profits on derivatives trades was the last thing the investment banks need. Much of the outrage seems misplaced though. In this case, don’t blame Morgan Stanley, blame Italy, and be very afraid of what else Italy has done.
Last week we learned two things: that Jamie Dimon specifically telegraphed he is now more powerful than the Fed, and that the US economy is back down to the same March 2009 optical exercises in financial strength gimmickry to stimulate rallies. Recall that on FOMC day, the market barely budged on Bernanke's ambivalent statement and in fact was in danger of backing off as the readthrough was that of no more QE... until JPM announced a major stock buyback and dividend boost. The catalyst: a successful passing of the latest and greatest Stress Test, which according to experts was "much more credible" than all those before it. Wrong. The test was merely yet another complete farce and a total joke. But as expected, the test had its intended effect: financial shares soared across the board, and banks promptly took advantage of investors and robot gullibility to sell equity into transitory strength. Bloomberg's Jonathan Weil explains.
If there is one thing 2011 taught us is that one totally unpredictable and unexpected event, such as the great March 11 Tohoku earthquake, tsunami, and Fukushima disaster, can wreak massive havoc on otherwise stable economic ecosystems, models and forecasts. According to many, most certainly the Fed, the events in Japan had a major spillover effect on global GDP that lasted for months, in turn forcing fiscal and monetary responses around the world. A true black swan. As the following brief video summarizes, 2011 was the year of earthquakes. Has the earth become increasingly unstable? Will the pattern from 2011 continue into 2012 and beyond? Is mother nature getting angrier? We have no idea, but we do know that the following clip is quite awesome: make sure you have your volume turned up high.
Yesterday I got my new iPad. Yeah, I bought one like millions of other suckers. Apple can take my dollars and recycle them buying treasury bills and so partially fund, at least for a short while, America’s unsustainable debt position. But really, I bought one to enjoy the twilight of the miraculous system of global trade. An iPad is the cumulative culmination of millions of hours of work, as well as resources and manufacturing processes across the globe. It incorporates tellurium, indium, cobalt, gallium, and manganese mined in Africa. Neodymium mined in China. Plastics forged out of Saudi Crude. Aluminium mined in Brazil. Memory manufactured in Korea, semiconductors forged in Germany, glass made in the United States. And gallons and gallons of oil to ship all the resources and components around the world, ’til they are finally assembled in China, and shipped once again around the world to the consumer. And of course, that manufacturing process stands upon the shoulders of centuries of scientific research, and years of product development, testing, and marketing. It is a huge mesh of processes.
Since at this late hour on March 17th, better known as St. Patrick's day, the only type of Oxidation-Reduction reactions our readers are interested in are those involving the conversion of ethanol into carbon dioxide, and any extensive verbalizing would be largely lost, we have decided to commemorate this day with 17 charts pertaining to those other far more valuable combustible products, namely crude, gas, and everything else that powers modern society. Luckily, since the charts are self-explanatory, they will not interfere with whatever other activities are customary for this time of day. Also, please use this post as an open thread for AA rejects.
“Wherever this flag’s flown we [don’t] take care of our own” No, Americans, singularly among people of the so-called First World, don’t take care of their own. Half of America is in poverty, and few among the other half care or much give a damn about the situation, resorting to blaming it all on a lamentably greedy “one-percent.” They prefer not to look in the mirror, naked… knowing full well how ugly they look in their obesity, exhibiting both, layers of fat and lack of cojones.... Sergeant Bales, assuming he is found to be the only soldier involved in the recent massacre in Afghanistan, will not be paying for the horrific incident, whether innocent or guilty of such a crime; such determination in military justice likely to take many years. The Pentagon’s convenient refracting transparency will make sure that such is the case. That brings us to the question of who the criminals are. Well, the criminals can be seen when we look ourselves in the mirror: the criminals are simply us. Not the President, nor Congress, nor the bemedaled pit-bulls staffing the Pentagon… they are simply the hangmen we choose to carry our criminal acts. The criminals are us who allow ourselves to be governed by a warmongering, elitist gang serving special interests and not the people, the commons. If we lack the conscience and compassion to take care of our own, should anyone expect us to take care of others… walk around the world imparting social justice? Yes, Boss, we are, unfortunately, ignoring the words in your song at our own peril.
As recent entrants in the gold market watched paralyzed in fear as gold tumbled by over $100 on the last FOMC day, on the idiotic notion that Ben Bernanke will no longer ease (oh we will, only after Iran is glassified, and not before Obama is confident he has the election down pat), resulting in pervasive sell stop orders getting hit, others were buying. Which others? The same ones whose only response to a downtick in the market is to proceed with more CTRL+P: the central banks. FT reports that the recent drop in gold has triggered large purchases of bullion by central banks in recent weeks. "The buying activity highlights the trend among central banks in emerging economies to buy gold, even as some western investors are losing patience with the metal. Gold prices have dropped 13.8 per cent from a nominal record high of $1,920 a troy ounce reached in September, and on Friday were trading at $1,655.60." Well, as we said a few days ago, "In conclusion we wish to say - thank you Chairman for the firesale in physical precious metals. We, and certainly China, thank you from the bottom of our hearts." Once again, we were more or less correct. And since past is prologue, we now expect any day to see a headline from the PBOC informing the world that the bank has quietly added a few hundred tons of the yellow metal since the last such public announcement in 2009: a catalyst which will quickly send it over recent record highs.
George Orwell was right. He was just 30 years early.
In its April cover story, Wired has an exclusive report on the NSA's Utah Data Center, which is a must read for anyone who believes any privacy is still a possibility in the United States: "A project of immense secrecy, it is the final piece in a complex puzzle assembled over the past decade. Its purpose: to intercept, decipher, analyze, and store vast swaths of the world’s communications as they zap down from satellites and zip through the underground and undersea cables of international, foreign, and domestic networks.... Flowing through its servers and routers and stored in near-bottomless databases will be all forms of communication, including the complete contents of private emails, cell phone calls, and Google searches, as well as all sorts of personal data trails—parking receipts, travel itineraries, bookstore purchases, and other digital “pocket litter.”... The heavily fortified $2 billion center should be up and running in September 2013." In other words, in just over 1 year, virtually anything one communicates through any traceable medium, or any record of one's existence in the electronic medium, which these days is everything, will unofficially be property of the US government to deal with as it sees fit... As former NSA operative William Binney who was a senior NSA crypto-mathematician, and is the basis for the Wired article (which we guess makes him merely the latest whistleblower to step up: is America suddenly experiencing an ethical revulsion?), and quit his job only after he realized that the NSA is now openly trampling the constitution, says as he holds his thumb and forefinger close together. "We are, like, that far from a turnkey totalitarian state."
In the aftermath of the "Greg Smith" phenomenon, where now a variety of sources (for now of the terminated kind, but soon likely from those still on the payroll) have stepped up against the Wall Street and D.C. omerta, it is assured that we will see many more such pieces before the coolness factor of public employer humiliation. It is our hope that these lead to an actual improvement in America's criminal corporate culture (such as in "How a Whistleblower Halted JPMorgan Chase's Card Collections"), which is nowhere more prevalent than in the corner offices of Wall Street, long a place where "obfuscation" and "complexity" (recall that it was none other than the Fed telling us that "Liquidity requires symmetric information, which is easiest to achieve when everyone is ignorant") have been synonymous with legalized wealth transfer (after all, we now know that nobody ever read the fine print, and when the chips fell it was all the rating agencies' fault). Alas we are skeptical. But while we wait, here is a slightly lighter piece from the Globae and Mail's Tim Kiladze, who while not exposing anything new, shares with his readers just what the transition from "soulless banker" to a "less demanding, more fulfilling life" entails, and that it does, in the end, pay off. As Tim says - "The latter is a real option: I’m proof of it." Here is his story for all those 'wannabe Greg Smiths' who are on the fence about burning that bridge in perpetuity.
Marc Faber does not mince words. He believes the money printing policies of the Federal Reserve and its sister central banks around the globe have put the world's currencies on an inexorable, accelerating inflationary down slope. The dangers of money printing are many in his eyes. But in particular, he worries about the unintended consequences it subjects the populace to. Beyond currency devaluation, it creates malinvestment that leads to asset bubbles that wreak havoc when they burst. And even more nefarious, money printing disproportionately punishes the lower classes, resulting in volatile social and political tensions. It's no surprise then that he's feeling particularly defensive these days. While he generally advises those looking to protect their purchasing power to invest capital in precious metals and the equity markets (the rationale being inflation should hurt equity prices less than bond prices), he warns that equities appear overbought at this time.