Total bailout fund size: €18 billion. Cash bailouts already requested:
- Cataluña: €5.023 billion
- Andalucía: €4.906 billion
- C. Valenciana: €4.500 billion
- C. La Mancha: €0.848 billion
- Canarias: €0.757 billion
- Murcia: €0.528 billion
- Baleares: €0.355 billion
- Asturias: €0.2617 billion
Bailout funding left: €0.821 billion. Oops.
So far the Fed's 4 year old QEasing strategy has failed for the simple reason that the smart money instead of being "herded", has far more simply decided to just front-run the Fed thus generating risk-free returns, while the "dumb money", tired of the HFT and Fed-manipulated, and utterly broken casino market, has simply allocated residual capital either into deposits (M2 just hit a new all time record of $10.2 trillion) or into "return of capital" products such as taxable and non-taxable bonds. Alas none of the above means that the Fed will ever stop from the "strategy" it undertook nearly 4 years ago to the day with QE1. Instead, it will continue doing more of the same until the bitter end. But how much more is there? To answer this question, below we present the entire universe of marketable US debt, in one simple chart showing the average yield by product type on the Y-axis, and the total debt notional on the X.
Permanent adolescence is the state of resolving insecurity, fear and social defeat by buying things that promise the invulnerability of a fantasy self and world, and by indulging in instant gratification to mask the self-destructive derangement of broken ecosystems: not just in the natural world, but in our bodies, in our society, in our economy and in our politics. Nurturing permanent adolescence, anxiety and alienation are highly profitable, for people responding to the fear and anxiety of Thanatos (the instinct for destruction) will not only become malleable consumers, they will lose their grip on Eros, the instinct for life and love. Once lost to the Dark Side, they have no way to experience health or intact ecosystems; their world darkens as there appears to be no alternative to the Status Quo. Health is horribly unprofitable; illness, anxiety and alienation are highly profitable. That is the destructive essence of our sociopathological "engine of growth," narcissistic consumerism.
In what follows, we will examine the adjustment process necessary to shift from a system with fiat money and a reserve ratio below 1 (reserve requirement under 100%). Let’s begin clarifying that this proposed delevering process is an ideal situation, applicable if one had the luxury of planning the shift. There is not always time to do so and, if we ever had any, we’re running out of it pretty fast. The adjustment process below could only be done very gradually, by adjusting the reserve requirement and gold holdings by the central bank a few bps every year (say 200bps). The ultra-necessary condition here is that the nation undergoing this process be able to generate an equivalent fiscal surplus, in percentage terms. For instance, the process could demand to cover 2% per year of the gap in the reserve ratio to reach 1 (50 years long!!!). This means that if the reserve ratio is 10%, the gap is 90% and narrowing it over 50 years would require to increase reserves by 1.8% every year (90%/50). Because the delevering process should be accompanied by a pari passu reduction in the fiscal deficit and sovereign debt, that 2% annual adjustment, in the US, this would require a surplus of $324BN every year, over 50 years ($16.2 trillion in national debt x 2%). In 2012 terms, spending would have to be cut by $1.52 trillion ($324 billion + $1.2 trillion annual deficit), if the numbers we have are correct. We suspect they are not: The situation is even worse. But, the bottom line is that, once you see these numbers, you realize that going back to a world of no leverage is politically impossible. Even though it is technically feasible, just like the European Monetary Union was planned and built over decades, it is still politically impossible.
"When I came into this police force I wanted to help people, but the civilian population, they’re being hunted. They’re being hunted and we’re being hated."
- NYPD Officer on the Department’s Feudal “Stop and Frisk” Policy
Whether its new-fangled Japanese stocks, hi-tech internet company valuations, multi-colored flowers, or mansions made affordable by criminally lax lending standards, Grant Williams notes that a bubble is a bubble is a bubble; and citing Stein's Law: "If something cannot go on forever; it will stop." In this excellent summary of all things currently (and historically) bubblicious - whether greed-driven or fear-driven - Williams concludes it is never different this time as he addresses the four phases of the classic bubble-wave: smart-money, awareness, mania, blow-off (or crash) and explains how government bonds are set to burst and gold is only just about to enter its mania phase. This far-reaching and entirely accessible presentation is stunning in its clarity and as he notes, while bubbles are always easy to spot ex-ante, understanding how they come about and why they are popped gives the few an opportunity to profit at the expense of the madness of crowds. From tulips to tech-wrecks, and from inflation to insatiable stimulus, the bubble in 'safe-haven flows' that currently exists has all the characteristics of a popular delusion.
Yesterday's massive car bomb in Lebanon, which killed and wounded dozens including the country's police intelligence chief and has thus been dubbed as the most "high-profile assassination in seven years", confirmed once again that when it comes to regional powder kegs, the middle east is second to none, and is the 21st century equivalent of Eastern Europe. While nobody has claimed responsibility yet for yesterday's brazen attack (although the "agenda-less" media is once again insinuating it is the doing of Syria's leader Bashar al-Assad) one thing is certain: provocations of this nature will continue indefinitely until they escalate into something much more lethal. The reason: the melting pot melange of different sects in Syria and Lebanon, which co-exist in perfectly mutual hatred despite, or rather because of, the artificial political borders imposed between the two countries provides a terrific backdrop to which merely add a spark and watch everything go up in flames. Which also means that those seeking to provoke further military escalation in the region, now that attempts to stoke a conflict between Syria and Turkey have so far failed, will likely look to Lebanon as a new conduit for escalation. . Because remember: as David Rosenberg pointed out yesterday, in a time of record partiasniship, political bickering and lack of consensus, "it may end up taking some sort of a crisis, in the end, to galvanize the two parties to work towards a resolution to the fiscal morass." And that is precisely what the endgame here is: the intention to unify a hopelessly split congress (and senate) behind the patriotic banner of war. It is only a matter of time (but certainly in time to address the Fiscal Cliff).
Everyone knows that when it comes to US currency in circulation, the $2 and the $50 bills are rapidly approaching numismatic status due to either the government's unwillingness to print them in sufficient amounts or the general public's unwillingness to accept them as legal Federal Reserve Note tender. What people may not know is how other currency denominations have fared over the years. And as the charts below indicate, the historical government production of various currency denominations may tell us something about actual supply-driven intentions of the Fed and/or upcoming price levels. Because one thing is certain: judging by recent production patterns, the $1, $5 and $10 bills (aka Federal Reserve Notes), all of which saw their lowest production in 30 years in 2010, will soon suffer the fate of the dodo!
Here is the issue of legacy liabilities. Here Germany has been fairly clear. The new ESM fund will not pick up the check and it is up to each country to pay for their own past problems. You may translate this piece of jargon into a “No” to Ireland that the ESM will not pick up the bill for the Irish banks and the same response for Spain. This new German definition puts Portugal, Greece, Spain and Ireland back at square one and effectively closes the door on any further negotiations. While all of this wrangling continues the tone at the summit was no longer the nicey-nice repartee of past meetings. Cyprus needs money, Spain needs money, Portugal probably needs more money and Greece is just about out of money. The summit was held, the meeting is over and the worth of any accomplishments is about at Zero as the only agreement was a plan to have a plan to deal with bank supervision. This is not an inch forward, this is not a millimeter forward; this is quicksand where they are all stuck as both money and time run out as the Socialists scream for alms while the landed gentry, utilizing head fakes and other polite deceptions, refuse to provide it. The clock is running, the cash is almost gone and make-believe will no longer suffice. The crisis phase, in my opinion, has been entered.
There is practical, everyday common sense... and then there is economics. Because when it comes to explaining why a square peg won't fit into a round hole, only an economist will tell you, over and over, that it will eventually happen, one must just tweak the theory a little first, and then reality will promptly follow. And while even economists have enough of a frontal lobe (and realize there is little grant money) to pursue intractable pegs and hole problems, when it comes to the theory at the heart of their beloved Keynesian voodoo religion, namely Quantitative Easing, the answer is always one, and it is very simple: we need more! Yet even economists are not naive enough to not recognize that QE has not worked in any of its 4 previous iterations (logically, as if it had there would be no need for a fifth, open-ended one). Where it gets fun is watching them come up with amusing yet convoluted, involved and outright demented explanations, some even in chart format, why QE keeps on failing. Below, we present just such a graphic explanation which only an economist could love, or care about.
Japan is the leading-edge of the crumbling model of advanced neoliberal capitalism: that consumerist excess creates wealth, prosperity and happiness. What consumerist excess actually creates is alienation, social atomization, narcissism, and a profound contradiction at the heart of the consumerist-dependent model of "growth": the narcissism that powers consumerist lust and identity is at odds with the demands of the workplace that generates the income needed to consume... The younger generation of workers raised in a consumerist "paradise" are facing an economic stagnation that reduces opportunities to earn the high income needed to fulfill the consumerist demands for status symbols. Given the hopelessness of earning enough to afford the consumerist lifestyle, they have abandoned traditional status symbols such as luxury autos and taken up fashion and media as expressions of consumerism. But the narcissism bred by consumerism has nurtured a kind of emotional isolation and immaturity, what might be called permanent adolescence, which leaves many young people without the tools needed to handle criticism, collaboration and the pressures of the workplace. Narcissism is the result of the consumerist society's relentless focus on the essential project of consumerism, which is "the only self that is real is the self that is purchased and projected.".. The ultimate contradiction in this debt-consumption version of capitalism is this: how can an economy have "endless expansion and growth" when pay and opportunities for secure, high-paying jobs are both relentlessly declining? It cannot. Financialization, consumerist narcissism and the end of growth are inextricably linked.
Earlier this week two former Merrill colleagues, since separated, were reunited on several media occasions, and allowed to spar over their conflicting views of the world. The two people in question, of course, are Gluskin Sheff's David Rosenberg, best known during the past 3 years for not drinking the propaganda Kool-Aid, and systematically deconstructing every "bullish" macroeconomic datapoint into its far more downbeat constituent parts, and his ebullient ex-coworker, Richard Bernstein, formerly head of equity strategy at a firm that had to be rescued by none other than Bank of America and currently head of RBA advisors, who just happens to be bullish on, well, everything. And since any attempt at holding an intelligent conversation on CNBC is ultimately futile (as can be seen here) and is constantly broken up by both ads, and interjecting anchors and show producers who care far less about facts than keeping the presentation 'engaging' (and going to such lengths to even allow Jim Cramer to have his own TV show), Rosenberg decided to dedicate his entire letter to clients today to "providing a rebuttal" of the slate of reasons why according to Bernstein the "we are on the precipice of a 1982-2000 style of secular market." What follows is one of the most comprehensive "white papers" debunking the bullish view we have seen in a while. Read on.
Goldman's Releases Walkthru "Toolkit" Of How It Will Respond To Second Coming Of Greg Smith's MuppetgateSubmitted by Tyler Durden on 10/19/2012 21:12 -0400
Greg Smith's "tell all" book about Goldman is out, and as a result Smith, Goldman, and the infamous muppets are about to get their second half-life of 15 minute fame, starting with Smith's interview by the just as dramatic Anderson Cooper in this weekend's episode of 60 Minutes. The result is that after having to write a memo to his employees once already providing marching orders on how to handle the first iteration of muppetgate, a few hours ago Goldman again released a "briefing toolkit" titled "Media Interest in Greg Smith's Book" in which it prepares its employees for the coming brief if acute storm of renewed public criticism as a result of Goldman once again being in the headlines, if only for another 15 or so minutes.
Of the current stack of 30 'Blue-Chip' stocks that comprise the Dow Jones Industrial Average, Alcoa has managed to do the worst over the past 25 years - gaining a cumulative 63% in the last 25 years (or 2.2% annually). The Dow itself, based on Bloomberg's Chart of the Day, has risen 627% since the crash in 1987 (or 8.6% annually) - almost 10x that of Alcoa; while McDonald's (perhaps perfectly summarizing what America is all about) has risen on average 12.8% per year for a 1620% gain since Black Monday. But who has impacted the Dow the most since its highs in October of 2007? (Hint: they disappointed this week!)
As market participants ponder the disappointing post-QEtc. performance on their 'Bernanke/Draghi-Put'-floored equities, perhaps these three charts will help in comprehending just how much hope there is in the world's equity markets. The disconnect from macro-fundamental is not unique, but has had significant and extremely rapid repercussions in the past. It seems, however, that just like AAPL, everyone believes everyone else to be the greater fool - and this time is different.