President Obama

America Slides Into Fascism

With the political season heating up, and tax season upon us, we thought it worthwhile drilling into exactly how painful the potential pre-programmed fiscal tightening in 2013 is likely to be. As Credit Suisse notes, "it ain't over til its over" as the suspicion is that a lame duck session of Congress will forestall some of the tightening but until Congress acts, the economy is still technically in a collision course with the largest fiscal hit in modern times.

Solyndra was just the appetizer. Earlier today, in what will come as a surprise only to members of the administration, the company which proudly held the rights to the world's largest solar power project, the hilariously named Solar Trust of America ("STA"), filed for bankruptcy. And while one could say that the company's epic collapse is more a function of alternative energy politics in Germany, where its 70% parent Solar Millennium AG filed for bankruptcy last December, what is relevant is that last April STA was the proud recipient of a $2.1 billion conditional loan from the Department of Energy, incidentally the second largest loan ever handed out by the DOE's Stephen Chu. That amount was supposed to fund the expansion of the company's 1000 MW Blythe Solar Power Project in Riverside, California. From the funding press release, "This project construction is expected to create over 1,000 direct jobs in Southern California, 7,500 indirect jobs in related industries throughout the United States, and more than 200 long-term operational jobs at the facility itself. It will play a key role in stimulating the American economy,” said Uwe T. Schmidt, Chairman and CEO of Solar Trust of America and Executive Chairman of project development subsidiary Solar Millennium, LLC." Instead, what Solar Trust will do is create lots of billable hours for bankruptcy attorneys (at $1,000/hour), and a good old equity extraction for the $22 million DIP lender, which just happens to be NextEra Energy Resources, LLC, another "alternative energy" company which last year received a $935 million loan courtesy of the very same (and now $2.1 billion poorer) Department of Energy, which is also a subsidiary of public NextEra Energy (NEE), in the process ultimately resulting in yet another transfer of taxpayer cash to NEE's private shareholders.

European cash equities are seen mixed as the market heads into the US session, with the DAX index the only bourse to trade higher at the midpoint of the European session. European markets were seeing some gains following the open after the weekend release of better than expected Chinese manufacturing data, however the main price action of the day occurred after some European press reports that the Bundesbank had stopped accepting sovereign bonds as collateral from Portugal, Ireland and Greece garnered attention, however the Bundesbank were quick to deny reports and state that it continues to accept all Eurozone sovereign bonds. Following the denial, participants witnessed a slight bounceback, but failed to push most markets into the green.  Data releases from Europe so far have been varied, with outperformance seen in the UK Manufacturing PMI, beating expectations and recording its highest reading since May of 2011. However, the French manufacturing PMI came in below expectations, weighing on the CAC index as the session progresses. A further release from the Eurozone has shown February unemployment coming in alongside expectations recording a slight increase from January to 10.8%.

The dominant narrative of our so-called 'National Security State' seems to be: we were surprised by a treacherous, shadowy, sinister enemy and we have to set aside the niceties of democracy and civil liberties to combat this new and terrible foe. It's actually very simple: whatever the National Security State does anywhere on Earth is legal. Whatever action you take to protect your civil liberties is illegal. The State holds all the hammers, and you know what happens to raised nails.

• Greece's Fringe Parties Surge Amid Bailout Ire (WSJ)
• ECB fails to stem reduction in lending (FT)
• More Twists for Spanish Banks (WSJ)
• Banks use ECB cash to buy bonds, lend less to firms (IFR)
• UK still long way off pre-crisis growth – King (Reuters)
• Dublin confident of ECB deal to defer payment (FT)
• Goldman's European derivatives revenue soars (Reuters)
• Japan Faces Tax Battle as DPJ Finishes Plan on Sales Levy (Bloomberg)
• Insurance Mandate Splits US Court (FT)

As we head into the US open, European cash equities are seen in positive territory with strong performance observed earlier in the session from the FTSE MIB. This follows reports from the Italian press regarding commentary from the Chinese President Hu Jintao who promised to encourage Chinese industry to look towards Italy with confidence, in a conversation with the Italian PM Monti on the sidelines of the nuclear safety summit in Seoul. Markets have also been reacting to an article from Der Spiegel, citing economists who have warned that the German central bank could be facing hidden liabilities of up to EUR 500bln should there be a break up in the Eurozone. This has prompted some risk-averse flows into the Bund which has seen fluctuating trade so far in the session but remains in positive territory as North America comes to market. In individual equities news, following overnight reports from Abu Dhabi concerning buying a stake in RBS, company shares were seen up 6%. Source comments from earlier in the session regarding the sale speculated that the stake could be up to a third of RBS. Looking ahead in the session, the market awaits US Consumer Confidence data due at 1500BST.

We have one last chance to restore at least a part of the Bill of Rights. Some members of Congress awakened from their fund-raising somnambulance and proposed the Due Process Guarantee Act which would restore the Bill of Rights to its proper place in US law. So do one thing today for the nation and its liberties: contact your representative and senators to press them to support this bill. Ask them which military or law enforcement agencies requested that Congress nullify the Bill of Rights with the NDAA. Advise them to do the correct thing for once in their sordid little careers and vote for the Due Process Guarantee Act. This page lists other articles about the NDAA and also provides links to find your representative and Senators: It's treason. Call it what it is.

European cash equity markets were seen on a slight upward trend in the early hours of the session amid some rumours that the Chinese PBOC were considering a cut to their RRR. However, this failed to materialise and markets have now retreated into negative territory with flows seen moving into fixed income securities. This follows some market talk of selling in Greek PSI bonds due to the absence of CDSs. This sparked some renewed concern regarding the emergence of Greece from their recovery. Elsewhere, we saw the publication of the BoE’s financial stability review recommending that UK banks raise external capital as soon as possible. This saw risk-averse flows into the gilt, with futures now trading up around 40 ticks.

Quietly, and with little fanfare, President Obama signed a “National Defense Resources Preparedness” Executive Order on Friday. As the name suggests, the order intends to shore up the country’s national defense resources in advance of a national emergency. To be fair, this is not the first time that such an order has been written. President Obama’s order, however, takes things much, much further.This is all playing out with nearly perfect historical precision. Time and time again throughout history as once great empires accelerated their declines, governments have taken steps to protect their interests against the people. In the past, they have imposed curfews, disarmed the population, curtailed civil liberties, and declared national emergencies, usually against some great faceless enemy from abroad who threatens their way of life. As it turns out, though, our great faceless enemy is not some mythical boogeyman living in a cave, nor some angry brown person who hates us for our freedoms… but the very people within the system who’ve taken an oath to ‘support and defend the Constitution of the United States against all enemies, foreign and domestic.’ Have you hit your breaking point yet?

Going into the US open, most major European bourses are trading in modest positive territory this follows the publication of a Goldman Sachs research note titled “The Long Good Buy” in which the bank outlines its thoughts that equities will embark on an upward trend over the next few years, recommending dropping fixed-income securities. We have also seen the publication of the Bank of England’s minutes from March’s rate-setting meeting in which board members voted unanimously to keep the base rate unchanged at 0.50%; however there was some indecision concerning the total QE, with members Miles and Posen voting for a further increase to GBP 350bln, however the other seven members voted against the increase. Following the release, GBP/USD spiked lower 35 pips but has regained in recent trade and is now in positive territory.  Looking elsewhere in the session, UK Chancellor Osborne will present his budget for this financial year at 1230GMT. We will also be looking out for US existing home sales and the weekly DOE inventories.

Americans have an illogical love affair with their vehicles. There are 209 million licensed drivers in the U.S. and 260 million vehicles. The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Germany has 540; Japan has 593; Britain has 525; and China has 37. The population of the United States has risen from 203 million in 1970 to 311 million today, an increase of 108 million in 42 years. Over this same time frame, the number of motor vehicles on our crumbling highways has grown by 150 million. This might explain why a country that has 4.5% of the world’s population consumes 22% of the world’s daily oil supply. This might also further explain the Iraq War, the Afghanistan occupation, the Libyan “intervention”, and the coming war with Iran. Automobiles have been a vital component in the financial Ponzi scheme that has passed for our economic system over the last thirty years. For most of the past thirty years annual vehicle sales have ranged between 15 million and 20 million, with only occasional drops below that level during recessions. They actually surged during the 2001-2002 recession as Americans dutifully obeyed their moron President and bought millions of monster SUVs, Hummers, and Silverado pickups with 0% financing from GM to defeat terrorism. Alan Greenspan provided the fuel, with ridiculously low interest rates. The Madison Avenue media maggots provided the transmission fluid by convincing millions of willfully ignorant Americans to buy or lease vehicles they couldn’t afford. And the financially clueless dupes pushed the pedal to the metal, until everyone went off the cliff in 2008.

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..."

Looking at the tranquil sea that is the S&P one may be forgiven to ignore the rapid intraday surge in Brent which was up over $3 in a few hours, approaching $126 once again. But why? After all the FOMC minutes were oh so very slightly hawkish, and not to mention that the Fed's scribe Hilsenrath told everyone at best the Fed would proceed with sterilized QE which would leave risk prices untouched. Maybe it has something to do with this. According to Israel's NRG, in a just completed cabinet vote, for the first time Netanyahu has gotten a majority (8 over 6) supporting an Iran attack. NRG also notes that at this point Israel has decided to not wait until the US elections in November before proceeding with sending crude to the stratosphere. From NRG (google translated): "Israeli political sources believe that Prime Minister Benjamin Netanyahu a majority Cabinet support Israeli military action against Iran without American approval....He announced that he would not hesitate to perform the operation without the approval of President Obama mentioned the precedent of the decision to attack the Iraqi reactor, Prime Minister Menachem Begin, and with the comments heard yesterday some cabinet ministers say privately that "It sounds like a speech preparation for attack." Political - Security Cabinet 14 ministers. According to estimates, at this stage tend to support Netanyahu and Barak's approach eight ministers, and six against it (including the traditional opponents octet: Moshe Ya'alon, Dan Meridor, Benny Begin and Eli Yishai)." So... $4.00 gas is just around the corner. As is, probably, $5.00 gas. And $6.00 gas.

The first session of this 112^th Congress was spent with Democrats and Republicans at loggerheads over the debt ceiling, taxes, spending cuts, the deficit super committee, appropriations bills and finally the extension of unemployment compensation and a two-month extension of the payroll tax cut. Standard and Poor's downgrade of the United States' federal debt was due in part to all the haggling over how, and actually whether, to reduce the debt. No One Is Willing to Pay the Political Price to Cut Spending This year Obama asked Congress for, and was given, an additional $1.2 trillion of borrowing authority, which will increase the debt limit to $16.4 trillion, just enough to get him past the 2012 election. It could be close, however. If budget projections prove to be overly optimistic, Obama could face another cliffhanger over a further increase in the debt ceiling in the midst of the presidential election in November. How embarrassing to have to say "re-elect me – and by the way, I need to borrow some more money to pay this month's bills."