None

A warning by the SEC in mid-March 2011 regarding repo-to-maturity trades suggests otherwise.  

Back in February, shortly before the big sell off in gold we warned that we have some "Horrible News For Goldbugs - Paulson Is Bullish On Gold Again." We may have some bad news again, as the 'bullish' sentiment this time comes from none other than the muppet master, after Goldman released a note overnight saying that "gold is set to glimmer as growth tarnishes." To wit: "We reiterate our constructive outlook for gold prices in 2012 and our 3, 6-and 12-mo forecasts of $1,785/toz, $1,840/toz and $1,940/toz, respectively. We acknowledge, however, that continued strong US economic data poses growing risk to our forecast for rising gold prices. Net, we reiterate our view that at current price levels gold remains a compelling trade but not a long-term investment, and we continue to recommend a long position in Dec-12 COMEX gold futures." Yes, that's great - we have only one word: Stolper That said, the only saving grace to an all out wipeout is that Goldman appears quite set on getting QE at all costs, potentially as soon as April - a move which would send the metal soaring as the Chairman can not have his cake and eat it too, absent a few helping hands from the CME of course.

Earlier this morning, strategically timed just in advance of the Chairman's tacit admission that everything attempted to date has once again failed to stimulate the economy as now both housing and soon employment have resume their drop, New York Fed released a note titled "Prospects for the U.S. Labor Market" which in not so many words explains why there are none. While the analysis is the same that has been presented here over and over, confirming that the jobs recovery has been anything but, and thus setting the stage for today's Bernanke preannouncement to either a March NFP miss or more QE at the April FOMC meeting as Bill Gross tweeted yesterday, it has one chart that shows why when it comes to restoring a virtuous cycle this time is different, and why endless central planning may have finally broken traditional economic assumptions. The chart below is perhaps the only one worth noting. Spot the odd "recovery" out.

Back in late 2006 and early 2007 a few (soon to be very rich) people were warning anyone who cared to listen, about what cracks in the subprime facade meant for the housing sector and the credit bubble in general. They were largely ignored as none other than the Fed chairman promised that all is fine (see here). A few months later New Century collapsed and the rest is history: tens of trillions later we are still picking up the pieces and housing continues to collapse. Yet one bubble which the Federal Government managed to blow in the meantime to staggering proportions in virtually no time, for no other reason than to give the impression of consumer releveraging, was the student debt bubble, which at last check just surpassed $1 trillion, and is growing at $40-50 billion each month. However, just like subprime, the first cracks have now appeared. In a report set to convince borrowers that Student Loan ABS are still safe - of course they are - they are backed by all taxpayers after all in the form of the Family Federal Education Program - Fitch discloses something rather troubling, namely that of the $1 trillion + in student debt outstanding, "as many as 27% of all student loan borrowers are more than 30 days past due." In other words at least $270 billion in student loans are no longer current (extrapolating the delinquency rate into the total loans outstanding). That this is happening with interest rates at record lows is quite stunning and a loud wake up call that it is not rates that determine affordability and sustainability: it is general economic conditions, deplorable as they may be, which have made the popping of the student loan bubble inevitable. It also means that if the rise in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill.

Firstly, Britain’s ‘safe-haven status’ is a fallacy. It is no more safe than many of the other major economies who are choking on debts that cannot be paid off. The only reason it HAS that status currently is because of the very Achilles Heel that will ultimately prove to be its demise - the ability to print its own currency. By NOT being a part of the euro experiment, Britain has kept control of its fate and has been able to print its way out of trouble - so far - while its neighbours to the east have all been lashed to the deck of the same sinking boat, but the day is coming when Britain’s profligacy will become important again. As I keep saying; none of this matters to anyone until it matters to everyone. Secondly, interest rates may have ‘fallen to a record low’ but they have done so in the same way heavily-indebted gamblers often ‘fall’ from hotel rooms - with a big push (only this time from the Bank of England and not a guy called Fat Tony). Like US Treasurys,  the price of UK gilts would be nowhere near these levels without a captive and very friendly buyer in the shape of the central bank.

Dallas Fed Confirms that Big, Insolvent Banks Are Killing Our Economy ... and Democracy

For those curious why it is that the TVIX experienced a 50% plunge earlier today, as described here, perhaps the question should be directed to the SEC who may be better suited to answer just who, when and why had advance knowledge of Credit Suisse's announcement, after the close, that it would "reopen issuance of the TVIX." And since this is a rhetorical question, perhaps a better one is why does one participate in a market in which the fine print is always ignored, and is always used against the retail investor. Not that there is anything wrong with that of course - after all caveat emptor. Especially when none other than one of Ben Bernanke's favorite scholars on shadow banking (i.e., forced complexity) Gary Gorton said the following: "Liquidity requires symmetric information, which is easiest to achieve when everyone is ignorant. This determines the design of many securities..." Alas, when it comes to novel instruments such as levered ETFs that work as a closed end mutual fund hybrid, except when they don't, the only one ignorant is you, dear retail investor. Cost to your P&L: 50% in one day. Finally if for some inconceivable reason that doesn't work, just call the Credit Suisse ETN desk at 212 538 7333.

Bernanke and Draghi in a snit? Fed and ECB at odds? US-German regulatory run-around? Has Draghi just enaged in an act of ill-advised hubris or does he have a secret plan to stimualte Europe?   

Nothing that we haven't said already many times, but always good to hear someone, in this case SocGen's Albert Edwards, observe what is patently obvious - namely that the start of every year now sends a consistently wrong signal that the economy is improving due to seasonal adjustments that no longer are applicable in the New Normal. This coupled with the liquidity boost that takes places just prior to each and every run up completely explains why 2012 is not only deja vu, as it continues to be a carbon copy replica of 2011 (when the market peaked in late April), but is really a treja vu, mimicking the action of 2010. After all it was none other than Reuters who in its puff spin piece tried to caution readers that we have been here before: "This time last year, the U.S. economy was adding jobs at a similar pace of more than 200,000 a month between February and April...Growth was nipped in the bud by the Arab uprising, which sent oil prices soaring. In 2010, prospects had looked even stronger. Between March and May, companies were adding a net 309,000 new jobs each month, and first-quarter growth came in at a 2.7 percent. The rebound proved temporary." And yet here we are, wondering if this time it's different. It isn't. Albert Edwards explains: 'With bond yields breaking out to the upside and the equity bull run continuing, investors are back to their same old hopeful habits. Many are thinking that if we have seen the all-time lows on bond yields investors will be forced into equities. We already can observe leading indicators rolling downwards in exactly the same way as they did in 2011." And here is why Edwards will once again be unpopular with the permabull, momentum chasing crowd: "Expect new lows on bond yields by Q3 and this equity rally to turn to dust – just as it did in 2011."

Everyone who believes the government is "here to help disadvantaged people" needs to wake up and ask what kind of government we have when due process has been replaced with "legal" looting. R.T. reported the income in question on his 2006 Federal and Arizona tax return. Wouldn't common sense, not to mention common law, suggest that the state of California should be required to ask the citizen who now resided in another state if the income in question had been reported in that state? How about notifying the citizen of the state's claim and his/her rights to present facts relating to the state's claim? There was no due process. How can this be legal in a nation that is nominally governed by rule of law? First the state steals the $1,343 and authorizes its parasitic predatory bag-"person" Wells Fargo Bank to steal another $100 for handling the state's theft. A week or two later the citizen is notified of the theft as a fait accompli. Now the onus is on the law-abiding citizen to attempt to reclaim his own money from a distant, all-powerful Kafkaesque state agency. How can this be legal in a nation supposedly operating under rule of law? Let's be very clear about what happens here in America on a daily basis...

The concept of government power is a strange and complex cipher.  The existence of governments has always been predicated on assumptions of necessity, but few societies have ever truly considered what those necessities might be.  What is government actually good for?  What do they do that is so important?  And, what happens when a government fails in the roles and duties that a culture deems vital?  We tend to view government as an inevitability of life, but the fact is, government is NOT a force of nature, it is a creation of man, and it can be dismantled by men just as easily as it can be established. In America, many people see government as an extension of the Republic, or even the source, and an animal that feeds at the behest of the common citizen.  An often heard argument against the idea of drastic change or even rebellion within the establishment system is the assertion that the government “is us”.  That it is made of Americans, by Americans, and for Americans.  That there is no separation between the public, and the base of power.  This is, of course, a childish and fantastical delusion drawn from a complete lack of understanding as to how our system really operates today.  How many people out there who make this argument really believe at their very core that they have any legitimate influence over the actions of the state?  I wager not many…    At bottom, to cling to the lie that the government as it stands is a construct of the people is an act of pure denial designed to help the lost masses cope with underlying feelings of utter powerlessness.  

It is widely known that US corporate profits recently hit an all time high. What is less known is that in Q4, profit margins for the first time rolled over by 27 bps, and double that if one excludes Apple. What is very much irrelevant, is that to Wall Street none of this matters, and the consensus (of which GMO's Jim Montier says "the Wall Street consensus has a pretty good record of being completely and utterly wrong") believes that Q4 will be largely ignored, and margins will continue soaring ever higher. Well, the same Montier, has a thing or two to say about this consensus surge in profits ("it is almost unthinkable that it will remain at current levels over the course of the next few years"). More importantly he looks at the Kalecki profits equation, and finds something rather peculiar. Namely Japan. Because while taking the profits equation at its face value would surely explain the 10.2% in corporate profits, of which a whopping 75% is thanks to America's burgeoning deficit, it would imply that Japanese corporate profitability, where there has been not only a long-running current account surplus, but zero household savings, and massive fiscal deficits, should be off the charts. Instead it is collapsing. Why? Montier has some ideas which may force Wall Street to renounce its bullish views, although probably won't. However, the implications of his conclusion are far more substantial, and if appreciated by corporate America (whose aging asset base is the problem), may ultimately result in a revitalization of the corporate asset base, however not before the dividend chasing frenzy pops in the latest and greatest bubble collapse.

Earlier we shared some perspectives on the just released Ryan 2013 budget. Shortly thereafter it was the turn of Obama aide and National Economic Council director Gene Sperling to give his spin. In what can only be characterized as an epic filibuster of none other than CNBC, Sperling spoke in length, literally, about shared sacrifice, about how math fails to matter in a new normal (and nominal) world, how trillions and trilions in underfunded welfare benefits (which even Goldman sees as untenable) are really just a matter of perspective, but mostly about how net tax revenues running below debt issuance (as reported here yesterday) are 'viable.' We leave our readers to make up their own minds. We just want to add the following highlights from a Bloomberg October 2009 article, which just may provide some more color on where and what Mr. Sperling's true allegienaces are.

While it has no chance of passage, the GOP 2013 budget, details of which have been leaked by the WSJ, proposes slashing corporate and individual tax rates, collapsing the current six tax bracket system into just two tiers (10% and 25%), lowering top corporate tax rate to 25% and scrapping the anachronism that is the AMT, or Alternative Minimum Tax. Finally, the proposed plan would nearly eliminate U.S. taxes on American corporations' earnings from overseas operations: something which companies with foreign cash would be rather happy to hear. Needless to say, Democrats will promptly dead end this budget in the Senate: "The proposal, to be offered by Rep. Paul Ryan (R., Wis.), who has become the Republicans' leading figure on budget issues, has little chance of becoming law soon. While likely to be welcomed by House GOP rank-and-file members, it would be rejected by the Democratic-controlled Senate."

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.