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One of the ironclad assumptions in CDS trading was that recovery assumptions, especially on sovereign bonds, would be 40% of par come hell or high water. This key variable, which drives various other downstream implied data points, was never really touched as most i) had never really experienced a freefall sovereign default and ii) 40% recovery on sovereign bonds seemed more than fair. Obviously with Greek bonds already trading in the 20s this assumption was substantially challenged, although the methodology for all intents and purposes remained at 40%. No more - according to CMA, the default recovery on Greece is now 20%. So how long before both this number is adjusted, before recovery assumptions for all sovereigns are adjusted lower, and before all existing risk model have to be scrapped and redone with this new assumption which would impact how trillions in cash is allocated across the board. Of course, none of this will happen - after all what happens in Greece stays in Greece. In fact since America can decouple from the outside world, it now also appears that Greece can decouple from within the Eurozone, even though it has to be in the eurozone for there to be a Eurozone. We may go as suggesting that the word of the year 2012 will be "decoupling", even though as everyone knows, decoupling does not exist: thank you 60 years of globalization, $100 trillion in cross-held debt, and a $1 quadrillion interlinked derivatives framework.

There is literally no difference between Obama and a moderate Republican when it comes to the truly important policies governing the nation's insolvent finances, its predatory financial sector, its corrupt and fraudulent sickcare system or its sprawling Empire. Obama's policies have all aided and abetted existing Status Quo cartels and fiefdoms. He has changed absolutely nothing of import except further eroding civil liberties. President Obama can be charitably characterized as an ineffectual Demopublican. From those demanding more, then he can be accurately described as a well-meaning puppet of Wall Street and the rest of the Status Quo cartels and fiefdoms.

Is December 2012 a great contrarian buying opporunity?

The Inmates Are Running the Asylum

History is full of other examples of once proud nations that, facing problems for decades (or even centuries), completely unwound in a matter of years. The Ottoman Empire. The  Ming Dynasty. Feudal France. The Soviet Union. Bottom line, when the real change comes, it comes very, very quickly. Think about the pace of change these days. It’s quickening. Europe is a great case study for this– when concerns about Greece first surfaced, European leaders were able to contain the damage. There was disquiet, but it soon dissipated. Fast forward to today. We can hardly go a single day without a major, market-rocking headline. And European politicians’ attempts to assuage the damage have a useful half life that can be measured in days… sometimes hours now. Like the Ottomans, the Soviets, the Romans before them, Western civilization is entering the phase where its rate of decline will start looking like that upside-down hockey stick.

The market has not even opened for regular trading for the first trading day of the year and already predictions for the final print are made. Enter Morgan Stanley, which unlike last year, when it was painfully bullish has come out with an uncharacteristic and quite bearish prediction: "We are establishing a 2012 year-end price target of 1167, representing 7% downside from today’s price. The consensus top-down view has coalesced, with limited variation, around 1350, making our forecast 13% more conservative than the “muddle  through” scenario implied by consensus." And the primary reason for this - a collapse in earnings predictions: "We are launching our 2013 EPS estimate of $103.1, 15% below the bottom-up consensus forecast of $121.1." Time to reevaluate those record corporate profit margin assumptions? That said, make no mistake - just like SocGen, Goldman, UBS and everyone else, the sole purpose of these bearish forecasts is to get the market to drop low enough to give the Fed cover for QE X. Because as Adam Parker, who made the forecast, knows all too well, if the market indeed closes red for 2012, so will Wall Street bonuses.

The iconoclastic outcast being called in to shake things up a little. I'll appear on CNBC @2:30 with my outlook for 2012. I'm not shy about my track record & here's what I'll have to say.

When it comes to corruption, cronyism and general muppetry in Washington D.C., the only real question is 'where does one start?' Yet one has to start somewhere to conclude with a list of the ten most corrupt and despicable marionettes in D.C. Which is precisely what JudicialWatch has done in its annual compilation of the "Top 10 Most Corrupt Politicians in Washington D.C." for 2011. And confirming what everyone knows, that both the left and right are merely irrelevant names for the same general social affliction, or should we call it by its true name - wealth pillage - the split is even between democrats and republicans. In no particular order, the winners of 2011 are...

One of the topics touched upon by Eric deCarbonnel in the earlier article discussing the potential, if not necessarily probable absent further validation, implications of the Exchange Stabilization Fund, is that of the nature of AIDS. Which got us thinking. While we won't necessarily go into the implications proposed by none other than Chuck Palahniuk in his book Rant (word search Kissinger, especially what Neddy Nelson has to say on the topic), it made us recall that particular National Security Study Memorandum, aka NSSM 200, better known as "The Kissinger Report" authored on December 10, 1974 and immediately classified under Executive Order 11652 until 1989, titled simply, "Implications of Worldwide Population Growth For U.S. Security and Overseas Interests." What did the report say and why is it relevant, especially in our day and age when so many believe that all important substance - black gold - may have peaked? Well, since it has 123 pages full of very, very curious information as pertains to how US foreign policy is truly styled, we will leave it up to our readers to make their own conclusions, but here are some preliminary observations to help them on their way...

When it comes to the fabled President's Working Group on Capital Markets, also known as the Plunge Protection Team, the myths about the subject are certainly far greater than any underlying reality. To be sure, vast amounts of popular folkflore has been expounded into the public arena, with most of it being shot down simply due to it assuming conspiracy theories of such vast scale that the human mind is unable to grasp the complexity, and ultimately the inverse Gordian Knot makes an appearance with the claim that vast conspiracies are largely untenable simply because it is impossible to keep a secret from so many people for so long. Yet what if the secret is not a secret at all but is fully out in the open, and is only a matter of interpretation, and contextualizing? Why just 3 years ago it would appear preposterous to allege the capital markets are a ponzi and that the Fed does everything in its power to keep stocks higher. Well, what a difference three years make: now the Chairman himself in a Washington Post OpEd has admitted that the sole gauge of Fed success is the loftiness of the Russell 2000, neither unemployment nor inflation really matter now that the Fed's third mandate has been fully whipped out. Furthermore, Keynesian economics, and the entire top echelon of the educational system have also been accurately represented as a paradigm which merely perpetuates the status quo as the alternative is the realization that the whole system is a house of cards. As for the global capital markets being nothing short of a ponzi, we merely point you to the general direction of Europe, the ECB and the continent's banks, where the monetary interplay is nothing short of the world's biggest pyramid scheme. Yet the PPT, or whatever it is informally called, does not exist? Consider further that only recently did it become known that the former SecTres Hank Paulson himself was exposed as presenting material non-public information to a bevy of Goldman arb desk diaspora hedge funds, headed by with none other than the head of the President's Working Group on Capital Markets Asset Managers committee David Mindich. So, if contrary to all the evidence that there is some vast underlying pattern, if not a conspiracy per se, one were to take the leap of faith and take the next step, where would one end up? Well, most likely looking at the Exchange Stabilization Fund, or ESF, which Eric deCarbonnel has spent so much time trying to unmask. Is it possible that the ESF, located conveniently at the nexus between US monetary policy, foreign policy and last but not least, a promoter of the interests of the US military-industrial complex, is precisely the  organization that so many have been trying to expose for years? Watch and decide for yourself.

CLSA's Chris Wood latest Greed and Fear is out, and in his latest discusses virtually all the critical issues that are at the forefront of investor minds, namely QE3, the next collapse in the GSEs courtesy of the current housing bubble, any signs of releveraging in the private sector, a potential rise of capex in corporate America (not sure where he is seeing this), insolvent states, Japan, which he thinks may be an reflationary alternative to gold (as Dylan Grice has claimed in the past) and last but not least, his disagreement with Goldman's take on China, which he believes is still an attractive investment opportunity.

Goldman's Jan Hatzius explains why while he is still convinced that the Fed will ultimately have to undergo QE2, he presents the case why the Fed's hands are now most likely tied through its November 2-3 meeting (and why the J-Hole meeting will be a snoozer), at which point it will be too late for the market to benefit from monetary stimulus. The implication: very bearish for stocks, as Obama's only option for pumping up stocks in advance of the elections (monetary easing) is eliminated. With no means to implement a stock run up into the election (which would become a prompt self-fulfilling prophecy), the market is likely about to tumble.

The Big Mac, much regarded as the sandwich of global prosperity has been pulled-out out of Iceland. According to The Economist's famed Big Mac Index 2009- the homes of the world's most expensive Big Macs remain in Switzerland and Norway.