Without justice for investors, pension funds and banks defrauded to the tune of hundreds of billions of dollars, there can be no investor confidence to support private finance.
One of the key stories of 2011 was the revelation, courtesy of MF Global, that no asset in the financial system is "as is", and instead is merely a copy of a copy of a copy- rehypothecated up to an infinite number of times (if domiciled in the UK) for one simple reason: there are not enough money-good, credible assets in existence, even if there are more than enough 'secured' liabilities that claim said assets as collateral. And while the status quo is marching on, the Ponzi is rising, and new liabilities are created, all is well; however, the second the system experiences a violent deleveraging and the liabilities have to be matched to their respective assets as they are unwound, all hell breaks loose once the reality sets in that each asset has been diluted exponentially. Naturally, among such assets are not only paper representations of securities, mostly stock and bond certificates held by the DTC's Cede & Co., but physical assets, such as bars of gold held by paper ETFs such as GLD and SLV. In fact, the speculation that the physical precious metals in circulation have been massively diluted has been a major topic of debate among the precious metal communities, and is the reason for the success of such physical-based gold and silver investment vehicles as those of Eric Sprott. Of course, the "other side" has been quite adamant that this is in no way realistic and every ounce of precious metals is accounted for. While that remains to be disproven in the next, and final, central-planner driven market crash, we now know that it is not only precious metals that are on the vaporization chopping block: when it comes to China, such simple assets as simple steel held in inventories, apparently do not exist.
As I’ve outlined in earlier articles, Spain will be the straw that breaks the EU’s back. The country’s private Debt to GDP is above 300%. Spanish banks are loaded with toxic debts courtesy of a housing bubble that makes the US’s look like a small bump in comparison. And the Spanish government is bankrupt as well.
A week ago, after peripheral European bonds soared and yields plunged on more hype and more promises that the ECB may monetize debt on the one condition that insolvent countries hand over sovereignty to the Troika ala Greece, we were not all surprised to learn that "suddenly, nobody in Europe wants the ECB bailout." And why should they? After all, The whole point of the gambit was to lower bond rates, which happened, which would allow insolvent government to stack even more debt courtesy of lower rates on top of record debt, taking the insanity of the old saying "fixing an insolvency problem with liquidity" one step further, and revising it to "fixing an insolvency problem with more insolvency." Furthermore, if the mere threat of the ECB stepping in and crushing any shorts or supporting longs was enough, why even bother with actual intervention. Simple: even infinite monetary dilution has its limits. That limit is and always has been cash flow, because a central bank can only dilute wealth, never create it. And for Spain said limit is approaching fast.
Japan's Ambassador To China Dies As Chinese Police Use Tear Gas, Water Cannon On Anti-Japan ProtestersSubmitted by Tyler Durden on 09/16/2012 10:12 -0400
Yesterday we described that anti-Japan sentiment across China was spreading like wildfire with some even suggesting it is time to declare war on Japan (see picture) in retaliation for the unprecedented shift in Japan's status quo vis-a-vis the Senkaku Islands. Today it has gotten even worse. From Reuters: "Chinese police used pepper spray, tear gas and water cannon to break up an anti-Japan protest in southern China on Sunday as demonstrators took to the streets in scores of cities across the country in a long-running row over a group of disputed islands. The protests erupted in Beijing and many other cities on Saturday, when demonstrators besieged the Japanese embassy, hurling rocks, eggs and bottles and testing police cordons, prompting the Japanese prime minister to call on Beijing to ensure protection of his country's people and property. In the biggest flare-up on Sunday, police fired about 20 rounds of tear gas and used water cannon and pepper spray to repel thousands occupying a street in the southern city of Shenzhen, near Hong Kong. Protesters attacked a Japanese department store, grabbed police shields and knocked off their helmets. One protester was seen with blood on his face. At least one policeman was hit with a flowerpot." And while the populist reaction was widely expected, the most surprising development came from Japan, where the designated ambassador to Beijing mysteriously died several hours ago after collapsing in the street without any obvious cause.
The implications of this are severe. However, the first question we have to ask is, “why now?”
The Fed panicked. It is extraordinary that the Fed would announce an open-ended "we'll print as much as it takes, as long as it takes" policy. Chairman Bernanke is sending a signal to the markets and to government that the economy is bad and getting worse and that the Fed will do its part as everyone expects them to do. This is a clear signal to the markets and the world that the Fed stands for monetary inflation. They don't know what else to do. Here is the fallout.
I gain nothing from pretending that I’m right when I’m not. And while I hate being wrong, I’m not going to ignore this fact and try to simply move on as though none of this has happened.
And so it is written; thou shalt not drink big soda upon the veritable streets of New York City. As the Village Voice reports, the NY Board of Health just passed Bloomberg's soda ban proposal banning sugary drinks in more than 16-ounce cups. Of course, none of this should come as a surprise as repression swings from financial to social - what next? No more 8-year-old chimney-sweeps? No more untested drugs on the market? Free-speech suppression on YouTube? As WSJ notes: During the first three months after the ban takes effect, the city will inspect and inform sellers when they are not in compliance with the law. The city will allow a three-month grace period before it begins issuing notice of violations that are subject to fines. Will there be soda hoarding? 'I Drink 17-ounces-at-a-time' T-Shirts?
If 2011's Arab Spring was all about the propaganda "hope" of democracy (driven paradoxically by soaring global good prices as we predicted in early 2011 before the first Tunisian domino toppled), then 2012 Arab Fall, is all about the blowback to US policies and intervention in the region. And while we are amused by the media's narrative that an entire continent can suddenly come to arms against Pax Americana over a YouTube clip, we are confident that what some hate-mongering preacher has to say about Mohammed is about as relevant to what is happening in the Middle East today, as how the global economy performs impact the S&P. Absolutely none. What we do know is that the anti-American revulsion, which started on September 11 in Egypt and has since taken Libya and Yemen by storm, is spreading like wildfire. The NYT writes: 'Protests were also reported at American missions in Morocco, Sudan and Tunisia, where the police also fired tear gas to disperse crowds." It is only going to get far worse, as suddenly geopolitics, and the US response thereto, becomes the biggest issue in the presidential debate.
Fortescue Implodes As Company Requests Debt Waiver: 2007 Deja Vu Liquidity Fears Send Stock PlungingSubmitted by Tyler Durden on 09/13/2012 07:52 -0400
Two weeks ago when we posted "The Kangaroo In The Metals Mine: Fortescue Trying To Raise $1.5 Billion From 20 Banks As Iron Prices Implode" we observed several developments in the bond prices of Australian mega iron miner, and fourth largest in the world, Fortescue, which suddenly found itself in dire need of cash which is always a first step to insolvency, which made us comment that just "like that we are back to those days of 2008 when the Chinese demand collapse meant any day could be FMG's last. Happy days are back again." Not really. We added that "as usual, the bond market is the first to get the memo that the landing is going to be a hard one. We give the farce that is known as equities about 4-6 weeks before they too get the memo." We were actually wrong: it took just two weeks for equities to finally figure out what we were warning about. From Reuters: "The world's no.4 iron ore miner Fortescue Metals Group Ltd has asked lenders to waive debt covenants if iron ore prices remain under pressure, the firm said on Thursday, after its shares suffered their worst loss in almost four years. Like other Australian miners, Fortescue's earnings have come under pressure from a plunge in commodity prices caused by weak demand in top consumer China. This has squeezed its ability to service its long-term debt, which stands at $11.3 billion." Of course, those who read our August 31 report, and were positioned accordingly and ahead of the market, made 20% in two weeks.
Some very curious thoughts ahead of tomorrow's FOMC announcement from none other than Citigroup: "There is a strong view in markets that 1) the Fed have to do a big QE, given the expectations that have been built up, and 2) the added liquidity will have a marginal effect. Taken together this raises the risk that the assets that will benefit are those sensitive to liquidity, such as money substitutes and Treasuries, rather than assets that are sensitive to real business cycle expansion." Money substitutes = gold
The unmentionable class, the class that doesn’t exist in America, is ballooning
Yesterday, in a rather paradoxical development, the Japanese Cabinet formally announced that the government will purchase several disputed islands that China also claims — a move that Beijing said would bring "serious consequences." The issue at hand is that China and Taiwan also claim the islands, which are part of what Japan calls the Senkakus and China the Diaoyu group. It is paradoxical because the last thing Japan, and its statutory deflationary and demographic collapse needs right now is to "antagonize" the world's fastest growing economy, and its neighbor to the west with whom it had a rather violent give or take as recently as 1945. Japan spin was naive: Chief Cabinet Secretary Osamu Fujimura repeated that the islands are part of Japan's territory and should not cause any friction with other countries or regions. "We certainly do not wish the issue to affect our diplomatic relations with China and it is important to resolve any misunderstanding or miscommunication." Turns out quite a bit of friction was caused as a result, as well as a substantial amount of misunderstanding and miscommunication. As Globe and Mail reports, "China has dispatched two patrol ships to the East China Sea in a show of naval strength and antagonism toward Japan after Tokyo said it had purchased a group of disputed islands from their private owners. China’s aggressive response ratcheted up tensions in a long-standing conflict between the two countries over claims to the territory."