A Potentially Nasty Snapshot Of Risk Resulting In Another Trillion Of Taxpayer Funded Bank Bailouts - A WalkthroughSubmitted by Reggie Middleton on 12/21/2012 11:55 -0500
Bigger Tax Payer Bank Bailouts Cometh? If You Think Taxes Are Gonna Be Higher You Ain't Seen Nothing Yet! I welcome one and all to show me how it will not be so.
I’m going to lay out everything you need to know about the fiscal cliff negotiations. After reading this, you can ignore all of the media’s coverage of this topic as well as various politicians’ announcements pertaining to this subject. All you need to know consists of just one sentence. Politicians are in charge of this issue.
Yesterday, when we described the unprecedented surge in gun sales in the aftermath of the Newtown massacre, we said that "what is most ironic, is that it is precisely the fear of forced, unilateral rejection, by either or all three branches of government, of the original constitution and its various amendments that has Americans scrambling into gun stores. And thus the closed loop nature of the problem: by threatening to take away America's guns, the government is only exacerbating a problem that is steeped in 200+ years of history and is engrained deep in American psychology." It took about 24 hours to demonstrate just how counterproductive government intervention always is: as of this moment, Bloomberg reports, Wal-Mart, the biggest retailer in the US and the world, has stores in at least five states where guns are now completely out of stock.
The last 10 days have seen some remarkable moves across asset classes. None less so than the US equity markets where despite weak macro developments, AAPL's collapse, and the overhang of Fiscal Cliff uncertainty, stocks have gone from strength to strength on the back of the ubiquitous (and apparently oh so easy to trade) Santa Claus rally. However, a scratch below the surface, as indicated in these 3 charts, suggests that perhaps the US trading public is not allowed to participate - as the great majority of the gains have occurred only when the rest of the world is playing (and the worst performance is when only US residents are active).
There is now about 48 hours until the rubber hits the road. What happens in the next 2 days: in a somewhat surprising development earlier, the Republicans today managed to turn the tables on the president, and as reported this morning, proposed an alternative "Plan B", one which the president has already said he will not to accept as it extends the current Bush tax cuts on all those making $1 million or less (and thus not nearly punitive enough in the eyes of Obama's electorate). The reason for this strawman is that unless Obama settles on some compromise definition of 'wealthy' between his already adjusted definition which moved from $250,000 to $400,000 earlier, and the $1 million cutoff proposed by the republicans, republicans will take the Plan B proposal to the House on Thursday and pass it, only so it is immediately voted down by the Senate, but have the popular backstop of saying "they gave it their best" just as Ken Langone suggested to Rand Paul earlier today on CNBC. And as Reuters reported, it appears that the drop dead date for House majority leader Cantor is Thursday, at which point he will vote, and pass, Plan B. At that point the Fiscal Cliff debate for 2012 is as good as over, as the resulting animosity that develops in the subsequent days will guarantee no further compromises are achievable for the balance of the year.
There is one chart that everyone should see that is part of Reuters' must read special series: The Unequal State of America: Redistributing Up - it is the chart we have said over the past 4 years is the only one that matters for America - that showing the flattening of America's wealth distributon Gaussian curve, aka the plunder and accelerating destruction of America's middle class, at the expense of the poorest and the wealthiest. This is nothing but the inevitable outcome of a co-opted, conflicted and controlled marionette government, which does the bidding of the wealthiest lobby powers (read corporate shareholders and Wall Street), partitioning the bulk of the wealth to the richest, while sending the scraps to the poorest in order to keep itself in power due to the power of the ever poorer, democratic majority. Alas, since there is never a free lunch, and since the Fed does not create wealth but through its currency debasement merely accelerates the transfer of wealth, someone ends up footing the bill? Who? None other than that part of the US population which made the United States of America the greatest country in the world, and is now watching it implode first slowly, then fast.
Short and sweet from the Chairman of the fermentation committee: "the central banks of the world are poised to simultaneously embark on aggressive new rounds of quantitative easing. There will be lots of focus on Thursday's BOJ comments. This is a world even Keynes could not conceive." Of course, Keynes never worked out of 1954 Stalingrad, or 2012 Washington, D.C.
For the green-shoot-minded, last month's albeit record high Spanish bank loan delinquencies was occurring as its first derivative was slowing. Well dash those hopes as this month sees bad loans not only rise to record highs (above 11% for the first time in history) but the pace of this drastic deterioration accelerated at the fastest pace since June. We are sure somewhere a Spanish finance minister is eschewing the 2nd or 3rd derivative as an indication that the worst is over but reality is that as FROB proudly notes the number of banks who have invested in its bad bank - in a strange and twistedly ironic reacharound whereby the bad banks themselves (all domestic, no foreign, Santander 16% stake!) are buying up the assets of the nation's bad banks - the sheer size and scale of this level of bad loan and deterioration (double in two years) is far beyond anything the sovereign's bad bank is prepared for. Of course, none of that matters as Draghi's magical OMT remains the ultimate backstop to any reality emerging. Spain - getting worse, faster.
In March 2012, Okayama Metal & Machinery became the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies. Okayama manages pension funds for about 260 small and mid-sized companies in the Okayama area. "By diversifying currencies, we aim to reduce risks associated with them," said Yoshi Kiguchi, the fund's chief investment officer. "Yields become stable if you put small amounts into as many types of holdings as possible." Of its 40 billion yen ($477 million) in assets, the fund has invested around ¥500 million-¥600 million in gold, he said. Initially, the fund aims to keep about 1.5% of its total assets of Y40bn ($500m) in bullion-backed exchange traded funds, according to chief investment officer Yoshisuke Kiguchi, who said he was diversifying into gold to “escape sovereign risk”. Other pension funds in Japan are following their lead according to the Wall Street Journal. Japanese pension funds are diversifying into gold "largely to mitigate the damage from possible market shocks"... Mitsubishi UFJ Trust and Banking Corporation said it has secured more than Y2 billion in investments from two pension funds for a gold fund it started in March.
Moments ago, the San Fran Fed, best known for spending taxpayer money to conduct such indepth analyses on topics including whether water is wet, and whether the Fed creates bubbles, has just released its most recent 'FedViews' economic outlook in which we read that "we expect growth to steadily accelerate in 2013 as the economy bounces back from harsh weather conditions and as the underlying expansion of consumer spending reemerges. We expect growth to register 1.7% in 2012 and 2.6% in 2013." This would be great if only a two minute Google search did not expose some of the San Fran Fed's previous attempts at forecasting the future, such as this one from October 14, 2010, in which the crack experts said that "we currently project that real GDP will expand around 2½% in 2010, below its potential of about 3% annually. We expect the recovery to gain momentum over the course of next year and that real GDP growth for 2011 will reach about 3½%." Final 2011 GDP growth: 2.4%.... or this one from June 9, 2011, in which we learned that "growth should rebound in the third quarter. We expect GDP to expand at an annualized 3½% rate in the second half of the year and to continue to strengthen throughout 2012." Final 2012 GDP growth: 1.8%. Or just 50% off. Applying the same undershoot error rate to the Fed's 2013 forecast means that real economic growth next year will be at best 1.3%. And that's with a fresh $1 trillion in monetary injections from the Fed.
As the fallout of Liborgate escalates, the next big bank to be impacted in the fallout started by Barclays civil settlement "revelation" is set to be troubled UBS, already some 10,000 bankers lighter, where as many as three dozen bankers are reported by the implicated in the fixing of the rate that until 2009 was the most important for hundreds of trillions in variable rate fixed income products. Only instead of attacking the US or even European jurisdiction, where the next big settlement is set to hit is Japan: a country whose regulators as recently as half a year ago promised there were no major issues with Libor, or Tibor as it is locally known, rate fixings. And while this most recent development will have little material impact on UBS' ongoing business model, the one difference from previous settlements is that it will likely include criminal charges lobbed against some of the 36 bankers. From the FT: "UBS is close to finalising a deal with UK, US and Swiss authorities in which the bank will pay close to $1.5bn and its Japanese securities subsidiary will plead guilty to a US criminal offence. Terms of the guilty plea were still being negotiated, one person familiar with the matter said on Monday, adding that the bank will not lose its ability to conduct business in Japan. The pact between the bank and the US Commodity Futures Trading Commission, US Department of Justice, UK’s Financial Services Authority and UBS’s main Swiss supervisor Finma is expected to be announced on Wednesday, although last minute negotiations continue."
The outcome of Japan's elections seems to be largely in line with market expectations. The Liberal Democrat Party won handily. It appears to have secured a majority of lower chamber of the Diet.
There had been some reports suggesting that it might be able to achieve a super-majority of 2/3, but this does not look to materialized. However, with its traditional party, the Komeito, together it may.
In any event, this is a strong mandate for the LDP's agenda. It is a combination of nationalism and what passes for socialism in the neo-liberal age, namely increased government support for the economy via a) massive public spending and 2) unlimited monetary easing.
The Fiscal Cliff cat and mouse game is entering its last two weeks of calendar 2012, with Congress now officially closed for the year. And while we would have expected major updates in the Cliff timeline to only hit during trading hours, usually just as AAPL once again threatens to trade with a 4-handle, Reuters reports that out of the blue Boehner, who last we checked is back in Ohio, has made a radical departure with the Norquist pledge status quo, and has offered to raise tax rates on high earners to break the "fiscal cliff" deadlock in exchange for major cuts in entitlement programs, "but President Barack Obama is not ready to accept, a source said late Saturday."
The 'something for nothing' mentality is now firmly in charge in the developed economies. As the G7 economies cascade lower under their past, present and future entitlement & politically connected reward policies, misery is now being spread widely! Misery being spread widely is the product of socialism, as real growth disappears and money printed out of thin air fills in for the lack of real income growth. All of this is paid for by the money you earn and store your wealth in, buying less and less, while your balance in the bank stays the same. The attacks on wealth and job creation are set to accelerate as politicians loot and plunder the private sectors to pay the unpayable promises and support those that don’t produce, by dis-incenting and enslaving those that do. Effectively, penalizing those who lead a prudent and productive lifestyle. The cynical would argue that the goal is not to spur economic growth and job creation but instead is intended to formant economic collapse, grow government dependence, gather power as the man-made disaster unfolds, take freedoms and redistribute what wealth is left to the special interests in charge. This may very well be true but it could also be a matter of human nature and the generational re-learning of what role a government must be restricted to playing.
Once upon a time there lived an independent and industrious people in a land called Ameristan deep in the realm of Middle Income. Their kingdom was unlike any other recorded in the ancient histories, primarily because they had no “king”. Instead, the Ameristanians had decided long ago that kings were much more trouble than they were worth, and, using cost/benefit ratio analysis, came to the conclusion that it was better to hang such ambitious power mongers by their necks and govern themselves instead. Unfortunately, many generations had passed, and the revolutionary fire of Ameristan had grown tired and dormant. Eventually, many of the people began to forget where they had come from... Ameristan had become a land of Unicorn-burger flippers, Swamp Banshee back washers, Dwarf tossers, Jabberwocky jugglers, Bugbear shavers, etc. They were like the peasants of the old days; beggars, thieves, and slaves.