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Hank Paulson Burned As Another Electric Car Maker Goes Up In Flames





It would appear that (apart from Tesla, for now) that any thing related to electric cars is going up in flames. From Fisker's fubar (and blowing all that hard-earned government funding) and Chevy's Volt dysphoria to A-123 Systems (the Lithium-Ion battery-maker) and now Coda - which Yahoo Finance notes was among an emerging crop of California startups seeking to build emission-free electric cars three years ago. After selling just 100 of its $37,250 five-passenger vehicles, Coda filed Chapter 11 today taking a few well-known investors with it. On the bright side, the government was not involved (from what we can tell), but on the even brighter side, none other than former US Treasury Secretary Hank Paulson was among those burned by the company going up in flames (as was Harbinger's Phil Falcone).

 
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Desperately Seeking $11.2 Trillion In Collateral, Or How "Modern Money" Really Works





Over a year ago, we first explained what one of the key terminal problems affecting the modern financial system is: namely the increasing scarcity and disappearance of money-good assets ("safe" or otherwise) which due to the way "modern" finance is structured, where a set universe of assets forms what is known as "high-quality collateral" backstopping trillions of rehypothecated shadow liabilities all of which have negligible margin requirements (and thus provide virtually unlimited leverage) until times turn rough and there is a scramble for collateral, has become perhaps the most critical, and missing, lynchpin of financial stability. Not surprisingly, recent attempts to replenish assets (read collateral) backing shadow money, most recently via attempted Basel III regulations, failed miserably as it became clear it would be impossible to procure the just $1-$2.5 trillion in collateral needed according to regulatory requirements. The reason why this is a big problem is that as the Matt Zames-headed Treasury Borrowing Advisory Committee (TBAC) showed today as part of the appendix to the quarterly refunding presentation, total demand for "High Qualty Collateral" (HQC) would and could be as high as $11.2 trillion under stressed market conditions.

 
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Crude Inventories Surge To Record High As Energy Demand Collapses





A month ago we highlighted the somewhat stunning reality of the real economy via the EIA's detailed energy supply and demand data. The key takeaway was  that we hoped this did not represent the true state of the economy since the data was so dismal. Fast forward to today and the DOE just released a much higher than expected build in crude inventories that took the stuffed-channel of oil products to all-time highs. The 395.3 million barrels is higher than the previous record in July 1990. There appears to be a number of factors at play - none of which are positive. There is a surge in supply due to the incessant harvesting of shale oil (which could have its own problems as we noted here). Second, we suspect there is a degree of 'channel-stuffing' occurring - if we pump it, they will buy - as producers and transporters are desperate to keep active and show incremental business (despite fading railcar loadings). But perhaps most important, as EIA data has shown, there has been a collapse in end demand for crude products not seen since the 1990s. Today's surge in inventories appears to confirm demand remains subdued at best.

 
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Guest Post: How To Make Austerity Work





The Baltic States are unique in Europe in that they went through an austerity crash program a while ago already (beginning right after the 2008 crisis) and have in the meantime recovered strongly. Der Spiegel has an interesting interview with Lithuanian president Dalia Grybauskaite, in which she explains her views on the topic. It can obviously be done successfully. And while we are aware that every case is unique - the problems are not the same in every country, and due to cultural norms and traditions, it may be easier to enact reform in certain countries than others; it seems that no matter how many times Paul Krugman insists that no Baltic nation can possibly be held up as an example, the fact remains that they have imposed fiscal austerity and implemented wide-ranging reform measures and have succeeded.

 
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Revolving Door Goes Both Ways: Morgan Stanley Hires Former Treasury Staffer To Head Corporate Affairs





Think the revolving door for Morgan Stanley's diaspora of clutch interests goes only from the private sector outward, with the recent appointment of MS' darling Mary Jo White (who will promptly recuse herself in virtually all major cases involved her former clients at Debevoise for years to come) to head the SEC? Think again. Moments ago, Reuters reported that according to a memo sent internally today, Morgan Stanley has hired Michele Davis, "a public relations official and policy director who helped shape the Treasury Department's strategy during the financial crisis, to become global head of corporate affairs, according to a bank memo sent on Monday."

 
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This Is What Passes For A Good Earnings Season In The "New Normal"





"With earnings reports in from more than half the companies in the Standard & Poor's 500-stock index, first-quarter revenue for the group is expected to shrink 0.3% from a year earlier, according to Thomson Reuters. That would cut short the sales improvement reported at the end of last year and mark the third quarter out of the past four in which revenues have failed to grow by 1% or more. The sales figures are a troubling sign that business and consumer demand remain weak nearly four years after the recession. They are also evidence that a soft patch is developing in the U.S. economy, as optimism earlier in the year gives way to more sobering data on growth in gross domestic product, retail sales and manufacturing. In response, many companies are cutting jobs and curbing investments in an effort to prop up profits, moves that could make it harder for demand to recover."

 
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Chief Advisor To US Treasury Becomes JPMorgan's Second Most Important Man





The man who is the chief advisor to the US Treasury on its debt funding and issuance strategy was just promoted to the rank of second most important person at the biggest commercial bank in the US by assets (of which it was $2.5 trillion), and second biggest commercial bank in the world. And soon, Jamie willing, Matt is set for his final promotion, whereby he will run two very different enterprises: JPMorgan Chase and, by indirect implication, United States, Inc.

And that, ladies and gentlemen, is how you take over the world.

 
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What Italian Banks Can Learn From Spain's Bad Loan Devastation





We have commented numerous times on the inexorable rise in Spanish non-performing loans (NPLs). Since the Spanish economy started to weaken at the end of 2006, NPLs have been rising sharply; but the subsequent collapse of the Spanish property market exacerbated the matter further, causing a spike in NPLs in 2007 and 2008. Since then, the Euro area crisis and subsequent sharp rise in unemployment have led NPLs at Spanish banks to make new record highs. However, they are not alone. Italian banks did not suffer a property market collapse and so the rise in NPLs started later than in Spain and was not as severe. However, as JPMorgan notes, the sharp rise in unemployment we have seen since mid 2011 has led to an acceleration in NPLs at Italian banks. What should be most worrying for incoming PM Letta, is that from the respective troughs for each country (the trough for Spain was a lot earlier than for Italy, about two years in actual fact), Italy is looking eerily similar. The rise in NPLs at Spanish banks over the past two years has had a lot to do with the recession and rise in unemployment. To the extent that Italian unemployment has only started to rise sharply a year and a half ago, the future path for NPLs at Italian banks looks set to follow that of Spain. So why aren't bond spreads blowing wider? Answer below...

 
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Guest Post: China 2.0 Is in Trouble





Despite the many differences between China and the U.S., their basic problems are remarkably similiar: an economy that increasingly serves a tiny Elite, and a political/financial system that is incapable of meaningful reform. Setting aside the latest bird flu outbreak and sagging indicators of growth, China 2.0 is in trouble (with 1.0 being the Communist era of 1949 -1977 and 2.0 being the modernization/globalization era of 1978 - 2013), for it remains overly reliant on unsustainable growth dynamics. Add it all up and you get a clear picture of a government and economy that is incapable of making the kind of structural reforms that are needed to make growth sustainable.

 
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Les Miserables





It is a convoluted world. The money rolls in from the Fed, the ECB and various European funds where money is pledged by each country and put up by none. Pledges, contingent liabilities, guarantees of bank debt are not counted but have not vanished and show up when the bills are due decreasing the assets of everyone.  The newly printed money must find a home and so supports the sovereign debt yields while costing each European government more in the process. Austerity fails, unemployment rises, economies decline, more taxes are applied and the use of newly printed money is the only thing that separates us from some sort of financial chaos. The differential between the European economies and the European markets increases and the actual losses increase. Print forever. Lies without end. Reality redefined.

 
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Guest Post: Bitcoin As Cryptographic Gold?





The crypto-currency Bitcoin is still merely a speck on the global monetary landscape. It is young, experimental, and for all we know, it may ultimately fail to break into the monetary mainstream. However, on a conceptual level some are willing to call it a work of genius and arguably the most exciting development in the field of money for more than 130 years. The outcome is probably binary: Either Bitcoin ultimately fails and the individual Bitcoins end up worthless. Or Bitcoin takes off and Bitcoins are worth hundreds of thousands of paper dollars, paper yen, paper euros, or paper pounds. Maybe more. Those who buy Bitcoin as a speculative investment should consider it an option on the future success of the crypto-currency. We still consider gold to be the essential self-defense asset in the ongoing paper money crisis. The brand-new crypto-currency Bitcoin has to first earn its stripes as a monetary asset by proving itself as a ‘common’ medium of exchange. That is why we view Bitcoin very differently from gold, although the attraction of both has its origin in the demise of entirely elastic, politicized state fiat money. In the meantime, the debasement of paper money continues.

 
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Guest Post: The Way Forward





Even those at the top of the neofeudal debtocracy know our economy and political order need real reform. Behind closed doors, they will discuss this with others in the Power Elite and gloomily shake their heads. The usual reasons why real reform is impossible are duly trotted out: political stalemate/gridlock, the power of vested interests, etc. The real reasons are deeper than economics or politics.

 
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Spanish Unemployment Tops Record, Rising At Fastest Rate In A Year





In yet another worse-than-expected macro data point, Spain has just breached the 27% unemployment level - the highest since at least 1976, when data began following dictator Francisco Franco's death. At 27.2% this is already higher than the IMF's year-end estimate of 27% suggesting growth estimates are already overly optimistic. What is more concerning is the rate of increase in the joblessness is rising once again. The 1.1 percentage point rise is the largest in a year and 177,700 more households now have no actively employed members than a year ago. The greatest fear though, for European leaders and the Spanish people themselves, is the surge in youth unemployment. As we have noted a number of times in the past, the possibility of social unrest is exaggerated significantly by this number and at an incredulous 57.2% of under-25s out of work, Spain is closing in on Greece, according to official data, for the worst youth unemployment situation in Europe.

 
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Guest Post: Abnormalcy Bias





The political class set in motion the eventual obliteration of our economic system with the creation of the Federal Reserve in 1913. Placing the fate of the American people in the hands of a powerful cabal of unaccountable greedy wealthy elitist bankers was destined to lead to poverty for the many, riches for the connected crony capitalists, debasement of the currency, endless war, and ultimately the decline and fall of an empire. The 100 year downward spiral began gradually but has picked up steam in the last sixteen years, as the exponential growth model, built upon ever increasing levels of debt and an ever increasing supply of cheap oil, has proven to be unsustainable and unstable. Those in power are frantically using every tool at their disposal to convince Boobus Americanus they have everything under control and the system is operating normally. Nothing could be further from the truth.

 
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Fisker - The New Solyndra: Obama Kept Pumping Taxpayer Cash As Company Was Failing





It appears, once again, that the government's inept approach to spending 'other people's money' has blown up in their face. As HotAir.com reports, newly obtained documents show the Obama administration was warned as early as 2010 that electric car maker Fisker Automotive Inc. was not meeting milestones set up for a half-billion dollar government loan, nearly a year before U.S. officials froze the loan. Just as with Solyndra, Congress seemed convinced to spend billions of taxpayer money 'investing' in green-tech startups - only to lose everything. Simply put, in our humble opinion, the pattern is explained by the 'monopoly money' perspective we suspect these funds are viewed as in light of Bernanke's inexorable funding of the government's largesse. None other than the great Joe Biden reveled in the news in 2009 that Fisker would re-open a closed GM plant creating jobs, jobs, jobs; it never completed the task and never created one job. When the money isn't yours, 'investing' public funds is oh so easy and it appears, with zero consequence for the decision makers - again. But this story is not over yet, as Fisker heads to Congress looking for the right "financial and stretgic resources" once again.

 
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