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So Italian banks have issued about $100 billion of these ponzi bonds and even in this day, that is a big number. Banks issue bonds to themselves. Then they get an Italian government guarantee. Then they take those bonds to the ECB and get money, which I assume they use to pay down other debt mostly. The Italian banks and Italian sovereign debt markets are essentially becoming one and the same. The sovereign has added 100 billion of risk to the banks (that today no one is focused on) and the banks and ECB would have to come up with some new gimmick if the sovereign had problems. The circularity has been powerful during this rally, but it seems too clever by half. It is an all or none strategy, and the ultimate double down. If it all works, then it is genius. If we see another round of weakness, we have the start of a death spiral.

Sean Corrigan presents an interesting chart for everyone who still believes that, contrary to millennia of evidence otherwise, money is not fungible. Such as the Lerry Meyers of the world, who in a CNBC interview earlier said the following: "I’m sorry, I’m sorry, you think he doesn't have the right model of inflation, he would allow hyperinflation. Not a prayer. Not a prayer.  If you wanted to forecast inflation three or four years out and you don't have it close to 2%, I don't know why. Balance sheet, no impact. Level of reserves, no impact, so you have a different model of inflation, hey, you like the hawk on the committee, you got good company." (coupled with a stunning pronouncement by Steve Liesman: "I think the Fed is going to be dead wrong on inflation. I think inflation is going up." - yes, quite curious for a man who for the longest time has been arguing just the opposite: 5 minutes into the clip). Because despite what monetary theorists say, monetary practitioners know that money always finds a way to go from point A (even, or especially if, said point is defined as "excess reserves" which in a stationary phase generate a ridiculously low cash yield) to point B, where point B are risk assets that generate the highest returns. Such as high beta stocks (and of course crude and other hard commodities). And the following chart of Inside vs Outside Money from Sean Corrigan shows precisely how this is accomplished.

CDS is once again (still) in the spotlight. We have moved on from debating whether or not a Credit Event has occurred in the Hellenic Republic, to concerns about whether the CDS market will settle without a problem. There is a lot of talk about “net” and “gross” notionals and counterparty risk.  What I will attempt to do here, is build a CDS world for you. We will look at various counterparties, the trades they do, and the residual risks in the system. It will be loosely based on Greek CDS but some liberties will be taken. None of the institutions are real world institutions (in spite of how much they sound like some people we know). It is a simplification, but to make it useful, it has to be robust enough to give a realistic picture of the CDS market/system.

While US equity futures continue to do their thing as the DJIA 13K ceiling comes into play again (two weeks ago Dow 13K was crossed nearly 80 times), ahead of today's 2:15pm Bernanke statement which will make the case for the NEW QE even more remote, none of the traditional correlation drivers are in active mode, with the EURUSD now at LOD levels, following headlines such as the following: "Euro Pares Losses vs Dollar as Germany’s ZEW Beats Ests" and 20 minutes later "EUR Weakens After German Zew Rises for 4th Month." As can be surmised, a consumer confidence circular and reflexive indicator is the basis for this Schrodinger (alive and dead) euro, and sure enough sentiment, aka the stock market, aka the ECB's balance sheet expansion of $1.3 trillion, is "improved" despite renewed concern over Spain’s fiscal outlook after better than expected German ZEW per Bloomberg. Next, investors await U.S. retail sales, which have come in consistently weaker in the past 3 month, and unless a pick up here is noted, one can scratch Q1 GDP. None of which will have any impact on the S&P 500 policy indicator whatsoever: in an election year, not even Brian Sack can push the stock market into the red.

The Greek CDS auction has not yet taken place, nor has one quantified how many Greece-guaranteed orphan bonds with UK-law indentures have to be made whole (at a cost to Greece of course, no matter how much Venizelos protests), and somehow the world is already moving on to bigger and better risk strawmen. Because if one sticks their head in the sand deep enough, it will be easy to ignore that European banks have gradually over the past year or quite suddenly (as in the case of Austrian KA Finanz) taken about €100 billion in now definitive losses on their Greek bonds and CDS exposure. Luckily, just like in the US, there is now over $1.3 trillion in fungible cash sloshing in the system, allowing banks to 'fungibly' fund capital shortfalls and otherwise abuse every trace of proper accounting, when it comes to a post-Greek default world. The problem is that none of this actually solves the fundamental insolvency issues plaguing the 'old world', but what it does do, is force the accelerated depletion of an aging and amortizing asset base. That's fine - as Draghi said the ECB can "always loosen collateral requirements even more." So while we await to hear just who will sue Greece and Europe, and how much cash will have to be paid out to UK-law bondholders (before the Greek default is even remotely put to rest), here is a listing of what Bank of America (recall - BofA is the one bank most desperate to remove any lipstick from the pig due to its need for more QE) believes will be the biggest risks to its outlook going forward. In order of importance: 1) Oil prices (remember when a month ago we said this then ignored issue may soon hit the very top of investors worry lists?), 2) Europe; 3) US Economy; and 4) China. That about covers it. Oh and massive debt issuance supply too as well as the even more epic straw man that is this Thursday's stress test. Remember: stress tests will continue until confidence in the ponzi returns!

What is fraud except creating “value” from nothing and passing it off as something? Frauds interlink and grow upon each other. Our debt-based money system serves as the fraud foundation. In our debt-based money system, debt must grow in order to create money. Therefore, there is no way to pay off aggregate debt with available money. More money must be lent into the system to make the payments for old debts. This causes overall debt to expand as new money for actual people (vs. banks) always arrives at interest and compounds exponentially. This process is called financialization. Financialization: The process of making money from nothing in which debt (i.e. poverty, lack) is paradoxically considered an asset (i.e. wealth, gain). In current financialized economies “wealth expansion” comes from the parasitic taxation of productivity in the form of interest on fiat lending. This interest over time consumes a greater and greater share of resources, assets, labor, and livelihood until nothing is left.

Back in 2009 and 2010, TrimTabs Charles Biderman made waves for being the first person on prime time financial TV to tell it how it is, namely that the Fed is indirectly and directly affecting asset prices. Then he was ostracized. Now, it is not only a given that the Fed does everything in its power to hike stock prices, but is in fact welcome. Indeed, none other than Bob Pisani made point of highlighting that between central bank intervention and kicking the can down the road, the status quo has managed to restore credibility in the system. Of course, nothing could be further from the truth, as we have demonstrated with the now terminal evacuation of faith by the retail investor in the gross manipulated stock "market" which is nothing but a nominal policy vehicle for politicians and bankers. Unfortunately, the endless lies and propaganda are starting to push rational people who refuse to take the blue pill, and who are fully aware there is no wizard, over the edge. In his latest videoblog, Biderman is back, taking his Lewis Black impersonation to the next level, with the following rant: "Individuals are net sellers of US equities and have been for years, probably because they need to pay bills and stuff. So how are they able to do that and get decent prices without the stock market cracking. Well simple the Federal Reserve has been printing huge amounts of money and that ultimately has been boosting the value of US equities, and therefore the sellers can sell. All of this is driving me even more nuts than I already am."

...most investors fall into one of two categories: those that hold an abundance of gold and silver (which tends to be physical forms only), and those with little or none. While both groups need to diversify, I'm a little more concerned about the second group. Here's why. Regardless of what you think will happen over the remainder of this decade, one thing seems virtually certain: the value of paper money will be affected, perhaps dramatically. Even if the economy slips into deflation, the deflation wouldn't last long. A panicked Fed would print to the max and set off a wild rise in prices. This is why we're convinced currency dilution will not only continue but accelerate. Let's take a look at what's happened so far with the value of our currency vs. gold, after accounting for the loss in purchasing power.

Lies, damn lies and charts.  Why no one in charge dares utter the "F" word (fraud).

The rally for what could be World War III is in full swing. The truth amounts to very little on the eve of war.  Iraq and the lies surrounding weapons of mass destruction proved this lesson almost a decade ago.  Unfortunately for the people of America, Israel, and Iran, the political class and power wielders of their respective governments refuse to learn.  Their desire is for more authority and prestige; no matter how many bodies it costs. With the administration now seeking to provide assistance to the opposition forces in Syria, intervention and war with Iran is only an eventuality at this point.

The problem with the latest hare-brained scheme in Europe, namely to organize Greek bondholders among the various institutions that for 2 years did everything in their power to dump said Greek bonds in the open market, is that said institutions end up having no Greek bonds in inventory just at the time when they are supposed to have Greek bonds, 24 hours ahead of the Greek PSI deadline. As a reminder, participation in the PSI has to be 75%, with a CAC threshold of 66%,  and according to some interpretations even 50% of Greek bondholders voting for the PSI will be sufficient. Which means that with the PSI conclusion just around the corner, or 8 pm Athens time time tomorrow, the IIF, which is the consortium of entities that have every interest in perpetuating the status quo (i.e., do not have Europe ransom demands) and more than happy to "volunteer" for a 70%+ haircut, the IIF only has...

The most profitable business of the future will be producing Space Available and For Lease signs. Betting on the intelligence of the American consumer has been a losing bet for decades. They will continue to swipe that credit card at the local 7-11 to buy those Funions, jalapeno cheese stuffed pretzels with a side of cheese dipping sauce, cartons of smokes, and 32 ounce Big Gulps of Mountain Dew until the message on the credit card machine comes back DENIED.  There will be crescendo of consequences as these stores are closed down. The rotting hulks of thousands of Sears and Kmarts will slowly decay; blighting the suburban landscape and beckoning criminals and the homeless. Retailers will be forced to lay-off hundreds of thousands of workers. Property taxes paid to local governments will dry up, resulting in worsening budget deficits. Sales taxes paid to state governments will plummet, forcing more government cutbacks and higher taxes. Mall owners and real estate developers will see their rental income dissipate. They will then proceed to default on their loans. Bankers will be stuck with billions in loan losses, at least until they are able to shift them to the American taxpayer – again.

Some of these 15 swans are blacker than others....

Welcome to the Crazy House, a rotting McMansion ruled by power-drunk megalomaniacs suffering from delusions of invulnerability and god-like powers. Why are we here, you ask? Because the drunks who run the household make it so darned easy: just keep quiet, listen politely to their ravings, and you get subsidized meals, free rent, a houseful of techno-gadgetry and nonstop entertainment--and that's not even counting the amusement value of their delusional, sloppy-drunk ramblings out by the rust-stained pool.

In this day and age of pervasive momentum trading, herd-following and unfathomable and sheer "investing" stupidity, it is refreshing to now and then run across forward looking pieces of research that were not only spot on, but ran completely counter to conventional wisdom and groupthink. Such as the following analysis from Kyle Bass' Heyman Capital, which was also the pitchbook for the fund's Subprime fund, which showed, in plain language why Subrpime was not only the class to short, but the implications for the broader market. As a reminder, the fact that Bass made a killing by being one of the first to short subprime, is because the vast majority of the market was dumb enough not to see what he saw. Because it was inconceivable that the Fed could be wrong. After all, throughout 2006 it was none other than the Fed that told everyone who was stupid enough to listen that housing issues were "contained." Ironically, all those same people who lost an arm and a leg believing the Fed are back again, telling everyone to never get in the way of the Fed.