Last week the Federal Reserve and the Bank of England announced plans to tighten the control over the balance sheet management and the risk-taking of private banks. This is just the beginning, believe me. The nationalization of money and credit will intensify in 2012 and beyond. More regulation, more restriction, more control. Not only in defence of the bankrupt banks but also the bankrupt state. We will see curbs on trading, short-selling restrictions and various forms of capital controls. A system of state fiat money is incompatible with capitalism. As the end of the present fiat money system is fast approaching the political class and the policy bureaucracy will try and defend it with everything at their disposal. For the foreseeable future, capitalism will, sadly, be the loser. The conclusion from everything we have seen in 2011 is unquestionably that the global monetary system is on thin ice. Whether the house of cards will come tumbling down in 2012 nobody can say. When concerns about the fundability of the state and the soundness of fiat money, fully justified albeit still strangely subdued, finally lead to demands for higher risk premiums, upward pressure on interest rates will build. This will threaten the overextended credit edifice and will probably be countered with more aggressive central bank intervention. That is when it will get really interesting. We live in dangerous times. Stay safe and enjoy the holidays. In the meantime, the debasement of paper money continues.
2011 has not been good for hedge funds: as the following chart from Reuters shows, this will be the first year of many, possibly ever, in which the average hedge fund had a negative return, even as the broader market had a minimally positive return, although there are still a few more trading days in the year so the S&P could well close negative. No doubt this collapse in returns will be blamed on this and that, yet we can't help but wonder how in the "New Hedge Fund Normal" in which fundamentals no longer matter and alpha is irrelevant, in which what does matter is which central bank prints and how much and who can get more levered beta, in which "expert networks" and "information arbitrage" are a thing of the past, in which every phone conversation is tapped and in which your friendly state DA just wants to bust some hedge fund ass to make that governor bid easier, will hedge funds ever return to their old prominence? And if they can't, just what will happen to that ultra critical $2 trillion marginal purchasing power, levered 3 times, which has traditionally been the driving force for market moves higher?
The numbers tell us America is in decline... if not outright collapse. I say "the numbers tell us" because I've become very sensitive to the impact this kind of statement has on people. When I warned about the impending bankruptcy of General Motors in 2006 and 2007, readers actually blamed me for the company's problems – as if my warnings to the public were the real problem, rather than GM's $400 billion in debt. The claim was absurd. But the resentment my work engendered was real. So please... before you read this issue, which makes several arresting claims about the future of our country... understand I am only writing about the facts as I find them today. I am only drawing conclusions based on the situation as it stands. I am not saying that these conditions can't improve. Or that they won't improve. The truth is, I am optimistic. I believe our country is heading into a crisis. But I also believe that... sooner or later... Americans will make the right choices and put our country back on sound footing.
The death throes of the debt-based consumerist lifestyle are already visible beneath the glossy propaganda of "rising revenues this Christmas season." Those revenues were obtained by selling goods at below cost, in the absurd hope that income-strapped, over-indebted consumers would make profitable "impulse buys." As Mish has documented, the "impulse buys" are being returned even before Christmas to the tune of hundreds of millions of dollars. The Fed is desperately attempting to re-inflate the debt bubble by lowering interest and mortgage rates and buying up all sorts of semi-toxic/impaired debt. What the Fed dreads is the reality we all feel and see: fear of the future due to diminished wealth and insecure incomes. If your assets have fallen in value, you feel poorer because you are poorer. Borrowing more at any interest rate will not make anyone feel wealthier. People who fear their income may plummet due to layoffs or their hours being cut are not in the euphoric mood to borrow more, and banks which cannot dare to lose more money loaning to people who will default have cut off credit to millions of previously rabid consumers of debt. Ask yourself this simple question: how much stuff could people buy if they could only spend surplus cash, after all their expenses and debt servicing payments were paid in full?
Paul Mylchreest, author of the Thunder Road, releases his much anticipated latest report, and it's a doozy: "2012: Dear Portfolio Manager, you are leaving the capitalist sector and heading into a full-spectrum crisis." He continues: "You were to hear a report on the world crisis. That is what you are going to hear. For twelve years you have been asking: Who is John Galt? This is John Galt speaking….Now it’s getting serious. 2012 will be a year to remember as the globalist agenda comes into focus amidst economic and geo-political crises: The titles of the last two Thunder Road Reports were prefaced with “Helter Skelter” - “The Illusion of Market Stability” followed by “Gentlemen Start Your Engines”. Sadly, the Helter Skelter I was writing about – the second part of the Great Financial Crisis is in progress and I’m expecting it to come to a head next year (2013 if we’re very lucky). The only question is WHAT brings it to a head? We’re not short of possible causes – a bank failure, sovereign default, Eurozone tipping into recession or the Middle East. Despite all the evidence to the contrary, like overwhelming debt levels and insolvent banks/sovereigns, the consensus seems convinced that we can “muddle through”. Dow Theory veteran, Richard Russell, explained it best: “In the coming two or three years we will be going through unprecedented situations beyond the understanding of most analysts.”"
The possibility of a Euro breakup is looming larger than ever. Forecast by ING sees an immediate fall in individual currencies in 2012, and GDP output falls ranging from 7% in Germany to 13% in Greece.
Obviously, measuring portfolios in dollars exaggerates performance in real terms. This isn't to say that one shouldn't invest in stocks. It means that one must: a) be cognizant of how results compare to gold or other real assets that one might buy with whatever currency one is dealing with; b) adjust brokerage statements to allow for currency dilution; and c) not rely on stocks in general to outpace inflation. In fact, it isn't just investments that are eroding. Our entire world is being devalued, even as one reads this article – from groceries and gas to cars and college. Someday we'll want to spend the gains we're making; how will we avoid the long-term erosion of the currencies we invest in?
UBS' Advice On What To Buy In Case Of Eurozone Breakup: "Precious Metals, Tinned Goods And Small Calibre Weapons"Submitted by Tyler Durden on 12/06/2011 22:36 -0500
Three months ago, Zero Hedge presented the first of many narratives that started the thread of explaining the "unmitigated disaster" that would ensue should the Euro break up, which in the words of authors Stephane Deo and Larry Hatheway, would leads to such mutually assured destruction outcomes as complete bank failure and/or civil war or far worse. Because if there is one thing the banks have learned in the aftermath of Hank Paulson, is that scaremongering when bonuses are at stake is the only to get taxpayer money to fund exorbitant lifestyles.,, Today, Larry Hataway has released yet another sequel to the original piece, focusing on this so very critical week for Europe, which as Olli Rehn said, must find a solution by Friday or see the EU "disintegrate", in which the vivid imagery, loud warnings and level of destruction are even greater than before. In other words, Europe has 4 more days, something which S&P tried it best to remind Europe of, as the alternative is "or else." And here comes UBS to remind everyone that anything but a "fix" to a system that was broken from the very beginning, would be a catastrophe, captured probably the best in Hatheway's recommendations of assets to be bought as a hedge to a Euro collapse: "I suppose there might be some assets worthy of consideration—precious metals, for example. But other metals would make wise investments, too. Among them tinned goods and small calibre weapons." But even that is nothing compared to the kicker: "Break-up runs the risk of becoming one wretched scenario. Sadly, however, it can’t be ruled out, just as it would have been improper to rule out the horrors of the first half of the 20th century before they happened." And there you have it: a reversion by Europe to the perfectly stable system from a decade ago, is now somehow supposed to result in World War. And with that the global banking cartel has official jumped the shark, just like the FT's latest rumor earlier today did the same by indicating that the well of European "bailout" ideas has officially run dry.
The United States increasingly resembles a 3rd world country in terms of unemployment, lack of economic opportunity, falling wages, growing poverty and concentration of wealth, government debt, corporate influence over government and weakening rule of law. Federal Reserve monetary policies and federal government economic, regulatory and tax policies seem to favor the largest banks and corporations over the interests of small businesses or of the general population. The potential elimination of the middle class could reshape the socioeconomic strata of American society in the image of a 3rd world country. It seems only a matter of time before the devolution of the United States becomes more visible. As the U.S. economy continues to decline, public health, nutrition and education, as well as the country’s infrastructure, will visibly deteriorate. There is little evidence of political will or leadership for fundamental reforms. All other things being equal, the U.S. will become a post industrial neo-3rd-world country by 2032.
Simply put, “productivity” is giving to the future, instead of taking from the future. Parasitism is the opposite: Borrowing from the future to fund present desires without credible connection to future healthy growth. Successful productivity requires the development of beneficial new approaches to value creation and the rigorous identification and confrontation of approaches that destroy value and that destroy the environmental, financial, social, and personal fabric of human endeavor. Debt forgiveness is initially brought into play to address the latter requirement, but cannot be viable over the long haul without affirmative new ways to create and exchange value. Given that we have the collective integrity, self-preservation instinct, human will, and the sense of necessity to confront our broken system, let’s first establish philosophical and practical corollaries to guide debt forgiveness as “giving to the future instead of taking from it”:
It’s fascinating to watch things play out as we rapidly approach the final rounds in the end game of the great game. The great game is of course the never-ending global struggle for power and dominance. The current entrenched powers that be have been in their positions for a very long time and they have no intention of giving up that role. What the moral and decent percentage of humanity need to understand in no uncertain terms is that these folks and their minions have no conscience. They could care less how many starve to death, get blown to bits in war or waste their lives away in front of the television set watching Snookie on the Jersey Shore. In fact, I am certain that they totally get off on these things. Degrading humanity into an animal-like state clearly appears to be their aphrodisiac. Notice how the media encourages people to go out and trample each other for a $2 waffle maker on Black Friday. The scenes of people running into Wal-Mart or Best Buy in the early morning hours when they should be at home with their families having conversation after Thanksgiving dinner reminds me of scenes of cattle being shuffled into a sorting pen. Actually if you look at this video the cattle appear much more civilized http://www.youtube.com/watch?v=C71324F_Q-8 (just go a minute and a half in). I think the second step after one sees the insane matrix we are trapped in is to free yourself from it mentally and emotionally. It is the mental and emotional control that they are really after. That is the most powerful and effective tool of control so don’t give them the satisfaction. Try to buy local and support your communities. It may cost more but in that case just buy less. You will feel good about it. More specifically, anything encouraged by the mainstream media, like spending money you don’t have on superfluous items made in China with slave labor and sold to you at a giant tax dodging corporation should be avoided if possible. With that out of the way, on to the main topic of this paragraph. The good ol’ SDR. I will tell you one thing right now. When TPTB progress to talking about IMF rescues and SDRs we are the end of the line boys and girls. This is the LAST play they have in the conventional playbook.
The United States is quickly becoming a post industrial neo-3rd-world country. Partly as a consequence of worsening unemployment and lack of economic opportunity, falling real wages and household incomes, growing poverty and increasing concentration of wealth, the U.S. government faces a historic fiscal crisis. Dominant corporate influence over the U.S. government, particularly by large banks, weakening rule of law at the federal level and destructive tax policies are compounding the economic problems facing the United States. Barring fundamental reforms or a hyperinflationary collapse of the U.S. dollar (due to the fiscal problems of the U.S. government), the deterioration of the U.S. economy will continue and accelerate. As the U.S. economy continues its decline, public health, nutrition and education, as well as the country’s infrastructure, will visibly deteriorate and the 3rd world status of the United States will become apparent.
As I observe the zombie like reactions of Americans to our catastrophic economic highway to collapse, the continued plundering and pillaging of the national treasury by criminal Wall Street bankers, non-enforcement of existing laws against those who committed the largest crime in history, and reaction to young people across the country getting beaten, bludgeoned, shot with tear gas and pepper sprayed by police, I can’t help but wonder whether there is anyone home. Why are most Americans so passively accepting of these calamitous conditions? How did we become so comfortably numb? I’ve concluded Americans have chosen willful ignorance over thoughtful critical thinking due to their own intellectual laziness and overpowering mind manipulation by the elite through their propaganda emitting media machines. Some people are awaking from their trance, but the vast majority is still slumbering or fuming at erroneous perpetrators... The American people are paying the price for allowing a few evil men to gain control of our government... We now unquestioningly accept being molested in airports. We shrug as our intelligence agencies eavesdrop on our telephone conversations and emails without the need for a court order. It is now taken for granted that we imprison people without charging them with a crime and assassinate suspected terrorists in foreign countries with predator drones. Invading countries and going to war no longer requires a declaration of war by Congress as required by the Constitution. The State grows ever more powerful.
The only quote worth noting from the just delivered speech by ECB executive board member José Manuel González-Páramo is the following: "We cannot completely delegate governance to financial markets. The euro area is the world’s second largest monetary area. It cannot depend solely on the opinions of ratings agencies and markets. It needs economic governance arrangements that are preventive and linear. This underscores my central point that a much more comprehensive approach to economic governance is now the priority for the euro area. And this means more economic and financial integration for the euro area, with a significant transfer of sovereignty to the EMU level over fiscal, structural and financial policies." In other words, in order to protect people from the "stupidity" of rating agencies which after years of lying have finally started telling the truth, and the market which does what it always does, and punishes those who fail, Europe must be prepared to give up "significant sovereignty" (sounds better than Anschluss) to Europe's "betters" which is another way of saying 'he who pays the piper calls the tune." And "he" in this case is, of course, Germany. In other words, courtesy of one failed monetary experiment Germany will succeed, without sheeding one drop of blood, where it failed rather historically some 70 years ago.
We believe that the Super Commitee’s lack of action portends for inaction by our government until the 2012 election is concluded. We also believe, that no matter who wins the printing presses are gearing up. There are two scenarios we are looking at though a political prism. Our conclusions are digital. First of all and of major importance , we believe it is in the GOPs interest to have the economy be in its worst shape possible going into the election. It is their method to be the party of no to Obama’s ideas. And it is their method to be the party of “tax cuts” to actual suggestions. This is essentially what came out of the Super Committee. The GOP wanted tax cuts, the Dems did not. Thus deadlock continues. Therefore nothing will happen until post election. And post election, the dollar will get decimated. Post election will create an environment wherein risk assets rise again. There will be Good Inflation (Stocks, Stocks, and more Stocks) and bad inflation (oil, gold and grains). Wall Street wins as fees from the never ending asset ping pong makes investors migrate their holdings from one class to another. Remember those Golden Crumbs that fall off the bonds when they are sold, from Bonfire of the Vanities?