Big-time signs of credit stress in Europe ... and on this side of the pond, all I have to say today is "Just because you called it a 'supercommittee' doesn't [url=http://www.foxnews.com/politics/2011/11/20/debt-panel-co-chair-failure-would-be-huge-missed-opportunity/]make it true[/url]."

The hilarious (in a sick-laughter kind of way) thing is, with this level of hyperpartisan wrangling and dysfunctionality over plans to cut annual budget deficits by at most 10% versus current levels, what chance is there of these same blinkered, dogmatic, corporate-owned morons actually putting the nation on track to a balanced budget? Why, that would be 'none'. High time for the ratings agencies to slash the US to the 'junk' it deserves.

Germany had a disastrously failed bond auction today:

[url=http://www.welt.de/wirtschaft/article13732054/Deutschlands-Spottzins-verschreckt-die-Investoren.html]Deutschlands Spottzins verschreckt die Investoren[/url]: [i]Die Schuldenkrise hat Europas Stabilitätsanker erfasst. Der Verkauf von Staatsanleihen wird für Deutschland zum Desaster. Dabei muss die Euro-Zone 1,5 Billionen am Markt einwerben.[/i]

(translation mine):

[url=http://www.welt.de/wirtschaft/article13732054/Deutschlands-Spottzins-verschreckt-die-Investoren.html]Germany`s low bond yields spook investors[/url]: [i]The debt crisis has reahed Europe`s stability anchor. The latest auction of German government debt proves a disaster. The Eurozone as a whole has 1.5 Trillion in bond offerings on deck in the coming year.[/i]
[quote]The European debt crisis has eaten its way into the heart of the currency union. After the debt issuss of other Euro nations encountered ever-lower investor interest in the preceding weeks, on Wednesday it hit Germany - until now the stability anchor of the Eurozone.

In the auction of 10-year Bunds teh German finance ministry failed to find enough buyers for the offer of 6 billion Euros of debt. There were only offers on the amount of 3.889 billion Euros, the Bund was forced to retain 2.1 billion Euros` worth. "This is now an existential crisis for Euro, nothing less", said Sony Kappoor of the Brussels think tank Re-Define.[/quote]
The article breaks down the bond-issuance needs (sum of maturing bonds being rolled, interest due, and new debt needing to be financed) in 2012 of the various major players thusly:

Germany: 335 billion Euro
France: 414 billion Euro
Italy: 400 billion Euro
Spain: 217 billion Euro
Belgium: 82 billion Euro.

Greece, Ireland and Portugal are full 'wards of the state' w.r.to debt issuance, i.e. their financing needs are presumably included in the above and the ECB rescue fund.

I don't think it is that disastrous. They were issuing a coupon of 2% and investors said, sorry we need a better return. Even from Germany.

Money Poster
 

Fabulous infographic from xkcd
[url]http://xkcd.com/980/huge/[/url]

[url]http://www.bbc.co.uk/news/business-15888752[/url]

The link explains better than any words the concern. The coupon rate was 6.504% on 6 month money. That is unsustainable given the stretched finances underlying the bonds.

Of far more concern is this statement.

[QUOTE]"Ahead lies either the slow disintegration of the euro area or a significant strengthening of the monetary union," Mr Rehn told journalists on Thursday.

He told Italian legislators on Friday that it was important to convince Germany of the need to issue eurobonds - common eurozone debts backed by all 17 member states.

"If I put it nicely, I would say there is a variety of views and there is quite some opposition as regards eurobonds," he said.[/QUOTE]

What is not being said is that Germany is being asked to foot the bill for the profligate neighbors partying ways. Of course Germany objects.

DarJones

[QUOTE=Fusion_power;279857][url]http://www.bbc.co.uk/news/business-15888752[/url]

What is not being said is that Germany is being asked to foot the bill for the profligate neighbors partying ways. Of course Germany objects.

DarJones[/QUOTE]



What is not being said here by you is that Germany decided to join EU and that is why it bears a common responsibility for common finances. Issuance of low-yield European bonds would be great now. But not for Germany, who can issue bonds with a yield 2% and buy for a received money bonds with a yield 17%. Huge extra income for 2 transactions without any investment.

[QUOTE=Fusion_power;279857][url]http://www.bbc.co.uk/news/business-15888752[/url]

The link explains better than any words the concern. The coupon rate was 6.504% on 6 month money. That is unsustainable given the stretched finances underlying the bonds.[/quote]
I love the desperate attempt at positive spin:

[i]"The Bank of Italy stressed that demand for the bonds had been high, with demand for the debts outstripping supply by 50%."[/i]

At a coupon rate a full 3 percentage points higher than last month's similar issue of 6-month notes, demand had bloody well better be high, otherwise it would mean you can't borrow at any price, which is the scenario Greece ran into. (Those 200%-plus 'yields' on Greek 2-year debt one often hears cited do not reflect actual costs of borrowing, at least not in any significant volume ... they are along the lines of 'this is the yields would-be-buyers are demanding.' Rather like a standing limit buy order on Greek debt, which will never be filled, since Greece has the ECB absorbing all its new debt issuance.)

BTW, "significant strengthening of the monetary union" appears to be bureaucratic code for "surrender all semblance of national budgetary sovereignity to a bunch of unelected banker-lackeys based in Brussels." The face I see which embodies the latter creature for me is that of that pompous twit Barroso, he of the monetary Napoleon complex. (And fellow pompous twit Olli Rehn is little better - that is a whopping number of bald-faced lies in a short quote by him, cited in the article).

And fellow pompous, lying unelected banker-lackey twit Monti 'plans to balance Italy's budget by 2013' - by deploying legions of magical pasta-pooping flying unicorns, no doubt.

------------

On my side of the pond, ZeroHedge has a trenchant take on the appalling orgy of consumption-for-consumpiton's-sake which is the media-driven post-Thanksgiving shopping frenzy known as Black Friday:

[url=http://www.zerohedge.com/news/guest-post-just-holiday-reminder-black-friday-utterly-meaningless]Guest Post: Just A Holiday Reminder - Black Friday Is Utterly Meaningless[/url]
[quote]You know the economy and stock market are in deep trouble when the Mainstream Media elevates one essentially meaningless metric to "The One Meaningful Statistic" and then trumpets it slavishly. One such meaningless metric is Black Friday. The Media has glommed onto Black Friday for a number of flawed reasons, number one being the MSM's ceaseless drive to reduce all complex problems down to something that can be expressed in a sound-bite voiceover and a video clip of a crowded mall. The MSM loves binaries: two parties, two final contestants, and if Black Friday is "good," i.e. sales exceed last year's consumerist bacchanal, then the economy is "healthy." Any weakening of the consumer's lemming-like drive to buy, buy, buy means the economy is "weak." This is of course absolutely backward: consumers buying shiploads of poor-quality crap made overseas means the economy is still on the slippery slope to implosion, as debt is being used to fund consumption while capital formation (savings) remains pathetic. Since most of the crap (and it is crap--most Americans have either forgotten what actual quality is or they have never experienced it) is made overseas, the "boost" to the economy generated by rampant charge-card consumption flows to only one slice of the the U.S. economy: corporate profits.[/quote]
Just to give our non-US readers an idea of the level of insanity in play here, the media have been showing a steady diet of pieces featuring the aforementioned lemmings camped out for days in front of the local BestMart or WalBuy or CostSluts or SuperDoublePlusGood store, missing multiple days which they might be spending on more-productive (or at least more enjoyable, or at the very least more comfortable) activities, just to 'save' hundred bucks or such on some made-in-a-polluting-Chinese-industrial-hellhole plasma TeeVee or gaming console. I guess that makes me a bad unpatriotic kind of American, since I do most of my (increasingly modest) holiday shopping online each year, and never go anywhere near a mall in the days leading up to and following Thanksgiving. My sister and I used to go nearby Stanford Shopping Center each year a couple weeks before Christmas and actually spend most of the time shopping. As the years have passed we do less and less shopping, and now just enjoy stuff like sitting at a table on one of the outdoor patios of a restaurant and having a relaxing lunch and conversation. It's a nice mall - all the walkways are open-air, lovely landscaping, mostly-pleasing NoCal weather - way too nice to spend most of one's time standing inside at counters and display racks. I realize the irony of that, since the Mall only stays in business so long as sufficient numbers of patrons do those things. I just prefer to help a good restaurant pay its rent rather than a Macy's or Nieman Marcus.

/me: Fusion does a fastastically fast search of all known EU documents trying to find where it says Greece can have a 24 hour party but Germany has to share in the hangover. Sadly, no such document can be found.

Besides, at the rate it is going, Germany might just decide to buy Greece if the price gets low enough.

Don't get the wrong idea though, I'm just as p.o.'d at U.S. politicians. I've paid my own way since I was 19 years old. I've worked and earned a living and paid for my 4 kids without EVER having to get any form of public assistance. I've paid every debt that I incurred and at present have only 1 outstanding debt for some land that I bought 10 years ago and will have completely paid for within 2 years. I have exactly 1 credit card to my name and it has a limit of $18,000 and balance of exactly $0. That might not say much, but it means that I have been lucky to some extent, have worked hard to ensure I have always been worth keeping around on the job, and have done a pretty decent job of managing the money I earned.

Just how p.o.'d do you think I am about the U.S. debt of $14+ Trillion?

DarJones

Believe it or not, I have been more or less independent financially since I went to graduate school...but, after I got out of that, I had a problem that BDodson will remember...(you can encapsulate it as being probably the brightest student in a certain program and flunked out...for all of the drama in my life at the time preventing me from working at it) and ended up using some public assistance from the county until I got out of that situation and back on my feet. I know at least one fellow graduate from my high school that used AFDC (now 30 years ago) to get through college and get a job.

There have always been some that cannot produce. There have always been some that will only produce if forced to, and abuse whatever system they are in. This is about 10-20% of the people actually employed at my current workplace. Others are simply ineffective, getting caught up in various head trips -- my classic being a degreed electrical engineer that can't calculate a practical problem with Ohm's law...or my immediate boss.

I must ask: To whom do we owe our collective souls?

[QUOTE=Christenson;279894]...I must ask: To whom do we owe our collective souls?[/QUOTE]
To [URL="http://en.wikipedia.org/wiki/Kevin_Trudeau"]Kevin Trudeau[/URL]?

European Union was created with an assumption that all members would have equal rights, that Parliament would resolve crucial problems, and all members would have proportional representation in Parliament. It was kind of a revolution, and has ended like all known revolutions. Beautiful ideas in the beginning, dictatorship at the end.
First break occurred with admission of Eastern European countries, former Soviet bloc countries. They wanted to join for any price. They've got it together with heavy duty trucks with paper, where terms and conditions of admissions were written. This was a precedence that different countries could be treated with different laws. But still in that time European Parliament had some importance and so called European Commissaires had some power.
Great Britain joined EU with a strong will to colonize Europe. But they were realistic, since there were such powers as Germany and France. They understood that cooperation is the only way to achieve goals and that they had to restrict theirs interests to traditional regions of influence.
British ridiculed European Parliament and never obeyed European law unless it collided with interests of strong members of EU. They were laughing when EU computed how much they should pay for EU budget. They performed theirs own computations and it appeared, according to theirs computations, that they would pay 10 billion euros less (per year) than it was previously thought.

This led to a current situation, where some countries are free to do anything while other must obey the law written on tens of tons of paper. And it is not an end yet.

Fascinating read on the situation in Greece
 

[url]http://www.lrb.co.uk/v33/n23/james-meek/diary[/url]

And Greece is far from the only countries with such issues. Americans will find echoes of their own politicians in the Greek ones.

[QUOTE=Batalov;279962]To [URL="http://en.wikipedia.org/wiki/Kevin_Trudeau"]Kevin Trudeau[/URL]?[/QUOTE]

That set me to giggling....:smile:....but that man has the wrong name...it should be "Abe Singleman". But quite a reflection on the very human condition of average americans.

With regard to the Greeks, the thing is, we aren't that far in time and space from an era where street repairs and basics like coal were traded for votes. Look up the "Charter" party in Cincinnati, circa 1920s, to get an idea of how it used to work. Birmingham, Alabama's bankruptcy is the same system, just different players.

**********
It seems to me that the debt situation has removed much of the feedback from the economy where people do things that are regarded as productive by the rest of the economy.

Almost everyone here profited by a college education, but the current system of extreme prices and easy loans for anyone that can fill out the paperwork has to mean that a lot of people are going to college unproductively.

The company I once worked for had very obvious problems, but it has taken a decade for those chickens to really come home to roost.

A retirement age of 65 is unsupportable if everyone lives to 80 and starts wroking at 25.
**************
So the question is, how do we restore the feedback? Beyond transferring some of the risk to the lenders?

[QUOTE=literka;279971]European Union was created with an assumption that all members would have equal rights, that Parliament would resolve crucial problems, and all members would have proportional representation in Parliament. ...
First break occurred with admission of Eastern European countries, former Soviet bloc countries. They wanted to join for any price.[/QUOTE]
You forgot to mention that EU membership also came with a set of *requirements* - One of the key ones being that countries must demonstrate fiscal discipline. We now know that Greece - and likely other PIIGS states, but Greece appears to have been an especially flagrant offender - fraudulently misrepresented its government deficits in order to meet the initial entry rules. And that is somehow not 'at any price'? Somehow 'more honest' than those ignoble FSU countries which wanted special treatment?


[QUOTE=Christenson;280001]Almost everyone here profited by a college education[/QUOTE]

...especially those who profit by providing such. I would argue that this midguided belief that a college baccalaureate degree is necessary to contribute meaningfully to the modern economy is in its own way just a misguided and economically damaging as the "ownership society" delusion, which posits that universal home ownership is the key to prosperity. Now we have legions of college grads with economically useless degrees (many with huge piles of student-loan debt accumulated in earning that useless degree) working in completely different areas - if at all - while we have utterly neglected the large fraction of folks who are simply not cut out (either by talent or inclination) for academic studies, but who could contribute meaningfully to an economy where people actually still build things. At the same time the nearly-unlimited supply of cheap credit for college has led to a college-cost bubble of enormous extent, and ironically made a college education much less affordable for everyone).

The Germans have this right - they have always fostered a dual-track career path, and supported high-quality trade schools which give people who like making stuff a useful education, and a modern one to boot - high-tech manufacturing is definitely not a 'dumb' field.

I have a similar disagreemet to the tech-utopians who claim that high-tech will save us, and if we only taught everyone data structures and web development and sysadmin skills, all will prosper. Not everyone is cut out to be a software developer - and who is gonna grow the food and build the cars and houses and roads for all those economy-driving tech geeks? When did being good with one's hands and at building stuff become something to be looked down at?

[QUOTE]Not everyone is cut out to be a software developer - and who is gonna grow the food and build the cars and houses and roads for all those economy-driving tech geeks? When did being good with one's hands and at building stuff become something to be looked down at? [/QUOTE]

This strikes me as kind of funny. I grew up farming, am still a very active gardener, run a small business selling tomato plants online ( [url]http://www.selectedplants.com[/url] ), have a day job as a systems engineer designing telephone offices, and moonlight in my spare time writing software.

DarJones

[QUOTE=literka;279971]European Union was created with an assumption that all members would have equal rights, that Parliament would resolve crucial problems, and all members would have proportional representation in Parliament. It was kind of a revolution, and has ended like all known revolutions. Beautiful ideas in the beginning, dictatorship at the end.
First break occurred with admission of Eastern European countries, former Soviet bloc countries. They wanted to join for any price. They've got it together with heavy duty trucks with paper, where terms and conditions of admissions were written. This was a precedence that different countries could be treated with different laws. But still in that time European Parliament had some importance and so called European Commissaires had some power.
Great Britain joined EU with a strong will to colonize Europe. But they were realistic, since there were such powers as Germany and France. They understood that cooperation is the only way to achieve goals and that they had to restrict theirs interests to traditional regions of influence. [/QUOTE]So are you saying that Pan Europe cannot be summoned to the solution of this problem, but only a Europe with free and independent national States whose areas of interest are divergent and precisely delimited?


Paul
[COLOR="White"][SIZE="1"]I hope I don't get into trouble with this one ...[/SIZE][/COLOR]

[QUOTE=xilman;280086]So are you saying that Pan Europe cannot be summoned to the solution of this problem, but only a Europe with free and independent national States whose areas of interest are divergent and precisely delimited?


Paul
[/QUOTE]


I am not sure what kind of a problem you wrote about. Current situation is not a problem for such countries as Germany and Great Britain - they take advantage of a situation (I described before bonds tradings). Previously, for Germany, Greece was a problem because of simple reason - many Germans were going for a vacation to Greece leaving lot of cash there. Now, after a possible buying some assets, there is an opportunity to avoid tourists cash imbalance.
If larger members want to have European colonies, they are on the right track. Smaller countries are hopeless in this situation, because larger countries set the rules, while disobeying theirs very few rules of EU.
Paradoxically, imposing force is not good for either side. To understand it, take any history book and assume that history repeats.

There is not much substance to this, Fitch just revised the outlook for U.S. debt downward from stable to negative. Still, it is only a short step from negative to a drop from the current AAA.

[url]http://www.bbc.co.uk/news/business-15932247[/url]


DarJones

[QUOTE=Fusion_power;280305]There is not much substance to this, Fitch just revised the outlook for U.S. debt downward from stable to negative. Still, it is only a short step from negative to a drop from the current AAA.

[url]http://www.bbc.co.uk/news/business-15932247[/url]


DarJones[/QUOTE]

Watch yourself there...surely you mean there is little meat in the linked article, not that there is no substance to the idea of downgrading US debt.... :smile: :batalov:

Pretty much what I mean is that there is a big difference between sitting down to a meal vs smelling food cooking from a distance. This announcement just smells like something is cooking. Or maybe it is just a bad odor.

DarJones

Markets had another huge gap-up open today, 2nd day this week, on the combination of a very positive-sounding [url=http://market-ticker.org/akcs-www?post=198332]ADP employment report[/url] in the US and the announcement of major liquidity-enhancing moves by [url=http://globaleconomicanalysis.blogspot.com/2011/11/maximum-intervention-moves-into.html]the Fed, a number of central banks in Europe[/url] and a [url=http://globaleconomicanalysis.blogspot.com/2011/11/china-cuts-bank-reserve-ratios-by-5.html]discount-rate cut in China[/url]. The latter are actually a sign that things are deteriorating quite badly in Europe and China, but as we've seen over and over during the past several years, markets loooooooooooove 'liquidity', because it is a euphemism for 'central bank gotcha back, boys.' And those [url=http://www.zerohedge.com/news/standard-and-poors-downgrades-37-global-banks-among-which-bank-america-citi-wells-fargo-morgan-]downgrades of 37 major global banks[/url] by the naughty people at S&P late yesterday? Clearly this must be good news for the banking sector, because banks shares (e.g. the XLF ETF) are up big today. Bad news is good news.

None of the liquidity moves does anything to address the fundamental problem which is one of solvency (i.e. excessive debt and no means to actually pay it down) rather than liquidity, but again as we've seen repeatedly, when pols and central bankers find they have no means (or will) to address the fundamental issues, they unfailingly do what is to them the next-best - in fact perhaps best, because it's so much easier - thing, which is to 'support markets' in hopes of 'inspiring confidence' and bringing on the magical, mythical self-sustaining consumer-demand-led recovery. Just because it has utterly failed to work the last N times they tried it doesn't mean it won't work this time, right?

I also had to chuckle at the news reports about the just-concluded Obama-led [url=http://www.pbs.org/newshour/bb/business/july-dec11/euro1_11-28.html]debt summit[/url], in which "the president again pressed for a resolution to Europe's banking and debt crisis, one that would prevent its further spread worldwide and here in the U.S." The irony of the leader of the greatest debtor nation in world history lecturing the Euros (who admittedly are not far behind in terms of 'greatness', collectively speaking) on getting their debt situation under control...

But for today, enjoy the party and all the happy talk about 'recovery' and 'solution to the European debt crisis' it will inspire on the evening news reports. And don't forget to do your part to support those 2 happy themes, by getting out there and shopping, of course. And like the aforementioned governments, never let a lack of actuall 'money' stand in your way. Embrace the miracle of leveraged credit creation and all will be well.

Free bubble up and rainbow pie won't make the fundamentals any different.

The reality is that:
manufacturing in China is declining and is at a 4 year low.
Europe has 7 economies in major debt related decline
The U.S. is up to its eyeballs in debt
The emperor is wearing no clothes and everyone is afraid to say so.

Where does this leave Russia?

DarJones

Happy news on the jobs front today: The BLS announced that the US unemployment rate droped a whopping 0.4% last month, from 9.0% to 8.6%. That surely must be a sign of robust jobs creation, right? Would that that were the case, but alas it is very much not so. Here links to pair of Mish posts, quotes are from the 2nd, which links to the 1st:

[url=http://globaleconomicanalysis.blogspot.com/2011/12/falling-unemployment-rate-is.html]Charts of the Day: Labor Force and Unemployment Rate Adjusted for Population Growth Since 1948 Show Falling Unemployment Rate is "Statistical Mirage"[/url]
[quote]In [url=http://globaleconomicanalysis.blogspot.com/2011/12/us-payrolls-rise-modest-120000.html]Unemployment Rate Dips to 8.6% as 487,000 Drop Out of Labor Force[/url] I presented some quick facts on the drop in the unemployment rate.

* In the last year, the civilian population rose by 1,726,000. Yet the labor force fell by 67,000. Those not in the labor force rose by 1,793,000.
* In November, those "Not in Labor Force" rose by a whopping 487,000. If you are not in the labor force, you are not counted as unemployed.
* Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.
[b]
Labor Force and Unemployment Rate Adjusted for Population Growth
[/b]
Reader Tim Wallace responded with a very nice set of graphs and commentary. Wallace writes ...
[i]
In the entire history of the labor force data, only in 1951, 1961, 1964, and 2009 did the labor force "shrink". It also "shrank" in 2011 off 2010. Also note that from 1964 to 2007, only in 1991 at 631,000, 1995 at 723,000 and 2002 at 801,000 did the labor force fail to add more than 1,000,000 people.

However, in 2008 the labor force only expanded by 776,000. This was followed by a loss of 826,000 in 2009, a trivial gain of 155,000 in 2010 and a loss of 67,000 in 2011.

If you look at the average labor force growth from 1948 to 2007 of 1,579,000 the labor force should have expanded by 6,316,000 2008-2011. Instead the labor force expanded by a mere 38,000!

Thus, 6,278,000 people are unaccounted for in the unemployment numbers based on historical averages.

The final graph takes the adjusted data and calculates the unemployment number off the adjusted workforce and those that actually have jobs. The unemployment numbers using this historical trend method show the following numbers for November in these years:
[b]
Unemployment Rate Adjusted for Population Growth

2007 4.7%
2008 7.3%
2009 11.7%
2010 12.4%
2011 12.2%
[/b]
I am sure it is just coincidence, but it is interesting to note that the flat lining of the labor force began in earnest with the Obama administration.[/i][/quote]
I'm not sure if Mr. Wallace meant to be snarky or not with that parting comment, but in fact I believe it *is* a coincidence 'that the flat lining of the labor force began in earnest with the Obama administration'. The fact is, the fallout from the Great Financial Crisis of 2008 was reaching its maximum effect on the jobs market (esp. the private-sector jobs ... governments at all levels were still net-hiring for at least another year, and are only this year really starting the much-needed shrinkage back toward fiscally sustainable levels, which ultimately implies a roughly halving of government realtive to the private sector) and there was little the Obama administration could do about that, small dents from stimulus packages aside. Where I fault the Obama administration is that they have done 0 to 'restore confidence in financial markets' by way of actually fixing the problems of excessive leverage and reckless risk-taking by Wall Street and by prosecuting the epidemic of massive criminality which lay behind so much of the late great housing bubble, and their efforts to stimulate the economy have been a litany of useless Keynesian throw-money-at-the-problem and 'promote demand' snake-oil cure-alls, which are of dubious effectiveness even during 'normal' business-cycle downturns and are doomed to fail in the current 'balance sheet' recession/depression, where the fundamental problem is massive indebtedness at all levels, and sustainable demand growth will simply not occur until that root cause is addressed, i.e. a huge amount of debt either gets paid down or defaulted on.

[b]Friday Funny[/b]

On a lighter note, ZeroHedge features an insightful article in a Saudi Paper which lays out [url=http://www.zerohedge.com/news/friday-humor-allowing-women-drive-leads-rampant-prostitution-pornography-homosexuality-and-divo]the grave societal perils of allowing women to drive[/url] anything larger than a donkey cart.

[QUOTE=ewmayer;280826]I'm not sure if Mr. Wallace meant to be snarky or not with that parting comment, but in fact I believe it *is* a coincidence 'that the flat lining of the labor force began in earnest with the Obama administration'.[/QUOTE]Mightn't a closer examination show that the flatlining began right after October 2008, slightly before the Obama administration?

Speaking of grave societal perils, apparently some [URL="http://www.smh.com.au/world/global-business-chiefs-fear-poverty-could-destroy-capitalism-20111202-1obey.html"]Global business chiefs fear poverty could destroy capitalism[/URL]
[QUOTE]One unidentified Asian business leader told the authors: ''Herein lies a major challenge, because the world has become very much more prosperous as a result of market capitalism.

''The rich have become richer. The poor in most cases have become richer. But the gap between the rich and the poor has also grown wider … There is the growing sense of being left out, even as people are getting better off.''[/QUOTE]
[QUOTE]''History tells us that when an awful lot of people are disenfranchised, they have no incentive to play by the rules, and given today's communications availability, weaponry … that's an issue we have to really think about, probably over a very long period of time,'' one executive said.[/QUOTE]

The MF Global blowup fallout continues to spread - couple of links posted by Denninger today:

First, the [URL="http://market-ticker.org/akcs-www?post=198641"]MF Global[/URL] angle of the issue:
[quote]MF Global’s burned commodity customers turned their ire from Jon Corzine to Jamie Dimon yesterday after MF’s creditor committee, led by Dimon’s JPMorgan Chase, objected to a plan to distribute $2.1 billion to customers who have seen their accounts frozen since Halloween.

In a Manhattan bankruptcy court filing, the creditors committee, which also includes Bank of America and hedge fund Elliott Management, said they want more assurances that the $2.1 billion is not their money.

Among their requests: [B]They want customers to agree in writing that the money they receive could be clawed back[/B].[/quote]The claims by JPM et al involve derivative contracts they had with MF. How could this affect you, Joe Retail Bank Customer? Well, in case you thought your money was 'safe' in an FDIC-insured account, think again - That recent shady transfer by BofA of trillions in derivatives contracts to their retail banking arm (where their millions of customer accounts reside) illustrates a little-known but extremely frightening aspect of the 2005 Bush-era bankruptcy "reform" law (the same one which made it difficult or impossible to discharge many forms of debt - e.g. student-loan debt - in bankruptcy):

[URL="http://market-ticker.org/akcs-www?post=198650"]Frightening Implications of the 2005 Bankruptcy Reform Law for Consumer Savings Accounts[/URL]
[quote]Recently Bank of America transferred a bunch of derivatives into their banking arm. "A bunch" means somewhere around $80 trillion worth.

Now pay very careful attention, because part of the bankruptcy "reform" law in 2005 [B]placed derivative claims in front of depositors in a business failure - including a bank failure.[/B]

What JP Morgan is claiming in the MF Global case is that the derivative trade (which is exactly what a "Repo to Maturity" trade is - it's a derivative) is entitled to preference in the case of MF Global over those who had cash there for safekeeping either as a margin deposit or just as free cash as you would hold free cash in a bank.

If a major bank blows up this very same claim, supported in existing Bankruptcy Law with the changes signed by George Bush in 2005, will be used to steal the entirety of your bank account, and if you detect the impending blowup shortly before it happens -- say, 90 days before -- you're still exposed to the risk through clawback!

...
Don't run any crap about FDIC insurance in this sort of event either -- in the singular case of Bank of America we're talking about $77 trillion in face value of derivatives. While "notional" values are wildly beyond what anyone would have to pay (as that figure assumes the reference all goes to a literal value of zero) the fact remains that with even a 5% loss the amount of money required would be roughly equal to the entire US Federal Budget, which the FDIC clearly does not have -- nor could it acquire.

A cascade failure of several large banks would easily result in loss claims that would exceed the entire US GDP; for obvious reasons virtually none of that would actually be paid or recovered and in the case of you, the average person, your reasonable expectation of recovery in such an event is zero.

There is a fairly cogent argument to be made that what BofA did is tantamount to intentionally placing an armed financial nuclear device in the center of the board room table and then daring anyone -- including the government -- to come tamper with it and risk setting it off, knowing full well that if it explodes it is utterly impossible to contain the damage to our economy and financial system.[/quote]The next one is more small-potatos in terms of the sums of money involved, but is just another example of the venality and financial corruption which so completely pervades Washington:

[URL="http://www.humanevents.com/article.php?id=47938"]Claim: Clinton Collected $50K Per Month From MF Global[/URL]
[quote]A former MF Global employee accused former president William J. Clinton of collecting $50,000 per month through his Teneo advisory firm in the months before the brokerage careened towards its Halloween filing for Chapter 11 bankruptcy.

Teneo was hired by MF Global’s former CEO Jon S. Corzine to improve his image and to enhance his connections with Clinton’s political family, said the employee, who asked that his name be withheld because he feared retribution.
...
Clinton is the chairman of the company’s advisory board. His duties and compensation have not been released. The other member of the board is former British prime minister Tony Blair.[/quote]

Continuing the MF Global trend:
[QUOTE]"I simply do not know where the money is, or why the accounts have not been reconciled to date," Corzine says in the statement. He says he can't say whether there were "operational errors" at MF Global or whether banks or other companies have held onto funds that should be returned to MF Global.[/QUOTE]

[url]http://news.yahoo.com/corzine-dont-know-where-firms-missing-money-122722350.html[/url]

Corzine is testifying to a congressional panel today and is expected to state that he recommended the high risk strategy the company took over the last 20 months but that he tried to reduce the risk overall.

Translating the above, Corzine bulled through some high risk investments betting with house money until the house money was all gone, then investor money got swept up into the maelstrom. Compounding the problem was the use of high levels of leverage. The result was that a loss of a few billion could trigger bankruptcy. I haven't tried to calculate the leverage ratio, but from past examples, it would probably have been in the range of 30:1 to 40:1. At those levels of leverage, a very small loss turns into bankruptcy. Granted also that at those levels of leverage, a 1% gain turns into a 30% to 40% gain. It is a very high risk strategy.

Now consider, the major banks and investment brokers are all employing high levels of leverage in their businesses. This gets down to a crap shoot. Sooner or later, another one will get caught in a squeeze and we will have another bankruptcy to wade through. What happened to the days that 12:1 leverage was considered risque?

DarJones

Even if Corzine genuinely "doesn't know" what happened to the client money, the 2000ish Sarbaneso-Oxley law (designed to curb such handwashing by CEOs which was running rampant in large numbers of dotcom fraud corps.) makes it a felony for him to not know such stuff. I really, really hope there is no kind of immunity deal attached to his congressional testimony.

Anyway, it beggars belief to think he really doesn't know - perhaps not all the details, obviously, but this is basic big-picture stuff. A Reuters business law piece describes what is likely at work, and note it's not just MFG doing this stuff. It's a long in-depth piece, but I thought it worth quoting a god-sized portion because it is so fascinating (and frightening). Especially interesting is the key role played by UK banking laws - ever wonder why the UK is so averse to increased financial regulation? - and the "we learned nothing from Lehman" aspect:

[URL="http://newsandinsight.thomsonreuters.com/Securities/Insight/2011/12_-_December/MF_Global_and_the_great_Wall_St_re-hypothecation_scandal/"]Securities Law: MF Global and the great Wall St re-hypothecation scandal[/URL]
[quote]A legal loophole in international brokerage regulations means that few, if any, clients of MF Global are likely to get their money back. Although details of the drama are still unfolding, it appears that MF Global and some of its Wall Street counterparts have been actively and aggressively circumventing U.S. securities rules at the expense (quite literally) of their clients.

MF Global's bankruptcy revelations concerning missing client money [B]suggest that funds were not inadvertently misplaced or gobbled up in MF’s dying hours, but were instead appropriated as part of a mass Wall St manipulation of brokerage rules that allowed for the wholesale acquisition and sale of client funds through re-hypothecation[/B]. A loophole appears to have allowed MF Global, and many others, to use its own clients’ funds to finance an enormous $6.2 billion Eurozone repo bet.

If anyone thought that you couldn’t have your cake and eat it too in the world of finance, MF Global shows how you can have your cake, eat it, eat someone else’s cake and then let your clients pick up the bill. Hard cheese for many as their dough goes missing.

FINDING FUNDS

Current estimates for the shortfall in MF Global customer funds have now reached $1.2 billion as revelations break that the use of client money appears widespread. Up until now the assumption has been that the funds missing had been misappropriated by MF Global as it desperately sought to avoid bankruptcy.
[B]
Sadly, the truth is likely to be that MF Global took advantage of an asymmetry in brokerage borrowing rules that allow firms to legally use client money to buy assets in their own name - a legal loophole that may mean that MF Global clients never get their money back.
[/B]
REPO RECAP

First a quick recap. By now the story of MF Global’s demise is strikingly familiar. MF plowed money into an off-balance-sheet maneuver known as a repo, or sale and repurchase agreement. A repo involves a firm borrowing money and putting up assets as collateral, assets it promises to repurchase later. Repos are a common way for firms to generate money but are not normally off-balance sheet and are instead treated as “financing” under accountancy rules.

MF Global used a version of an off-balance-sheet repo called a "repo-to-maturity." The repo-to-maturity involved borrowing billions of dollars backed by huge sums of sovereign debt, all of which was due to expire at the same time as the loan itself. With the collateral and the loans becoming due simultaneously, MF Global was entitled to treat the transaction as a “sale” under U.S. GAAP. This allowed the firm to move $16.5 billion off its balance sheet, most of it debt from Italy, Spain, Belgium, Portugal and Ireland.

Backed by the European Financial Stability Facility (EFSF), it was a clever bet (at least in theory) that certain Eurozone bonds would remain default free whilst yields would continue to grow. Ultimately, however, it proved to be MF Global’s downfall as margin calls and its high level of leverage sucked out capital from the firm.
[B]
Puzzling many, though, were the huge sums involved. How was MF Global able to “lose” $1.2 billion of its clients’ money and acquire a sovereign debt position of $6.3 billion – a position more than five times the firm’s book value, or net worth? The answer it seems lies in its exploitation of a loophole between UK and U.S. brokerage rules on the use of clients funds known as “re-hypothecation”.
[/B]
RE-HYPOTHECATION

By way of background, hypothecation is when a borrower pledges collateral to secure a debt. The borrower retains ownership of the collateral but is “hypothetically” controlled by the creditor, who has a right to seize possession if the borrower defaults.

In the U.S., this legal right takes the form of a lien and in the UK generally in the form of a legal charge. A simple example of a hypothecation is a mortgage, in which a borrower legally owns the home, but the bank holds a right to take possession of the property if the borrower should default.

In investment banking, assets deposited with a broker will be hypothecated such that a broker may sell securities if an investor fails to keep up credit payments or if the securities drop in value and the investor fails to respond to a margin call (a request for more capital).

Re-hypothecation occurs when a bank or broker re-uses collateral posted by clients, such as hedge funds, to back the broker’s own trades and borrowings. The practice of re-hypothecation runs into the trillions of dollars and is perfectly legal. It is justified by brokers on the basis that it is a capital efficient way of financing their operations much to the chagrin of hedge funds.

U.S. RULES

Under the U.S. Federal Reserve Board's Regulation T and SEC Rule 15c3-3, a prime broker may re-hypothecate assets to the value of 140% of the client's liability to the prime broker. For example, assume a customer has deposited $500 in securities and has a debt deficit of $200, resulting in net equity of $300. The broker-dealer can re-hypothecate up to $280 (140 per cent. x $200) of these assets.
[B]
But in the UK, there is absolutely no statutory limit on the amount that can be re-hypothecated.[/B] In fact, brokers are free to re-hypothecate all and even more than the assets deposited by clients. Instead it is up to clients to negotiate a limit or prohibition on re-hypothecation. On the above example a UK broker could, and frequently would, re-hypothecate 100% of the pledged securities ($500).

This asymmetry of rules makes exploiting the more lax UK regime incredibly attractive to international brokerage firms such as MF Global or Lehman Brothers which can use European subsidiaries to create pools of funding for their U.S. operations, without the bother of complying with U.S. restrictions.
[B]
In fact, by 2007, re-hypothecation had grown so large that it accounted for half of the activity of the shadow banking system. Prior to Lehman Brothers collapse, the International Monetary Fund (IMF) calculated that U.S. banks were receiving $4 trillion worth of funding by re-hypothecation, much of which was sourced from the UK.[/B] With assets being re-hypothecated many times over (known as “churn”), the original collateral being used may have been as little as $1 trillion – a quarter of the financial footprint created through re-hypothecation.[/quote]

[url=http://www.cnbc.com/id/45659547]Realtors: We Overcounted Home Sales for Five Years[/url]
[quote]Data on sales of previously owned U.S. homes from 2007 through October this year will be revised down next week because of double counting, indicating a much weaker housing market than previously thought.

The National Association of Realtors said a benchmarking exercise had revealed that some properties were listed more than once, and in some instances, new home sales were also captured.

"All the sales and inventory data that have been reported since January 2007 are being downwardly revised. Sales were weaker than people thought," NAR spokesman Walter Malony told Reuters.

"We're capturing some new home data that should have been filtered out and we also discovered that some properties were being listed in more than one list."

The benchmark revisions will be published next Wednesday and will not affect house prices.

Early this year, the Realtors group was accused of overcounting existing homes sales, with California-based real estate analysis firm CoreLogic claiming sales could have been overstated by as much as 20 percent.

At the time, the NAR said it was consulting with a range of experts to determine whether there was a drift in its monthly existing home sales data and that any drift would be "relatively minor."[/quote]
No surprise that the NAR are a bunch of housing-bubble-addicted lying sacks of crap, nice to see them get busted badly enough that they have to "make relatively minor revisions" which are apparently not-so-minor enough that the Reuters piece sourced by CNBC describes the resulting housing picture as "much weaker than previously thought."

And speaking of lying pumptards, we move on from Realtors to Retailers: It seems Black Friday sales were up rather less than the "way, way up!" and double-digit-percentage gains touted at the time: Sales turn out to have been basically flat, and may have only achieved that break-even-ness at a steep cost in terms of lost profits due to deep discounting ... Barry Ritholtz explains/links:

[url=http://www.ritholtz.com/blog/2011/12/retail-sales-dissappoint-on-false-black-friday-reports/]Retail Sales Disappoint on False Black Friday Reports[/url]

Black Friday, the day after Thanksgiving, so-called because it is the day that retailers finally take in more money than they spent for the year, has enough reputation to make people like me yawn and stay away. I didn't buy anything I wasn't already planning on buying, and I suspect a lot of impoverished and unemployed workers just didn't have any budget for such a splurge.

"Evidence of market manipulation in the financial crisis"

Abstract:

[URL]http://arxiv.org/abs/1112.3095[/URL]

[quote=Vedant Misra, Marco Lagi, Yaneer Bar-Yam](Submitted on 14 Dec 2011)[INDENT] We provide direct evidence of market manipulation at the beginning of the financial crisis in November 2007. The type of manipulation, a "bear raid," would have been prevented by a regulation that was repealed by the Securities and Exchange Commission in July 2007. The regulation, the uptick rule, was designed to prevent manipulation and promote stability and was in force from 1938 as a key part of the government response to the 1928 market crash and its aftermath. On November 1, 2007, Citigroup experienced an unusual increase in trading volume and decrease in price. Our analysis of financial industry data shows that this decline coincided with an anomalous increase in borrowed shares, the selling of which would be a large fraction of the total trading volume. The selling of borrowed shares cannot be explained by news events as there is no corresponding increase in selling by share owners. A similar number of shares were returned on a single day six days later. The magnitude and coincidence of borrowing and returning of shares is evidence of a concerted effort to drive down Citigroup's stock price and achieve a profit, i.e., a bear raid. Interpretations and analyses of financial markets should consider the possibility that the intentional actions of individual actors or coordinated groups can impact market behavior. Markets are not sufficiently transparent to reveal even major market manipulation events. Our results point to the need for regulations that prevent intentional actions that cause markets to deviate from equilibrium and contribute to crashes. Enforcement actions cannot reverse severe damage to the economic system. The current "alternative" uptick rule which is only in effect for stocks dropping by over 10% in a single day is insufficient. Prevention may be achieved through improved availability of market data and the original uptick rule or other transaction limitations. [/INDENT][/quote]PDF:

[url]http://arxiv.org/PS_cache/arxiv/pdf/1112/1112.3095v1.pdf[/url]

Interesting, but curious that the authors appear to only be concerned about possible *downward* manipulation of share prices. What about the by-now-uncountable instance of upward manipulation by spreading false rumors of imminent-bailout/acquisition/rescue which have been ongoing since 2007? We get multiple "Europe is rescued" rumors each week now. Most of this manipulation is directly attempted by top government and financial authority figures. What about the huge rally in financial shares which began in march 2009 as a direct result of such lies-about-solvency, coupled with the multitrillion-dollar accounting fraud represented by government-orchestrated suspension of the FASB mark-to-market rules, which has allowed the TBTF banks to hide massive losses in off-balance-sheet fantasy-price wonderland?

Anyway, I have a simpler explanation for what happened to Citi (and other bank) shares:

1. Government/treasury insider gets wind that Citi is massively insolvent;
2. Government/treasury insider passes info on to former colleagues at a Wall Street iBank;
3. Former colleagues of Government/treasury insider start putting on a massive short on Citi shares;
4. The spike in shorting, plus further spread of the credible-rumor-of-insolvency, causes multiple iBank prop-trading desks to similarly start shorting in volume;
5. HFT robots amplify the selling pressure, leading to a crash in Citi share price.
6. Government is far too busy wrestling with the possible end-of-the-world-as-we-know-it in the following year to bother dealing with the above insider trading.

There was a similar spike in put activity in Bear Stearns prior to its collapse ... and Lehman ... and, and, and. It recently came to light that none other than then-Treasury head Hank Paulson tipped around a dozen of his Wall Street iBank/hedge-fund buddies about the imminent government conservatorship (a status just shy of outright receivership) of Fannie and Freddie at a 'working lunch' the previous week. Where are the SEC investigations into that?

----------------

Aside: the news of the above Fan/Fred-lunch discussion points up an interesting technicality related to insider trading, to wit;

1. It was not obviously illegal (though it was ethically highly questionable) for Paulson to tip off his buddies - only *trading* based on such inside info is clearly illegal (though rarely prosecuted).

2. One of the hedgies at the above lunch said he had a large short position in Fan/Fred at the time of the lunch. Finding out that the govt was going to *rescue* Fan/Fred and covering his short before that happened would have been clearly illegal. As it was, though, finding about the imminent conservatorship - which would be expected to have a similar effect on share prices as receivership (common equity would drop to penny-stock status) - caused him to hold on to his shorts, as it were, for a sweet profit the following the announcement. In other words, an example of highly profitable "insider non-trading". Question: was that illegal?

[QUOTE=ewmayer;282327]Interesting, but curious that the authors appear to only be concerned about possible *downward* manipulation of share prices.[/QUOTE]/begin sarc/ Oh, of course -- I forgot -- anyone who studies anything [U]has[/U] to study all possible permutations of events, in order to demonstrate non-partisanship to Ernst. /end sarc/

What a pitiful curiosity you have.

Did you even bother to actually read the PDF?

[quote]What about the by-now-uncountable instance of upward manipulation by spreading false rumors[/quote]What about them? Are they subject to the same type of objective analysis that bear raid transactions are?

[quote]What about the huge rally in financial shares which began in march 2009 as a direct result of such lies-about-solvency,[/quote]What about it? That was over a year later than the bear raids that were the subject of this study. How would the uptick rule have affected that rally if it had still been in effect?

[quote]coupled with the multitrillion-dollar accounting fraud[/quote]What about it? Why does a study of bear raids have to also mention accounting fraud in order to escape your "curiosity"?

[quote]Anyway, I have a simpler explanation for what happened to Citi (and other bank) shares:[/quote]... and creationists have a simpler explanation for what happened to the dinosaurs.

- - -

Gee, Ernst, the authors of the bear raid study don't dispute or contradict anything you've speculated in this forum AFAIK. They don't say, "E. Mayer is wrong."

Look at their opening sentence:

"We provide direct evidence of market manipulation at the beginning of the financial crisis in November 2007."

They studied a particular type of market manipulation at the beginning of the financial crisis in November 2007. Period.

So, why your "... curious that the authors appear to only be concerned ..."? Does it bother you that the authors confined themselves to their stated scope of investigation, instead of expanding their study to encompass all of [i]your[/i] concerns about the financial mess?

I think bear raids are among the least of the problems that bedevil the financial industry. If people want to make a difference they would be better advised to concentrate their attention and resources elsewhere. Some people find topics like bear raids especially emotional. I wonder if this set intersects with those who call all bears anti-American and hate them from profiting when most are losing.

Ernst raises a very important issue because we have to see whether bull raids occur in the same way as bear raids because if they do there is nothing especially evil about bear raiders and the uptick rule wouldn't have solved anything. Nobody has ever talked about bringing in a downtick rule. Why this asymmetry? So having skimmed the article I do think there is an agenda behind it. At best singling out bear-raiders distracts from far more important topics such as lack of regulation in the derivatives industry, IBGYBG culture that focusses on short-term profit while destroying the companies and the economies, the emergence of dark pools and Congress insider trading.

BTW, the thesis of the bear raiders was right. Citi and the other banks were in the shitter in less than a year and not because of bear raids. They were and are still insolvent and if there was justice in this world they would have been declared bankrupt three years ago.

PS
 

A more detailed reading reveals that the authors of this article are officially idiots!

[QUOTE]Changes in investor behavior are often explained in terms of specific news items, without which it is expected that prices have no reason to change significantly [13, 14]. The press attributed the drop of Citigroup's stock price on November 1 to an analyst's report that morning [15, 16]. This report, by an analyst of the Canadian Imperial Bank of Commerce (CIBC), downgraded Citigroup to "sector underperform" [17]. Any such news-based explanations of investor behavior on November 1 (similarly for November 7) would not account for the difference in behavior between short sellers and other investors. Under the assumptions of standard [14] capital asset pricing models, all investors act to maximize expected future wealth [18], and should therefore respond similarly to news.[/QUOTE]Their entire thesis is based on CAPM, that long investors would react the same way as short-sellers would to a news event. Evidently, they have never bought a stock and held it as the news went against them. I can tell from personal painful experience that that is not how people react. We are emotional creatures and far too many of us keep holding on to something when selling it would require us to admit a mistake.

So I call a big load of bullshit on this article. :poop: :poop: :poop:

But that having been said, those days are statistical outliers and do point to the undue influence large traders and insiders have on stock prices. Stock exchanges in the US are singularly failing in providing transparency and a level playing field to all investors.

[QUOTE=garo;282400]Their entire thesis is based on CAPM, that long investors would react the same way as short-sellers would to a news event.

< snip >

But that having been said, those days are statistical outliers and do point to the undue influence large traders and insiders have on stock prices.[/QUOTE]So their entire thesis is based on one thing, [I]except that their topic sentence is that they provide direct evidence (those outliers) of something else?[/I]

I find your logic confusing.

Why is this report a load of b___ when it specifically points to what you yourself admit they "do point to", something you cite ("undue influence") as a problem?

[QUOTE=garo;282396]Ernst raises a very important issue because we have to see whether bull raids occur in the same way as bear raids[/QUOTE]Okay, but why is it the responsibility of every study that mentions bear raids to also study bull raids at the same time, lest it be accused of bias? Where do you see that the authors ever denied that bull raids have any influence?

[quote]because if they do there is nothing especially evil about bear raiders and the uptick rule wouldn't have solved anything. Nobody has ever talked about bringing in a downtick rule.[/quote]Okay, but why do you and Ernst unload so much against this study just because it doesn't attempt to be so comprehensive?

Is there something fundamentally wrong with a study just because it states a limited scope and sticks to that scope, without ever showing any bias against anything outside that scope, something that some other study could investigate?

Would you and Ernst have been so negative about this study if its scope had been only bull raids? Would you then have insinuated that the authors were biased because they did not study bear raids at the same time?

The title is "Evidence of market manipulation in the financial crisis", but it's not "ALL THE Evidence of EVERY FORM OF market manipulation in the ENTIRETY OF THE financial crisis". It doesn't claim to cover more than it does, so why all this criticism for not covering more than it specifically says it does?

Would you have gone easier on it if the title were "SOME Evidence of ONE PARTICULAR FORM OF market manipulation in ONE PARTICULAR PERIOD OF the financial crisis"? Is that it -- that the authors failed to be explicitly modest enough for your taste when they crafted the title?

[quote]Why this asymmetry?[/quote]Why not? Why does every study of bear raids have to also cover bull raids? They never [I]deny[/I] that bull raids exist, do they?

Or maybe they simply wished to study a specific set of events that happened during a specific time period? Do you find something intrinsically wrong with that?

[quote]So having skimmed the article I do think there is an agenda behind it.[/quote]Behind it, or behind the eyes with which you skimmed it?

[quote]At best singling out bear-raiders distracts from far more important topics [/quote]How did the article actually attempt to distract from those topics, as opposed to simply not covering them? Where did it claim that bear raids were a more important factor than any of the other factors with which you and Ernst are concerned?

I just don't get why it is that Ernst and you jump on an article just because it doesn't have universal scope. Now, if the article actively attempted to detract from those other topics, that might be reprehensible -- but it doesn't! It never says anything negative about the importance of effect of, or need to protect against, bull raids or anything else other than bear raids.

So, why do you guys unload on it so much?

- - -

When I posted my links and quoted the abstract, I thought I was just helping our discussion along by pointing out some guys' efforts to analyze data to produce evidence of a particular case of financial manipulation.

Are we supposed not to bring anything into this discussion that is less than encyclopaedic in scope?

[QUOTE=cheesehead;282416]I just don't get why it is that Ernst and you jump on an article just because it doesn't have universal scope. Now, if the article actively attempted to detract from those other topics, that might be reprehensible -- but it doesn't! It never says anything negative about the importance of effect of, or need to protect against, bull raids or anything else other than bear raids.

So, why do you guys unload on it so much?[/QUOTE]

It's not the lack os scope so much as the fact that its designated thesis and culprit are completely wrong-headed.

And the dangerous thing about such clueless academic studies which ignore the real issues such as rampant unprosecuted insider trading, the deadly embrace of government and big finance, and modern capital markets which are predominantly a parasitic wealth transfer mechanism from the dwindling remnants of the productive economy to the well-connected insiders (the ubiquitous "bull raids" and pump-and-dump fests by the MSM are a highly effective mechanism of fleecing the sheep here) - the dangerous thing is that they provide cover for regulatory authorities to engage in blame-shifting games and market interventions such as short-sale bans, rather than going after the real culprits.

We've seen this sort of thing over and over and over again in the past 4 years, and it's one of the big reasons why nothing has been solved. So pardon us for being a bit techy on the subject.

[QUOTE=ewmayer;282469]...modern capital markets which are predominantly a parasitic wealth transfer mechanism from the dwindling remnants of the productive economy to the well-connected insiders (the ubiquitous "bull raids" and pump-and-dump fests by the MSM are a highly effective mechanism of fleecing the sheep here)[/QUOTE]

While I'm on the subject of pump-and-dump scams...

[url=http://www.siliconvalley.com/ci_19556801]Zynga IPO seen as milestone -- for Main Street as well as Wall Street[/url]
[quote]By Peter Delevett

[email]pdelevett@mercurynews.com[/email]

Posted: 12/15/2011 03:59:13 PM PST

When social gaming giant Zynga goes public Friday, it will be more than the year's most anticipated tech IPO. It will be further proof that social media has gone mainstream.

"Where we are today with Facebook and LinkedIn and Zynga is where we were with the Internet 10 years ago," said Clara Shih, CEO of San Francisco-based Hearsay Social, which helps large companies use social media to better interact with their customers.

"There are profound societal and cultural implications when the majority of time people spend online is in some kind of social environment."

Zynga on Thursday set an opening price of $10 each for the 100 million shares it's bringing to market, which represents almost 15 percent of the company. That will net the 4-year-old outfit and its investors a cool $1 billion -- making it the tech industry's biggest stock debut since Google's (GOOG) -- and reportedly give it a market valuation of $7 billion.
[b]
But Sam Hamadeh, an investment banking veteran in New York, predicts that will be only the beginning of the stock's wild rise. Once retail investors are able to buy the stock on the open market, the company's value "could at least briefly top $20 billion, and that will get everybody's attention," said Hamadeh, CEO of PrivCo.com, which compiles financial data on private companies.

"This will be closely watched in boardrooms across corporate America," Hamadeh said. "Companies get acquired, new divisions launched and organizations restructured because of a high-profile IPO like this."[/b][/quote]

More pertinently, do idiot pumptard 'analysts' like Mr. Hamadeh get fired because of high-profile IPO-mispredictions like this? Because the ZNGA IPO is certainly getting a lot of attention, after shares opened for trading at $11.50, "briefly giving the company a valuation of over $8 billion" - only a wee bit short of Mr. H's breathless opening-day-pop prediction - but the euphoria lasted all of about 5 minutes:

[QUOTE]Nobody has ever talked about bringing in a downtick rule. Why this asymmetry?[/QUOTE]

The asymmetry is based on market risk. There is no inherent market risk in a sudden rise of one or more stocks. There is clear and obvious market hazard from a series of bear raids. This is kind of a "high tide floats all boats" situation where even a small receding of the tide can precipitously drop all boats. You can understand the regulators wanting to limit such calamities.

DarJones

Right and have the regulators succeeded so far? And this much ballyhooed uptick rule, did it prevent the biggest single day loss in Wall Street history?

[QUOTE=Fusion_power;282545]The asymmetry is based on market risk. There is no inherent market risk in a sudden rise of one or more stocks.[/QUOTE]

There is always risk involved in asset mispricing, irrespective of direction.

[QUOTE=garo;282625]And this much ballyhooed uptick rule, did it prevent the biggest single day loss in Wall Street history?[/QUOTE]Garo,

Can you describe the logical fallacy that is embedded in that question?

[QUOTE=ewmayer;282626]There is always risk involved in asset mispricing, irrespective of direction.[/QUOTE]

Actually, I'll go further than that: Asset mispricing is always economically damaging, due to the misallocation of capital (physical, monetary and human) it entails. The 2 most-recent large-scale episodes of such - the dotcom and housing bubbles - were both inflationary-mispricings. And indeed, in both cases there was great pro-bubble impetus from governments and their central banks, due to various misguided policies. In the case of housing we had the dream of "the ownership society, everyone happily ensconced in a home, working productively to pay off that 30-year mortgage, and thus keeping unemployment low and economic demand growing robustly. The resulting insane binge of credit (i.e. debt) creation, leverage and price/demand distortion nearly crashed the global financial system (it may do so yet) and left housing less affordable than in recent memory.

In fact many (if not most) of the most-destructive historic episodes of asset-price distortion (manias/crashes/bubbles/busts) started with mispricing in the upward direction. Can anyone recall a pessimal-mania coming from seemingly out of nowhere, causing prices of some or many assets/commodities to crash, followed by an even-more-destructive bubble which causes prices to violently revert upward? I mean you can have prices of e.g. a commodity crash due to a short-term glut, but those conditions tend to be quickly self-correcting. Collective over-optimism and euphoria seems to be something humans are more dangerously prone to than collective gloom.

funny, we talk about bubbles, but not about "pits" or anything..the language itself is asymmetric. And the crashes that follow...ouch!

[QUOTE=ewmayer;282639]Collective over-optimism and euphoria seems to be something humans are more dangerously prone to than collective gloom.[/QUOTE]

Collective gloom tends to be self-defeating: the position where most people think an asset is worthless and someone thinks it's worth 10% of what it last traded for is one in which that someone risks a medium amount of money and might make a lot ... look at how the share prices of clearly-doomed companies continue to fluctuate vigorously before the final delisting.

Generally the peaks of gloom are over-reactions from the peaks of euphoria: consider the extremely good trade of sticking your money in Barclays and HSBC stock in November 2009 and taking it out a year and a half later.

Well-known econo-blogger Jesse of the blog named Jesse's Café Américain comments on the latest MF Global news, namely that in its final hours MFG apparently pledged customer assets - including physical assets held custodially in warehouses - to meet margin calls, and the bankruptcy trustee is flagrantly ignoring most-basic property law by treating such custodial assets the same as claims-subject-to-haircut-in-bankruptcy, even as the owners (or so they thought) of the stuff continue to be charged warehousing fees:

[url=http://jessescrossroadscafe.blogspot.com/2011/12/attempt-to-seize-and-liquidate-customer.html]Trustee to Seize and Liquidate Even the Stored Customer Gold and Silver Bullion From MF Global[/url]
[quote]The bottom line is that apparently some warehouses and bullion dealers are not a safe place to store your gold and silver, even if you hold a specific warehouse receipt. In an oligarchy, private ownership is merely a concept, subject to interpretation and confiscation.

Although the details and the individual perpetrators are yet to be disclosed, what is now painfully clear is that the CFTC and CME regulated futures system is defaulting on its obligations. This did not even happen in the big failures like Lehman and Bear Sterns in which the customer accounts were kept whole and transferred before the liquidation process.

Obviously holding unallocated gold and silver in a fractional reserve scheme is subject to much more counterparty risk than many might have previously admitted. If a major bullion bank were to declare bankruptcy or a major exchange a default, how would it affect you? Do you think your property claims would be protected based on what you have seen this year?

You always have counter-party risk if you hold gold and silver through another party, even if they are a Primary Dealer of the Federal Reserve. As Ben said, the Fed offers no seal of approval.

If a Bankruptcy Trustee can pool your bullion into the rest of the paper assets and then liquidate it at prices that are being front run by the Street, you will have to accept whatever paper settlement that they give you.

The customer money and bullion assets are not lost, or rehypothecated or anything else. This is a pseudo-legal fig leaf, a convenient rationalization.

The customer assets were stolen, and given to at least one major financial institution by MF Global to satisfy an 11th hour margin call in the week of their bankruptcy, even as MF Global was paying bonuses to its London employees.

And in an absolutely classic Wall Street move, they are still charging the customers storage fees on the bullion which they have misappropriated from them. lol.

And now that powerful financial institution does not want to give the customer money and metal back. And they are apparently so powerful that the Trustee and the Court are reluctant to try and force its return to the customers, which is customary in this type of preferential distribution of assets prior to a bankruptcy, much less assets that were stolen. And keep in mind that in those last days the firm sent checks instead of wire transfers to customers so they could bounce them, and in a few cases even reversed completed wire transfers!

And so in the great Wall Street tradition they are trying to force the customers and the public to take the loss. The regulators and the exchange are aghast, and are trying to imagine how to resolve and spin this to preserve investor confidence and prevent a run on the system.

'Let them eat warehouse receipts.'

For many this would have been unthinkable only a few months ago. They had been cautioned and warned repeatedly, but chose to trust the financial system. And now they are suffering loss and anxiety, frozen assets, and the misappropriation of their wealth.

How more plainly can it be said? The US financial system as it now stands cannot be trusted to observe even the most basic property rights as it continues to unravel from a long standing culture of fraud.

Get your money as far away from Wall Street as is possible. And if you want to own gold and silver, take delivery and store it in a secure private facility outside the fractional reserve system.[/quote]
The Barron's piece is available via the above commentary.

The "300% total debt tipping point" hypothesis
 

A friend and I were chatting this past weekend about the severity of the debt crises afflicting the various 'developed' - I put the latter in quotes because as much as anything else the term seems to be a euphemism for 'having perfected the ability to blow massive debt bubbles in order to mask real-economic stagnation and even decay' - nations, in particular why some countries (e.g. Spain) were seeing the sovereign debt downgraded even though the level-versus-GDP is not at the 90-100% level considered dangerously high by historic standards. I opined that the key correlate of "national credit crunch" seems to be not the level of any one broad form of debt but rather the sum total of *all* debts, public and private, and the level a which this seems to reach a tipping point (in the sense that added debt issuance produces zero or even negative economic return) appears to be universally around 300% of GDP. Denninger has a piece today which gives a breakdown of the U.S. debt totals - Notice the shocking rise in both debt and GDP (but especially the ratio) since 1980:

[URL="http://market-ticker.org/akcs-www?post=199375"]Economic Policy Journal: Utter Nonsense[/URL]
[quote]That's not inflation eh? Hmmm... the actual peak was in roughly 2000, which would mean we actually saw about 14% inflation. Then we rattled around for 10 more years trying to figure out how to [U]prevent[/U] the deflation of that bubble through various forms of scams and frauds (Internet and housing bubble anyone?)

I can find plenty of other examples of course. [B]You could look at debt in the system too - according to The Fed Z1 it was $4.4 trillion all-in -- Federal, State, Local, personal, business, etc -- in 1980. Today it's about $53 trillion, which happens to be about an 8.5% inflation rate annualized.[/B]

See, this is the problem with the BS and games -- you don't change the outcome, you just hide the ugly somewhere. In this case where it was hidden was in a series of Ponzi-style economic bubbles.[/quote]Note that in 1980 [URL="http://www.usgovernmentspending.com/us_gdp_history"]US GDP[/URL] was around $2.8 trillion, in 1990, 2000 and 2010 it was 5.8, 9.9 and 14.6 trillion, respectively. Over the same span, the total public+private debt rose from $4 trillion (143% of GDP) in 1980 to a mind-boggling $53 trillion (364% of GDP) in 2010. The crossing of the 300% level coincides quite closely with the peaking of the housing+credit bubble in 2006. The total has continued to rise by around 10% per year since, not because housholds are leveraging uo - they are deleveraging, albeit painfully slowly relative to what is needed - but corporate America and most-especially the government - have piled on debt faster than ever (at least post-WW2) in the past 5 years. (Most of the news stories about "US corporations sitting on record piles of cash" neglect that they are also sitting on record piles of debt, in no small part because the Fed's misguided ZIRP policy has allowed them to borrow for future 'rainy days' or hoped-for economic rebounds at record-low rates.

Also keep the above GDP figures in mind the next time you hear some government/central-bank authority blather about "targeting moderate inflation of 2%" - even normalizing for population (or more accurately, workforce size) the above explosion in GDP over the last 30 years implies a much higher rate of inflation than 2%, and the total debt implies an even worse rate, approaching 10%. As Denninger notes, debt growth is the tried and true way governments have of overspending without explicitly taxing to cover the shortfall.

I will see if I can dig up analogous total-debt stats for other countries in future posts.

Why wouldn't this growth also correspond to the amount of pension commitments? On a simple macro level, there is a limit to the number of retirees that a worker can support, and with that nice, fixed retirement age (65) we have, and almost everyone living a decade or more beyond it, it seems to me we have a huge, non-productive sector.

Barry Ritholtz has a nice commentary on a NYT piece on Fannie, Freddie, and the lies Republicans are telling about them (he notes that the truth is ugly enough, but the lies better serve the GOP's political ends, which is to shift the blame for the financial crisis from Wall Street and years of GOP-aided deregulation and insane-risk-taking-support thereof, to the "socialist government props to the housing market which they paint the GSEs as being"):

[url=http://www.ritholtz.com/blog/2011/12/real-sins-not-imaginary/]GSEs: See the Real Sins, Not the Imaginary Ones[/url]
[quote]Joe Nocera’s latest in the NYT, An Inconvenient Truth, is an interesting look at the SEC case versus those six GSE execs.

Note that Nocera has been dead right about Fannie & Freddie, The GSEs were bad enough, had engaged in enough accounting fraud, lobbying excesses, regulatory capture, all with vastly inadequate capital for their bizarre hybrid model — that critics don’t have to make stuff up. The reality is ugly enough:
[i]
“Eventually, their quest for profits led them to make a belated, disastrous foray into subprime mortgages, which ended with their collapse, and which has cost taxpayers about $150 billion. Tragically, Fannie and Freddie could have led a housing recovery — if they hadn’t become crippled wards of the state instead.

Yet these real sins have been largely overlooked in favor of imagined ones. Over at the conservative American Enterprise Institute, two resident scholars, Peter Wallison and Edward Pinto, have concocted what has since become a Republican meme: namely, that Fannie Mae and Freddie Mac were ground zero for the entire crisis, leading the private sector off the cliff with their affordable housing mandates and massive subprime holdings.

The truth is the opposite: Fannie and Freddie got into subprime mortgages, with great trepidation, only in 2005 and 2006, and only because they were losing so much market share to Wall Street. The reality is that Fannie and Freddie followed the private sector off the cliff instead of the other way around.”
[/i]
Next, we get to the SEC’s case against the GSE execs. I hope they are solid cases, and we begin to get some real convictions versus the banking execs who were so reckless and dangerous.

However, Nocera fears that the SEC used a rather expansive definition of SubPrime in the claim against Fannie and Freddie’s CEOs and others. The SEC may even have pulled a page straight from GSE crazies Peter Wallison and Edward Pinto. If that is the case — and I am not yet convinced it is — the SEC claims will be weaker than originally believed.

I hope Nocera is wrong . . . but I would not want to bet against him.[/quote]
[b]
All is well in Spain agin, magically:
[/b]
[url=http://links.reuters.com/r/NG7YL/5NAZC/DWA0N4/769ZO/DWTAD1/YT/h?a=http://links.reuters.com/r/NG7YL/5NAZC/DWA0N4/769ZO/KQ0WYK/YT/h]Spain borrowing costs dive[/url]
[quote]MADRID (Reuters) - Short-term financing costs for euro zone struggler Spain more than halved on Tuesday as banks lapped up debt at an auction, with much of the purchasing power said to come from cut-rate money to be lent by the European Central Bank.[/quote]
It's called "frontrunning the ECB" - buy debt in full knowledge {or in the belief] that the ECB is gonna take it off your hands soon at a guaranteed profit-to-you ... and t has 0 to do with actual market demand for Spanish bonds. Interestingly, ZeroHedge opines that the banks who are gobbling up Spanish sovDebt as a result of that expectation-of-guaranteed-risk-free-profit [url=http://www.zerohedge.com/news/summary-wall-street-expectations-tomorrows-hail-mary-ltro]may be in for a surprise[/url]. I'll take the under on the 'surprise' bit - I believe folks purchasing in that kind of volume know that one way or another the central bankers will make their bets money good.

And speaking of falsely-optimistic signals being read into the latest "economic" data by the pundits:

[url=http://www.reuters.com/article/2011/12/20/us-economy-idUSTRE7BE12S20111220?feedType=nl&feedName=ustopnewsearly]Housing starts hit 1.5 year high in November[/url]
[quote]WASHINGTON (Reuters) - Housing starts and permits for future construction jumped to a 1-1/2 year high in November as demand for rental apartments rose, suggesting the housing market was starting to recover.[/quote]
The housing market has been "starting to recover" for what? 2 years running now? Rather like the employment picture "starting to improve" quarter after quarter, even though the actual total number of *jobs* mysteriously continues a slow, relentless decline. Anyway, the (alleged) single-family builidng rise in the data - 2.3 percent - is well within the margin of error of the data series, i.e. should be considered nothing more than noise. More meaningful is the multi-unit construction starts, which rose by 25%. What does that tell us? That demand for rentals is very strong. That is a sign of ongoing ecnomic weakness, people not wanting to extend themselves financially with the job market still in the shitter. (I base that characterization on an obscure metric called "trends in number of people actually working", not the BLS-massaged funny numbers). With a finite pool of homeseekers in the market, that demand for rentals must come at the expense of something. And the article does not even mention the huge "shadow inventory" of bank-owned homes which have yet to come onto the market.

The obligatory sell-side spin embedded in the above article is especially rich:
[quote]"Investors should take heart that if Europe doesn't melt down and Congress figures out how to extend the payroll tax cut, the economy can continue to gain momentum," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.[/quote]
Dude, that is a mammoth pair of "ifs" you just threw out there. As in, if my aunt were man, she'd be my uncle.

But it's all good - It doesn't need to be true, it just needs to be convincing enough to the financial-bubbleheads to ignite the latest "buying panic" in the markets. These - and the entirely predictable selloffs which follow hard upon - have become quite a regular occurrence of late.

Time to start the EOY review of economic predictions for 2011, and making-of-ones-for-2012.

Mish reviews his own [url=http://globaleconomicanalysis.blogspot.com/2011/12/bernanke-spreads-happy-dust-did-economy.html]Ten Economic Calls for 2011[/url] - He had a very good predictive year there.

ZeroHedge's Bruce Krasting does not run down his previous year's prognosticational success, but offers a long list of predictions (not all economic, some purely whimsical) [url=http://www.zerohedge.com/contributed/2012-things-will-happen]for 2012[/url].

Karl Denninger scores himself for 2011 and makes/recycles predictions for the coming year in [url=http://market-ticker.org/akcs-www?post=199758]2012, The Big Suck[/url].


And on a mood-of-the-nation theme, blogger Joshua Brown of [i]The Reformed Broker[/i] has an end-of-year missive to the JP Morgan CEO regarding the latter's dismissive take on the Occupy Wall Street movement:

[url=http://www.thereformedbroker.com/2011/12/20/dear-jamie-dimon/]Dear Jamie Dimon[/url]
[quote]Joshua M Brown
December 20th, 2011

Dear Jamie Dimon,

I hope this note finds you well.

I am writing to profess my utter disbelief at how little you seem to understand the current mood of the nation. In a story at Bloomberg today, you and a handful of fellow banker and billionaire "job creators" were quoted as believing that the horrific sentiment directed toward you from virtually all corners of America had something to do with how much money you had. I'd like to take a moment to disabuse you of this foolishness.

America is different than almost every other place on earth in that its citizenry reveres the wealthy and we are raised to believe that we can all one day join the ranks of the rich. The lack of a caste system or visible rungs of society's ladder is what separates our empire from so many fallen empires throughout history. In a nation bereft of royalty by virtue of its republican birth, the American people have done what any other resourceful people would do - we've created our own royalty and our royalty is the 1%. Not only do we not "hate the rich" as you and other em-bubbled plutocrats have postulated, in point of fact, we love them. We worship our rich to the point of obsession. The highest-rated television shows uniformly feature the unimaginably fabulous families of celebrities not to mention the housewives (real or otherwise) of the rich. We don't care what color they are or what religion they practice or where in the country they live or what channel their show is on - if they're rich, we are watching.

When Derek Jeter was toyed with by the New York Yankees when it came time for him to renew his next hundred million dollar contract, the people empathized with Derek Jeter. Sure, this disagreement essentially took place between one of the wealthiest organizations in the country and one of the wealthiest private citizens - but we rooted for Jeter to get his money. Nobody begrudged him a penny of it or wanted a piece of it or decried the fact that he was luckier than the rest of us. In the American psyche, Jeter was one of the good guys who was deservedly successful. He was one of us and an example of hard work paying off.

Likewise, when Steve Jobs died, he did so with more money than you or any of your "job alliance" buddies - ten times more than most of you, in fact. And upon his death the entire nation went into mourning. We set up makeshift shrines to his brilliance in front of Apple stores from coast to coast. His biography flew off the shelves and people bought Apple products and stock shares in his honor and in his memory. Does that strike you as the action of a populace that hates success?

No, Jamie, it is not that Americans hate successful people or the wealthy. In fact, it is just the opposite. We love the success stories in our midst and it is a distinctly American trait to believe that we can all follow in the footsteps of the elite, even though so few of us ever actually do.

So, no, we don't hate the rich. What we hate are the predators.

What we hate are the people who we view as having found their success as a consequence of the damage their activities have done to our country. What we hate are those who take and give nothing back in the form of innovation, convenience, entertainment or scientific progress. We hate those who've exploited political relationships and stupidity to rake in even more of the nation's wealth while simultaneously driving the potential for success further away from the grasp of everyone else.

Here in New York, we hated watching real estate and financial services elitists drive up the prices of everything from affordable apartments to martinis in midtown with the reckless speculation that would eventually lead to mass layoffs, rampant joblessness and the wreckage of so many retirement dreams. No one ever asked the rest of us if we minded, it just happened. I'm sure people across the country can tell similar stories.

So please, do us all a favor and come to the realization that the loathing you feel from your fellow Americans has nothing to do with your "success" or your "wealth" and it has everything to do with the fact that your wealth and success have come at a cost to the rest of us. No one wants your money or opportunities, what they want is the same chance that their parents had to attain these things for themselves. You are viewed, and rightfully so, as part of the machine that has removed this chance for many - and that is what they hate.

America hates unjustified privilege, it hates an unfair playing field and crony capitalism without the threat of bankruptcy, it hates privatized gains and socialized losses, it hates rule changes that benefit the few at the expense of the many and it hates people who have been bailed out and don't display even the slightest bit of remorse or humbleness in the presence of so much suffering in the aftermath.

Nobody hates your right to make money, Jamie. They hate how you and certain others have made it.

Don't be confused on this score for a moment longer.[/quote]

I regret to say that at the beginning of 2011 I posted about the U.S. Govt raising the debt limit from @14 trillion to @15 trillion dollars. Today the announcement was made that it will officially be raised to $16.39 trillion. This marks a $1 trillion increase in just one year and sets the stage for a $1.2 trillion increase in 2012.

Can you say "unsustainable"?

[QUOTE]The latest request is the third of three requests authorized by the contentious debt ceiling agreement reached last August and is expected to come on December 30 – the day the debt is projected to fall within $100 billion of the current $15.194 trillion ceiling. The new request asks the ceiling be raised to $16.39 trillion.[/QUOTE]

DarJones

Ah yes it is getting time to close the MET 2011 and open MET 2012. That will be the 5th thread of this series.

Here is a nice little piece to get your blood boiling this holiday season:
[url]http://www.thedailybeast.com/newsweek/2011/12/25/wall-street-has-destroyed-the-wonder-that-was-america.print.html[/url]

[QUOTE=garo;283721]Ah yes it is getting time to close the MET 2011 and open MET 2012. That will be the 5th thread of this series.

Here is a nice little piece to get your blood boiling this holiday season:
[url]http://www.thedailybeast.com/newsweek/2011/12/25/wall-street-has-destroyed-the-wonder-that-was-america.print.html[/url][/QUOTE]

Nice piece - the author is obviously well-acquainted with the work of Yeats. Here is the conclusion:
[quote]At the end of the day, the convulsion to come won’t really be about Wall Street’s derivatives malefactions, or its subprime fun and games, or rogue trading, or the folly of banks. It will be about this society’s final opportunity to rip away the paralyzing shackles of corruption or else dwell forever in a neofeudal social order. You might say that 1384 has replaced 1984 as our worst-case scenario. I have lived what now, at 75, is starting to feel like a long life. If anyone asks me what has been the great American story of my lifetime, I have a ready answer. It is the corruption, money-based, that has settled like some all-enveloping excremental mist on the landscape of our hopes, that has permeated every nook of any institution or being that has real influence on the way we live now. Sixty years ago, if you had asked me, on the basis of all that I had been taught, whether I thought this condition of general rot was possible in this country, I would have told you that you were nuts. And I would have been very wrong. What has happened in this country has made a lie of my boyhood.

There should be more to America, Gore Vidal has written, than who pays tax to whom. It has been in Wall Street’s interest to shrivel our sensibilities as a nation, to shove aside the verities of which General MacArthur spoke at West Point—duty, honor, country—in favor of grubby schemes and scams and “carried interest” calculations. Time, I think, to take the country back.[/quote]

[url=http://globaleconomicanalysis.blogspot.com/2011/12/mish-2012-predictions-2011-year-in.html]Mish's Top Ten Predictions for 2012[/url] - I paste just the headlines here:
[quote]Ten Themes for 2012

1. Severe European Recession as the sovereign debt crisis escalates
2. Political Crisis in Europe
3. Relatively Minor US Economic Recession
4. Major Profit Recession in US
5. Global Equity Prices Under Huge Pressure
6. Fiscal Crisis in Japan Comes to Forefront
7. Few Hiding Spots Other than the US Dollar
8. US Public Union Pension Plans Under Attack
9. Regime Change in China has Major Ramifications
10. Hyperinflation Calls Once Again Will Look Laughable[/quote]
The article is followed immediately by the "Buy Gold and Silver" paid adverts which are ubiquitous on Mish's blog, and Mish has said despite the recent 20% drop from recent highs he is still bullish on gold, but oddly he does not mention whether he considers it a safe haven (say with respect to the US$) for the coming year. I also note he makes no mention of US Treasuries, which he was bullish on for the past few years even as numerous other pundits were predicting hyperinflation/US$-collapse/US-debt-yields-skyrocketing.

As a suggestion for 2012 Ewmayer, why not have a prognostication contest. In the first week of the year, post your 10 best predictions of what will happen to the economy at the local and world wide level. At the end of the year, see who scored the most hits. It would be nice to get participation from as many different countries as possible.

Here is a sample prognostication.

The outlook for inflation is currently at a very very low level. I think it is safe to say that if it continues our illustrious fiscal leaders (Bernanke and Geithner) will eventually decide on another round of quantitative easing to the tune of about $800 Billion.

Please note that $800 Billion as applied by the fed in quantitative easing multiplies 8 times in the economy so you would get a net impact on the world economy to the tune of about $6.4 Trillion.

DarJones

News flash! [QUOTE]Italy seeks bigger euro fund after tough debt sale[/QUOTE]

[url]http://news.yahoo.com/italy-yields-seen-easing-hurdles-loom-081304361.html[/url]

The spin in that article is off the scale. Cutting through all the garbage, Italy has to roll over some E200 Billion in debt over the next 4 months (E450 Billion in 2012 full year!) and the current auctions at 7% interest are scaring the willies out of their finance people. What they are pushing is to increase the European Stability Fund enough so they can keep downward pressure on the yield which will keep them solvent (barely).

To put this in a different perspective, it just means that the EU's problems have not gotten smaller, have not gone away, have to some extent been pushed out a ways, but are still going to come home to roost. The one and only possible conclusion is that nowhere in Europe is safe to stash money. Germany is stable and growing but is going to wind up on the hook to fund the ESF for the rest of the countries. That means Germany is not a safe investment. Portugal, Italy, Ireland, Greece, Spain, and Belgium are already in various stages of a downward economic spiral that will get worse over the next 2 or 3 years.

DarJones

Guess what the top U.S. export is?

petroleum fuels (gasoline, diesel, and jet fuel)

- - - - - - - - -

"In a first, gas and other fuels are top US export"

[URL]http://news.yahoo.com/first-gas-other-fuels-top-us-export-200739553.html[/URL]

[quote]NEW YORK (AP) — For the first time, the top export of the United States, the world's biggest gas guzzler, is — wait for it — fuel.

Measured in dollars, the nation is on pace this year to ship more gasoline, diesel, and jet fuel than any other single export, according to U.S. Census data going back to 1990. It will also be the first year in more than 60 that America has been a net exporter of these fuels.

Just how big of a shift is this? A decade ago, fuel wasn't even among the top 25 exports. And for the last five years, America's top export was aircraft.

The trend is significant because for decades the U.S. has relied on huge imports of fuel from Europe in order to meet demand. It only reinforced the image of America as an energy hog. And up until a few years ago, whenever gasoline prices climbed, there were complaints in Congress that U.S. refiners were not growing quickly enough to satisfy domestic demand; that controversy would appear to be over.

Still, the U.S. is nowhere close to energy independence. America is still the world's largest importer of crude oil. From January to October, the country imported 2.7 billion barrels of oil worth roughly $280 billion.

Fuel exports, worth an estimated $88 billion in 2011, have surged for two reasons:

— Crude oil, the raw material from which gasoline and other refined products are made, is a lot more expensive. Oil prices averaged $95 a barrel in 2011, while gasoline averaged $3.52 a gallon — a record. A decade ago oil averaged $26 a barrel, while gasoline averaged $1.44 a gallon.

— The volume of fuel exports is rising. The U.S. is using less fuel because of a weak economy and more efficient cars and trucks. That allows refiners to sell more fuel to rapidly growing economies in Latin America, for example. In 2011, U.S. refiners exported 117 million gallons per day of gasoline, diesel, jet fuel and other petroleum products, up from 40 million gallons per day a decade earlier.

. . .[/quote]

That article is very misleading cheesehead. The single biggest reason for exporting fuel is that our illustrious congress passed a subsidy that pays fuel producers for each gallon of ethanol blended fuel. They bring oil into the U.S. and convert it into gasoline, mix the gasoline with ethanol, claim the U.S. subsidy, then export the fuel to Europe where they can again claim a subsidy for each gallon of ethanol blended fuel sold. If it were not for the subsidies, U.S. fuel exports would be few and far between.

DarJones

[QUOTE=cheesehead;284199]Guess what the top U.S. export is?

petroleum fuels (gasoline, diesel, and jet fuel)[/QUOTE]

Interesting - and here I thought it was [url=http://money.cnn.com/2011/02/10/news/international/america_exports_weapons_full.fortune/index.htm]weapons[/url]. (That article mentions over $100 Bln in planned sales for 2011, which would beat the figure for oil-related stuff if true.)

[QUOTE=Fusion_power;283995]As a suggestion for 2012 Ewmayer, why not have a prognostication contest. In the first week of the year, post your 10 best predictions of what will happen to the economy at the local and world wide level. At the end of the year, see who scored the most hits. It would be nice to get participation from as many different countries as possible.[/QUOTE]

Good suggestion - I have typically started each annual installment of the MET thread with such predictions, but perhaps the framework should be better-defined. In accordance with your suggestion I shall open the MET2012K thread with a prediction list of Top Ten Macro Themes for 2012, coupled with a market call (see my note about my annual EOY coffee-shop bet below.)


On the subject of coming-year predictions: Just for end-of-year giggles I forced myself to watch Nightly Business Report on PBS last night - and note this is considered to be a pretty sober show as these "biznis showz" go. Just like last year they again trotted out chief equity strategerist (or whatever his real title is) Sam Stovall of Standard & Poors as their EOY special guest, and asked him what kind of year 2012 would be for equities (for Sam that means the S&P500, by definition). He confidently predicted a "low double-digit percentage gain" for the index in the coming year. The show host nodded in either agreement or in deference to the superior wisdom of Mr. Stovall, and of course utterly neglected to note that Mr. Stovall had predicted essentially the same thing for 2011 in his EOY appearance on NBR last year. In fact, the S&P finished the year almost exactly where it started. [ZeroHedge has a broader review of such asinine predictions by overpaid sellside shills [url=http://www.zerohedge.com/news/guest-post-2011-catch-22-year-review]here[/url].]

As it happens I have some small interest in the YoY performance of the S&P500 because at the end of each of the past several years I have a made a small bet with 2 of my local-coffee-shop buddies, Dan S. and Hunter D., about what the coming year will bring for the economy and markets, as translated into the coming-year performance of the S&P500. If 2 or more of us predict similar things for the index we add a side bet as a tiebreaker. Last year Dan [a professional money manager, who to his credit has done a very good job at preserving his clients' wealth over the past years, including 2008-2009] predicted the S&P500 would finish the year up [= +5% or more]. Hunter and I, who are persistently (and often wrongly) more bearishly inclined than Dan, both predicted a flat year [-5% to +5%], and added the EOY per-barrel price of oil [specifically light sweet crude] as a tiebreaker, in case or S&P500 prediction was closer to the actual YoY result than Dan's was. I predicted oil above $95, Hunter said below. So I won this year's coffee-shop bet, which means I get to buy coffee for the group tomorrow. I neglected to post that bet in my 2011-opening post here, however; this year I will include it with (or sonn after) my opening Top Ten Macro Themes for 2012.

Now, time to review my 2011 predictions opening this thread - I admit these were broader (unkind people might say "wishy-washy") than one would like from a highly-paid investment newsletter writer such as myself. :) Here they are (in italics), with my comments interspersed:
[i]
1. Governments and central banks in major debt-wracked countries will continue doing everything in their power (and quite a few things outside it) to protect the global banking and financial cabal. In the U.S., I expect in particular to see an attempt to retroactively legalize (or forgive on exceedingly lenient terms) the colossal fraud now coming to light which permeated the entire mortgage-involved financial food chain during the housing bubble, from home appraisals to mortgage processing to securitization and now to foreclosure. This could get very interesting, though, because many of the pension and investment funds which ended up buying the toxic result of the process have deep pockets and are lawyering up in a big way.
[/i]
Bingo - There were several multibillion-dollar mortgage-fraud settlements in 2011, but there was also a concerted effort to get all 50 state attorneys general to sign off on a sweeping agreement which would give the banks broad immunity from further legal actions in exchange for what is (in relative terms) a wrist-slap fine. Currently the flaw in that ointment is that 2 states hit especially hard by the housing bubble-and bust, Nevada and California, are resisting the get-out-of-jail-nearly-free 'solution'.
[i]
2. The U.S. government will continue to try to work the structural economic problems facing the nation from the completely wrong end, that is, continuing to stimulate consumer overconsumption, that is, trying to borrow and spend the nation out of a deep economic hole caused by too much borrowing and spending.
[/i]
An admittedly embarrassingly easy call. Interestingly, while still-debt-laden consumers are resisting leveraging up in most areas, one place where the government has been 'successful' in creating another giant debt bubble is student loans.
[i]
3. The mainstream media will continue furiously pumping the" everything's coming up roses" meme - collective bullishness and the amount of self-congratulatory back-slapping at the end of 2010 are both at highs not seen since 2007 - and very, very few of the mainstream media and economic pundits will seriously address the central issue of: "If there is not the earnings power to sustain it, how can it be sustained?" But I suspect behind the scenes in the circles of power an increasing number of people will be asking "if this is a recovery, where are the jobs?" and perhaps wonder whether the fact that the "jobless recovery" phenomenon has gotten progressively worse coming out of each of the past 3 recessions. At the same time, the manipulation of official government data in order to present a rosy illusion will reach ridiculous extremes - for example, the very last weekly jobless claims numbers of 2010 "looked great" as they dropped below 400,000, but that number included a whopping "seasonal adjustment" which reduced the actual claims by 150,000, with no credible explanation why the SA was so much larger than both for the previous week and for the same week of the previous year. (The non-SA claims number in fact deteriorated, but that number was lost in the glare of the manipulated "headline" number.)
[/i]
Another easy call, though the permabull thesis was challenged by a persistent backdrop of negative news from the rapidly worsening situation in Europe. In the U.S., the official unemployment rate dropped below 9% (and a whopping 0.4% in the last monthly report for the calendar year, the one for November), and the fact that none of the drop was due to any actual net *hiring* (total employment is lower than it was a year ago) was roundly ignored by the mainstream media.

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Lastly, allow me to close out the year here on a lighter note: ZeroHedge has a funny take on a popular modern parable about debt which has been making the internet rounds:

[url=http://www.zerohedge.com/news/friday-humor-unspinning-%E2%82%AC100-bill-or-how-european-bailout-really-works]Friday Humor: Unspinning The "€100 Bill" Or How The European Bailout REALLY 'Works'[/url]

The unlampooned (first) version of the parable is actually a good way to illustrate misconceptions about money and debt, albeit not in the way the politicians and bankers would have one believe. See if you can figure it out. (Hint: Think in terms of net debt).

Happy New Year, everyone - see you on the other side! I shall post the 2012 thread in a few hours.

[QUOTE=ewmayer;284278]there was also a concerted effort to get all 50 state attorneys general to sign off on a sweeping agreement which would give the banks broad immunity from further legal actions in exchange for what is (in relative terms) a wrist-slap fine. Currently the flaw in that ointment is that 2 states hit especially hard by the housing bubble-and bust, Nevada and California, are resisting the get-out-of-jail-nearly-free 'solution'.[/QUOTE]

The Florida AG is also fighting hard against this. She firmly believes that NO penalty should be paid at all!! A stern talking to is all that's required. She fired the 2 lead mortgage fraud investigators.

[QUOTE=Fusion_power;284255]That article is very misleading cheesehead.[/QUOTE]I don't see how it's misleading or contradicts what you wrote. Are you making that accusation simply because it doesn't explicitly mention that exported gasoline includes blended ethanol? ("single biggest reason" seems like a judgment call rather than established fact.)

What proportion of exported gasoline includes blended ethanol?

[QUOTE=ewmayer;284278]Interesting - and here I thought it was [URL="http://money.cnn.com/2011/02/10/news/international/america_exports_weapons_full.fortune/index.htm"]weapons[/URL]. (That article mentions over $100 Bln in planned sales for 2011, which would beat the figure for oil-related stuff if true.)[/QUOTE]Perhaps you're right, but I read the $88 billion fuel export figure as being for the first ten months of 2011 rather than the estimate for the whole year. _If_ that's the case, then 1.2 * $88 billion = $105.6 billion for twelve months, which beats the $103 billion estimate for weapons.