Thursday, December 30, 2010

The U.S. National Debt Is The Biggest Subprime ARM Of All Time

"The Fed's lucky streak of luring bond investors with low interest rates may be drawing to a close. Nevertheless, the extended period of low borrowing costs has bred a new breed of investor. To the bulls and bears, we can now add the ostriches – those who bury their heads in the sand of declining debt service ratios while refusing to face up to intractable levels of total US government debt. If these ostriches were to actually look at the numbers, they would realize that it is their investments which are made of sand..."


Why Can’t Europe Avoid Another Crisis? Why Can’t the U.S.?

"Most experienced watchers of the eurozone are expecting another serious crisis to break out in early 2011. This projected crisis is tied to the rollover funding needs of weaker eurozone governments, i.e., debts falling due in March through May, and therefore seems much more predictable than what happened to Greece or Ireland in 2010. The investment bankers who fell over themselves to lend to these countries on the way up, now lead the way in talking up the prospects for a serious crisis..."


17 National Debt Statistics Which Prove That We Have Sold Our Children And Grandchildren Into Perpetual Debt Slavery

"#1 As of December 28th, the U.S. national debt was $13,877,230,355,933.00.

#2 If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.

#3 If the federal government began repaying the national debt at a rate of $10 million dollars a day it would take approximately 3,800 years to pay off the national debt

#4 Today, the U.S. national debt is increasing by roughly 4 billion dollars every single day.

#5 The U.S. government is borrowing approximately 2.63 million more dollars every single minute.

#6 On September 30th, 1980 the U.S. national debt was 907 billion dollars. Just thirty years later, the U.S. national debt is over 14 times larger.

#7 According to a recent U.S. Treasury report to Congress, the U.S. national debt will reach 19.6 trillion dollars in 2015..."


Unexpected Home Price Decline is a Serious Reason to Worry About Economy

"The Standard & Poors/Case-Shiller index's most recent report shows that home prices across America are declining . For economists, this is yet another unexpected sign that the economy is slowing. but this was to be expected.It's very simple... Option ARMs and Alt+A mortgages are resetting and causing more people to go into foreclosure, shadow inventory continues to pile up, long term interest rates have spiked recently, unemployment numbers continue to rise, bearishness on the overall economy continues to rise, and foreclosure-gate has decimated faith in the system. In this environment, why in the world would anyone expect anything but falling prices?..."

Wednesday, December 29, 2010

The Charts That Mattered Most In 2010

The Italian 'I' In PIIGS Is Starting To Show Signs Of A Real Debt Crisis

"Italy's borrowing costs have surged back to financial crisis levels and the country is now looking like a proper member of the eurozone's fringe, according to Ambrose Evans-Pritchard.

The yield on Italy's 10-year bond is now at 4.86% and, combined with weakening monetary supply data, Italy now looks destined for a downturn similar to the rest of the fringe in the next 9 months.

Investors seem to be getting out of Italy and into the safety of German debt..."


Housing price declines increase strategic default risk

"Home prices are expected to drop another 20% before hitting bottom, according to economists at A. Gary Shilling & Co., raising the risk that 40% of borrowers will walk away from their home in a strategic default.

The firm reported in its December Investment Insight that home prices are already 30% below their peak in the first quarter of 2006 and fell 2% between the second and third quarters of 2010.

Essentially, the economists wrote, things will get worse before they get better.

"Housing normally spurs economic growth early in recoveries as this interest rate-sensitive sector responds to earlier rate cuts by the Fed," the report said. "This time, it's been a dud due to the collapse in prices."


LPS Mortgage Monitor: Foreclosure Inventory Rising for 5th Straight Month, Nearly 2.2 Million Loans are 90 days+ Delinquent Not Yet in Foreclosure

"...Foreclosure inventories also continued to rise for the fifth straight month as delinquent accounts are referred for foreclosure, but the sale of foreclosure properties continued to decline. When compared to January 2008 levels, the foreclosure inventory of Jumbo Prime loans is nearly seven times higher; the inventory of Agency Prime loans is nearly six times higher; and the foreclosure inventory of Option ARM loans is approaching five times the inventory in January 2008..."


Illinois Governor Wants to Borrow $15 Billion to "Balance" the Budget; Illinois Total Unfunded Liabilities Exceed $200 Billion Already

"The state of Illinois elected a Keynesian nutcase of epic magnitude in Governor Quinn. Quinn's latest brainstorm is to borrow $15 billion to "stabilize things".

Quinn has not said how he will pay back the loans. Then again, he does want to raise taxes like mad and probably will do so. Regardless of what he does, Quinn is so beholden to unions, Illinois will need to borrow again 12 months from now..."


Guest Post: Japan's Perpetual Motion Debt Machine

"Japan's Perpetual Motion Debt Machine

Perpetual motion is impossible, but Japan has managed the illusion of perpetual debt for 20 years.

Perpetual motion--a machine which produces more than it consumes indefinitely, without any visible energy source--is impossible. So too is an economy which consumes more than it produces and fills the gap with debt. Yet Japan has maintained the illusion of a perpetual motion debt machine for 20 years.

Back in 2001 I wrote an article describing Japan's Runaway Debt Train: 40% of its annual budget was borrowed, and much of its tax revenues were gobbled up by interest payments on its mind-boggling public debt.

Nine years later, nothing has changed: welcome to perpetual motion. Japan's government approved a record 92.4 trillion yen ($1.1 trillion) budget for the 2011 fiscal year, of which 44 trillion is borrowed, 7 trillion is lifted from various trust funds and a mere 41 trillion is tax revenues.

So roughly half (48%) of Japan's Central State spending is borrowed.

So Japan has borrowed almost half its government expenditures for a decade or so. Even at super-low bond yields of around 1%, it now costs 21 trillion yen to service that ever-growing mountain of debt. So 23% of the government's budget is spent on servicing debt. Roughly half of all tax revenues (51%) are devoted to paying interest on public debt.

The more Japan borrows, the more revenue must be devoted to paying interest.

Japan's total bond issuance in fiscal 2011, including roll-over of existing bonds and the additional 44.3 trillion, is 169 trillion yen--184% of the entire annual budget.

Despite a decade of vast "pump-priming," prices are still declining in Japan: the core consumer price index, which doesn’t include volatile fresh-food prices, was 0.5% lower in November than in the year-earlier period. Compared to October, the core CPI lost 0.1%. (Apparently the Japanese government has adopted the useful legerdemaine of "core" and "non-core" consumer price indices.)

Has Japan really invented a perpetual motion debt machine, in which consumption can exceed revenues by 50% forever?..."


Tuesday, December 28, 2010

U.S. concerned as China cuts rare earth export quotas

"China announced on Tuesday it will cut its export quotas for rare earth minerals by more than 11 percent in the first half of 2011, further shrinking supplies of metals needed to make a range of high-tech products after Beijing slashed quotas for 2010..."


Chinese missile shifts power in Pacific

"Defence analysts have called the Dongfeng 21 D missile a “game changer” since it could force US aircraft carriers to stay away from waters where China does not want to see them. These include the Taiwan Strait where a potential conflict could develop over the self-ruled island which China claims.

The land-based missile is designed to target and track aircraft carrier groups with the help of satellites, unmanned aerial vehicles and over-the-horizon radar. Aircraft carriers and their accompanying ships are unable to defend themselves against such a threat..."



"William Black of UMKC believes the Euro could unravel in the coming 3-4 years as the political tension continues to increase and ultimately creates a divide between the core and periphery. Black says the economies on the periphery are likely to remain very weak and will lead to civil unrest and political overhaul. In the end the strains will be too much for the region to overcome..."


Roubini: The Housing Double Dip Is Now Accelerating

"Nouriel Roubini says it is now obvious that we're in a housing double-dip.

Speaking to CNBC's NetNet, Roubini noted that today's terrible Case-Shiller data only confirmed what was already known about the declining house market. Further, the decline is now speeding up, according to Roubini, and it could get worse.

Roubini believes that the stop on foreclosures has prevented a large glut of properties from coming to market, but that the supply will eventually arrive. And with weakening demand simultaneously, we're likely to see further price declines..."


Monday, December 27, 2010

U.S. Prepares For New Decade Of War In Asia

"The Pentagon and its NATO allies have established a military presence on bases in several other nations in Central and South Asia, including – publicly – Kyrgyzstan, Tajikistan and Uzbekistan and without official acknowledgement in Pakistan, Kazakhstan and Turkmenistan.

In doing so the U.S. and the expansionist military bloc it controls have established a network of troops and bases in a swathe of territory with China to the east, Russia to the north and Iran to the west.

The expanding circle of military influence and infrastructure extends to India, with whom the U.S. leads bilateral and multinational naval, air and infantry/armor exercises in both countries, as well as pulling the world’s second most populous nation into the orbit of military interoperability through large-scale weapons transactions.

In Mongolia, U.S. Pacific Command and U.S. Army Pacific lead annual Khaan Quest military exercises with the host country’s armed forces and those of assorted American NATO and Asian allies in preparation for deployments to war zones like Iraq and Afghanistan. This year’s Khaan Quest included troops from – in addition to the U.S. and Mongolia – Canada, France, Germany, India, Japan, Singapore and South Korea.

In addition to countries in the Asia-Pacific region with which the U.S. maintains Cold War-era defense treaties – Australia, Japan, the Philippines, New Zealand, South Korea and Thailand – the Pentagon has recently conducted military exercises and training in South and Southeast Asia nations like Bangladesh, Singapore, Vietnam, Sri Lanka, Indonesia, East Timor, Brunei, Malaysia and Cambodia.

The Pentagon is building a $12.5 billion “super base” in Guam “in an attempt to contain China’s military build-up.”

The construction “will include a dock for a nuclear-powered aircraft carrier, a missile defence system, live-fire training sites and the expansion of the island’s airbase. It will be the largest investment in a military base in the western Pacific since the Second World War, and the biggest spend on naval infrastructure in decades.”

In addition, “The US is also investing another £126 pound [$197] million on upgrading infrastructure at the British-owned Indian Ocean atoll of Diego Garcia, 700 miles south of Sri Lanka.”

A Russian report of last month quoted analyst Andrei Kortunov of the (pro-Western) New Eurasia Foundation on American military strategy in relation to Guam: “Americans do not say officially that this base is being created to contain China’s military build-up. But if we look at the map and compare the military potential of the countries surrounding the Pacific Ocean, it won’t be difficult for us to understand that, most likely, China is exactly the key factor which is taken into consideration here.”

He was further cited claiming that “There are many American military facilities in the northern part of the Pacific Ocean.

“They are scattered over a large territory north of Alaska across Okinawa and as far as the Hawaiian Islands, where, traditionally, the U.S. Navy has a stronghold. Which means that there are many U.S. military facilities there, which form an arc and which must guarantee America’s hegemony in the Pacific Ocean.”


U.S. States and Cities Going Bust, Day of Reckoning Is at Hand!

"At this very moment, cities and states all across this country are facing their day of reckoning, with far-reaching consequences for the economy, investors and every American citizen.

This morning, I will show why this day is so urgent, how to protect yourself and even how to profit from the crisis. But first …"


Foreclosures still dragging down housing, economy

"The housing market has remained at the center of the nation's economic troubles throughout 2010. The housing market started the year flat on its back, and it's ending the year in nearly the same condition.

Home sales are still depressed, home-building remains near a 50-year low, and home prices are still about 30 percent below their peak.

Part of the problem this year has clearly been high unemployment. But the ongoing foreclosure crisis also keeps glutting the market with unsold homes. Meanwhile, the government's efforts to prevent foreclosures over the past year were a pretty big disappointment to many people..."


Sachs: America’s Political Class Struggle

"Jeff Sachs says the "level of political corruption in America is staggering," and that "powerful forces, many of which operate anonymously under US law, are working relentlessly to defend those at the top of the income distribution. ... The Republican Party’s real game is to try to lock that income and wealth advantage into place." However, while the "rich will try to push such an agenda,... ultimately they will fail":


Militarization of the Economy; Retired Generals "Advise" the Pentagon as Paid Consultants of Defense Contractors

"It's widely known that retired military officers frequently move into private industry at the end of their military careers. However, few realize these "generals-for-rent" are often hired back as a pentagon consultants. The potential for fraud is massive. Direct industry representatives get inside information about military programs and budgets. Then in a massive conflict of interest scheme, former generals get paid by both the Pentagon and the defense contractor..."


Sunday, December 26, 2010

The Derivatives Monster That's 9X Bigger than the Global Economy

"The Financial Times, as part of a story about the changes coming as a result of the Dodd-Frank financial reform bill, refers to “the $583,000bn privately-traded derivatives markets, as mandated by the Dodd-Frank financial reform.”

Now, in case you are not immediately familiar with computing “billions of billions,” the number “$583,000 billion,” which doesn’t sound too bad, is actually the terrifying sum $583 trillion, which is significant in that the total GDP of the world – and I am talking about the total annual output of goods and services by everyone in the Whole Freaking World (WFW) – is only about $65 trillion!

This means that the derivatives market, alone, is 900% bigger than global GDP!..."


16 US Cities Facing Bankruptcy If They Don't Make Deep Cuts In 2011

"2011 will be the year of the municipal default. At least that's what analysts like Meredith Whitney predict, as do bond investors that have been fleeing the muni market.

There are many reasons to be worried. First, the expiration of Build America Bonds will make it harder for cities to raise funds..."


Superpowers behind South, North Koreas could trigger World War 3

"North Korea says it's ready to use its nuclear deterrent in what it calls a 'sacred war' against the South. The North's defence minister's statement was reported by state media there. The minister accused Seoul of deliberately stoking tension by staging successive joint military drills with the U.S. next to the North's territory. Aleksandr Vorontsov from the Institute of Oriental Studies believes China and America's respective involvements with North and South Korea could lead to a global conflict..."


Saturday, December 25, 2010

China fears euro debt crisis will go from 'acute' to 'chronic'

"Chinese media reported that Commerce Minister Chen Deming saying that the crisis may worsen in January and February, and that the €750bn (£635bn) European and International Monetary Fund rescue fund would not solve the problem as the rescue financing would eventually have to be repaid at high interest rates.

“These measures just turn an acute disease into a chronic one, and it’s really hard to say whether these countries that are in deep trouble over the debt crisis can recover in the coming three or five years,” Mr Chen was quoted as saying.

His comments step up the rhetoric against Europe as indebted eurozone nations attempt to rein in public spending and bring borrowing down.

China has been supportive of Europe so far, indicating it could use its vast reserves to buy sovereign debt to keep yields down.

However, Mr Chen’s call for Europe to take more urgent action to solve its problems suggests China’s patience may be wearing thin..."


Meredith Whitney Predicting Municipal Bond Market To Get Destroyed

"In this week’s 60 Minutes, Meredith Whitney predicted that the municipal bond market will get destroyed. “There’s not a doubt in my mind that you will see a spate of municipal bond defaults” she boldly predicted. When Steve Kroft asked her how many is a “spate” Whitney clarified:

“You could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This will amount to hundreds of billions of dollars’ worth of defaults.”

We know that a couple of defaults in municipal markets are enough to wreck havoc in the entire market. The municipal bond market is $3 trillion in size. Fifty to one hundred sizeable defaults worth hundreds of billions of dollars will be more than enough to destroy the entire municipal bond market. David Einhorn’s favorite credit rating agencies don’t see any reason for concern in the municipal bond market. Meredith Whitney criticized Standard & Poor’s (MHP) and Warren Buffett’s Moody’s (MCO)..."


Friday, December 24, 2010

Dangers and Opportunities in Muni Bond ETFs Crash

"Bonds of all kinds took a beating over the last few months — ever since Ben Bernanke began hinting he would launch another “quantitative easing” money-printing program.

Ben was true to his word. And the QE2 program was announced on November 3. Interest rates shot up in the following weeks. That was bad news both for individual bondholders and bond exchange traded funds (ETFs)..."


The Nine Problems That Could Derail The Recovery in 2011

"There are several powerful forces which are dangers to the recovery:

1. Spending Hangover

2. Price of Oil

3. Job Creation

4. Bad Housing Market

5. Earnings

6. Austerity

7. Global Instability

8. Inflation

9. Global Economy..."


Thursday, December 23, 2010

Gold is Money, What About Silver? Can Gold be Debt?

"FOFOA expressed a number of controversial viewpoints regarding money in his recent article Focal Point: Gold. Specifically, he makes the case gold is money but not silver. He makes some other claims that are highly debatable to say the least. Here are a few snips (emphasis mine) ....

Gold and only gold will fill the monetary store of value role. Not gold and silver. Not precious metals. Just gold..."


Has The Financial Collapse Of Europe Now Become Inevitable?

"What in the world is happening over in Europe? Well, it is actually quite simple. We are witnessing the slow motion collapse of the euro and of the European financial system. At this point, many analysts are convinced that a full-blown financial implosion in Europe has become inevitable. Ireland, Spain, Portugal, Italy, France and Belgium are all drowning in an ocean of unsustainable debt. Meanwhile, Germany and the few other "healthy" members of the EU continue to try to keep all of the balls in the air by bailing everyone out. But can Germany keep bailing the rest of the EU out indefinitely? Are the German people going to continue to be willing to hand out gigantic sacks of cash to fix the problems of other EU nations? The Irish were just bailed out, but their problems are far from over. There are rumors that Greece will soon need another bailout. Spain, Portugal, Italy and France have all entered crisis territory. At the same time, there are a whole host of nations in eastern Europe that are also on the verge of financial collapse. So is there any hope that a major sovereign debt crisis can be averted at this point?..."


Wednesday, December 22, 2010

Euro-zone Debt Crisis, European Monetary Union to Muddle Through or Fall Apart?

"Ingo Schmidt writes: Springtime in Athens, Dublin in the fall. Lisbon next time or Madrid? The sparks of public deficits, foreign debt, and soaring risk premiums have lit a fire of fiscal and debt crises in the European periphery that have even inflamed the corridors of Euro-power – the European Central Bank (ECB), the European Commission and the capitals of the European Union (EU) heavyweights of France and Germany. In May, when Greece accepted a €45-billion bailout package, with the usual neoliberal adjustment strings attached, only a few folks on the fringes of the political spectrum speculated about the break-up of the Euro-zone. The recent negotiations between the Irish government and the EU, the International Monetary Fund (IMF), and the governments of Britain, Denmark and Sweden, were concluded with an additional €85-billion worth of credits and guarantees being anted up. But they also have started to raise serious concerns about the future of the Euro..."


9 Alarming Charts From The Treasury's Annual Spending Report

"The US balance sheet for 2010 is just as ugly as you might expect.

The Treasury's annual report identified $2 trillion in new liabilities, up from $1.2 trillion in 2009. Total liabilities exceeded assets by $13.473 trillion in 2010..."


UK Budget Deficit Hits Record High; Cut in Public-Sector Pensions 'Non-Negotiable'; Cameron Still Too Generous

"In the UK, unions are howling over Prime Minister David Cameron's plan to cut public-sector pensions. However, something has to be done as the UK budget deficit balloons to record high..."


Government Waste: 20 Of The Craziest Things That The U.S. Government Is Spending Money On »

"In the United States, it is not just the federal government that has a horrific debt problem. Today, state and local governments across America are collectively deeper in debt than they ever have been before. In fact, state and local government debt is now sitting at an all-time high of 22 percent of U.S. GDP. Once upon a time, municipal bonds (used to fund such things as roads, sewer systems and government buildings) were viewed as incredibly safe investments. They were considered to have virtually no risk. But now all of that has changed. Many analysts are now openly speaking of the possibility of a municipal bond market crash in 2011. The truth is that dozens upon dozens of city and county governments are teetering on the brink of bankruptcy. Even the debt of some of our biggest state governments, such as Illinois and California, is essentially considered to be "junk" at this point. There are literally hundreds of governmental financial implosions happening in slow motion from coast to coast, and up to this point not a lot of people in the mainstream media have been talking about it..."


Tuesday, December 21, 2010

France's AAA Grade at Risk as Rating Cuts Spread: Euro Credit

"France risks losing its top AAA grade as Europe’s debt crisis prompts a wave of downgrades that threatens to engulf the region’s highest-rated borrowers, with Belgium also facing a possible cut..."


$2tn debt crisis threatens to bring down 100 US cities

"Overdrawn American cities could face financial collapse in 2011, defaulting on hundreds of billions of dollars of borrowings and derailing the US economic recovery. Nor are European cities safe – Florence, Barcelona, Madrid, Venice: all are in trouble..."


Fed Treasury Holdings: $1,000,341,000,000

"It's time for the Fed "one trillion" hats- as of 2:00 pm Eastern, the Fed's Treasury holdings have surpassed $1 trillion. Add to this the well over $1 trillion in MBS and agency debt held by the Fed, and there is your perfectly quantified reason why the S&P has just hit a two year high, and why the Nasdaq bubble is alive, back, and will soon retest its 2000 highs. Basically, with the Fed the de facto purchaser of all securities with a yield of under 4%, the entire definition of a risk-free rate per the MPT has to be scrubbed. To be sure, risk-free will very quickly become risk-full when and if the Fed, in its attempts to succeed with central planning where so many have failed before, either finally loses control over rates, or far less probably, decides to remove some of these extra trillions in free liquidity. Until then, the banker party is on in full force. The reason for the penetration of this key psychological barrier was the completion of today's second POMO operation, which added $1.619 billion in TIPS securities. By the end of this month, the difference between the Fed and the second largest holder of US debt will have surpassed $100 billion... and continue climbing at a rate of about $30 billion per week. And it will not stop..."


US Debt Could Be Downgraded

"Moody's warned that the tax bill could have a negative effect on US debt. Now that the bill has passed, there are some concerns US Treasurys could be downgraded. Peter Morici, a professor at U of Maryland; Rodney Anderson, author of "Credit 911"; and CNBC's Eamon Javers discusses the likelihood of that scenario..."


Monday, December 20, 2010

A new power on the high seas... China to build its first aircraft carrier as Britain scraps hers

"China is preparing to build its first aircraft carrier – as Britain’s once-proud Royal Navy shrinks to its smallest size since the days of Henry VIII.

The Chinese move comes weeks after David Cameron axed Britain’s carrier fleet and halved the overall number of warships to 25.

Even though two super-carriers – HMS Queen Elizabeth and HMS Prince Charles – are being built at a cost of £5.6 billion, China’s naval plans will see it dwarf the UK’s dwindling power as a seafaring nation..."


National Savings Rate Negative

"The chart below shows the national savings rate (net savings of individuals, corporations, and the government). What we see is that for the first time since the Great Depression the aggregate savings level turned negative and is still negative.

What does this mean? It means the economy has been reliant on external sources of financing for our current level of consumption, which is sustainable… until it isn’t. Put another way, maintaining our current level of growth isn't completely in our hands at the moment..."


Sunday, December 19, 2010

US To End 2010 With $13.9 Trillion In Debt, Total Debt Incurred Since Great Financial Crash: $4.4 Trillion

"Now that all recent bond auctions have settled, and with no further bond auctions scheduled until the rest of the year, we can look at the final tally of US total debt: the number - $13,879,785,000,000. This represents a $1.568 trillion increase in total US debt held by the public for 2010, and $4.388 trillion since the collapse of Lehman. This is in essence the cost to US taxpayers to keep the financial system solvent, as the US has become the biggest marginal leveraging actor in the world, with everyone else, notably US consumers, and Europe, doing all they can to strip as much debt as they possible can. Of course, since this money does not have to be repaid any time soon, or ever, nobody seems to mind, especially not the politicians in Washington. As we have said before, and pro forma for the Obama tax deal, we expect total debt issuance in 2011 to accelerate once again, and to hit just under $2 trillion, putting total US debt at the end of next year at around $16 trillion. We also fully expect the Fed to monetize the bulk of that issuance. We can't wait to hear the positive spin on this one..."


Europe Kicking the Debt Crisis Can Down the Road

"How often did we as young kids go down the street kicking a can? "Kicking the can down the road" is a universally understood metaphor that has come to mean not dealing with the problem but putting a band-aid on it, knowing we will have to deal with something maybe even worse in the future.

While the US Congress is certainly an adept player at that game, I think the world champions at the present time have to be the political and economic leaders of Europe. Today we look at the extent of the problem and how it could affect every corner of the world, if not played to perfection. Everything must go mostly right or the recent credit crisis will look like a walk in the Jardin des Tuileries in Paris in April compared to what could ensue.

From the point of view of not wanting to so soon endure another banking and credit crisis, we must applaud the leaders of Europe. The PIIGS collectively owe over $2 trillion to European and US banks. German, French, British, Dutch, and Spanish banks are owed some $1.5 trillion of that by Portugal, Ireland, Spain, and Greece by the end of June, 2010. That figure is down some $400 billion so far this year, which means that the ECB is taking on that debt, helping banks push it off their balance sheets. For what it's worth, the US holds, according to the Bank for International Settlements, about $353 billion, or 17%, of that debt, which is not an inconsequential number..."


Saturday, December 18, 2010

Western Public Debt Bubble Explodes Sending Financial Shock Waves Across Europe and America

"GEAB writes: The second half of 2011 will mark the point in time when all the world’s financial operators will finally understand that the West will not repay in full a significant portion of the loans advanced over the last two decades. For LEAP/E2020 it is, in effect, around October 2011, due to the plunge of a large number of US cities and states into an inextricable financial situation following the end of the federal funding of their deficits, whilst Europe will face a very significant debt refinancing requirement

(1), that this explosive situation will be fully revealed. Media escalation of the European crisis regarding sovereign debt of Euroland’s peripheral countries will have created the favourable context for such an explosion, of which the US “Muni” (2) market incidentally has just given a foretaste in November 2010 (as our team anticipated last June in GEAB No. 46 ) with a mini-crash that saw all the year’s gains go up in smoke in a few days. This time this crash (including the failure of the monoline reinsurer Ambac (3)) took place discreetly (4) since the Anglo-Saxon media machine (5) succeeded in focusing world attention on a further episode of the fantasy sitcom "The end of the Euro, or the financial remake of Swine fever" (6). Yet the contemporaneous shocks in the United States and Europe make for a very disturbing set-up comparable, according to our team, to the "Bear Stearn " crash which preceded Lehman Brothers’ bankruptcy and the collapse of Wall Street in September 2008 by eight months. But the GEAB readers know very well that major crashes rarely make headlines in the media several months in advance, so false alarms are customary (7)!..."


Interesting WikiLeaks Regarding Mervyn King and Bank of England at Height of Crisis; Global Banking System Insolvent Then, Still Insolvent Now

"...Nothing Has Changed

The thing is, what was true then is true today. The system is still insolvent in spite of massive amounts of private debt dumped on the backs of taxpayers and now made public.

Not a single structural problem has been fixed in the US, UK, Europe, Japan, China, Australia, Canada or for that matter anywhere..."


Spanish "Ghost Towns", Shadow Inventory, Cooked Books; Spain's 2011 Real Estate Funding Crisis

"In Spain, huge projects are completely empty and bad debts mounts as the Spanish banks play extend-and-pretend with developers. That game is about to end.

Developer loans are coming due. Yet, there is no way for developers to make interest payments let alone pay any principal. When developers collapse in 2011, banks will be stuck with a vast amount of undeveloped land at overvalued prices as well as ghost towns so far outside of major towns that no one will live in them.

A flood of inventory awaits a death of buyers. Moreover, a huge amount of shadow-inventory is waiting on deck, hoping for better prices so the owners can bail. Unfortunately there is no one to bail to. Spain's official unemployment rate is 20%, and it's quite likely the real unemployment rate is higher.

On top of that, Spain has to deal with various austerity measures. There is no way for it to grow out of its problems.

Many are starting to realize Spain is massively understating the problems its banks, and Spanish banks books are cooked. That has been my position all along. The New York Times offers evidence in Newly Built Ghost Towns Haunt Banks in Spain..."


John Williams Discusses The Reasons For The Upcoming Dollar Dump

"...Currency values and precious metals prices can be volatile, but the long-term weakness in the U.S. dollar and relative purchasing-power-preservation attributes of gold and silver, and the stronger currencies outside the dollar, remain in place. As with systemic risks in the United States, risks in other areas of the world — such as among the countries using the euro — likely will be addressed by the spending or creation of whatever money is needed (indications of any needed U.S. backing are in place) in order to prevent systemic failure. Keep in mind that the U.S. remains the proverbial elephant in the bathtub in terms of pending effective sovereign bankruptcies.

The various European crises remain an intermittent foil for the U.S. dollar, pulling market attention away from the unfolding solvency crisis in the United States and a likely move to massive selling against the U.S. currency. Accordingly, high risk of the early stages of a hyperinflation beginning to unfold by mid-2011 continues..."


After BofA Escalates, Refuses To Process Wikileaks' Payments, Wiki Retaliates, Advises Americans To Put Their Money "Somewhere Safer"

"Bank of America just fired the preemptive escalation shot in its duel with Wikileaks. Late on Friday, America's biggest mortgage lender, and the firm that is now getting sued left and right for various mortgage transgressions, announced it is joining MasterCard, Paypal and Visa in ceasing transactions for Wikileaks. While this decision will certainly not improve Operation Anonymous' empathy toward the North Carolina bank, it may just precipitate overt retaliation by Assange, who is now rumored to be in possession of data that could provie harmful to BAC. Which is why this sudden escalation out of left field by the bank strikes as surprisingly odd: BofA's upside is very limited while its downside could be 100% - even if Wikileaks is bluffing, why provoke them. And as expected, Wikileaks has already retaliated: in two sequential tweets it advised its 568,117 (and very rapidly growing) subscribers to pull their money out of Bank of America, and also to close all their accounts with the firm, urging them to put their money "somewhere safer." What is curious is to see whether this sudden escalation, in what has now become synonymous with a quest for preserving the first amendment for a substantial deal of people (and freedom of speech globally), will have a far broader impact than the comparable "Pull Your Money" out of the Big Banks venture that was attempted by Huffington Post over a year ago, with unsatisfactory results. If people suddenly personify Bank of America with a First Amendment threat, arguably the one freedom most cherished in America, which is precisely what Assange is trying to do, all bets for the Countrywide acquirer may soon be off..."


Friday, December 17, 2010

Sidestepping the U.S. Dollar, a Russian Exchange Will Swap Rubles and Renminbi

"Russia and China are poised to take a small but symbolic step in their expanding economic relationship, a move that in the long term could make the dollar less relevant to business between the two nations.

On Wednesday, a Moscow securities exchange is scheduled to open direct trading between the Chinese currency, the renminbi, and the Russian ruble. If the market develops, it could eventually cut the dollar out of a portion of Russian and Chinese trade..."



"Despite the surge in interest rates we continue to see various pundits calling QE2 a success. Well, in order to put the fantastic failure of QE in perspective it’s helpful to see just how much the latest surge in rates is impacting housing prices. A very basic example will help put things in perspective:

Let’s say you want to purchase a new home costing $300,000. You have above average credit and cash in the bank so you put down 20% and get approved at the current rate of 5.19% for a 30 year fixed rate mortgage. Your monthly payment is $1,317. But what if you had purchased that home just 9 weeks ago when mortgage rates were at their lows? Your monthly payment would be 11.7% lower or $1,179. It might not sound like much, but to the average American family who is suffering from stagnant wages, excessive debt and an economy with 10% unemployment it makes a big difference.

Mr. Bernanke is hoping to induce a bout of inflation in the economy, but thus far the job’s data and recent inflation numbers show that we’re far from achieving that. Without a subsequent rise in incomes it’s impossible to argue that Mr. Bernanke is succeeding. In fact, thus far it’s safe to say that he is failing fantastically in achieving his goal of keeping long rates low and inducing borrowing and economic growth. If Mr. Bernanke were in fact willing to commit to QE in a manner in which he actually controlled the long-end of the curve it’s likely that rates would be much lower today and Americans could benefit from an environment of low rates and marginal economic growth. Instead, we reside in a world where bankers control the long end of the curve and attempt to squeeze every last dime from an already fragile US consumer..."



"With much of the developed world still entangled in the balance sheet recession China has become an increasingly important economy. While discussing their biggest risks to 2011 UniCredit analysts explained why it is not the EMU that worries them in the future. It is China that most worries them. And not necessarily because they believe a hard landing is coming to China, but simply because China is becoming an increasingly important component of the European economy. The region’s largest economy is no exception..."


Must See: Nordea's Chart Of The Week - Collapsing US Import Demand

"Every massive inventory accumulation.... has an equal and opposite effect on GDP. To all those who snickered at the earlier chart of the BDIY, we recommend you read the following brief blurb from Nordea, whose implications may put everything you have heard about a surge in GDP in Q4 and Q1 (primarily from the Goldman bull brigade) in a just slightly different light.

Cargo stagnation

We have understood that Chinese cargo ships have been told to proceed at 'wind speed', because of a collapse in US import demand - this is partly visible in the activity amongst Long Beaches shoremen - hence, is this the final proof that the inventory rebuild that drove the recovery in the autumn is OVER? Figure 1 shows the average speed amongst bulk carriers! Bulls - Watch Out!..."


Tipping Point: 25 Signs That The Coming Financial Collapse Is Now Closer Than Ever

"#1 The official U.S. unemployment rate has not been beneath 9 percent since April 2009.

#2 According to the U.S. Census Bureau, there are currently 6.3 million vacant homes in the United States that are either for sale or for rent.

#3 It is being projected that the U.S. trade deficit with China could hit 270 billion dollars for the entire year of 2010.

#4 Back in 2000, 7.2 percent of blue collar workers were either unemployed or underemployed. Today that figure is up to 19.5 percent.

#5 The Chinese government has accumulated approximately $2.65 trillion in total foreign exchange reserves. They have drained this wealth from the economies of other nations (such as the United States) and instead of reinvesting all of it they are just sitting on much of it. This is creating tremendous imbalances in the global economy..."


Thursday, December 16, 2010

Quantitative Easing Unintended Consequences, Rising Interest Rates

"Correct me if I'm wrong, but I seem to remember that one of the reasons for QE2 was to lower rates on the longer end of the US yield curve. Clearly, that has not happened? Today we look at come of the unintended consequences of monetary policy, turn our eyes briefly to consumer debt, and wonder about deflating incomes. There are a lot of very interesting things to cover..."


Lies, Damned Lies, Trade Statistics, and iPhones

"Excellent WSJ piece tonight make the wonky but contrarian case that our current trade statistics do the U.S. a disservice in terms of how things get tallied up for trade surplus/deficit purposes. A snippet:

Trade statistics in both countries consider the iPhone a Chinese export to the U.S., even though it is entirely designed and owned by a U.S. company, and is made largely of parts produced in several Asian and European countries. China's contribution is the last step—assembling and shipping the phones.

So the entire $178.96 estimated wholesale cost of the shipped phone is credited to China, even though the value of the work performed by the Chinese workers at Hon Hai Precision Industry Co. accounts for just 3.6%, or $6.50, of the total, the researchers calculated in a report published this month.

...If China was credited with producing only its portion of the value of an iPhone, its exports to the U.S. for the same amount of iPhones would be a U.S. trade surplus of $48.1 million, after accounting for the parts U.S. firms contribute..."


Freddie Mac: mortgage interest rates rose again last week

"Mortgage interest rates continue to climb, as worries about inflation permeate the market, according to Freddie Mac.

The government-sponsored enterprise said its primary mortgage market survey showed the average rate for a 30-year, fixed mortgage rose to 4.83% for the week ending Thursday from 4.61% a week earlier. The rate is now at the highest level since May. The average rate for a 15-year, fixed mortgage increased to 4.17% from 3.96% the prior week, according to the Freddie Mac survey..."


Watch Out Maryland, Your CDS Just Went Vertical

"The U.S. muni bond market continues to trouble investors, and while there are some stand out worries (California, Illinois, New York), others are starting to crop up.

Maryland might be a serious concern if the spike in its CDS price is any sign.

According to Markit, the state is $1.6 billion short for its 2010 budget, and its pension fund has $33 billion unfunded.

In October, Maryland didn't even make CMA Datavision's top 11 states by default risk. Whether than will change now is unknown..."


More Housing Gloom: Prices Fell 1.9% In October And They're Heading Lower

"CoreLogic ... today released today released its October Home Price Index (HPI) which shows that home prices in the U.S. declined for the third month in a row. According to the CoreLogic HPI, national home prices, including distressed sales, declined by 3.93 percent in October 2010 compared to October 2009 and declined by 2.43 percent* in September 2010 compared to September 2009. Excluding distressed sales, year-over-year prices declined by 1.5 percent in October 2010 compared to October 2009..."

Video: Fire bombs, Stones Fly in Greek Riots; All Flights to/from Athens Cancelled

"Greek unions grounded flights, kept ferries docked at ports and shut down public services today to protest wage cuts as the government sticks to conditions of an international bailout. Protesters clashed with police in Athens..."


Avalanche of "Bids Wanted" for Munis, but "Nobody’s bidding"

"The municipal bond market is going up in smoke once again with yields highest since August 2009. An "avalanche" of supply is coming, with few takers. Bloomberg reports ‘Avalanche’ of Sales Drives Rates to 16-Month High..."


Wednesday, December 15, 2010


"Jeff Gundlach, the savvy bond manager at DoubleLine and the only bond manager who consistently outperforms Bill Gross, says the de facto interest rate tightening of the last few weeks is unsustainable. In a conference call with investors yesterday Mr. Gundlach detailed his outlook. Gundlach believes the higher interest rates will weigh on the debt burdened nation:

“I don’t think the economy can take much of a rate rise above 3.5 percent….The economy, society and government are fueled by debt.”



"The 10 year treasury yield is now 110 bps off its lows and where it stops nobody knows. It was my speculation that interest rates would increase, but the markets often move more abruptly than one expects. The ten year took over 5 months to drop from 3.5% to 2.4%, but it only took two months to retrace those steps..."


PIGS Exposure Table, Explaining the Panic by Numbers; Credit Warning in Spain, Belguim; Piecemeal Proposals Doomed

"To explain the ECB's panic over Spain, all one needs to do is look at this "exposure table" from the recently published BIS Quarterly Review. I highlighted areas of interest.


Jerry Brown: "We've Been Living in Fantasy Land. Budget Much Worse Than I Thought. I'm Shocked."; Cuts Coming, Expect Union Fearmongering

"California's "Fantasy Land" budget finally comes to light of day. Jerry Brown said "I'm shocked. The mess is much worse than I thought."

In turn, educators and unions were shocked by Jerry Brown's and state treasurer Bill Lockyer's statements "cuts are coming". Brown promised more cuts but no tax increases without voter approval..."


Post Mortem for the World’s Reserve Currency

"...Here's what Volcker said: “The growing sense around much of the world is that we have lost both relative economic strength and more important, we have lost a coherent successful governing model to be emulated by the rest of the world. Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate.....The question is whether the exceptional role of the dollar can be maintained."


Tuesday, December 14, 2010

The US Economy is A Giant Ponzi Scheme, Prosecuting Wall Street Fraud

"Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky and the Wall Street Journal all say that the U.S. economy is a giant Ponzi scheme. Virtually all independent economists and financial experts say that rampant fraud was largely responsible for the financial crisis. See this.

But many on Wall Street and in D.C. - and many investors - believe that we should just "go with the flow". They hope that we can restart our economy and make some more money if we just let things continue the way they are.

But the assumption that a system built on fraud can continue without crashing is false.

In fact, top economists and financial experts agree that - unless fraud is prosecuted - the economy cannot recover..."


Eurozone Contagion: S&P Moves Belgium To Negative Outlook

"Here are some more thoughts on S&P moving its outlook on Belgium’s AA+ rating to negative from stable.  S&P noted that it may cut the rating by one notch within the next six months if the major political parties do not form a government soon, and added that a cut could still be seen over the next two years if the next government fails to stabilize public debt and improve political cohesion..."


10 Signs That Confidence In U.S. Treasuries Is Dying And That Financial Armageddon May Be Approaching

"The following are 10 signs that confidence in U.S. Treasuries is dying....

"#1 The financial community is extremely concerned that the tax deal that Barack Obama is pushing is going to dramatically increase U.S. government budget deficits over the next two years. On Monday, Moody's warned that if Barack Obama's tax deal with the Republicans becomes law, it will increase the likelihood that Moody's could soon be forced to slash the rating of U.S. government debt.

#2 Already there are signs that some bond investors are looking for the exits. Last week, U.S. Treasuries suffered their largest two day sell-off since the collapse of Lehman Brothers back in September 2008.

#3 The yield on 10-year Treasury bonds set a six-month high on Monday before pulling back a bit. Most analysts believe that Treasury yields are going to push significantly higher in coming weeks.

#4 This trend of rising yields has been going on for a while. In fact, yields on 10-year Treasury bonds have been steadily rising since October 7th.

#5 Even before the recent tax deal was announced there were already troubling signs regarding the growth of U.S. government debt. The U.S. government budget deficit rose to $150.4 billion in November, which was the largest November budget deficit ever recorded.

#6 It is not just the new tax deal that has investors around the globe spooked. The truth is that the rest of the globe reacted very negatively to the new round of quantitative easing that the Federal Reserve announced back in November. The Federal Reserve is flooding the system with liquidity and the rest of the world is not amused.

#7 The American people have less faith in the Federal Reserve and in the financial system than at any other point in recent memory. For example, a new Bloomberg National Poll has found that a majority of Americans now want the Federal Reserve to either be held more accountable or to be abolished entirely.

#8 Investors all over the globe are starting to wake up and realize that America's debt problem is unsolvable. David Bloom, the currency chief at HSBC, raised eyebrows when he recently stated that "if yields are rising because people think America's fiscal situation is unsustainable, then its Armaggedon.

#9 There is also a growing feeling among investors that the Federal Reserve simply does not care about the danger of inflation, and this is making bondholders very nervous. Stephen Lewis of Monument Securities recently put it this way....

"There is a feeling that the Fed doesn't care about inflation – in fact, wants more of it – and that is certainly not in the interest of bondholders."

#10 Over the next 12 months, the U.S. government is going to be rolling over trillions of dollars in debt along with all of the new borrowing that it is going to be doing. In fact, the U.S. government is somehow going to have to find a way to finance debt that is equivalent to 27.8 percent of GDP in 2011..."


Monday, December 13, 2010

Stiglitz: What Lies Ahead in 2011?

"Joe Stiglitz looks into his crystal ball. You probably won't like what he sees:

What Lies Ahead in 2011?, by Joseph E. Stiglitz, Commentary, Project Syndicate: ... The ... most important downside risk facing the global economy ... comes from the wave of austerity sweeping the world,... particularly in Europe... The outcome of premature fiscal consolidation is all but foretold: growth will slow, tax revenues will diminish, and the reduction in deficits will be disappointing. ...

With the US able to borrow at record-low interest rates, and with the promise of high returns on public investments after a decade of neglect, it is clear what it should do. A large-scale public-investment program would stimulate employment in the short term, and growth in the long term, leading in the end to a lower national debt. But financial markets demonstrated their shortsightedness in the years preceding the crisis, and are doing so once again, by applying pressure for spending cuts, even if that implies reducing badly needed public investments.

Moreover, political gridlock will ensure that little is done... To me, attempting to discern the economic prospects for 2011 is not a particularly interesting question: the answer is bleak, with little upside potential and a lot of downside risk. More importantly, how long will it take Europe and America to recover, and can Asia’s seemingly export-dependent economies continue to grow if their historical markets languish?..."


$7.8 Billion POMO Ends, Fed To Pass $1 Trillion In Treasury Holdings On December 21

"The countdown to $1 trillion is on: with today's $7.8 billion POMO just completed, at a very low 2.3x submitted to accepted ratio, meaning PDs had been perfectly positioned to ramp risk higher, total Fed holdings has now risen to just over $966 billion. And with just over $37 billion in scheduled POMOs through the end of December 21, the Fed will hold just over $1 trillion in US Treasurys on the day of the winter solstice. We are confident that pagan Fed frontrunners everywhere will be celebrating with $1,000 bottles of Cristal. As for today's POMO, while we did see a monetization of the just auctioned off 7 Year PK0 Cusip, it was a token $60 million, as even courtesy of the Fed's generous commissions and wide spreads, the PDs still will be hard pressed to make free taxpayer bonus money on a bond that priced at 2.253% three short weeks ago, and is now at 2.68%..."


Derivatives: The Quadrillion Dollar Financial Casino Completely Dominated By The Big International Banks

"If you took an opinion poll and asked Americans what they considered the biggest threat to the world economy to be, how many of them do you think would give "derivatives" as an answer? But the truth is that derivatives were at the heart of the financial crisis of 2007 and 2008, and whenever the next financial crisis happens derivatives will undoubtedly play a huge role once again. So exactly what are "derivatives"? Well, derivatives are basically financial instruments whose value depends upon or is derived from the price of something else. A derivative has no underlying value of its own. It is essentially a side bet. Today, the world financial system has been turned into a giant casino where bets are made on just about anything you can possibly imagine, and the major Wall Street banks make a ton of money from it. The system is largely unregulated (the new "Wall Street reform" law will only change this slightly) and it is totally dominated by the big international banks.

Nobody knows for certain how large the worldwide derivatives market is, but most estimates usually put the notional value of the worldwide derivatives market somewhere over a quadrillion dollars. If that is accurate, that means that the worldwide derivatives market is 20 times larger than the GDP of the entire world. It is hard to even conceive of 1,000,000,000,000,000 dollars..."


Nobel Economist Mundell: Add Renminbi to IMF Reserve

"China's currency has strengthened to the stage where it is "almost de facto convertible" and should be included in the international reserve basket held by the IMF, Nobel Prize-winning economist Robert Mundell said in this interview with the HKTDC prior to his appearance at the Asian Financial Forum, 17-18 January 2011..."


Sunday, December 12, 2010


"A new report from Zillow puts an absolutely jaw-dropping figure on the housing crash: $9 trillion. That's the total home value destroyed since June 2006.

It gets worse. $1.7 trillion of that damage occurred this year, primarily in the first half. More loss is coming next year, as Zillow economist Stan Humphries predicts a double dip in housing that won't hit bottom until summer -- or later by Case Shiller estimates..."


Pentagon, Military Actively War Gaming 'Large Scale Economic Breakdown' and 'Civil Unrest'


European Monetary System Crisis, Euro Zone on the Edge of Collapse

"Believe it or not the euro zone and European Union crisis is still in the formative stages.

The bailout packages arranged for Greece and Ireland are not to bail out those two countries, but to bail out the European banks that lent to them and bought their bonds when it was imprudent to do so. They knew, because they control the governments that the public of the solvent governments would bail them out. Thus, the governments of Ireland and Greece with Portugal and Spain to follow will be showered with an Anglo-American style bailout.

As you know $1 trillion won’t be enough to make the banks happy, so $3 trillion will be needed. Germany says no we are not going to do that. Well, we’ll see just who the real masters of Germany are. Such policy flies in the face of German culture. It shows you though how close to the edge Europe and its euro zone really is. Germany understands, but the rest of Europe, particularly the PIIGS are in denial. The IMF has its nose under the blanket. It will lend and participate, so that it can serve its masters by keeping these wayward states completely in austerity and bondage for the next 50 years and in that process relieve them of their sovereignty. As all of Europe belatedly understands, one interest rate can never fit all.

We can assure you that the euro zone is on the edge of collapse. It’s just a question of when. Nothing has been contained nor can it be contained. Like in the US the taxpayers of the solvent countries must bail out the banks and other financial institutions of Europe. The monetary policy created by the European Central Bank and the bankers has failed. Whether this was deliberate or not, we do not as yet know, but the truth will eventually surface. Currently the scapegoats are the citizens of these beleaguered countries, when in fact the real malefactors reside at the ECB and the European Parliament. These same players still do not have solutions other than destroying the Greek and Irish societies in the name of repaying the bankers. Whether you realize it or not, it has been a year since this odyssey began in Greece. We now have Ireland and they will be followed by Portugal and Spain and perhaps even Italy..."


Secret Derivatives Trading

"Louise Story has a front page article in the Sunday NYT that is your must read this morning:

“On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk. In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.”

I keep coming back to this simple fact: If you understand what caused the crisis, the first step in preventing another is working backwards and undoing each of the causes. Front and center is the Commodity Futures Modernization Act that allowed the rampant shadow banking system to develop. It still needs to be overturned . . ."


Secret Banking Derivative Cabal Redux, And Why HFT In CDS Has So Far Been A Failure

"Today, in a 3,500 word oeuvre, the NYT's Louise Story has done an expose on some of the key development in the CDS market. For those who may not have the patience of reading the whole thing, we provide an abridged summary...

•The most profitable product for banks currently are derivatives (and CDS in particular)

•As a result, the derivatives trading cabal wants to contain its members to as few as possible, and to preserve the status quo indefinitely

•Margins on CDS can be anything as there is no central clearing or pricing mechanism; buyers and sellers rely on the broker to present an honest market

•The trading desk spread profit on a CDS contract is 0.1% of notional ($25,000 of $25,000,000)

•Spreads can be as wide as the banking cartel (Goldman, as most other banks just price at Goldman levels) deems them to be

•Banks do not want to trade CDS on exchanges as that would kill margins

•Citadel tried to make CDS trading into a HFT operation. It failed (for now)

•Markit is a dominant industry-controlled player, and prevents transparency (and thus keeps margins high) in the market by not allowing broad dissemination of CDS pricing

•Regulation is powerless to break the cabal's control..."


The race for Lithium Coltan and Rare Earth Metals is on

"The financial crisis has shown that speculation, funds, and credit default swaps create a huge amount of virtual wealth, but the real economic motor is driven by the manufacture of products using the earth's natural resources. The race is already on to control rare resources like lanthanum, scandium and thulium; essential for hi-tec but everyday products such as computers and mobile phones.Even without environmental regulations, China has more deposits. We simply don't know where the rare earth minerals are.What a coincidence how the U.S just happened to find those resources in Afghanistan!..."


Saturday, December 11, 2010

Portugal sinks in silence

"While Europe and the IMF rush to Ireland's aid, Portugal is sinking deeper into crisis. Faced with the country's economic difficulties, the government has announced an unprecedented austerity plan: VAT is to go up, civil servants' salaries are to be frozen or even cut, and benefits are to be reduced too. These austerity measures are causing anxiety among the population, already confronted with hard times. FRANCE 24 INTERNATIONAL NEWS 24/7..."


Bond Massacre Hits Treasuries, TIPs, Munis, Mortgages; PIMCO Among Biggest Losers; Is the Bond Bull Finally Over?

"The treasury market has slapped Bernanke silly. Yields have soared ever since QE II was finalized in November. Mortgage rates are up a half-percent in a month and Bankrate shows they are about at the same level as a year ago. Treasuries, TIPS, and municipal bond funds have all been hit hard in the past few weeks. Matters took a turn for the worse when President Obama agreed to a tax compromise that will cost close to $900 billion...


Record Social Inequality And Its Violent Aftermath

"With the new medium of mass communication in all matters financial and economic having been recently discovered to be cartoons (as the penetration of written text discussing such arcane topics as the Fed, debt and addition ends up being trapped within a very narrow echo chamber), we present the latest and greatest 3 minute summary, which even a third grader will understand, of what is gradually becoming accepted as the most troubling social, economic and political development in America - record social, income and wealth inequality... and its very disturbing consequences, which at last check have resulted in some form of social upheaval in almost every situation..."


Friday, December 10, 2010

U.S. Interest Rates Surge as Fed, Congress Crush Debtholders

"Washington, 0. The bond market, 1.

That’s the score folks, in case you haven’t been keeping track. The Federal Reserve Chairman said his $600 billion “QE2″ program would lower interest rates. Instead, rates have done nothing but rise since investors got wind of the Treasury buying plan.

Then this week, Republicans in Congress — and the Obama administration — decided to kick Treasury holders while they’re down. They announced plans to cut estate taxes, lower payroll taxes, extend President Bush’s tax cuts for even the wealthiest citizens, and extend unemployment benefits for jobless Americans.

The catch? There’s no plan whatsoever to pay for any of it! The deal makes a total mockery of all that highfalutin language from the National Commission on Fiscal Responsibility and Reform..."


Fitch Ratings says CMBS delinquencies rose to 7.96% in November

"Friday, December 10th, 2010, 11:17 am

The number of delinquencies in commercial mortgage-backed securities rose last month with increases across all property types, according to Fitch Ratings.

Analysts said the delinquency rate rose to 7.96% in November from 7.78% the prior month led by $1.6 billion of new defaults on office- and retail-backed loans..."


Restructuring European debt

"Are we going to see debt defaults in Europe? Yes—and Barry Eichengreen has a positively crystalline explanation why. It’s a first-rate example of economic concepts being explained in plain, easy-to-understand English..."


Did Goldman and Other Dealers Squeeze Mortgage CDS Shorts So They Could Sell Toxic CDOs?

"As reported in the Financial Times, Senator Carl Levin of the Senate permanent investigations released damaging e-mails in which Goldman traders discuss “killing” some mortgage-related CDS shorts in May 2007. Levin understood the implications, that damaging the shorts would allow Goldman to buy CDS even more cheaply, but did not tease out the logical conclusion. This move was a likely a major step that allowed Goldman (and fellow dealers not under investigation who likely pursued parallel strategies) to package its remaining mortgage dreck into CDOs, which were launched as the reported squeeze evidently took place, and unload as much toxic inventory as possible before the wheels came hopelessly off the subprime bandwagon.

Goldman gives the usual pious denials, arguing that the market tanked, but the market action in later March to June 2007 belies their claims. And Levin may have unwittingly given Goldman an out by pegging the time of the short squeeze a bit late.

It’s a bit hard to see on the scale of this chart, but CDS spreads on subordinated bonds widened markedly in February and continued into March of 2007. And even though that move looks tame compared to what later came to pass, it was enough to create havoc in the subprime market..."


Yes alot of cash but look at the debt too

"As evidenced by the front page of today’s WSJ, a big bull case for the economy and also for stocks is all the cash on company balance sheets. We hear it all the time. But, in order to fairly analyze this argument one must look at the entire balance sheet, not just the asset side where cash sits. In the Q3 Fed flow of funds statement out yesterday where $1.93T of cash is cited on corporate America’s balance sheet, the liability side has corporate debt at an all time record high of $7.3T. Cash as a % of this debt is thus at 26.4%. It is at a high level but not much different than where it was in ’05 and ’06 when it was 27.3% and 25.5% respectively and not far from 25.2% at year end 2009..."


Treasury Fall Poses Long-Term Dilemma for Fed Balance Sheet.

"This week’s jump in Treasury yields hints at a day in the distant future when the Federal Reserve could confront real difficulties managing an enlarged balance sheet.

At issue is the eventual cost of the Fed’s vast holdings of Treasury securities, which are growing rapidly as it carries out a “quantitative easing” program to add $600 billion in Treasurys to its books and reinvest up to $300 billion of maturing mortgages. While the institution faces no near-term threats to its healthy profitability, if it grows its portfolio while yields on Treasurys keep marching higher — and, by extension, when their prices are going lower — its profits won’t be as juicy..."



"I’ve often cited comments by Hoisington in the past with regards to monetary policy (one of the few outfits that seems to “get it”) so I think these comments from their most recent commentary are particularly pertinent. In short, monetary policy remains a blunt instrument in a balance sheet recession..."


Rydex Nasdaq 100 Bull/Bear Ratio At Highest Since Dot Com Collapse

"And for another confirmation that the Nasdaq is now at the same extreme "irrational exuberance" levels last seen during the dot com crash, we read courtesy of that the Rydex Nasdaq 100 bull/bear ratio is now the highest it has been since just before the dot com crash. "Traders in the Rydex mutual fund family have poured into the Nasdaq 100 long fund at the expense of the inverse fund on the same index. These traders now have 34 times more money invested in the long fund vs. the inverse fund, which is the highest ratio since the bubble days of 2000 and early 2001." And what is scarier, is that unlike during the dot com, investors are using leveraged methods to express their exuberance: "The Bull / Bear Ratio for the leveraged funds isn't quite as extreme...but it's close (on a relative basis)."