Wednesday, February 29, 2012

Irish EU treaty vote threatens chaos

"Ireland has shocked Europe with plans for a referendum on the EU's fiscal treaty, a move that risks an unprecedented fragmentation of the eurozone and a major clash with Germany..."


CIA Controlled Media: CIA Admits Using News To Manipulate the USA

"An archived clip of different Congressional hearings exposes the fact that the CIA directly plants stories in the media, both in the United States and the rest of the world.
Question: Do you have any people being paid by the CIA who are contributing to a major circulation journal?
Answer: We do have people who submit pieces to American journals.
Question: Do you have any people paid by the CIA who are working for television networks?
Answer: This I think gets into the details id like to get into in executive session. (so the public doesn’t hear how we control all the networks)
Considering that this was going on in the 1950s, it is highly likely that this is happening now and at a much larger extent. The CIA and other government agencies literally control the corporate controlled media.
Anytime you hear a story on the major networks that has any implication in US foreign or domestic policy rest assured that it was, at the very least, vetted by the CIA before being released.
In the early 90s CNN was also used to test Army psychological operations..."


A Primer on the Euro Breakup: Debt Default, Exit and Devaluation as the Optimal Solution

"It's one thing to say that peripheral eurozone countries are better off leaving the euro, but how, exactly? And how severe can we expect the consequences to be, not only for those nations but also for the entire eurozone – and for the rest of us, worldwide? To minimize fallout from the event(s), it would be helpful to have a solid foundation, based on an historical understanding of similar events, on which we could build a reasonable set of expectations.
In the following piece, Jonathan Tepper, my Endgamecoauthor, gives us the cornerstone of just such a foundation. With his London firm, Variant Perception, he has prepared a 53-page report with the very confident title "A Primer on the Euro Breakup: Default, Exit and Devaluation as the Optimal Solution."
He reminds us that "during the past century sixty-nine countries have exited currency areas with little downward economic volatility." He makes the case that "The mechanics of currency breakups are complicated but feasible, and historical examples provide a roadmap for exit."
The real problem in Europe, he says, is that "EU peripheral countries face severe, unsustainable imbalances in real effective exchange rates and external debt levels that are higher than in most previous emerging market crises."
The way through? "Orderly defaults and debt rescheduling coupled with devaluations are inevitable and even desirable. Exiting from the euro and devaluation would accelerate insolvencies, but would provide a powerful policy tool via flexible exchange rates. The European periphery could then grow again quickly with deleveraged balance sheets and more competitive exchange rates, much like many emerging markets after recent defaults and devaluations (Asia 1997, Russia 1998, and Argentina 2002)."
We'll need this sort of robust thinking and a willingness to meet the challenge head-on if we're going to get through not just this eurozone crisis but the Endgame in which the whole world finds itself, in the final throes of the Debt Supercycle..."


US, Britain Gear Up for War on Iran

"Bill Van Auken writes: The military commands in both the US and Britain have sought increased funding and stepped up deployments of arms and personnel to the Persian Gulf in preparation for an anticipated war against Iran.
According to the Wall Street Journal, the Pentagon, acting on the request of the Central Command, which oversees US military operations in the region, has requested the re-allocation of some $100 million in military spending to ratchet up war preparations..."


Greece’s default gets messier

"Back on February 17, the European Central Bank sprinkled its magical pixie dust on its Greek sovereign bonds, with the effect that they effectively ended up exempt from the restructuring and haircut being inflicted on everybody else. I wasn’t very excited about this development at the time:
On a conceptual level, it makes sense that the Troika — of which the ECB is a third — might be granted immunity from haircuts, in return for providing new money to Greece. On a legal and practical level, however, this is ugly — and you can be quite sure that it’s only going to get uglier from here on in.
Today, we’re beginning to get a hint of the messiness that this decision caused.
First, there’s a formal question which has been put to ISDA’s Determinations Committee, asking whether the ECB magical pixie dust, combined with the passage of the Greek law to allow the haircut, doesn’t in itself constitute a credit event under ISDA rules.
The question takes the form of a single 179-word sentence, which some lawyer somewhere probably thinks is very clever. But here’s the idea: the two events together have effectively cleaved the stock of Greek bonds into two parts, with one part (the bonds owned by the ECB) being effectively senior to the other part (the bonds owned by everybody else). This is known as Subordination, and Subordination is a credit event under ISDA rules.
Now there’s no doubt that the private sector’s Greek bonds are de facto subordinate to the ECB’s Greek bonds now, and that they weren’t subordinate a couple of weeks ago. But so far there’s nothing de jure about this subordination — there’s no intrinsic reason why bonds with CACs, for instance, should be subordinate to bonds without CACs. So my guess is that this request is going to go nowhere, and/or get overtaken by events.
But now there’s news that another European institution has managed to get its hands on the ECB’s magical pixie dust.
The European Investment Bank, owned by the 27-member bloc, is getting exemptions from Greek debt writedowns in the same way as the euro area’s central bank, according to two regional officials familiar with the matter.
The European Central Bank negotiated a deal to avoid the 53.5 percent loss on principal that’s costing private investors as much as 106 billion euros ($143 billion). The EIB, which unlike its Frankfurt-based counterpart represents the entire European Union, also owns Greece’s debt and is sidestepping the so-called haircut in the same way, said the officials, who declined to be identified because the plan isn’t public.
While the ECB exemption was understandable, on the grounds that the ECB was part of the Troika and the Troika is putting up new money here, an EIB exemption is less so. The EIB is not putting money into this latest Greece bailout. Indeed, it represents countries like the UK which are quite explicitly removing themselves from any such thing..."


Either Greece is Forced Out or Germany Walks… Either Way a Collapse is Coming

"The situation in Europe has now reached the point that the major players have shown their hands. And they are:
  1. Germany will not put up more money unless Greece essentially passes up its fiscal sovereignty.
  2. The G20 will not give more money to Europe via the IMF unless Germany and other EU nations create a “firewall” by putting more capital into the ESM mega-fund.
  3. The ECB has announced Greek bonds are not eligible collateral for its LTRO operations, so if banks need immediate liquidity, they need to go to national central banks (read Germany).

This is quite a turn of events. Prior to this, the ECB and Germany were seen to be working hand in hand (aside from the usual political spats) to save Europe. But between the ECB’s decision to swap out its Greek debt for new debt that won’t take a hit in the event of Greek default as well as its recent rejection of Greek debt as collateral for LTRO loans, it appears that the ECB is increasingly going to make Europe’s problems Germany’s problems.

Both parties have a lot to lose in this battle. Over a quarter of the ECB’s balance sheet is made up of PIIGS debt. And German banks have plenty of exposure to the PIIGS as well.

This is why both entities (the ECB and Germany) have made moves to firewall themselves from a European fall-out. However, it is Germany that appears to have realized the reality of the situation more clearly: that there is no “good” way out of this mess, that austerity measures only cripple economic growth and make defaults even more likely, and that the Great Euro experiment is coming to an end..."


QE3 Or Not To Be, A Brief Q & A

"As good news appears to be bad news for now and the hopes of imminent dovish QE3-gasms gets pushed off a week or two, we thought it useful to dig into the mysterious central bank go-to play in a little more detail. Morgan Stanley's European Economics Team asks and answers five of the most frequently discussed questions with regard quantitative easing. From whether QE has worked to inflation fears and concerns over policy normalization and what happens if the public lose confidence in central bank liabilities, we suspect these questions, rather dovishly answered by the MS team, will reappear sooner rather than later, and as they interestingly note, the deployment of central bank balance sheets is, in essence, a confidence trick."


Ron Paul To Ben Bernanke: "People Lose Trust In The Government Because You Lie To Them About Inflation"

"Anytime Ron Paul sits across from Ben Bernanke you know sparks will fly. Sure enough, they did: starting 3 mins 50 seconds into the clip below, Ron Paul, guns blazing, asks the Chairman if he does his own shopping, if he is aware of what true inflation is, and if he knows that Americans don't trust the government because they are being lied to about inflation. And it only gets better, once Paul starts brandishing a silver coin. The punchline: "The Fed will self-destruct anyway when the money is gone" - amen. And ironically letting the Fed keep on doing what it is doing will achieve that in the fastest possible way. In fact, letting the system cannibalize itself with no further hindrances may be the best option currently available - just go to town..."


Marc Faber not optimistic about the Euro

"Marc Faber : well significant appreciation I doubt , but the Euro was very weak until just recently and recently testing strengthening and I think this strengthening might last a little bit longer , but I am not optimistic about the Euro..."


Marc Faber : Government Statistics are Garbage

"Marc Faber : “I am not interested in the garbage these government officials broadcast either they are lies or they are distrustful,”
“You can’t trust them anymore because they produce statistics that are completely unrealistic.”
“the dollar is doomed.” Marc Faber added without giving a date of when that may happen..."


Monday, February 27, 2012

Pumping arms: Pentagon’s bigger stick to beat Iran

"Pentagon wants $100 million extra to be prepared for a war with Iran. The money, requested from the Congress, is to beef up US military presence in the Persian Gulf and rapidly upgrade weapons to more effectively combat Iranian armed forces.
US Central Command, which oversees American forces in the Gulf region, wants them prepared to defeat the Iranian fleet and shore artillery. They also want additional drone capabilities and mine swiping equipment to clear the Strait of Hormuz, should Iran act to set mines there as it threatened to, reports The Wall Street Journal.
As part of the push, US spec-op team stationed in the United Arab Emirates has also been ordered to be prepared to take parting in military action in the region, the newspapers says citing defense sources. The unit is currently training elite forces of the UAE, Bahrain, Kuwait and other US allies in the region.
The Pentagon submitted the request for extra funding on February 7, saying it is needed "bridge near-term capability gaps" in the Persian Gulf. The request is yet to be made officially public after lawmakers review it.
It comes on top of changes made last summer that provided Central Command with about $200 million for additional upgrades, some of which could be used in areas outside the Gulf region. The earlier request asked money for a torpedo defense system, airborne anti-mine weapons and new cyber weapons. It was approved by the Congress..."


Europe’s Empty Fiscal Compact


"The driving force of Europe’s economic policy is the “European project” of political integration. That goal is reflected in the European Union’s current focus on creating a “fiscal compact,” which would constitutionalize member states’ commitment to supposedly inviolable deficit ceilings. Unfortunately, the compact is likely to be another example of Europe’s subordination of economic reality to politicians’ desire for bragging rights about progress toward “ever closer union.”
The plans for a fiscal compact have evolved rapidly in recent months, shifting from a politically unpopular “transfer union” to a dangerous plan for fiscal austerity and, finally, to a modified version of the defunct Stability and Growth Pact of 1997. In the end, the agreement that will emerge later this year will do little, if anything, to change economic conditions in Europe.
German Chancellor Angela Merkel initially proposed the “transfer union,” in which Germany and other strong eurozone economies would transfer funds year after year to Greece and other needy countries, in exchange for the authority to regulate and supervise the recipient countries’ budgets and tax collections. The German public rejected the idea of permanent transfers from German taxpayers to Greece, while Greek officials and the Greek public rejected the idea of German control over their country’s fiscal policy.
The next step was the fiscal plan that was agreed in Brussels at the end of last year, which completely abandoned the idea of a transfer union in favor of an agreement that each eurozone country would balance its budget. Under this scheme, a financial penalty would “automatically” be imposed on any country that violated that obligation. With balanced budgets everywhere, there would be no need for fiscal transfers.
But how, exactly, should the balanced budget requirement be defined? In a letter to the officials negotiating the formal agreement, Jorg Asmussen, the German member of the European Central Bank’s Executive Council, stressed that a balanced budget meant just that. Even if a country ran budget deficit because a cyclical downturn caused a fall in tax revenue and an increase in social transfers, it should be required to raise taxes or cut spending to restore a balanced budget..."


Right-wing political extremism in the Great Depression

"The enduring global crisis is giving rise to fears that economic hard times will feed political extremism, as it did in the 1930s. This column suggests that the danger of political polarisation and extremism is greatest in countries with relatively recent histories of democracy, with existing right-wing extremist parties, and with electoral systems that create low hurdles to parliamentary representation of new parties. But above all, it is greatest where depressed economic conditions are allowed to persist.

The impact of the global crisis has been more than just economic.
  • In both parliamentary and presidential democracies, governments have been ousted.
  • Hard economic times have bred support for nationalist and right-wing political parties, including some that are actively hostile to the prevailing political system.
All this gives rise to fears that economic hard times will feed political extremism, as it did in the 1930s.
Memories of the 1930s inform much contemporary political commentary, just as they have informed recent economic commentary (eg Mian et al 2010, Giuliano and Spilimbergo 2009). But how exactly did the interwar Depression and economic crisis affect political outcomes and the rise of right-wing anti-system parties? The question has not been systematically studied.
This led us to analyse the elections between WWI and WWII with respect to support for anti-system parties – defined as parties that explicitly advocate the overthrow of a country’s political system (de Bromhead et al 2012). We focus on right- rather than left-wing anti-system parties since it was right-wing parties that made visible and troubling electoral progress in the 1930s. And it is again right-wing extremist parties that have seemingly made the greatest gains in response to recent economic hard times (Fukayama 2012).


Explanations for political extremism in this period fall into five broad categories.
  • First, support for extremist parties and the instability of democratic systems have been linked to the difficult economic conditions of the interwar years (Frey and Weck 1983, Payne 1996).
A second set of explanations emphasises social differentiation.
  • Ethnolinguistic, religious, and class cleavages are fault lines complicating the development of social consensus and hindering the adoption of a concerted response to economic crisis (Gerrits and Wolffram 2005, Luebbert 1987).
This line of argument features prominently in the literature on post-WWI Europe, where new nations were created with little regard for ethnic and religious considerations.
  • Third, the legacy of WWI receives considerable attention as a factor shaping the interwar political landscape (Holzer 2002).
  • Fourth, certain political and constitutional systems created more scope for anti-system parties to gain influence.
Lijphart (1994), for example, argued that the openness of the political system to new or small parties, whether due to the proportionality of the electoral system or to the effective threshold defined in terms of the share of total votes that a party had to attract in order to win parliamentary representation, was an important determinant of support for extremist parties.
  • Finally, an influential tradition associated with Almond and Verba (1989) argues that political culture is an important determinant of the durability of the party system..."


"There have been numerous media stories out over the last couple of weeks about the recovery in housing at long last. Of course, this is the same housing bottom call that we heard in 2009, 2010 and 2011 – so why not drag it out again for 2012. Eventually, the call will be right and they will be anointed with oils and proclaimed to be the gurus that called the bottom. In the financial world you only have to be right once.
However, back on earth, where things really matter, housing is a major contributing component to long term economic recovery. Each dollar sunk into new housing construction has a large multiplier effect back on the overall economy. No economic recovery in history has started without housing leading the way. So, yes, housing is really just that important and we should all want it to recover and soon. The calls for a bottom in housing now, however, may be a bit premature as I will explain.
The Total Housing Activity Index shown here is a composite of the sales of new and existing homes, new construction permits for single family homes and new single family home starts. As you can see we are still near the same lows that we were in 2009 at the end of the recession. Furthermore, and what is really worse, is that the “recovery” was built on the bank of a whole slew of tax payer funded bailouts, tax credits and incentives from HAMP to HARP to the Home Buyer Tax Credit. Not quite the recovery the government was hoping for..."

UK Chancellor: 'The British Government Has Run Out Of Money'

"In a bleak warning ahead of next month’s Budget, Chancellor George Osborne said there was little the coalition government could do to stimulate the economy.

“The British Government has run out of money because all the money was spent in the good years,” Osborne said, The Telegraph reports. “The money and the investment and the jobs need to come from the private sector.”
He said the best way to boost growth was to encourage businesses to do well and hire more.
Osborne is under severe pressure to boost growth, amid signs the economy is slipping back into a recession. The Institute of Fiscal Studies has urged him to institute emergency tax cuts in the Budget to combat the risk of a prolonged slump.
But the Chancellor said he would not borrow money to reduce taxes or increase spending. “Any tax cut would have to be paid for,” he told Sky News. But not everyone agrees with his proposal..."


Capital Flight From Italy, Greece, Portugal Accelerates; Two Trillion Fantasy; Merkel Weaker Every Week; Crude and Geopolitical Risks

"Via Email, here is a nice summary of European events from Steen Jakobsen at Saxo Bank in Denmark. Topics include the G20 Summit, Extend-and-Pretend Dogma, Capital Flight , and Geopolitical Risks.

Steen Writes ...
Two Trillion Fantasy

This week-end's G-20 came and went without any real new information. Yes, the policy makers wants us to believe ultimately IMF will have 2 trillion US dollars at its disposal.

No, the US, UK and rest of non-Europe is not really interested before we all get more clarification on how Europe will ring fence the debt crisis.

This is more and more Wall Street vs. Main Street: Underfunded banks buys underfunded government bonds and underfunded governments guarantees underfunded banks.

The real loser being the unemployed - Edward Heath put it more elegantly: Unemployment is of vital importance, particularly to the unemployed.

Meanwhile the real economy and unemployment is exploding higher adding further burdens to already stretched government deficits.

The new EU forecast for GDP growth in 2012 of minus .3% from this past Friday down from plus .05% is great example of how EU and the debt crisis non-solutions continues to lack behind fundamentals. Soon the rising disconnect will hit the politicians games of buying time.

Capital Flight


Merkel: "No Guarantee Second Greek Bailout Will Work"

"It was only logical that following this weekend's quote unquote surprise announcement by Juncker that a third Greek bailout is likely in the cards, that Angela Merkel would follow up during her much anticipated Bundestag speech today and tell fellow politicians that there is no guarantee that a Greek bailout will work. That was to be expected. That this announcement is somehow responsible for the market selling off, and the EURUSD being at the lows of the day, once again proves that the market is no longer a discounting mechanism, and merely reacts to headlines that could be anticipated by anyone who steps back from the blaring noise and flashing headlines for even just one minute.

From Reuters:

There is no guarantee that a new bailout package for Greece will succeed, Chancellor Angela Merkel told German lawmakers on Monday ahead of a parliamentary vote needed to approve the 130 billion euro ($175 billion) rescue programme.

"There is no 100 percent guarantee that the second bailout programme will succeed," Merkel said, adding that the benefits of backing the programme outweighed the risks.

Merkel also said she expected Germany would contribute 11 billion euros of its contribution to the new permanent bailout fund, the European Stability Mechanism (ESM), this year and the second portion could be paid out next year..."

David Rosenberg: "It's A Gas, Gas, Gas!"

"There are fluctuations in the market that don't mean anything."
Ira Gluskin, February 14, 2012

If there was a Rule #11 added to Bob Farrell's list of gems, this would be it. We have added this ditty before from Ira, and will continue to do so as a reminder. A reminder of what you ask? A reminder of how the stock market can be divorced from economic realities for a period of time. The stock market ignored the perils of the busted tech bubble for a good eight months back in 2000, ultimately to its own chagrin. It ignored the meltdown in the housing and mortgage market for at least 10 months back in 2007. The examples can go on, but hopefully the point is taken.

At any given moment of time, the market is driven by a variety of factors. Some are more important than others, and they include technicals, seasonals, sentiment. fund flows, valuations and, Of course, the fundamentals. The key driving force this year has been the expanded P/E multiple, in line with a 16 reading on the VIX index, as the markets seem to believe that the massive expansions of global central balance sheets will end up saving the day for dilapidated sovereign government balance sheets and woefully undercapitalized European banks. Too bad the Graham and Dodd classic text on value investing didn't include a chapter on central bank money-printing.

From our lens, liquidity-based rallies are fun to trade, but tend to have a relatively short shelf life. Imagine what is on everyone's minds for the coming week is not the economic data or earnings results but instead the second LTRO round on Wednesday — this is what investors are biting their nails over: will it be 1 trillion euros or 'just' 300 billion? Page M10 of Barron's dubs this the 'LTRO put', which "sparked a massive risk-on rally in global markets". Incredible how easy it is to avert a bear market why didn't the Fed do this in 2007 and 2008, simply print money — and help us avoid the Great Recession?

What about the fundamentals? Well, let's have a look at earnings. It is completely ironic that we would be experiencing one of the most powerful cyclical upswings in the stock market since the recession ended (the S&P 500 is now up 25% from the October 3rd nearby low) at a time when we are clearly coming off the poorest quarter for earnings, in every respect. The YoY trend in operating [PS is now below 6%, and without Apple, growth has basically vanished altogether (down to a mere +2.8%). Corporate guidance over the past three months is at the lowest point since August 2009 — before the term 'green shoots' was invented! Only 44% of companies beat their revenue targets, the weakest since the first quarter of 2010: and 64% surpassed their profit estimates and this too is the lowest since the third quarter of 2008..."


Name The Bubble

"As the title suggests, please name the latest bubble:

If you said student loans, you were correct. What is curious is that while virtually everyone has known about the student loan bubble in recent quarters, it is only for the past 3 that the Fed has actually started to disclose this data in its consumer loan excel spreadsheet (link - page 3). For historical data prior to 2011 we had to pull Bloomberg data (TDBCSTUD Index) going back to 1999. Perhaps the recent astronomical jump is why the Fed has been keeping a tight lip on this data...

And for those to whom this is news, here are some thoughts on the matter from before..."


Sunday, February 26, 2012

Robert Fisk: The new Cold War has already started – in Syria

Japanese Ambassador Praises Iran's Rapid Scientific, Technological Progress

"Japanese Ambassador to Tehran Kinichi Komano praised the Iranian nation's astonishing and rapid progress in different scientific and technological fields in the last two decades.

"The Islamic Republic has made rapid and giant progress in science, industry and technology in the last 20 years," Komano told FNA on Saturday.

Meantime, he referred to certain countries' attempts to impede Iran's scientific progress, specially in the field of nuclear technology, and said, "Certainly, as a member of the Non-Proliferation Treaty (NPT) and the International Atomic Energy Agency (IAEA), Iran is entitled to use nuclear energy resources."

Iran has made huge achievements in various fields of science and technology, from nuclear knowledge to stem cell and Nano technology.

In attempts to impede Iran's progress, Washington and its Western allies accuse Iran of trying to develop nuclear weapons under the cover of a civilian nuclear program, while they have never presented any corroborative evidence to substantiate their allegations. Iran denies the charges and insists that its nuclear program is for peaceful purposes only.

Tehran stresses that the country has always pursued a civilian path to provide power to the growing number of Iranian population, whose fossil fuel would eventually run dry..."

Financial Markets 2012: Bombs... er Government Bonds, Fiat Currencies and Gold

"The UNFOLDING destruction of the developed world's economies and financial/currency systems continues apace. Public servants are trying to defy Mother Nature with the stroke of a pen; she will not yield to this. Radical Marxist POLITICAL solutions to practical problems are at the end of their collective ropes (double entendre intended). You CANNOT store wealth in paper, PERIOD. Those who do will get what they deserve: NOTHING. It has been and will be printed endlessly from this point forward as Socialist government policies have destroyed wealth creation and substituted Ponzi asset-backed economies in their place. Now those economic models have reached their COLLECTIVE endpoints..."


Critical Mass: The Mispricing of Derivatives Risk And How the Financial World Ends

"Jim Sinclair does a good job of explaining the difference between the notional and real value of derivatives, and how that real value comes to bear on the financial system in the event of a default. You can read this here for a review of the basic concept if you do not understand it.

Within my own view of money, uncollateralized financial instruments like derivatives are credits, or potential money. When an event triggers them so that they become real, with a significant presence on the balance sheet and the income statement, then they become money.

In the financial world we see the extraordinary growth of derivatives in notional value, to almost unbelievable proportions. This mass of derivatives facilitates the withdrawal of money from the real economy in the form of wealth transferal, such as bonuses and commissions for example. But they do not become actual money themselves until some trigger event. To perhaps stretch our analogy to the physical world, it could be described as the withdrawal of the ocean, as money is siphoned from the real economy by the financial world, in advance of the arrival of a tsunami as derivatives start hitting the balance sheets and are transformed into 'real money.'

This could be the cause of a hyperinflationary policy error which I have been alluding to for the past several years. The policy error is not in the simple setting interest rates, but the Fed's failure to regulate the banking system and manage its risks. In this the Fed, particularly under Greenspan, was an abysmal failure, and improvement has not been forthcoming.

The explosion of the realization of derivatives would create enormous fortunes and unpayable debts. Depending on how the monetary authorities deal with it, the potential for a Weimer experience is there. Nationalizing the banks and canceling the transactions is one way out. Attempting to sustain these mythical financial structures will take the existing currency system down. That is the limit of the Fed's power.

Most theories and models are tested at the extremes of their limits, and I suggest that the coming financial crisis will wash many of the current economic and monetary models away, scouring the detritus of years of conflicting interests and fanciful adornments down to their foundations. But the responsible parties will all sit back and say, "We did not know." But of course they did. They just did not care, as long as it paid them handsomely.

Taking this discussion of derivatives an important step further, the most significant elements of concern in derivatives are the same as they are in all financial schemes: unsustainable leverage and the mispricing of risk..."


Ellliot Wave Projection for the Price of Gold

Guest Post: World Bank Wants Control Of The High Seas

"As a proponent of legitimate free markets, I am always up for a little creative entrepreneurship. However, there is a considerable difference between building productive markets, and engaging in monopolistic piracy. Global conglomerates and the elites that operate them have long been familiar with the pirate’s life, and not the fun filled adventure-time rope swinging swashbuckling brand. In fact, it was elitists like Sir Francis Drake, commissioned by the English monarchy, who embodied this disturbing covert bedlam. We’re talking murder, mayhem, and blood-money, folks! So, it should be of no surprise to anyone that the thieving mercantile swine of our era are returning to the high seas to plunder once again, only in a much more subversive and devious manner.

This past week, World Bank President Robert Zoellick made his organization’s intentions for oceanic regimentation known, at least in a candy coated way, at the Economist World Oceans Summit in Singapore:,,contentMDK:23126775~pagePK:34370~piPK:34424~theSitePK:4607,00.html

Over the last several years, World Bank has seen fit to insinuate itself into the environmental movement as a “bastion” of green ideology. In reality, World Bank has long used the threats of environmental destabilization (some of them real, some of them fake) as tools for the centralization of resources into the hands of mega-corporations. In fact, if one was to attempt to sum up exactly what it is that World Bank actually does in a single phrase, it would probably be “resource domination”. This domination is achieved through the strict lending guidelines that sovereign countries have to commit to in order to attain financing from the supranational entity.

Like a greasy loan shark working for a hardboiled mob cartel, World Bank’s M.O. is to lend large capital packages (made with money or credit created out of thin air) which the target country and its government obviously cannot afford to pay back. These loans often stipulate that the country relinquish control of its natural resources, the true wealth of the nation, over to international corporate bodies for “management”. Through this process, World Bank removes competition from a market and hands designated companies (globalist front-companies) the keys to the kingdom.

Environmental manipulation has been used in the past by World Bank as a cover for resource piracy. Global corporations including Enron, Bechtel, GM, and Monsanto from the late 90’s onward have been handed coveted water rights to entire communities and nations under the guise of managing “water scarcity”. This control of the water supply has extended even to rainwater collection. World Bank’s argument in the case of water privatization was that monetizing the resource would create “incentives” for populations to conserve water. That is to say, the higher they could increase the cost of water, the more coveted it would become, and the more careful people would be when using it. This feudalistic idea was expressed clearly in a World Water Council (founded with the help of the Vice President of World Bank) document entitled “The Long Term Vision For Water, Life, And Environment”:

In 1998 the World Water Forum expounded a need for control and regulation over the planet’s water supply. This meeting was packed with top multinational corporations and commissioned by a viper’s nest of global elites, including:

-Dr Ismali Serageldin (Commission Chair), Vice President, World Bank, and Chair of Global Water Partnership
-Margaret Catley-Carlson, President, Population Council
-Gordon Conway, President, The Rockefeller Foundation
-Mohamed T. El-Ashry, Chair and CEO of the Global Environment Facility
-Howard Hjort, former Deputy Director, FAO
-Enriquo Iglesias, President, Inter-American Development Bank
-Yolanda Kababadse, President, World Conservation Union
-Jessica Mathews, President, Carnegie Endowment for International Peace, USA
-Robert S. McNamara, Co-Chair, Global Coalition for Africa
-Maurice Strong, Chair, Earth Council, member of Commission on Global Governance, and a chief adviser in charge of the UN reform process
-Wilfred Thalwitz, former Senior VP, World Bank
-Jerome Mondo, Chair of the Supervisory Board, Suez Lyonnaise des Eaux

In March of 2000, the forum made the following statement:

“Water is an economic good and its economic value should be recognized in the allocation of scarce water resources to competing uses. While this should not prevent people from meeting their basic needs for water services at affordable prices, the price for water must be set at a level that encourages conservation and wise use...”


Presenting Europe As A Giant CDO

"Continuing our series of charts worth a thousand words (first one here), below courtesy of Credit Suisse's William Porter, we present the Euro Area as if it were a giant CDO. It should answer most outstanding questions.

Once upon a time, everyone ignored subprime as it had the same detachment points as the Bank of Greece does now. Fast forward a few years, and we are talking prime mortgage impairments. Which incidentally explains why once the dominos start falling (think CDS trigger), it will get very messy all the way through the Super Seniors.

And as a bonus chart, here is another follow up from Porter, showing that absent hundreds of billions in Eurosystem loans to various PIIGS' banks, the entire system would have already collapsed like a house of cards. The pick up in the last three months speaks volume as to why the European market is on such a "tear." P.S. this is in addition to the LTRO..."


Saturday, February 25, 2012

How Greece Could Take Down Wall Street

"In an article titled “Still No End to ‘Too Big to Fail,’” William Greider wrote in The Nation on February 15th:
Financial market cynics have assumed all along that Dodd-Frank did not end "too big to fail" but instead created a charmed circle of protected banks labeled "systemically important" that will not be allowed to fail, no matter how badly they behave.

That may be, but there is one bit of bad behavior that Uncle Sam himself does not have the funds to underwrite: the $32 trillion market in credit default swaps (CDS). Thirty-two trillion dollars is more than twice the U.S. GDP and more than twice the national debt.
CDS are a form of derivative taken out by investors as insurance against default. According to the Comptroller of the Currency, nearly 95% of the banking industry’s total exposure to derivatives contracts is held by the nation’s five largest banks: JPMorgan Chase, Citigroup, Bank of America, HSBC, and Goldman Sachs. The CDS market is unregulated, and there is no requirement that the “insurer” actually have the funds to pay up. CDS are more like bets, and a massive loss at the casino could bring the house down.
It could, at least, unless the casino is rigged. Whether a “credit event” is a “default” triggering a payout is determined by the International Swaps and Derivatives Association (ISDA), and it seems that the ISDA is owned by the world’s largest banks and hedge funds. That means the house determines whether the house has to pay.
The Houses of Morgan, Goldman and the other Big Five are justifiably worried right now, because an “event of default” declared on European sovereign debt could jeopardize their $32 trillion derivatives scheme. According to Rudy Avizius in an articleon The Market Oracle (UK) on February 15th, that explains what happened at MF Global, and why the 50% Greek bond write-down was not declared an event of default.
If you paid only 50% of your mortgage every month, these same banks would quickly declare you in default. But the rules are quite different when the banks are the insurers underwriting the deal..."

Stockton California, Population 292,000, Takes Steps Toward Bankruptcy, City Manager Says

"Bondholders of Stockton, California debt are about to be punished as City Manager Takes Steps Toward Bankruptcy.
Stockton, California, may take the first steps toward becoming the most populous U.S. city to file for bankruptcy next week because of burdensome employee costs, excessive debt and bookkeeping errors that misrepresented accounts, city officials said today.

The Stockton City Council will meet Feb. 28 to consider a type of mediation that allows creditors to participate, the first move toward a Chapter 9 bankruptcy filing under a new state law. The council will also weigh suspending some payments on long-term debt of about $702 million, according to a 2010 financial statement.

“Somebody has to suffer and in this case the city manager has decided it should be the bondholders who suffer,” Marc Levinson of the Sacramento-based law firm Orrick, Herrington & Sutcliffe LLP, which represents the city, said at a news briefing at Stockton’s City Hall today..."


'Gold Bullion or Cash' Shows Buffett, Roubini, Krugman Mistaken; Faber, Rogers, Bass, Einhorn, Gross Correct

"Gold’s London AM fix this morning was 1,778.50 USD, 1,328.230 EUR, and 1,125.419 GBP per ounce.

Yesterday's AM fix was USD 1,754.75, EUR 1,325.04, and GBP 1,116.32 per ounce.

Spot gold hit a 3 month high of $1,787.55/oz yesterday rising gradually for the fourth day in a row. Gold closes in New York at $1,778/oz and has consolidated in Asia and early European trading.

Silver surged over $1.20 yesterday to over $35.50 – up over 3.55% on the day and convincingly breaching recent resistance at the $34.50 level. Next level for resistance is $40/oz and then the record nominal, repeat nominal, high of 1980 at $50/oz.

'Gold Bullion Or Cash' was released for public viewing on Wednesday. The video is educating the public internationally about gold bullion and why gold is safer than cash in the long term and in certain circumstances gold will be safer than cash in the short term as well.

GoldCore Gold Bullion

Gold's importance in the uncertain world of today, gold's extreme rarity, liquidity and safe haven currency status is illustrated.

The ‘gold bubble’ and the many gold myths and misconceptions are looked at and the video uses music, images, facts and quotations to show how gold is a proven store of value throughout history and an important diversification today.

Currency debasement of all major currencies is happening today on a scale never before seen in history.

Yet there continues to be a complete lack of awareness amongst the majority in the western world as to the risks posed by our currency monetary and financial system.

There continues to be a lack of knowledge and indeed often wilful ignorance regarding gold.

Indeed, some comments on gold are so ignorant of the historical and academic record that they have all the hallmarks of crude anti-gold propaganda – and will be seen as such in time.

Gold is a proven safe haven asset and currency. Despite much recent academic evidence and the historical record showing this and despite voluminous articles, research and evidence, (evidence succinctly summarised in the video 'Gold Bullion or Cash'), there continue to be frequent anti gold outbursts by some of the most respected and trusted people in the western financial and economic world.

Such attacks on gold have come from men such as Paul Krugman, Nouriel Roubini and more recently Warren Buffett.

Alan Greenspan correctly wrote in 1966 that "an almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions”.

Today, an almost hysterical antagonism towards gold bullion as a diversification and as a store of wealth alternative to fiat currencies unites beneficiaries of the current status quo – both intellectual beneficiaries and material beneficiaries.

That status quo is a massively leveraged and insolvent monetary, financial and economic system.

The masses are slowly realising the fundamental unsoundness of our global monetary system and are beginning to ask questions. But they are continually lulled into a false sense of security by the “experts”.

Experts incidentally who failed to warn them about the stock, property and global debt bubbles before it was too late.

Many Greeks today lament that they were not aware of gold as a safe haven and wish they had diversified into gold. These lamentations will be experienced in other debt-laden industrial nations in the coming months and years.

A minority in the western world are seeing through the anti-gold bias and beginning to take action and buy physical bullion as insurance and as protection from significant monetary, systemic, geopolitical and macroeconomic risk.

Crude anti-gold propaganda that is based on sophistry, silly straw man arguments, ad hominem and personal attacks, poor research, inaccuracies and actual fallacies is the stock in trade of what we could be termed the expert "paper bugs"..."


$10 Trillion In 2 years - 'Over' Abundant Liquidity And Expectations

"A funny thing happened while we all waited for the Fed to announce QE3. The rest of the world did it for them. Courtesy of Bloomberg's excellent Economics Brief, and the n'th time, here is what a multi-trillion dollar liquidity expansion looks like even with the Fed running silent. And this is also what $10 trillion in 2 years pumped into the markets looks like. Wonder where the market gets its "spring step" from? Now you know. Thank you Economist PhD's!

We do note that EUR strength recently (as the ECB appears done for now) and the acceleration of asset prices in Europe (bank stocks, credit etc.) appear to have done a good job of discounting the next LTRO already - and in fact are starting to retrace as LTRO 2 expectations are ratcheted back from the cajillion EUR level as the stigma continues to rise, ECB members raise concerns over dependency (banks are not forced to delever and also will not re-engage in the inter-bank lending market), and just like last year perhaps the ECB will hike rates to stall inflation fears (thinking of all-time record local currency gas prices as transitory is hard after a persistent 3 year trend higher)..."


Two Year Reminder For The Fed: How Is That Investigation Into Goldman's Greek Currency Swaps Going?

"There are those who remember that back in February 2010, before the world realized just how broke Greece was, the public's deplorably short attention span was briefly focused on none other than Goldman Sachs, which as so often happens, was at the heart of the scheme enabling Greece to skirt by Maastricht regulations and mask the fact that its debt and deficits were both far worse than represented publicly. There are also some who remember that back in February 2010, it was none other than the Federal Reserve that tasked itself with uncovering whether Goldman did anything "illegal" by engaging in currency swaps to make the Greek economy appear rosier than it was: "We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece," Bernanke said in testimony before the Senate Banking Committee.... Greece in 2001 borrowed billions, with the aid of Goldman Sachs in a deal hidden from public view because it was treated as a currency trade rather than a loan....Goldman Sachs spokesman Michael DuVally declined to comment on the Fed's probe. "As a matter of policy we don't comment on legal or regulatory matters," DuVally said. Goldman Sachs had defended the transactions in a statement posted on its Website Sunday. The firm said they had a "minimal effect" on Greece's overall fiscal situation." Maybe, just maybe it is time, two years later, for the world to hear something, anything, from the Fed as to what its seemingly quite extensive investigation into Goldman's has yielded.

And as a public service, just to help the Chairman, who very soon will have precisely 15 minutes to prove he can send record Brent prices down by 50% and prevent the European economy from imploding, here is a convenient reminder from the BBC, courtesy of its clip "How Goldman Sachs Helped Mask Greece's Debt." You know - just in case someone forgot to hold the Fed accountable for its objective and sincere investigation into the firm, whose former chief economist now runs the New York Fed..."


The Colonization Begins: Germany May Send 160 Tax Collectors To Greece

"Since the European colonial state of southern Bavaria Sachs (formerly known as the insolvent Hellenic Republic) no longer even pretends to be anything less than a pass-thru funding colony of its creditors, said creditors (European banks and various insurance companies) are about to send out the first group of colonial scouts in the form of German tax collectors. Also, since as reported previously, Greece will literally have to collect taxes to fund the Second "bailout package", which is merely a front for on ongoing Greek bailout of European banks (recall that it is Greece who is partially funding the bailout Escrow Account), said tax collectors will assist their Greek counterparts (who will rather likely miss their quote of becoming 200% more efficient in 2012) in collecting money from Greek citizens to pay off German banks. If in the process a few (or all) bars of gold end up missing, so be it.

From Athens News:

More than 160 German financial services executives are willing to come to Greece in order to strengthen the Greek tax mechanism, according to a report to be published in the German magazine 'Wirtschafts Woche', which will be released on Monday.

The magazine cites German deputy finance minister Hans Bernhard Beus, who explains that a key factor is the knowledge of a foreign language - some of them speak Greek - while the return to active duty of retired tax collectors should not be ruled out.

Many come from the state of North Rhine-Westphalia, whose finance minister, Norbert Walter-Borjans, compares Greece's with 90s East Germany, noting that even the East Germans at the time were suspicious towards the West. "In Greece suspicion will be greater, in part because of the inappropriate language used by some in Germany," he said.

The article also refers to a confidential report from the European Commission, according to which the mechanism of tax collection in Greece is especially problematic.

What "problematic"? If it is not clear by now that the Greeks will happily do nothing to change their predicament (and in fact have exhibited a soaring appreciation for their new stepmother-tongue), this will be literally easier than stealing rehypothecated candy from an insolvent baby..."


Guest Post: Another View On Default Cascades

"This paper (pdf) was recently published in Switzerland, and provides an interesting look at our recent topic--default cascades. Although these papers are mathematically dense, they are worth working through sometimes as they may give some foreshadowing of future economic policy.
Block-slider model of earthquakes

Battiston et al. (2011) have presented a model of the financial system which might look like one of Turcotte's slider-block models of earthquakes, which are comprised of numerous blocks of (possibly varying) masses, connected by springs, having to slide across a surface with a limited (and possibly variable) friction. Motion in one block can change the stress field across the model, possibly triggering slip in one or more other blocks.

The original slider-block model consisted of two blocks connected by a spring, both of which sat on a somewhat rough surface (so there would be friction between it and the blocks). If block A moves some small distance, then it will add to the forces on block B. That force may be enough to overcome the friction which kept block B stable. If both blocks move together, we have a larger earthquake. The simple two-block slider model exhibits chaotic behaviour (Turcotte, 1997). I remember attending a conference a few years before the above volume was published when Turcotte presented a more advanced model that looked something like the one below.

We are looking at a plan view of several interconnected blocks. The frictional forces vary for each block, and each block has its own driver. Once again, the slippage of a single block may trigger slippages in one or more blocs--the more blocks that slip, the larger the earthquake. We might expect such models to satisfy the Gutenberg-Richter law which is an observed distribution of earthquake sizes through time that is consistent with a system at self-organized criticality (SOC). But I'm not sure because I've never seen the results although comments on similar models used to study avalanches were consistent with SOC (there are those avalanches again)..."


Friday, February 24, 2012

What Rising Gasoline Prices Do To The Economy

"Charting gasoline prices against income and GDP provides some interesting results.

Since rapidly rising gasoline prices are in the news, let's look at some charts of gasoline and the economy, courtesy of frequent contributor B.C. These depict income and GDP in a ratio with the price of gasoline, and so they reveal information that is not contained in charts showing only the price of gasoline or GDP.

Here is disposable personal income and the price of gasoline:

When real (inflation-adjusted) wages are stagnant and the price of gasoline is high, as was the case in the late 1970s and the recessionary early 1980s, the ratio is low. If income is stagnant and the cost of gasoline is high, then people have less money to spend on other items and the economy is also stagnant--exactly what occurred after the 1979 Iran Crisis pushed gasoline prices up. (Sound familiar?)

When gasoline is relatively cheap and incomes are rising, then the ratio is high. Thus when oil prices hit bottom and incomes were rising in the late 1990s, then the ratio was peaking.

Look at it now. The ratio spiked in 2009 as oil prices plummeted from $140 per barrel in 2008 to less than $40 by the end of 2009.

Since incomes are stagnant (actually down since the 2007 top) and gasoline is once again on the rise, the ratio is returning to recessionary levels..."


Is Oil the New Anti-Dollar?

"Good day… And a Happy Friday to one and all! Apparently, an email friend named Craig sent a letter to the Bank of Canada pointing out the perils of the bank’s low-interest bias, and guess what? He received a reply from the governor of the Bank of Canada, Mark Carney! WOW! So I guess Craig actually has friends in high places!
Well, no beating around the bushes this morning… Since yesterday, we have an all-out currency rally going on. Yesterday, the euro (EUR) was flirting with 1.33, and today, it is sending love notes to 1.34. The single unit actually touched 1.34 overnight, but currently sits just below that figure. Unbelievable, right? Well, it just shows to go you that even the ugly currency gets taken out and dined! I called it an ugly currency because many of you know that I’ve referred to the dollar/euro as an ugly contest. Right now, it appears that the dollar is winning the ugly contest. But as we all know all too well, that can change in a heartbeat…
Well, the price of oil has soared again, this time passing $108! When I saw that this morning, I immediately shifted my focus to the currency screens to see where the Canadian dollar/loonie (CAD) was trading. And much to my surprise, the loonie is trading in yesterday’s clothes, and in fact, the same clothes all week! What’s going on here? The price of oil is really pushing the envelope once again, and the loonie is stuck in the mud? Hmmm…
I think that the fear that this rise in the price of oil is going to be a tax on the nascent recoveries in the U.S. and other countries is keeping a lid on the loonie right now…
One other thought on the rise in the price of oil… maybe I’m looking at this incorrectly! Maybe oil has become another anti-dollar. So the price of oil is rising because the dollar is falling? Something to think about, anyway…"


Iran successfully tests anti-drone radar systems

"Iran tested radar systems designed to find and intercept unmanned aerial vehicles (UAV), as part of a military drill around nuclear facilities in southern Iran, the Fars News Agency reported Thursday.

The drill commenced on Monday and ended on Thursday.

According to the report, the Revolutionary Guards' aerial defense forces managed to destroy targets simulating drones and enemy jets trying to infiltrate the drill's designated aerial space..."


The “Global Crises of Capitalism”; Whose Crises, Who Profits?

"From the Financial Times to the far left, tons of ink has been spilt writing about some variant of the “Crises of Global Capitalism”. While writers differ in the causes, consequences and cures, according to their ideological lights, there is a common agreement that “the crises” threatens to end the capitalist system as we know it.

There is no doubt that, between 2008-2009, the capitalist system in Europe and the United States suffered a severe shock that shook the foundations of its financial system and threatened to bankrupt its ‘leading sectors’.

However, I will argue the ‘crises of capitalism’ was turned into a ‘crises of labor’. Finance capital, the principle detonator of the crash and crises, recovered, the capitalist class as a whole was strengthened, and most important of all, it utilized the political, social, ideological conditions created as a result of “the crises” to further consolidate their dominance and exploitation over the rest of society.

In other words, the ‘crises of capital’ has been converted into a strategic advantage for furthering the most fundamental interests of capital: the enlargement of profits, the consolidation of capitalist rule, the greater concentration of ownership, the deepening of inequalities between capital and labor and the creation of huge reserves of labor to further augment their profits.

Furthermore, the notion of a homogeneous global crisis of capitalism overlooks profound differences in performance and conditions, between countries, classes, and age cohorts.

The Global Crises Thesis:The Economic and Social Argument

The advocates of global crises argue that beginning in 2007 and continuing to the present, the world capitalist system has collapsed and recovery is a mirage. They cite stagnation and continuing recession in North America and the Eurozone. They offer GDP data hovering between negative to zero growth. Their argument is backed by data citing double digit unemployment in both regions. They frequently correct the official data which understates the percentage unemployed by excluding part-time, long-term unemployed workers and others. The ‘crises’ argument is strengthened by citing the millions of homeowners who have been evicted by the banks, the sharp increase in poverty and destitution accompanying job loses, wage reductions and the elimination or reduction of social services. “”Crises” is also associated with the massive increase in bankruptcies of mostly small and medium size businesses and regional banks..."

If Gold Could Talk

"Jeff Clark, Casey Research
Have you ever had any doubts about gold? Does it sometimes feel like it should be performing better? Are you concerned about its volatility? Do you worry about how it might perform in the future? Have you ever wondered about its true purchasing power? Maybe you're nervous about a big drop in price again? I decided to go directly to the source to address these concerns: Gold himself. He put his arm around me and asked me to tell you a few things…

I hear that you've had some worries about me. I understand. Your world is a very uncertain place right now. And when it comes to money, it looks as though your leaders don't understand some basic monetary principles, making things even more unsettling.
But I want you to know that the problems you're experiencing are actually nothing new. I've seen these monetary, fiscal, and economic difficulties many times before. And I can tell you this: you're safe with me. That's a bold proclamation, but I've provided monetary protection numerous times throughout history – too many to count, in fact. I've served all kinds of people over the centuries, from kings and counts to serfs and servants.
To put your mind at ease, let's review my core characteristics, along with some history, to show how I can protect you against the monetary danger that's likely to worsen in your near future. We'll also take a look at your peculiar set of circumstances to see how I can be of service. By the time we're done, I think you'll feel much better about my ability to help your portfolio withstand whatever is thrown its way.
Enduring Characteristics
Let's start with the basics. I have some characteristics that no other matter on Earth has… I cannot be:
  • Printed (ask a miner how long it takes to find me and dig me up)
  • Counterfeited (you can try, but a scale will catch it every time)
  • Inflated (I can't be reproduced)
I cannot be destroyed by;
  • Fire (it takes heat at least 1945.4° F. to melt me)
  • Water (I don't rust or tarnish)
  • Time (my coins remain recognizable after a thousand years)
I don't need:
  • Feeding (like cattle)
  • Fertilizer (like corn)
  • Maintenance (like printing presses)
I have no:
  • Time limit (most metal is still in existence)
  • Counterparty risk (remember MF Global?)
  • Shelf life (I never expire)
As a metal, I am uniquely:
  • Malleable (I spread without cracking)
  • Ductile (I stretch without breaking)
  • Beautiful (just ask an Indian bride)
As money, I am:
  • Liquid (easily convertible to cash)
  • Portable (you can conveniently hold $50,000 in one hand)
  • Divisible (you can use me in tiny fractions)
  • Consistent (I am the same in any quantity, at any place)
  • Private (no one has to know you own me)
I am internationally accepted, last for thousands of years, and probably most important, you can't make any more of me..."


Bob Chapman Real Estate prices will drop another 20 percent

"Bob Chapman Freedom Files US - 23 Feb 2012 : Bob Chapman talks about the real estate bubble , the real reasons behind the crude oil prices spike , why the war with Iran is not to be expected for tomorrow , the rosy outlook for gold and silver..."


All The Details On The Major Hit Greece's Creditors Are Going To Take

"Here are a handful of the highlights:
  • Greece says its bonds have an aggregate outstanding value of €206 billion
  • It looks like 75% bondholder participation will be necessary for Greece to go through with the bond swap at all.
  • Greece is seeking at least 90% participation in the bond swap—that would cause the collective action clause amendments go into effect
This looks like the money paragraph right here:
If at least 75% but less than 90% of the aggregate face amount of all bonds selected to participate in PSI are validly tendered for exchange, the Republic, in consultation with its official sector creditors, may proceed to exchange the tendered bonds without putting any of the proposed amendments into effect. However, if less than 75% of the aggregate face amount of the bonds selected to participate in PSI are validly tendered for exchange, and the Republic does not receive consents that would enable it to complete the proposed exchange with respect to bonds selected to participate in PSI representing at least 75% of the aggregate face amount of all bonds selected to participate in PSI, the Republic will not proceed with any of the transactions described above.
What we think is happening here is that Greece is setting up three different possibilities (admittedly, we're still a little fuzzy on the details):
  • If it gets 90% participation, the CAC clauses it passed yesterday will be written into the bonds but will not need to be activated. This would probably not trigger a credit event.
  • If it gets 75-90% participation, it might decide to activate the CAC clauses, which probably would trigger a credit event.
  • If Greece gets less than 75% participation in the debt swap then it's going to scrap the debt swap altogether.
Check out the full release below:..."


Thousands Of French Towns Are Asking For Bailouts After Discovering Toxic Assets

"The latest victims of the financial crisis: small towns in France.

At least 5,500 French towns have taken out toxic loans from the failed French-Belgian bank Dexia.
With no place to unload that debt, and no way to pay it back, these towns are suddenly under water.
“If the euro-zone crisis continues, it’s very possible that some towns in France go bust, like in the United States,” said Sofiane Aboura, associate professor at Paris Dauphine University.
Dexia was the first European bank to fall victim to the eurozone debt crisis. In 2008, France, Belgium and Luxembourg took control of Dexia with a $8.4 billion bailout — a move meant to secure the municipal lender..."



"Lakshman Achuthan was on CNBC this morning digging his heels in on his recession call. He says the macro data is actually getting worse. He says we’re seeing the same patterns that we always see heading into recessions. Specifically:
  • GDP growth peaked in Q3 in 2010 and has flat lined since early 2011.
  • Personal income growth has peaked.
  • Broad sales growth has peaked.
  • Industrial production has peaked..."

Price of Oil Hits Record High in Euros and British Pounds; Oil Shock Coming; Nancy Pelosi Blames Speculators; What About Iran? Israeli Intelligence Concludes "No Iranian Nuclear Weapons Program"

"Bernanke is hell bent on producing price inflation. He has succeeded, just not where he wants most. What Bernanke desperately wants is for housing prices to rise because that more than anything will help the banks and all the foreclosed properties they are sitting on.

The Bernanke Fed has certainly assisted the stock market, as intended, but that is not doing the average Joe much good in the face of soaring oil prices, soaring food prices, falling home prices, and zero% interest on savings.

Oil Shock Coming

As a direct consequence of Fed policy, in conjunction with an inane US and European oil embargo on Iran, Europe (already in the midst of what is going to be a long and deep recession) will be hit with an oil shock on top of it.

Record Price of Oil in British Pounds

On Wednesday the Financial Times reported Record sterling oil price sparks fears

Oil prices have soared to a record high in sterling terms and are approaching euro highs, raising fears that European countries struggling with heavy debts will face further barriers to economic recovery..."

Why Greece Bailout Games Will Cause The Rest Of The EU To Breakout The Grease

"I know I was a little skeptical about the optimism of the leaked Troika report, but considering how accurate those EU/IMF guys have been in the past regarding Greece, I should be ashamed of myself for even considering the possibility of doubting my betters, eh? Simply reference Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!...

This document/blog post alone should serve to sink the Euro and blow out CDS spreads for several European sovereign. Why? Because the truth hurts and the truth is not what has been coming from European sovereign states as of late.

The IMF and the EU have been consistently and overtly optimistic from the very beginning of this crisis. Their numbers have been dramatically over the top on the super bright, this will end pretty, rosy scenario side - and that is after multiple revisions to the downside!!! We can visit the US concept of regulatory capture (see How Regulatory Capture Turns Doo Doo Deadly and Lehman Brothers Dies While Getting Away with Murder: Regulatory Capture at its Best) for the EU, but due to time constraints we will save that topic for a later date. To make matters even worse, the sovereign states have taken these dramatically optimistic and proven unrealistic projections and have made even more optimistic and dramatically unrealistic projections on top of those in order to create the illusion of a workable "austerity" plan when in reality there is no way in hell the stated and published plans will come anywhere near reducing the debts and deficits as advertised - No Way in Hell (Hades/Tartarus/Anao/Uffern/Peklo/Niffliehem - just to cover some of the Euro states caught fudging the numbers)!..."

Thursday, February 23, 2012

Russia warns against 'catastrophic' Iran strike

"The scenario of military action against Iran would be catastrophic for the region and possibly the whole system of international relations," Deputy Foreign Minister Gennady Gatilov told a news conference.
His comments came after a five-strong delegation from the UN's International Atomic Energy Agency (IAEA) left empty-handed following two days of talks focusing on suspected military aspects of the country's nuclear programme.
Chief nuclear inspector Herman Nackaerts said the team "could not get access" during the visit to Iran's military site in Parchin where suspected nuclear warhead design experiments were conducted.
Russia has longstanding commercial and military ties with Iran and has condemned recent unilateral sanctions imposed by the United States and the European Union over its suspected pursuit of nuclear arms.
Mr Gatilov urged nations to wait for the IAEA's official report before deciding to condemn Iran for failing to cooperate with the agency..."


The current housing bust is much worse than the Great Depression

"Great chart from the recently released Economic Report of the President. We suspect the Great Depression housing bust didn’t have the government props to soften the blow as we do today, which, therefore, on a relative basis, makes the current bust much worse. The prior conditions to the current bust must have been much worse than those before the Great Depression.
If not for the decisive action of Paulson, Bernanke, Geithner and Co. we all may have become farmers living under the freeway. Can’t prove counterfactuals, but that is what we believe. So give them an A+ for stabilization. Structural adjustment and long-term reform is an entirely different story, however.
We heard Meredith Whitney say this morning that 95 percent of current mortgages are backed, effectively, by the taxpayer,
…95-plus percent of mortgages today are being backed by Fannie and Freddie. Fannie and Freddie are effectively subsidizing unprofitable mortgages that the banks wouldn’t put on their balance sheet. That’s not sustainable and ultimately the taxpayer is paying the bill for it. The banks used to price profitable loans and you know, they’re a myriad of loan products that they’re still not pricing for profits.
Basic microeconomics tells us that government repression of prices creates supply shortages. Think back to the rent control supply and demand graphs in Econ 101, which we have modified in the chart below.
This is one of the reason why we believe housing is so slow to recover. Who in their right mind x/ the Govie would lend long-term money at a rate lower or close to the current inflation rate? Rational lenders also take into account the massive monetization that is currently taking place globally and its impact on future inflation in calculating their expected real returns..."