Wednesday, August 31, 2011

Grant sings the dollar blues

Requiem for the dollar James Grant
"Ben S. Bernanke doesn't know how lucky he is. Tongue-lashings from Bernie Sanders, the populist senator from Vermont, are one thing. The hangman's noose is another. Section 19 of this country's founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people's money. Was the massive printing of dollar bills to lift Wall Street (and the rest of us, too) off the rocks last year a kind of fraud? ...

Wall Street corruption

Wall Street - a Rigged Casino

Karl Denninger has turned out a great market musing, and no further comment on my part can possibly eclipse this stellar polemic on the Wall Street-Government hostile takeover of Main Street.
Go ahead politicians, tell us how important "Wall Street" is to the economy and to you. Let the thieves and liars continue to pollute the markets and screw everyone. Volatility is as high as it is precisely because people are tired of getting buttraped and after a few instances of it they simply say "screw this", take their money and go home.
They don't need the markets, the markets need them, and they're gone.
...Don't even try to "invest" in this market folks, and if you decide to trade, realize that you're playing in a rigged casino and the entire force of the government is not only behind rigging the casino but explicitly endorses and permitsthe rigging to go on and continue, despite being fully-aware of it.
Remember, "Wall Street is Main Street" to them - and if that means your retirement and investments get destroyed that's just fine provided that big buildings in downtown Manhatten continue to be infested by the thieves guild that pumps tithes into campaign coffers.

Monday, August 29, 2011

Demise of the Middle Class

34 Pieces Of Evidence That Prove That The Middle Class In America Is Rapidly Shrinking
Do you ever get the feeling that the middle class in America is shrinking? Well, you are not imagining things. A confluence of very troubling long-term economic trends has created an environment in which the middle class in America is being absolutely shredded. Today, most American families would be absolutely thrilled if they could live as well as past generations did. The dream of receiving a solid education, getting a good job, owning a beautiful home and enjoying the good things that America has to offer is increasingly becoming out of reach for a growing number of Americans.
Comment: This will be the big subject of academic debate yet even more so the demise of the middle class will be a major factor of America's deep fall. It took a long time for the destroyers of society to get this far but against the massive assault against the middle classe and its values coming from the media, universities, politics and last but not least from the monetary authorities, there was no escape in the end. Yet what the destroyers of society did not consider is the fact by wiping out the middle class, the destoyers themselves have singed their own death sentence.

Dollar - purchasing power parity

Dollar Undervalued in Purchasing Parity

The dollar is poised for its biggest monthly gain since May, reclaiming its status as a haven while Switzerland and Japan boost efforts to weaken their currencies.
The greenback has appreciated 1.2 percent in August against a basket of the developed world’s nine most-traded exchange rates, according to data compiled by Bloomberg. That compares with a decline of 14 percent in the world’s reserve currency from this time last year through July.
Demand for U.S. assets is rising even though the Federal Reserve has pledged to keep its benchmark interest rate near zero through mid-2013 and Standard & Poor’s cut the nation’s credit rating from AAA. The two other currencies considered havens in times of financial and political strife -- the Swiss franc and yen -- are under siege by their governments and central banks after strengthening to records.
Comment: I guess that the dollar will maintain its rate to the euro around 1.45 yet may well rise against the Swiss frank and the Brazilian real among other of the main overvalued foreign currencies.

Euro over 1.45



Bullish on Greece

Greek Stocks Set for Biggest Rise in 20 Years

Greek stocks rallied, with the ASE General Index heading for its steepest gain in more than 20 years, as EFG Eurobank Ergasias SA (EUROB) and Alpha Bank SA discussed a merger aimed at bolstering their assets.
National Bank of Greece SA (ETE) headed for its biggest gain on record while Piraeus Bank SA (TPEIR) was poised for its steepest advance in almost 18 years, both rising no less than 28 percent. Eurobank and Alpha Bank were suspended from trading as the banks’ boards meet, according to an Athens exchange statement.

Sunday, August 28, 2011

Hysteria sweeping Germany

Euro bail-out in doubt as "hysteria" sweeps Germany

German Chancellor Angela Merkel no longer has enough coalition votes in the Bundestag to secure backing for Europe's revamped rescue machinery, threatening a consitutional crisis in Germany and a fresh eruption of the euro debt saga.

Merkel and Sarkozy rule out talks on eurobonds.
Seething discontent in Germany over Europe's debt crisis has spread to all the key institutions. Photo: AP
Mrs Merkel has cancelled a high-profile trip to Russia on September 7, the crucial day when the package goes to the Bundestag and the country's constitutional court rules on the legality of the EU's bail-out machinery.
If the court rules that the €440bn rescue fund (EFSF) breaches Treaty law or undermines German fiscal sovereignty, it risks setting off an instant brushfire across monetary union.
The seething discontent in Germany over Europe's debt crisis has spread to all the key institutions of the state. "Hysteria is sweeping Germany " said Klaus Regling, the EFSF's director...
Comment: People should consider how it were without the euro. Then indeed hystery would sweep the country because the mark would suffer from overvaluation as much as it now happens with the Swiss frank.

Friday, August 26, 2011

Euro just a tick away from 1.45


1.4499                 +0.0121                     +0.84%

Playing with our monies as if it were his toys

Bernanke Scholar Advises Bernanke Fed Chief to Be Bold on Monetary Policy

Ben S. Bernanke while Professor of Economics, Princeton University Source: Princeton University/ Bloomberg 
Advice from Ben S. Bernanke, scholar, to Ben S. Bernanke, Federal Reserve chairman: Be bold.
As a Princeton economics professor from 1985 to 2002 and a Fed governor from 2002 to 2005, Bernanke -- a student of the Great Depression and Japan’s lost decade -- faulted central bankers for failing to act aggressively in both cases to provide credit and weed out sickly financial institutions as they tried to rescue their economies and combat deflation.
Comment: A wrong model in active hands is probably the worst that could have happened.

Thursday, August 25, 2011

University rankings

The U.S. News and World Report “Best Colleges” rankings, which will be published next month, are viewed as a Baedeker and Bible by more than 5 million American parents considering colleges and universities for their high-school juniors and seniors.
We think that parents should use this guide with caution.
Our problem with the rankings begins with how they are produced. An unspecified number of academic leaders -- presidents, chancellors, provosts -- are sent questionnaires and asked to rate their peers. Though few of those surveyed have sat in on freshman lectures at Harvard or Yale (where students famously complain about the quality of undergraduate instruction), they invariably give the brand-name schools their highest endorsements.
Comment: Why is it so hard to get the truth outside that anyone knows who is inside?

Wall Street infiltrated by crooks

By Agence France-Presse
Raw Story
Bernard Madoff, who ran one of the biggest Wall Street frauds in history, says that many of his former colleagues in the financial industry are also crooks.
In a prison interview with Fox Business Network published Thursday, the Ponzi scheme mastermind claimed that insider trading “goes on at every major firm’s Prop Desk and at every level of the industry in plain sight.”
“It is unfortunate, to say the least, that the financial services industry is so corrupt and stacked against the typical investor,” he told Fox in an email.
One of Wall Street’s most notorious criminals, Madoff used his powers of persuasion to trick thousands of clients over decades to invest with him.
He stole from fresh deposits to create fake profits for existing clients, providing high and steady returns that seemingly made him one of the industry’s top performers.
The Ponzi scheme collapsed in 2008 and after Madoff pleaded guilty the following year, he was given a prison sentence of 150 years.
In the Fox interview, he claims that his scheme could not have worked if clients hadn’t willfully ignored warning signs that he was not running a legitimate investment business.
Read More:

Wednesday, August 24, 2011

Markets waiting for Santa Claus

Markets Will Look for Hints in Bernanke’s Words“When the Federal Reserve chairman speaks at an annual gathering in Jackson Hole, Wyo., this Friday, markets will be searching for something, anything, that indicates whether more stimulus is on the way.
It was just a year ago, after all, that the economy was in almost exactly the same position: pitifully slow job and output growth, fears about another financial shock from Europe’s debt crisis, warnings of a double-dip recession.” (New York Times)

Comment: Remember that traditionally, before the feast got commercialized, Santa Claus had a knave called Ruprecht who came with big stick.

Counter indicator

Greenspan Says Euro ‘Breaking Down’

Enlarge imageAlan Greenspan

Alan Greenspan

Andrew Harrer/Bloomberg

Former Federal Reserve Chairman Alan Greenspan said fissures in Europe’s common currency may lead to slowing in the U.S. economy.
“The euro is breaking down and the process of its breaking down is creating very considerable difficulties in the European banking system,” Greenspan said today in Washington.
Comment: Greenspan misses the limelight. He's getting sensationalist. Nobody seems to listen to him anymore. Yet you should: take his words as a counter indicator. Buy euros.

Summers and the corruption of economics

Charles Ferguson explains: "... Summers is unquestionably brilliant, as all who have dealt with him, including myself, quickly realize. And yet rarely has one individual embodied so much of what is wrong with economics, with academe, and indeed with the American economy. For the past two years, I have immersed myself in those worlds in order to make a film, Inside Job, that takes a sweeping look at the financial crisis. And I found Summers everywhere I turned..."
Comment: My first encounter with Summers was at a conference in the late 1980s when he was already "sold" as "brilliant". He gave a talk. Not just me, but most of my other colleagues, too, felt disappointed by his presentation. Summers is the product of academic nepotism. The only place where he could continue to show-off without having substance was in politics, indeed, and much so at the hightest places because he couldn't even hold his Harvard presidency without disgrace. It is indeed significant that the author of the film Inside Job notes that he "found Summers everywhere I turned ..."

Tuesday, August 23, 2011

Telling the truth has its price

S&P's President, Deven Sharma, is stepping down. It is written that "Mr. Sharma was leaving the firm to pursue other opportunities, the person familiar with the matter said, without elaborating." So the Indian who brought the U.S. to its knees is paying the price. That happened quicker than expected.

Monday, August 22, 2011

Wall Street Aristocracy Got $1.2 Trillion From Fed

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
Comment: The FED was planned to do act as a bailout mechanism from the beginning. The only difference to earlier episodes is that this time the amounts were larger and its distribution global. Central banking means that at least for the financial sector small and big profits will be private while the really big losses will be socialized.

Baby boom means bust now

Boomers May Stall Stocks for Decades: Fed Paper

Aging baby boomers may hold down U.S. stock values for the next two decades as they sell their investments to finance retirement, according to a paper from theFederal Reserve Bank of San Francisco.
“U.S. equity values have been closely related to demographic trends in the past half century,” adviser Zheng Liu and researcher Mark Spiegel wrote in a paper released by the bank today. “In the context of the impending retirement of baby boomers over the next two decades, this correlation portends poorly for equity values.”
Comment: No more buying on dips now, game over, Roger. Even without a crash, stock will head South for at least two decades. Let's get ready to buy stocks for our grandsons in 2029 when we'll celebrate the 100th aniversary of the big crash. This time it probably will be the best investment opportuntiy that ever was. 

Sunday, August 21, 2011

Basel III to the bin

Global Bank Capital Regime at Risk as Regulators Spar Over Rules

By Yalman Onaran

Capital standards designed to fortify the global financial system are eroding as European officials, beset by a debt crisis, rewrite the regulations and U.S. rulemaking stalls.
The 27 member-states of the Basel Committee on Banking Supervision fought over the new regime, known as Basel III, for more than a year before agreeing in December to require banks to bolster capital and reduce reliance on borrowing. Now, as they put the standards into effect in their own countries, European Union lawmakers are revising definitions of capital, while the U.S. is struggling to reconcile the Basel mandates with financial reforms imposed by the Dodd-Frank Act.
“The game on the ground has changed in Europe and the U.S.,” said V. Gerard Comizio, a former Treasury Department lawyer who is now a senior partner at Paul Hastings Janofsky & Walker LLP in Washington. “The realists in Europe realized that their banks cannot raise the capital they’d need to comply. U.S. banks have reversed course and are more assertively fighting against it. The future of Basel III looks less certain now than it did when it was agreed to.”
Comment: Chaos and confusion without end. Part of it should be blamed on the economics profession whose members have become ever more incompetent over the years when they wasted the best years of their lives doing useless math and studying silly models. Before it can get better, things will get worse because incompetence is growing exponentially.

Corruption at Moody's

MOODY'S ANALYST BREAKS SILENCE: Says Ratings Agency Rotten To Core With Conflicts

Henry Blodget
A former senior analyst at Moody's has gone public with his story of how one of the country's most important rating agencies is corrupted to the core.
Harrington has made his story public in the form of a 78-page "comment" to the SEC's proposed rules about rating agency reform, which he submitted to the agency on August 8th. The comment is a scathing indictment of Moody's processes, conflicts of interests, and management, and it will likely make Harrington a star witness at any future litigation or hearings on this topic.
Read more:

Saturday, August 20, 2011

DSK will be released

Manhattan District Attorney Cyrus Vance Jr. will move to dismiss the sexual-assault charges against Dominique Strauss-Kahn because they would be difficult to prove beyond a reasonable doubt, former prosecutors predict.
Comment: Mission accomplished. No need for further trials. Top job well done by the powers that be. Who's next on the list?

Tuesday, August 16, 2011

Venezuela's international reserves on the move

Venezuela May Move Cash, Gold From U.S.

  • ShareVenezuela may transfer billions of dollars in cash and gold reserves held in U.S. and European banks to financial institutions in “allied” countries, opposition lawmaker Julio Montoya said today.
Montoya, speaking on the Globovision network from the National Assembly, said the Finance Ministry wants to transfer more than $6 billion of cash reserves to countries including China, Russia and Brazil. Of Venezuela’s $18 billion in gold reserves, $11 billion is held abroad and could be transported back to Venezuela, Montoya said, citing a document he said he obtained from the ministry.
Full text
Comment: Capital flight used to be in the South-North direction, now it is the other way around. Things have changed.

Bernanke up against the wall

Rick Perry's 'shocking' gaffe: Ben Bernanke is 'treasonous'

The Republican governor of Texas begins his presidential campaign by insinuating that a Federal Reserve decision to print more money would warrant violent retaliation

Texas. Gov. Rick Perry said Monday that Fed Reserve Chairman Ben Bernanke is verging on treason for what he has done to the economy.
Texas. Gov. Rick Perry said Monday that Fed Reserve Chairman Ben Bernanke is verging on treason for what he has done to the economy. Photo: Chip Somodevilla/Getty ImagesSEE ALL 12 PHOTOS
Best Opinion: Taylor Marsh, Atlantic, Red State
The video: Texas Gov. Rick Perry ignited the first potential controversy of his fledgling presidential campaign Monday night with some violent words for Federal Reserve Chairman Ben Bernanke. "If this guy prints more money between now and the election," he said while campaigning in Iowa, "I dunno what y'all would do to him in Iowa but we would treat him pretty ugly down in Texas." He followed up the "shocking" statement by saying that Bernanke would be committing a "treasonous" act if he approved another round of quantitative easing — in which the Federal Reserve creates electronic money to buy up corporate and government debt and keep borrowing costs down. (Watch the video below.) Treason is a punishable by death.
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Comment: I'm against capital punishment even not with persons who deserve it.

Debt - the deadliest drug of all

Eric Margolis explains: "My parents, who lived through the 1930’s Depression, taught me two rules: don’t buy anything until you can pay for it with your savings; and always save a sizable portion of your income.
The United States, once powerhouse to the world, is hooked on debt. America has become so addicted that regular hits are necessary to keep the economy sputtering along.
Last week’s vow by the Federal Reserve to keep interest rates at close to zero for two more years was a trumpet call to Americans to borrow yet more money. Bankers must have been cock-a-hoop.
A man I once knew was extolling the wonders of cocaine.
"You wake up in the morning with a horrible hangover and feel like death. Then, you do a big line and, presto, you feel like a new man."
He went on. "Problem is, after about 20 minutes, the new man needs another big line." In drug parlance, it’s called chasing the dragon.
The US has been chasing the dragon for a decade.
The crash of 2008 was caused by runaway debt. Washington’s remedy: more debt poison..."
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Comment: While the government wastes billions with its "war on drugs", society swallows up on a deadlier poison: debt. 
I guess that my diagnosis of September 2008 is more correct than ever:
"The financial crisis is not over. Neither tax rebates nor low interest rates nor higher or lower exchange rates can do the job of reviving an economy that is burdened by debt loads that are too high. On the contrary: the policy measures that the US authorities have been applying will prolong the agony. Be prepared for the challenges of extended financial turmoil and economic stagnation..."Read more

Monday, August 15, 2011

Spend, baby spend and shop till you drop

Christina Romer: "... There is clearly a lesson for modern policy makers. Monetary expansion was very effective in the mid-1930s, even though nominal interest rates were near zero, as they are today. The Federal Reserve’s policy statement last week provided tantalizing hints that it may be taking this lesson to heart and using its available tools more aggressively in coming months...."
Full text
Comment: O my goodness, Christina! You're really living in the past.

Japan may sell part of its US bonds

Thinking the unthinkable: Sell U.S. Treasuries

The idea that Japan would ever dump the $900 billion it holds in U.S. Treasuries, the second-largest foreign ownership after China, has long been just that — an idea never seriously entertained...

"The holdings translate to ¥1 million per Japanese taking this risk in shouldering U.S. debt, all without their fully being aware of it," said Kenji Nakanishi, a lawmaker in Your Party, a new opposition party that made significant gains in the last election.
Nakanishi said that Japan shouldn't sell all its holdings at once, but should reduce them by about ¥10 trillion each year, and earmark some of that money for recovery spending in the Tohoku region, which was devastated by the March 11 earthquake and tsunami.
A simple explanation to Washington that the move won't change the U.S.-Japan political and defense alliance should be enough, according to Nakanishi.
It alarms him that the government is trying to raise taxes to fix its deficit and finance the earthquake recovery, a move he fears would further squeeze the economy...
Comment: With news like on your desk, don't hesitate, become a frontrunner fast.

The rotten world of Wall Street

William D. Cohan explains: "... Since 1970, when financial companies began selling shares to the public, the industry has ensnared the rest of us in repeated crises of its own making. There was the crash of 1987 and the credit freeze that followed, the Asian crisis, the Mexican crisis, the Russian crisis, the collapse of Long-Term Capital Management, the Internet bubble and, most recently, the risky mortgage-related behavior that led to the Great Recession and brought us to the edge of economic devastation. As the past few weeks have shown, we are still suffering its aftershocks.

Capital Markets

At the time, each of these crises seemed existential and rendered the capital markets -- the engine room of capitalism --dysfunctional for long periods. The increasing rapidity and intensity of each of these events is directly correlated with the decisions by Wall Street companies to go public. The consequence is that Wall Street replaced its traditional partnership culture -- where stakeholders shared profit and losses -- with a bonus culture that encouraged accountability-free, asynchronous risk-taking with other people’s money. Rather than accept responsibility for these recurring crises, Wall Street’s defenders.
Read more

Friday, August 12, 2011

The challenge of a fiscal union for the euro zone

EU Heads for Eurobond Clash Over Fiscal Union

European ratification of a reinforced crisis-management fund will act as a prelude to an even more divisive debate: whether to put more money into the pool and use it to borrow on behalf of all 17 euro states.
The question of “eurobonds” or “fiscal union” -- toxic language in northern countries like Germany -- will force itself onto the agenda once the retooled rescue fund is in place as soon as next month.
The trigger will be a European Commission feasibility study of jointly sold eurobonds, seen by a growing number of economists as the only way of guaranteeing to the markets that countries such as Italy won’t go bust. Unprecedented bailouts by governments and the European Central Bank have so far failed to stamp out the crisis that is menacing the region’s core members.
“No single currency has ever survived without some form of debt mutualization,” said Simon Tilford, chief economist at the London-based Centre for European Reform, a research institute focused on European integration. “There’s an increasing recognition that that is the only way of stabilizing the euro zone.”
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Comment: Whether the eurocrats or the common folk like it or not, the fiscal union has become unavoidable.

What will happen when the dollar crashes?

Silver Shield predicts:
"... The American riots will be the worst the word has seen because of the amount of will be of arrogance, denial, narcissism, drugs and violence in our society. These factors are systemic and infect every level of society. I do fear that our nation is sick enough to unleash a series of false flag events to spread our violence even further. This violent Anger phase in the 5 Stages of the Awakening will not last long and not happen in every part of America. There will be a few months of violence that will shake the faith in mankind. Those that live by the sword, will die by the sword. After the most violent are either killed, brought to justice or burnt out, we will enter in a societal depression as we try to come to terms with what has happened. This period could last for years as we struggle with the loss of wealth and life..." 
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Comment: A possible doubtful link in the argumentation does not refer to the consequences but to the premise, yet hardly a day seems to go by without getting indeed closer to the dollar collapse. 

When the dollar crashes ....

Top 5 Places NOT To Be When The Dollar Collapses

The dollar collapse will be the single largest event in human history. This will be the first event that will touch every single living person in the world. All human activity is controlled by money. Our wealth, our work, our food, our government, even our relationships are affected by money. No money in human history has had as much reach in both breadth and depth as the dollar. It is the de facto world currency. All other currency collapses will pale in comparison to this big one. All other currency crises have been regional and there were other currencies for people to grasp on to. This collapse will be global and it will bring down not only the dollar but all other fiat currencies, as they are fundamentally no different. The collapse of currencies will lead to the collapse of ALL paper assets. The repercussions to this will have incredible results worldwide.
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Comment: Now let us come up fast with a list of the top 5 or 10 places where to be when the dollar crashes.

Thursday, August 11, 2011

The coming Sino-American war

U.S. War with China “Inevitable,” Author Glain Says

By Aaron TaskOutside of the market madness, the biggest global news this week might be China sending its first aircraft carrier to sea.
The launch was not unexpected and China sought to downplay its significance, saying "it will not pose a threat to other countries."
Still, "it is the most potent symbol yet of China's desire to develop the power both to deny U.S. naval access to Asian waters and to protect its global economic interests, including shipping lanes," The WSJ reports.
Like many others, Stephen Glain, author of State vs. Defense, believes the U.S. and China are, indeed, on a collision course. "Absent a good faith attempt to negotiate this thicket of disputes between China and Taiwan and the Philippines and Brunei and others, I think it's inevitable," he says. "The Chinese are not going to back down."
Read more, watch interview
Comment: The world is relentlessly moving towards a major conflict, a big showdown. Whether it will be China or some other country, the answer is that almost anything will do, including the EU for a desperate US to unite its people under its flag.

Wednesday, August 10, 2011

"New Normal"

Pimco’s Gross Proves Summers Wrong as Selloff Shows ‘New Normal’ Is Real

Bill Gross was right after all.
Former White House economic adviser Lawrence Summers andChristina Romer, the former chairman of the U.S. Council of Economic Advisers, were among critics who challenged a view promoted by Gross’s Pacific Investment Management Co. that the U.S. economy may be headed for a long period of below-average growth and high unemployment, a scenario known as “new normal.” Money manager Kenneth Fisher called the concept“idiotic.”
Now Gross and co-chief investment officer Mohamed El-Erian, who coined the term more than two years ago, have been vindicated by the U.S. Federal Reserve, which said yesterday that the economic recovery is “considerably slower” than anticipated, following the biggest stock market loss since December 2008. BlackRock Inc. (BLK) co-founder Laurence D. Fink, who in January said he didn’t believe in the “new normal,” is forecasting growth of 1 percent to 2 percent for much of the decade.
“A lot of the new normal characteristics have played out,” El-Erian, chief executive officer of Newport Beach, California-based Pimco, said in an interview. “Some people confused new normal with fatalism, but the intention was the opposite. There was the hope that policy makers would recognize that there are structural responses they needed to embark on.”
Read more
Comment: The "new normal" is not pleasant, yet the sooner one gets used to it and adapts to it, the better. There is no escape from reality. Illusions are good when times a good. Illusions are bad when times are bad. Now, as times are bad, let's get rid of our illusions.

Tuesday, August 9, 2011

In my opinion

In my opinion, the stock market will have a volatile recovery through August and September. Mid-September may see more pronounced weaknesses. As of now it seems that all sails are set to have a major calamity in October encompassing not only stocks but also bonds.
Good investments have become rare. It is hard to think of an investment that seems better than having a Rolls Royce, Goldfinger style. Sell your home in London, move to the country side. Get a place with a garage where you can hide your golden Rolls Royce. Fill up its trunk with silver coins. Don't forget to stack the cellar of your house with good wines. Get a generator and diesel supply. Your friends will be thankful for having a place where they can reload their Ipods and MP3 players. Store as much books as you can on your Kindle. Teach Austrian economics to your kids and grandchildren.

US productivity down

Productivity in U.S. Probably Decreased, Labor Costs Climbed

Productivity in U.S. Probably Decreased, Labor Costs Climbed

Jeff Kowalsky/Bloomberg
Joe Emery installs the main wiring harness on a Ford Motor Co. Transit Connect Electric van at the AM General LLC factory in Livonia, Michigan, U.S.
Joe Emery installs the main wiring harness on a Ford Motor Co. Transit Connect Electric van at the AM General LLC factory in Livonia, Michigan, U.S. Photographer: Jeff Kowalsky/Bloomberg
The productivity of U.S. workers probably fell in the second quarter for the first time in a year, pushing up labor costs, economists said before a report today.
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Comment: With demand expanding, it is mainly by higher productivity that price inflation is being kept in check. If productivity continues to decline and when later-on demand will pick up, price inflation will be the consequence.

Qx in the making

Rogoff Says Fed Will Embark on QE3, Act ‘Decisively’ on Economy

Federal Reserve policy makers are likely to embark on a third round of large-scale asset purchases, moving “more decisively” to secure the U.S. recovery, said Harvard University economist Kenneth Rogoff.
Leia mais 
Comment: Hyperactivism based on ignorance.

Monday, August 8, 2011

Moody's stands by the US

Moody’s Top U.S. Rating Rebuts S&P

Moody’s Investors Service affirmed the U.S.’s top rating for the second time in a week, rebuttingStandard & Poor’s after it stripped the world’s largest economy of its top credit status.
The U.S. today retained its Aaa ranking with a negative outlook in part because the dollar’s status as the main reserve currency allows it to support higher debt levels than other countries, Moody’s said today in a report. Lawmakers last week took a “positive step” toward addressing the nation’s record deficits, Steven Hess, the senior credit officer at Moody’s inNew York, said in a telephone interview.
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Comment: Nice argument. In fact as long as the US can maintain its status as the undisputed provider of the international reserve currency, its debt potential is indeed unlimited.

Eurozone: a mighty step towards fiscal union

ECB Bond Buying May Reach $1.2 Trillion

The European Central Bank’s move to buy Italian and Spanish bonds to tame the region’s debt crisis marks a step toward the kind of fiscal union that Germany has opposed since the founding of the single currency.
While investors and economists say tighter fiscal ties and increased transfers to the financially weak euro states will be needed to end the financial contagion, purchases of Italian and Spanish debt that Royal Bank of Scotland Group Plc estimates may reach 850 billion euros ($1.2 trillion) threaten fresh political fault lines.
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Comment: It was Goethe who said that at the first step you are free, thereafter come the consequences that you can't renounce but must deal with. It is the same with the European Monetary Union.

Job cuts

Global Banks Poised to Cut 101,000 Jobs

The biggest global banks are cutting jobs at the fastest rate since 2008 as a weak U.S. economy squeezes revenue, regulators push firms to hold more capital and companies restructure businesses to improve profitability.
The 50 largest banks, including HSBC Holdings Plc (HSBA), Credit Suisse Group AG (CSGN) and Bank of America Corp. (BAC), disclosed plans for almost 60,000 reductions since Jan. 1, according to company statements and data compiled by Bloomberg Industries. At that pace, they’ll cut more than 101,000 jobs this year -- the most since 192,000 positions were targeted in 2008 amid loan losses, a global credit crunch and unprecedented government bailouts.
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Comment: The sad part of the story is that the young get hit while the elder made the mess.

Fannie Mae, Freddie Mac and more downgrades

S&P Lowers Fannie, Freddie Citing Reliance on Government

Standard & Poor’s lowered credit ratings on debt issued by Fannie Mae, Freddie Mac, and other lenders backed by the federal government, citing the U.S. loss of its AAA status.
The mortgage finance companies were lowered one step from AAA to AA+, S&P said in a statement today. The downgrade reflects their “direct reliance on the U.S. government,” S&P said.
Fannie Mae and Freddie Mac were placed into government conservatorship in September 2008 as losses tied to subprime mortgage lending pushed them toward insolvency. Since then, the two government-sponsored enterprises, or GSEs, have drawn almost $170 billion in federal aid. The GSEs own or guarantee more than half of U.S. mortgage debt.
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Comment: A move that has been overdue for quite some time.

Nightmares of a central banker

Central Bankers Confront Which Risk Scares Most

Central bankers from the U.S. toChina may have to decide which is their worst nightmare: the Great Inflation of the 1970s or Great Depression of the 1930s.  

Sunday, August 7, 2011

Dirty business

Ending Moral Rot on Wall Street, Part 1: William D. Cohan

This decay of Wall Street mores hasn’t gone unnoticed -- at least not by Bharara, the U.S. attorney for the Southern District of New York. In a speech in June to a group of financial journalists, a few weeks after his office won the high-profile conviction of the hedge-fund manager Raj Rajaratnamon 14 charges of insider trading, he wondered about the implications of widespread illegal behavior.

Rampant Corruption

“The bigger and better question may not be whether insider trading is rampant, but whether corporate corruption in general is rampant, whether ethical bankruptcy is on the rise, whether corrupt business models are becoming more common?”
“Some of the most egregious securities frauds,” he added, have occurred “in some of the most prominent and powerful, publicly traded companies, consulting firms, accounting firms, and even law firms.”
These crimes are being committed, he said, by people who“have already made more money than could ever be spent in one lifetime and achieved more impressive success than could ever be chronicled in one obituary. And it begs the question, is corporate culture becoming increasingly corrupt?”
Yes, it certainly does raise that question.
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ECB will monetize Spanish and Italian bonds

Trichet Draws ECB ‘Bazooka’ to Stem Contagion

European Central Bank President Jean- Claude Trichet signaled he’s ready to start buying Italian and Spanish bonds in his riskiest attempt yet to tame the sovereign debt crisis...
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G7 emergency statement

Full Text: G-7 Statement on ‘Renewed Strains’

The following is a reformatted version of a statement released via e-mail today by finance ministers and central bankers from the Group of Seven industrial nations:
Read statement

Muni markets faces "hundreds and hundreds" of downgrades

Muni Market Prepares for Lost AAA Ratings

The $2.9 trillion municipal bond market is preparing for “hundreds and hundreds” of downgrades after Standard & Poor’s lowered the U.S. one level to AA+, the first-ever reduction for the country.
S&P is likely to cut its ratings on municipal debt secured by the federal government, such as pre-refunded bonds, tax-exempts backed by U.S. agencies, and credits that are most dependent on federal spending, Peter DeGroot, head of municipal research at JPMorgan Chase & Co. (JPM), wrote in an Aug. 5 report distributed after the federal downgrade. The New York-based ratings company said it would release a statement on state and local issuers today.
“There will be hundreds and hundreds of municipal downgrades, which will not do well to bolster investor confidence,” Matt Fabian, a managing director of Concord, Massachusetts-based Municipal Market Advisors, said in a telephone interview. “Treasuries may be able to shake off a real impact from the downgrade. Munis I’m less sure about.”
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Comment: A vicious cycle has begun where bad debt begets more bad debt.

Franco-German statement on euro zone debt crisis

Reuters) - Following is the full text of a joint statement issued on Sunday by German Chancellor Angela Merkel and French President Nicolas Sarkozy on measures to tackle the euro zone debt crisis:
The statement

France to lose triple A

AAA France May Be Vulnerable After U.S. Cut

The decision by Standard & Poor’s to downgrade the U.S. credit rating leaves France as the AAA country most likely to lose its top grade, some investors and economists say.
France is more expensive to insure against default than lower-rated governments including Malaysia, Thailand, Japan, Mexico, Czech Republic, the State of Texas and the U.S.
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Comment: It is only a matter of time until there won't any triple A be left.

Buffett shows unwavering optimism

S&P Erred in Cutting U.S. Rating: Buffett

Billionaire Warren Buffett saidStandard & Poor’s erred when it lowered the U.S. credit ratingand reiterated his view that the economy will avoid its second recession in three years.
The U.S., which was cut Aug. 5 to AA+ from AAA at S&P, merits a “quadruple A” rating, Buffett, 80, said yesterday in an interview with Betty Liu at Bloomberg Television. The downgrade followed the biggest weekly selloff in U.S. stocks in 32 months, with the S&P 500 slumping 7.2 percent to its lowest level since November.
“Financial markets create their own dynamics, but I don’t think we’re facing a double dip recession,” said Buffett, chairman and chief executive officer of Omaha, Nebraska-basedBerkshire Hathaway Inc. (BRK/A) “Clearly what stock markets do have is an effect on confidence, and this selloff can create a lack of confidence.”
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Comment:  There are many investment amateurs who believe that if Buffett says so it must be right. So go ahead, buy, and blame on Buffett later.

Feed for the devil

The Kiss of Death?

I'm all for prayer, and God knows our country needs it more that when George Washington called for a day of prayer way back when. So I have no problem with Governor Perry's prayer meeting in Texas today.
However, enter Pastor John Hagee, of the Cornerstone Baptist Church in San Antonio. A longtime anti-Catholic, Hagee has long advocated Armageddon, the earlier the better, so that Christians can rule with Christ for 1,000 years. This apocalyptic tenet comes from Dispensationalism, a creed created in England in the nineteenth century and embraced and spread by the British Foreign Office. My friend Cliff Kiracofe has ably documented the story here.
Christian Warmonger Hagee has a powerful following these days in his role as founder and leader of Christians for Israel. In the run-up to the 2008 Iowa caucuses, Mike Huckabee went to San Antonio to get Hagee's endorsement (he failed). John McCain finally did, but then had to renounce it because of Hagee's anti-Catholicism (full disclosure: Some friends tell me that they have heard Hagee apologize, privately, for his fifty years of bigotry).
Which brings us to Hagee's appearance at today's prayer meeting. Perhaps he was invited, perhaps he crashed the prayer party, perhaps all were welcome, in a Christian sort of way. But in his prayerful remarks he came mighty close to comparing Governor Perry to Abraham Lincoln. Which may well mean that Perry will wind up like John McCain.