Tuesday, March 20, 2012

Today's links

1--Asleep at the wheel, The Burning Platform

Excerpt: Doug Casey in the latest Casey Report explains how evil and stupidity are a deadly combination:

“I would like to suggest that what really distinguishes political elites from normal people is not just a predilection for stupidity but a real capacity for evil. Evil might best be defined as the intentional and usually gratuitous commission of acts that are cruel or unjust. A person who commits many evil acts is a sociopath. The sociopaths who are naturally drawn to government eventually come to dominate it. They’re very dangerous people. They reset the social mores of the country they control. After a certain point, a critical mass is reached, and it’s GAME OVER. I suspect we’re approaching that point.”...

The Federal Reserve Flow of Funds Report, issued two weeks ago, reveals the extent of this blatant scheme to screw the American people in order to save and further enrich the Wall Street psychopaths who won’t be satisfied until their looting and pillaging leads to complete collapse and the world erupting into a world war. The despicable facts are as follows:

•Total U.S. credit market debt has RISEN from $50.9 trillion in 2007 to $54.1 trillion as of 12/31/11, a $3.2 trillion increase.

•Household debt has declined from $13.8 trillion in 2007 to $13.2 trillion as of 12/31/11. The mainstream media would point to this $600 billion decline as proof that Americans have embraced austerity and have learned their lesson. Of course that would be a lie. The Wall Street banks have written off $200 billion of credit card debt and the 5 million completed foreclosures extinguished another $800 billion of mortgage debt. The truth is that consumers have continued to pile up debt.

•Much has been made of corporate America being flush with cash. If they are so flush, why have they added $900 billion of debt since 2007, an increase of 13% to an all-time high of $7.8 trillion?

•The revealing data shows up in the financial company data. These Wall Street national treasures have reduced their debt from $17.1 trillion in 2008 to $13.6 trillion as of 12/31/11. How were they able to do this, while writing off $1 trillion of consumer debt?

•You guessed it. They dumped it on the American taxpayer. The Federal government increased their debt from $5.1 trillion to $10.5 trillion. And our old friends called government sponsored enterprises (Fannie, Freddie, Student loans) increased their debt from $2.9 trillion to $6.2 trillion. Wall Street banks and millions of deadbeats who chose to game the system and live the good life have effectively foisted their $4.5 trillion of debt upon the backs of middle class taxpayers who lived within their means. Another $4.2 trillion has been pissed down the toilet by Obama with his $800 billion Keynesian porkulus program, home buyer tax credits, cash for clunkers, green energy boondoggles, 47 million people on food stamps success story, 99 weeks of unemployment, doubling of SSDI membership, and his multiple wars of choice in the Middle East.

The average hard working, taxpaying American has been enslaved in debt of such proportions that they will never be able pay it off. Your share of the $15.6 trillion National Debt is now $50,000, and growing by $4,500 per year. Your share of the future unfunded liabilities, created by the people you elected, is approximately $350,000. This crushing burden is in addition to the $13.8 trillion of mortgage, credit card, student loan, and auto loan debt Americans have accumulated in the last three decades of delusion. Forty percent of all credit card users do not pay-off their credit card every month and carry an average balance of $16,000 at an average interest rate of 15%. Good to see the Wall Street banks passing along some of their 0% borrowing windfall to their “customers”.

2--Hard landing for China?, wordpress

Excerpt: Chovanec began his presentation by describing the prevailing thesis for China: that the country is on the verge of a profoundly disruptive economic adjustment; in other words, that the old “China story” is over. This story had been based on the premise that China would experience growth for as far as the eye could see, and that the rising economic tide would lift all investors, as long as they had exposure — any exposure. Unfortunately, the dangers of this story became all too clear during the global financial crisis, which showed that China’s export-driven model had reached its limits; that its over-reliance on investment was generating bad debt and inflation; and that any delay in the day of reckoning would only heighten the risk of a hard landing. Chovanec also pointed out that even a “soft landing” for China would represent profound, disruptive change at a micro level.

3--Banks Want Fed to Iron Out 'Maiden', WSJ

Excerpt: A growing appetite for risk is prompting some Wall Street banks and investment firms to show interest in buying the most complex and troubled assets tied to the bailout of American International Group Inc. The $47 billion face value in assets, held by the Federal Reserve Bank of New York, are the same kinds of financial instruments that were at the heart of the financial crisis and caused record losses across the financial industry. Plunging values of the securities, called collateralized debt obligations, or CDOs, caused AIG's near collapse and a government rescue in 2008. The $182 billion bailout was widely criticized because a chunk of taxpayer aid was funneled through AIG to large banks.

Now, amid rising investor demand for riskier, higher-yielding assets, attempts by Wall Street firms to buy those same assets may spark further controversy. Some large banks were on the winning end of bets with AIG over the instruments during the crisis, and benefited from the insurer's bailout.

A potential sale of the CDOs by the New York Fed in the coming months, plus the government's recent decision to resume selling some of its AIG stock, could set the stage for the U.S. to recover the bulk of its money from the bailout before the presidential elections this year.

4-- Risk is back!, CNN Money

Excerpt: The risky bond deals that were a hallmark of the pre-financial crisis boom are staging a comeback as investors continue to hunt for ways to find higher rates of return.

And companies are willing to meet the demand. Roughly $58 billion of high yield, or junk, bonds have been issued by 95 corporations since January. That's the fastest start in 15 years, according to Dealogic.

Investment grade bonds, which offer a lower, albeit more stable yield, have also continued to attract investor interest. Since January, about $150 billion of corporate bonds have been issued by 315 companies, according to Dealogic. While that's slightly faster than the past two years, it's well behind the pace set in 2007, 2008 and 2009.

But what's really captivating market watchers is the reemergence of a particular bond that has a so-called 'toggle pay-in-kind', or PIK, structure that allows a company sell new bonds rather than make semiannual payments to creditors.

Analysts and traders see these bonds as the first clear sign of a return to the pre-crisis era of financing.

5--The Greek crisis is only the beginning, WSWS

Excerpt: The media reports referred to it as the Greek bailout. This is a complete misnomer. The €130 billion package agreed to by euro zone finance ministers last week was not a bailout of Greece, but of the banks and financial institutions that invested money in its bonds.

It is estimated that out of every euro provided by Brussels, only 19 cents will go to the Greek government, with the rest flowing straight into the coffers of banks and financial investors. The costs of repayment are being borne by the Greek people. Savage jobs cuts and the destruction of social services are driving the country back to the conditions of the Great Depression. Already, almost a third of the population is estimated to be living below the poverty line.

Announcing last week’s decision, the head of the euro zone group of finance ministers, Jean-Claude Juncker, emphasised that Athens had to demonstrate a “strong commitment” to “fiscal consolidation, structural reforms and privatisation”—code words for the plundering of Greece by the wolf pack of international finance capital.

Continued “reform,” Juncker claimed, would “allow the Greek economy to return to a sustainable path.” This is a contemptible lie. Greece is in the fifth year of a recession, with the economy contracting by more than 7 percent in the past year. The slide into depression will be accelerated, with unemployment, now at 20 percent, rising still further. Greece is caught in a vicious circle. The imposition of austerity measures is bringing a contraction in the economy, further increasing the debt burden...

London School of Economics Professor Paul De Grauwe noted in a Financial Times comment: “The LTRO program has relieved the pressure in the sovereign debt markets of the euro zone. But this is only temporary. The peripheral countries are now pushed into a deep recession that will exacerbate their fiscal problems and will create renewed distrust in financial markets.” As a result, he warned, “the sovereign debt crisis will explode again.”

Writing in today’s Financial Times, European columnist Wolfgang M√ľnchau warned that the euro zone crisis was far from over. “If you think the European Central Bank’s policies have ‘bought time,’ you should ask yourself: time for what? Greek’s debt situation is as unsustainable as ever; so is Portugal’s; so is the European banking sector’s and so in Spain’s. Even if the ECB were to provide unlimited cheap finance for the rest of the decade, it would not be enough.”...

In all the mass media reportage, the operations of the global financial system and the debt crisis are shrouded in mystifying and arcane language. But the essential class content is clear: the sovereign debt crisis and the consequent gutting of social spending is one of the central mechanisms of a worldwide social counterrevolution.

6--Federal Reserve Stress Tests Make Us All Muppets, Blomberg

Excerpt: The truly dreadful news last week was conveyed in the results of the Federal Reserve’s latest bank stress tests. As presented by the Fed, most of the news was good. Some large financial institutions were judged likely to have sufficient equity capital even if the U.S. economy were to experience a significant downturn. With that, banks such as JPMorgan Chase & Co. were allowed to increase their dividends and buy back shares. Naturally, bank stocks rallied.

But there’s a problem, and it’s not a small one. If you buy the Fed’s view of what is likely to constitute stress, there is some justification for its action. Even then, you should ask the question that Anat Admati, a Stanford University finance professor, has been pressing: Why would we let banks reduce their capital in the face of so much financial and economic uncertainty around the world? If you leave shareholder equity on bank balance sheets, it still belongs to shareholders. Let it stay there as loss-absorbing capital in case the world turns nasty again....

Make no mistake: Lower equity at big banks means higher expected losses for taxpayers down the road. Don’t let anyone fool you into thinking that banking crises are costless. The disaster of 2008 caused about a 50 percent increase in U.S. debt relative to gross domestic product -- the second largest shock to the country’s balance sheet after World War II....

the Fed could have required banks to build up shareholder capital on their balance sheets in case their aggressive risk-taking again becomes reckless and creates enormous losses.

Instead, the Fed is allowing big banks to reduce capital levels, increasing the likelihood of another financial and fiscal crisis and endangering the broader U.S. economy. We are all muppets now.

7--Chinese property *alert*, FT Alphaville

Excerpt: Uh oh. This can’t be good.

From SocGen’s cross asset research team on Monday (our emphasis):

Chinese property sales and prices have made for dour reading recently. Property sales value contracted 20% year on year in the two months ending in February. This is not only the worst result since the property slide in 2008 – it’s the worst result since the series began in 2006....

Chinese property prices released today made for equally glum reading. Prices fell in 45 of 70 cities in February from January, according to prices released on Sunday by the statistics bureau. The average decline across the cities is now around 1.5% year on year. This is similar to the 1.3% drop seen in the old series (shown in red on Chart 2), but arguably the results are a lot worse.

8--RepoWatch, repowatch.org

Excerpt: The financial crisis was not caused by homeowners borrowing too much money. It was caused by giant financial institutions borrowing too much money, much of it from each other on the repurchase (repo) market. This matters, because we can't prevent the next crisis by fixing mortgages. We have to fix repos.

“Our regulators allowed the proprietary trading departments at investment banks to become hedge funds in disguise, using the ‘repo’ system - one of the most extreme credit-granting systems ever devised. The amount of leverage was utterly awesome.” --Charles T. Munger, chairman Berkshire Hathaway Inc., Spring 2009....

"Despite the Dodd-Frank financial reform bill and its directive to address this issue, the problem of bank runs in the shadow system -- a key factor in the financial sector collapse -- has not yet been solved." --Mark Thoma, Professor of Economics, University of Oregon, February 13, 2012

9--G-SAX Hatzius On The Three Reasons The Recovery Is Overstated, Zero Hedge

Excerpt:  Goldman Sachs: Sticking With Sluggish

The US economic data over the past few months have clearly outperformed expectations. Our current activity indicator (CAI) is running at 3.5% in February given the data in hand so far, and is tracking 2.9% for the first quarter as a whole. However, we expect the numbers over next 2-3 months to slow to a pace that looks more consistent with a 2% overall activity growth pace rather than 3% or even 3.5%.

1. Warm weather has pulled forward activity.

Some of the recent strength in the CAI is likely to reflect the exceptionally mild 2011-2012 winter....

2--The inventory cycle has helped.

The pickup in inventory accumulation from -$2 billion (annualized) in the third quarter to +$54 billion in the fourth quarter contributed 1.9 percentage points to the Q4 growth rate. ...

3--Gas prices are starting to cut into real income.

Gasoline prices rose sharply in January and February. Using weekly data from the US Department of Energy, they are now up 9.1% from their end-2011 level on a seasonally adjusted basis, with most of the increase likely to show up in February and March on a month-average basis. According to our models of the link between gasoline prices and growth, such a hit might take 0.3-0.4 percentage points off real GDP growth over the subsequent year. Moreover, using monthly data on the link between gasoline prices and consumption, we find that the impact becomes visible about 1 month after the initial hit, so this would imply that the impact would show up in March and April....

Our bottom line is that there are several reasons to believe that the recent data may have overstated the strength of the US economic data

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