WORLD
More deflation…and yet it WILL NOT be tolerated. Their is simply no way that deflation will be allowed to happen without doing ‘something’ – however futile. And that something, at the end of the day, is simply a continuation of the very same mechanism that has been repeated over and over throughout modern times.
After of week of living in the ‘real world’, tapping into the sentiment and level of awareness, I can say that we are far from capitulation. Far from the point of sudden awareness and shift of confidence. Instead, we are at the stage where people are frustrated, a general agreement that there is corruption, and that the financial system has morphed into some sort of gambling adventure.
However, it is obvious that the ultimate shift has not occurred. The attitude of ‘return ON investment’ prevails in the minds of most. Nothing will change until the general sentiment shifts to one of ‘return OF investment’.
IMF Lowers U.S. Growth Projections to 2 Percent
The U.S. economy will grow by 2percent this year and about 2.25 percent in 2013 amid a“tepid” recovery and the European debt crisis, the International Monetary Fund said, lowering its previous projections. The U.S. remains “subject to elevated downside risks, in light of financial strains in the euro area and uncertainty over domestic fiscal plans,” the IMF said in a statement today. In an April report, the IMF forecast U.S. growth of 2.1 percent this year and 2.4 percent in 2013.
Wow. Resignation must be the new prison.
Bob Diamond resigns as Barclays chief
Mr Diamond said in a statement: “No decision over that period was as hard as the one that I make now to stand down as chief executive. The external pressure placed on Barclays has reached a level that risks damaging the franchise – I cannot let that happen.” Barclays was fined a record £290m last week for attempting to manipulate the interbank lending rate, Libor, between 2005 and 2009.
Barclays Three Top Leaders Quit Amid Bank of England Dispute
Robert Diamond stepped down today as chief executive officer of Britain’s second-biggest bank and Jerry Del Missier quit as chief operating officer, London-based Barclays said in a statement. Chairman Marcus Agius, 65, will quit once he has found a replacement for Diamond, who has worked at the bank for the past 16 years and oversaw its investment banking expansion. The three are leaving after regulators fined the bank a record 290 million pounds ($455 million) for attempting to rig the London interbank offered rate for profit. With Diamond due to appear before lawmakers tomorrow to answer their questions, Barclays released a note of a 2008 call purporting to show that Paul Tucker, the central bank’s then markets director, hinted the firm could cut its Libor rates.
Iran ‘ready to fire missiles at US bases’ | World news | guardian.co.uk
Iran is prepared to launch missiles at US bases throughout the Gulf within minutes of an attack on the Islamic Republic, according to a commander of the country’s Revolutionary Guards.In an apparent response to reports that the US has increased its military presence in the Gulf, the commander of the Revolutionary Guards’ air force said on Wednesdaythat missiles had been aimed at 35 US military bases in the Gulf as well as targets in Israel, ready to be launched in case of an attack.
Iran lawmakers prepare to close Hormuz Strait
Iranian lawmakers have drafted a bill that would close the Strait of Hormuz for oil tankers heading to countries supporting current economic sanctions against the Islamic Republic. ”There is a bill prepared in the National Security and Foreign Policy committee of Parliament that stresses the blocking of oil tanker traffic carrying oil to countries that have sanctioned Iran,” Iranian MP Ibrahim Agha-Mohammadi told reporters. “This bill has been developed as an answer to the European Union’s oil sanctions against the Islamic Republic of Iran.”
Here’s another reason why it would be difficult for Germany to be the one who exits first.
Debt crisis: Italy’s deficit to double, but Germany’s to halve
Mario Monti, the Italian prime minister, told a joint press conference with Angela Merkel, the German chancellor, that Italy’s deficit would rise to 2pc of GDP rather than the 1.3pc predicted, while the German finance ministry revised its forecast from 1pc to 0.5pc “thanks to the favourable overall economic development”.Referring to their clash at the Brussels summit, Mrs Merkel said she and Mr Monti were “willing to overcome our difficulties” and work together to end the three-year-old debt crisis. She said that “every day counts” in finding a resolution.
It almost makes my eyes water when I imagine what things would look like when the US 10 Year trades with a yield of 7%.
Spain Yield Back Above 7%
Summit full life: One week. Literally. Last Friday morning speculation that Germany had “caved” to Mario Monti, somehow allowing beggars to be choosers, and would allow an unconditional and IMF-free rescue of Spain and Italy while the seniority of the ESM was eliminated, sending the Spanish 10 Year yield to under 6.2%. The same security is now back over 7%, where it was just before the summit, as Finland and Holland (or half of Europe’s AAA-rated countries), and even Germany, made it quite clear, as we said all along, that stripping seniority of a piece of debt is far more complex than saying one wants to do it in a Memorandum of Understanding.
DOMESTIC
Nothing to see here folks. Everything is managed (and prosecuted)- except gold and silver.
Dreyfus sued over cotton ‘price-fixing’
The former head of cotton at Glencore has personally sued rival Louis Dreyfus Commodities, accusing the trading house of market manipulation in a rare move that sheds light on the inner workings of the markets in the commodity. Mark Allen’s lawsuit claims Dreyfus and several subsidiaries inflated the price of cotton futures between May and July 2011.
JPMorgan probed over possible power market manipulation
U.S. energy regulators have subpoenaed JPMorgan Chase & Co to produce 25 internal emails as part of an investigation into whether the bank manipulated electricity markets in California and the Midwest. The Federal Energy Regulatory Commission (FERC), which has recently stepped up its efforts to end manipulation of U.S.power markets, filed a petition in federal court on Monday to require the bank to produce emails from 2010 and 2011 as part of a formal investigation into the bank’s power trading.
The Fed Gets Dragged Into LiEborgate
As was first reported two days ago, and confirmed today, Barclays’ natural response to allegations it single-handedly manipulated the interest rate complex for up to $500 trillion notional in IR-sensitive swaps and other products (it didn’t – everyone else did it too), was to drag everyone into the scandal, starting off with the Bank of England (and about to drag Whitehall into it too), and specifically the man who was next in line for governorship of the English Central Bank: Paul Tucker. What does this mean? Well, as we suggested also two days ago, now that the natural succession path at the BOE has been terminally derailed, it brings up those two other gentlemen already brought up previously as potential future heads of the BOE, both of whom just happened to work, or still do, at… Goldman Sachs: Canada’s Mark Carney or Goldman’s Jim O’Neil. Granted both have denied press speculation they will replace Mervyn King, but it’s not like it would be the first time a banker lied to anyone now, would it (and makes one wonder if this whole affair was not merely orchestrated by the Squid from the get go… but no, that would be a ‘conspiracy theory’.) Yet the fact that Goldman is hell bent on global domination by stretching its tentacles into every monetary policy administration is no secret: it is only a matter of time before GS also runs the English CTRL-P macros. More interesting is that in addition to the BOE, Barclays today also dragged America’s very own Federal Reserve into the fray.
Sentiment is basically dismal in basically every sector. Seems about time for a ‘policy intervention’ – not that it will help in the long run.
Consumer spending stalls, morale at 6-month low
Consumer spending growth ground to a halt in May as auto purchases flagged, while confidence ebbed to a six-month low in June, the latest signs of trouble for the economy.Although manufacturing activity in the Midwest picked up this month, it offered little cheer for an economic recovery that has been hit by turbulence from the debt crisis in Europe and a lack of clarity on the course of fiscal policy at home.
Unsealed Documents Expose Morgan Stanley Forcing Rating Agencies To Inflate Ratings
With Europe, the BBA, and virtually everyone shocked, shocked, that the global bank cabal schemed and colluded for years to manipulate interest rates, so far only America appears relatively blase, and totally ignorant, about the issue. Perhaps it is because the first bank exposed in the manipulation scheme so far is European, perhaps because it is just tired of all the endless crime coming out of the criminal complex known as Wall Street. It is unclear. Then again, America will soon have its own manipulation scandals to deal with: and if it is not the US BBA member banks, all of whom were just as guilty as Barclays, and the only question is which bank will be the sacrificial scapegoat whose CEO will have to demonstratively depart (to warmer, non-extradition climes), it will be the following story from Bloomberg which will likely pick up much more steam over the next weeks and months, detailing how the bank which just barely avoided a triple notch downgrade (wink wink) has had previous dealings with the very same rating agencies seeking to, picture this, artificially inflate ratings! So to summarize: Fed manipulates capital markets, HFT manipulates bid ask spreads, “self-policing” CDS pricing market groups fudge the prices on trillions in Credit Default Swaps, bank cabals collude and manipulate short-term interest rates, and now banks are confirmed to have manipulated the ratings on tens of billions of bonds using monetary incentives and threats.
ISM Services Index in U.S. Fell to 52.1 in June From 53.7
The Institute for Supply Management’s index of U.S. non-manufacturing businesses, which covers about 90 percent of the economy, fell to 52.1 in June from the prior month’s 53.7, the Tempe, Arizona-based group said today.The median forecast of 70 economists surveyed by Bloomberg News projected 53. Readings above 50 signal expansion. Estimates ranged from 51.5 to 54.2. The ISM services survey covers industries ranging from utilities and retailing to housing, health care and finance.
Once again, it’s all about perception and confidence.
Dimon Faces Image ‘Nightmare’ With Energy Probe at JPM
JPMorgan Chase & Co. (JPM)’s refusal toturn over e-mails in a federal probe of potential energy-marketmanipulation is the latest challenge for Chief Executive OfficerJamie Dimon as the bank faces multiple investigations. The U.S. Federal Energy Regulatory Commission sued JPMorganJuly 2 to release 25 e-mails in an investigation of possiblemanipulation of power markets in California and the Midwest byJ.P. Morgan Ventures Energy Corp., according to court filings bythe Washington-based agency. FERC opened the probe in Augustafter complaints from California and Midwest grid operators thatJPMorgan’s bidding practices were abusive, the documents show.
Is it any wonder how we got to this point — or is it more a mystery of how the system is still intact?
How Stockton went broke: A 15-year spending binge
The man in charge of the biggest U.S. city ever to file for bankruptcy is clear about the root of the crisis.It was a decision that gave firefighters full healthcare in retirement starting on January 1, 1996, said Bob Deis, the city manager of Stockton, California.At the time, the move seemed cheaper than giving pay raises sought by unions, officials involved in the decision said. When other Stockton employees demanded the same healthcare deal in following years, the city agreed.
Not good for an election year…
June Non-Farm Payrolls +80,000, Missing Expectations; Unemployment Rate 8.2%
The June Non-farm Payroll number of 80,000 comes below expectations of 100,000. Private payrolls miss even worse, at 84,000 below consensus of 106,000. Unemployment rate prints at 8.2%, inline with expectations. U-6, or broad unemployment rose from 14.8% to 14.9%. According to the household survey, jobs rose by 156,000 S/A and 1,387,000 Not seasonally adjusted. The worst news is that the number is not bad enough for more NEW QE immediately.
CURRENCY WARS AND PM’s
Barclays rate fixing scandal: Parliament to launch inquiry
n a statement to the House of Commons this afternoon, the prime minister said a parliamentary inquiry could act ‘immediately, be accountable and get to the truth quickly so this never happens again.”Mr Cameron said the inquiry would have widespread access to special advisers, ministers and papers from the coalition and the previous Labour government, “The British people want to see two things. They want to see bankers who acted improperly punished and they want to know we have learned the broader lessons ,” he said.
Here we go – as if by script, the currency wars continue. Merkal’s apparent acquiescence last Friday helped turn the spot light a bit further West. This could end up being the catalyst for even more short-covering — which by the way, as you will learn from Gene’s video below began before Friday’s announcement.
The EUR/USD Squeeze
While it has been an extremely quiet trading with nearly all of the major currencies consolidating against the U.S. dollar, everyone cannot stop asking about the intraday squeeze in the EUR/USD. The currency pair jumped from 1.2570 to 1.2600 in a manner of minutes and extended its gains to 1.2627 before the end of the European trading session. There was little movement during the second half of the North American session, which tells us that most U.S. traders left early for the holiday. U.S. markets will be closed on Wednesday for the July 4th Independence Day holiday. Currency markets will remain open but with lower volatility and thinner trading volumes. The short squeeze in the euro reflects pre-holiday and pre-ECB repositioning by EUR/USD traders. According to last week’s CFTC IMM data, speculators remain very short euros and today’s price action tells us that many of them do not want to hold their shorts ahead of the ECB meeting. This is interesting because economists are looking for a rate cut from the ECB. Believe it or not, a rate cut could actually be positive for the euro but we’ll explain that in more detail in our ECB/BoE preview that we will release on Wednesday.
Bank of England dragged into rate-rigging row’
Bob Diamond had a conversation with Paul Tucker about how much Barclays was claiming it had to pay to borrow money during the financial crisis in 2008.After Mr Diamond spoke to Mr Tucker, Barclays staff came to believe the Bank of England wanted them to falsify this data — which was used to calculate Libor, the interest rate that banks pay to each other.
Barclays threatens to implicate UK regulators in rate-rigging probe
Bob Diamond is threatening to reveal potentially embarrassing details about Barclays’ dealings with regulators if he comes under fire at a parliamentary hearing on Wednesday over the Libor rate-setting scandal, according to people close to the bank’s chief executive.”If he is attacked, he will fight back,” said one person familiar with preparations for the Treasury select committee hearing.Such a confrontational tactic could aggravate the fraught relations between the bank and the authorities after Barclays paid L290 million to settle an investigation by UK and US regulators over the bank’s involvement in manipulating key interbank lending rates.
MPC expected to launch £50bn QE
The Bank’s Monetary Policy Committee (MPC) is expected to vote for more bond purchases through quantitative easing (QE) when it makes its monthly decision on Thursday. It would take the total spent under the programme to £375bn. Additional stimulus would come against a backdrop of a recession in Britain that is deeper than initially thought, a eurozone debt crisis which continues and falling inflation.
Inflation-Plagued Iran Prepares for Worse
Bedeviled by government mismanagement of the economy and international sanctions over its nuclear program, Iran is in the grip of spiraling inflation. Just ask Ali, a fruit vendor in the capital whose business has been slow for months.
Food inflation fears as US crop prices surge
The jump was driven by the current spell of hot, dry weather in the US Midwest, which is suffering record-breaking temperatures in some areas. Similar weather back in 1988, creating one of the most damaging droughts in US history, cut the country’s corn production by more than 30pc. Food price inflation is already a headache for policymakers around the globe, faced with the pressures of growing populations, rising urbanisation and changing diets.
Everybody is doing it.
China’s central bank cuts lending, deposit rates
China’s central bank on Thursday unveiled a surprise interest rate cut, lowering borrowing and deposit rates while also enabling banks greater leeway in setting their own lending rates at a discount to the benchmark.The People’s Bank of China lowered its one-year yuan deposit rate 25 basis points, or a quarter percentage point, to 3% and its one-year lending rate by 31 basis points to 6%, according to a statement posted on its website.
European Central Bank cuts rates to new low to aid flagging economy
The European Central Bank cut interest rates to a record low on Thursday to breathe life into a deteriorating euro zone economy and back up measures agreed by government leaders last week to tackle the bloc’s debt crisis.The quarter-point cut in the ECB’s main refinancing rate to 0.75 percent was in line with market expectations and followed a dire batch of economic data that show even euro zone powerhouse Germany is entering a modest downturn…
Here we go. Now, at least in Denmark, you pay them to hold your money.
Denmark sets a negative rate for first time
Denmark’s central bank cut interest rates by a quarter point on Thursday, mirroring the European Central Bank’s action earlier in the day, putting one of its secondary rates below zero for the first time in history. Yields on some short-end Danish government bonds had already turned negative earlier, as investors fearful of turmoil in the euro zone have piled into non-euro assets, including Danish bonds, and are were willing to pay to shelter their money.
More dollar diversification…
Australia seeks closer currency ties with China
Australia will step up its campaign to boost economic ties with its largest trading partner China when Treasurer Wayne Swan heads to Beijing next week hoping to secure a deal to make the Australian dollar the third currency to be directly convertible with the yuan. Mr. Swan will lead a forum in Hong Kong on Wednesday on the internationalization of the yuan — a strategy pursued by China to ease away from dependence on the U.S. dollar as a reserve currency — before heading to Beijing for more direct discussions with officials. “Internationalization of the yuan is clearly in the interests of Australian businesses and the broader Australian economy, which is why we’ve been taking action to promote and deepen the market in yuan/Australian dollar transactions,” Mr. Swan said.
EURUSD Slides To 2 Year Low As Reality Supercedes Hope
European credit markets – sovereign, financial, and corporate – have all slumped dramatically in the last two days – massivley underperforming the ever-hopeful equity markets. Even though broadly European stocks (the BE500 or STOXX) are only retraced by around 25% off their post-summit highs, individual markets (and especially financials) have retraced almost 100% of the gains with Spain’s IBEX seeing its biggest 2-day drop in 7 months and closing unchanged from pre-Summit levels. EURUSD is the story though as it plunges to two-year lows at 1.2266 – over 400pips from its post-summit euphoria highs as QE3 hopes are dashed by muddling through US data. The disconnect between US and European equity indices and the rest of the world’s more idiosyncratic risk markets remains unsustainable and as we have said before again and again “credit anticipates and equity confirms”.
Obama Opens Car Front In Chinese Trade War
In Ohio today, President Obama will announce the latest World Trade Organization suit against China, this time addressing “unfairly” imposed duties on U.S. auto exports. The Administration will argue that these duties violate international trade rules. Whether or not China will reply that buying US 10 year paper at 1.6% is also unfair remains to be seen. But at least someone is happy. As reported earlier, ADP reported just 4,000 manufacturing jobs were added in the US in the last month: these are the same people who are supposed to be doubling US exports in Obama’s latest 5 year plan. Good luck. Anyway, here is the take of the Alliance for American Manufacturing to this simplistic attempt to trade union for long-term stability with America’s largest trading partner.
Big Move In Gold And Silver Imminent
A big move in gold and silver is imminent according to traditional technical analysis. Both gold and silver are tracing out triangles. The triangle in gold is near its apex point from where the breaks usually occur.
Oh boy. This is worth diving into. Pretty soon just every conspiracy theorist will be proven correct…
Fed’s John Williams Opens Mouth, Proves He Has No Clue About Modern Money Creation | ZeroHedge
What is amusing and at the same time tragic is that as the chart above shows, the reason why virtually nobody talks about shadow banking, and not one coherent monetary theory exists to account for its is simple: shadow banking as a relevant phenomenon only appeared in the 1980s and then exploded, hitting a peak of over $20 trillion in liabilities. As such when the bulk of “modern” monetary theories were conceived it was not a factor. Now… it is, and accounts for more than half of the credit money in circulation. In other words, an appropriate analogy to what happens when virtually anyone defines or tries to explain monetary policy, having been taught using conventional theory, is the same as attempting to understand how an iPod works using the instruction manual for a 19th century record player.And still they do.
Gold imports could rise by 20% in 2nd half: Bullion association
The second half of this year may see 20% increase in gold imports to 300 tonnes over the first six months, a bullion association has said. “Imports in the second half of the calendar year will be around 300 tonnes, higher than what we have imported in first half, which was 250 tonnes,” Bombay Bullion Association president Prithviraj Kothari said.
COMMENTARY
Why Do Bankers’ Seem to be Uniquely Immune to Punishment? – Silver Exchange Holiday
It is difficult to discuss a particular problem in any sort of specifics without at least reviewing some of the facts and causes in a open manner. But when the problem involves a fraud, that discussion can become rather difficult if those leading the discussion are too close to the situation.So we have these myths about vaporizing money, and magical thinking about how things just happen without any human intelligence or activity behind them. It just seemed to have happened as a series of unfortunate events. Who could have known?
Paul Mylchreest’s latest…Always worth a look:
Thunder Road Report On The Death March: Approaching A New Financial System
If you are reading this, you are probably a member of what the sociologists would term middle class (albeit at the upper end). This is precisely the segment of society which is poised to come off worst from what is coming. Here is a very disturbing idea. As this crisis develops, if you are an equity portfolio manager and you want to outperform the market, you are going to have to position your portfolio so that it benefits most from your own wealth destruction and that of your family, friends and colleagues. Almost everybody is going to lose and there aren’t many places to hide. This is deeply unpleasant but you can blame the central planners. I’ve written about my own investing, e.g. gold and silver, equities in terms of Maslow’s Hierarchy of Needs, etc. In this Thunder Road Report (below) and going forward, I will discuss this middle class theme and highlight positions I have in individual stocks, etc. The only good thing that can come out of this is a rise in awareness. It’s just awful.In government bonds, the natural inflow of funds is approaching the end of the road – although there is probably one more short-lived and “wrong-footing” move downwards in the yield on the 10-year US Treasury. Increasingly, the flow of funds into government bonds is merely a direct reflection of newly created liabilities (debt) on the balance sheets of central banks like the Fed, ECB and Bank of England. Long-term US Treasury bonds are in their highest ever supply and at their highest ever price/lowest ever yield. Just another example of our “upside down” world.
Fat chance on this…
Barclays libor scandal: lock ‘em up – it’s the only way of dealing with abuse like this
The only bit of the generally repeated sequence of events missing in the Barclays case is the one I haven’t mentioned – the cover-up. As the crisis develops, someone, often the chief executive, is nearly always caught attempting to destroy the evidence.Barclays did at least manage to avoid that one; emails are not so easily shredded as the paper work of old. But the other two elements are now fast snowballing; as is now apparent, manipulation of interbank interest rates appears to have been endemic at a number of banks and what’s more, regulators repeatedly ignored warnings of it.
Transparent Holdings = 8:1 ratio Silver:Gold
Gold reentering monetary system
Early in 2011, the London Bullion Market Association began to push for gold to be recognised by the Basel Committee on Banking Supervision as the ultimate high-quality liquid asset. It has been a planned approach involving the wider financial community, with the European Parliament voting unanimously to recommend that central counterparties (basically regulated settlement intermediaries for securities markets) accept gold as collateral under the European Market Infrastructure Regulation (EMIR). Lobbying by the LBMA certainly contributed to this favourable outcome. A growing acceptance of gold as collateral in regulated markets is forcing the Basel Committee to reconsider the position of gold as a banking asset, which currently has a 50% valuation haircut. It is now a racing certainty the haircut will be revised to zero, the same status as secure cash.
Here’s an interesting riff on interesting outline that came out a while back. Brodsky On “Gold Monetization And The Big Reset”…
The Path to $10,000-an-Ounce Gold
Right now, central bankers are diluting the value of debt very slowly by pushing interest rates below the rate of inflation. Some call this “financial repression.” It’s an unspoken policy that has many negative consequences. What is an alternative, since all attempts to “fix” the current system with more borrowing and printing are failing?How about the classical gold standard, which stands out as the least flawed of all the systems we’ve tried. Each nation could choose to peg its local currency to gold at a price that allows for enough growth in bank reserves to greatly reduce the burden of public- and private-sector debts.Re-pegging a currency like the US dollar to gold at the current price (about $1,550) has its pitfalls. Most notably, it would not deleverage an overleveraged banking system. But re-pegging the dollar to something like $10,000 an ounce might do the trick.
The FT ‘ s Martin Wolf Shoots the ‘ Naturally Efficient Markets ‘ Hypothesis in the Head
In the absence of effective regulatory oversight and objective restraint, the financial insiders rigged the market, not incidentally, but systemically and flagrantly over a long period of time. Market manipulation is no obscure theory, not some secular transgression committed on the periphery by rogue traders, but a pervasive feature of the Anglo-American banking system that stubbornly resists reform through the accumulated power of a credibility trap.
“I know three things will never be believed – the true, the probable, and the logical.” … John Steinbeck
Synchronized Easy Money: Central Banks Cutting Key Rates – Denmark Goes Negative
Gentleman, start your presses, and rig the markets to both enhance the effect in some and to hide it in others. And this produces a mindset towards manipulation in all the key market participants.Bob Diamond is a sociopathic child of a monied culture of privilege and deceit, a collegiality of crime.They may try to bury the stench of corruption in the banking system by further diluting the value of money, but this will not restore vitality to the real economy. It will only continue the malicious trends and increase the misery of the people. And this energizes the feedback loop of repression.
Here in lies the rub….These stories are chipping away – ever so slightly at faith and confidence. It’s a slow move down the (Exeter) pyramid. All the while, in seemingly parallel increments, the world is turning it’s back on the dollar.
Barclays Scandal Bad News For Investor Confidence
The ballooning interest rate manipulation scandal at Barclays, coupled with stock market instability, is likely to fuel fresh doubts about the integrity of the stock market, insiders said.“Every time people begin to gain a little confidence, something else comes up,” said Randy Frederick, managing director of active trading and derivatives at Charles Schwab. “If it’s not Europe, it’s [troubled] IPOs, or JPMorgan or Barclays. Something new blows up and people say, ‘I knew it was rigged.’”Frederick said the string of banking scandals and market instability has led some investors to pull their money out of the markets entirely, contributing to the long-term decline in trading volume. Frederick predicted options trading volume will be down 5 percent to 10 percent for the year. In recent weeks, federal regulators and market executives have joined the alarm that retail investors are losing faith in the integrity of the markets. New data suggests those fears are well-founded.
This reminds me of the ‘mountain of paper covering up a tiny bit of silver’ analogy. We have totally blown out of any sense of reality. This is not complexity. This is how the Ponzi goes down.
Charting The Exponential Function Of Financial Complexity
There is a perverse macro-level outcome from over-zealous central-planning. We have talked in the past about the greater risk of huge tail events in a controlled/normalized/planned/smoothed world, but as SocGen’s Dylan Grice in an analogy to driving: “traffic lights and road signs are well intentioned, but by subtly encouraging us to lower our guard they subtly alter the fundamental algorithm dictating micro-level driving behavior.” In other words, we drop our guard. With the plethora of financial market traffic light and road signs (Basel III, Solvency II, Bernanke Put) the fear is that this illusion of capital or safety has made markets more lethal (think AAA-rated bonds for a simple example). “We should be able to understand that the world isn’t risk free, can never be made risk free and that regulations which trick people into thinking it is risk free serve only to make it more dangerous.” But instead, following the rule-of-Iksil (baffling with bullshit), regulators have gone the traditional route – but this time to an exponential place of craziness with Dodd-Frank – layering complexity upon complexity to give an out to those who abuse it most. Perhaps, as Grice notes, instead of focusing on ‘fixing’ the “crisis of capitalism”, it would be more pragmatic to focus on the “crisis of dumb counterproductive intervention”?
Here’s one of those stories where it’s just ugly from every angle…
Probation Fees Multiply as Companies Profit
It is, rather, about the mushrooming of fines and fees levied by money-starved towns across the country and the for-profit businesses that administer the system. The result is that growing numbers of poor people, like Ms. Ray, are ending up jailed and in debt for minor infractions. “With so many towns economically strapped, there is growing pressure on the courts to bring in money rather than mete out justice,” said Lisa W. Borden, a partner in Baker, Donelson, Bearman, Caldwell & Berkowitz, a large law firm in Birmingham, Ala., who has spent a great deal of time on the issue. “The companies they hire are aggressive. Those arrested are not told about the right to counsel or asked whether they are indigent or offered an alternative to fines and jail. There are real constitutional issues at stake.”
One thing is clear– the Bank knew Libor was broken and did nothing
Let’s hope he gets his wish, because clarity is one thing we didn’t get on Wednesday from Bob Diamond’s appearance.Diamond didn’t satisfy the MPs and the MPs certainly didn’t satisfy any watching voters with a session that rarely rose above the mundane. It was not a good advert for the committee which, with one or two exceptions, needs to be better briefed and cleverer in its questioning.
Another interesting read…
A.I.: The New God of Economics
In the aftermath of the financial crisis—first in the U.S. and now in Europe—there has been a steady chorus of influential and prominent thinkers testifying that the field of economics is in none other than a full-blown existential crisis. George Soros, for example, speaking at the Italian Festival of Economics last month, said “there has been a widespread recognition, both among economists and the general public, that economic theory has failed.” Then there’s Paul Saffo, writing for Foreign Policy who states, “we know more about weather systems and the like than we know about the global econosphere, and our weather forecasting is unquestionably better than our economic forecasting.”
No one is clean.
Unsealed Documents Expose Morgan Stanley Forcing Rating Agencies To Inflate Ratings | ZeroHedge
Morgan Stanley, according to the plaintiffs’ filing, bears at least as much blame as the rating agencies: The bank allegedly wrote the Moody’s report on the SIV and read the S&P report before it was released to investors. The summary judgment opposition points to evidence that Morgan Stanley pressured the rating agencies to apply methodology that didn’t suit the securities and to ignore the paucity of historical data in order to grant the SIV a rating it didn’t deserve. By sending a supposedly “threatening” email to an S&P higher-up when an analyst proposed granting the SIV a BBB rating, Morgan Stanley boosted the rating to an A, the plaintiffs assert. In support, they quote an email from Morgan Stanley exec Greg Drennan, who had sent the allegedly menacing email: The bank’s efforts, Drennan wrote, “did get us the rating we wanted in the end.”
The History Of The Federal Reserve System
For better or mostly worse, the Federal Reserve has been governing the monetary system of the United States since 1914. The visual history below maps the rise of the Fed from its origins as a relatively minor institution, often controlled by Presidents and The Treasury to its supposedly independent and self-aware current position as, arguably, the most powerful entity in the world. And because we always like to be ‘fair-and-balanced’ we juxtapose this clarifying truth of the maniacal growth of the Fed’s balance sheet and shift from passive to hyperactive – highlighting every major macro-economic and political event on the way – with G. Edward Griffin’s 1994 speech on ‘The Creature From Jekyll Island’.
On The Morality Of Choice
Picture yourself walking into a department store to purchase some laundry detergent. As you approach the aisle stocked full of brightly-labeled containers, you come face to face with a crucial decision. Which detergent do you choose? Do you go with the tried-and-trusted brand? Do you save money with the generic variety? What’s on sale? What about the high-efficiency kind?The choice between something as inexpensive as laundry detergent seems trivial in a modern economy marked by mass production and the division of labor. But the large selection of goods that consumers are faced with today is an incredible betterment relative to the past thousand years of human existence. Indeed, the lives of even the most impoverished in Western economies far surpasses that of kings centuries ago.
The Next Imminent Bailout: Eminent Domain
It seems that governmental efforts to save the underwater and ineligible homeowner from his own fate are reaching fever pitch. Not only do we hear today of the up to $300mm in Agriculture Department Rural Housing Service loans that may have financed ineligible projects or borrowers with a high potential inability to repay the loans; but yesterday’s WSJ reports on the growing call for ‘eminent-domain’ powers to be used by local government officials in California to stop the “housing bust’s public blight on their city”. In yet another get-out-of-jail-free card, the officials (helped by a friendly local hedge-fund / mortgage-provider) want to use the government’s ability to forcibly acquire property to remove underwater homes, restructure the mortgage (cut principal), and hand back the home to the previously unable to pay dilemma-ridden homeowner.
Gold the answer to currency wars
Global capital markets specialist and best-selling author James Rickards says that the ongoing currency wars are a combination of deflationary and inflationary factors that could leave painful scars on the global economy. The New York-based hedge fund manager and author of Currency Wars: The Making of the Next Global Crisis says that the US dollar may no longer be the force it was in the past. Rather there will be a general swing in the financial system toward the gold standard, he says. “Gold is not a commodity. Gold is not an investment. Gold is money par excellence,” Rickards says.
The Real-World Middle Class Tax Rate: 75%
The Real-World Middle Class Tax Rate: 75% (July 5, 2012)If we include all taxes, the real-world tax rate is much higher than the “official”income tax rate.For those Americans earning between $34,500 and $106,000, the real-world middle class tax burden in high-tax locales is 15% + 25% + 5% + 15% + 15% = 75%. Yes, 75%. Before you start listing the innumerable caveats and quibbles raised byany discussion of taxes, please hear me out first. Let’s start by defining”taxes” as any fee that is mandated by law or legal necessity. In other words,taxes are what is not optional.If we include all taxes, the real-world tax rate is much higher than the “official”income tax rate. These “other taxes” vary from nation to nation. France, forexample, has a “television tax.” It is mandatory, and since virtually every household has a TV this operates as a universal tax. The argument that this is “optional” is specious.
Audio/Video
Here’s Jesse (and the video below) on the story of the day from our world. Chris Whalen stars heavily in the video and makes an interesting delineation at the end: Essentially, Whalen gives more credence the fact that there are 2 separate realities happening. One reality is that the system is alive and well for the most part — as long as the other realty — that the same system runs while egregious cheating and fraud go on unchecked and out of control.
Jesse’s Café Américain: Credibility Trap: Silver and Financial Markets Are Manipulated, But So What?
I do not wish to pick on Chris, but he is a smart and generally well-educated fellow, a graduate of Villanova, but he is still a creature of the system, a former employee of the NY Fed and Bear Stearns, and captive to a cultural mind set, perhaps without even realizing it, that is apparent to an outsider.
Whalen: None of its [JPM's CIO losses] are acceptable, but see the whole point is Jamie got entangled in the media. (He got caught lying and gambling with customer money – Jesse) If this had just been a reported loss with a lot of other numbers we wouldn’t be talking about it. It’s a trivial number in the grand scheme of things.
Sorkin: What may be less trivial is this situation, this scandal involving LIBOR.
Whalen: Ah well, welcome to the banking industry. Come on, uh, you know… (wink wink, nod nod)
Sorkin: You hear about these things…
Whalen: Foreign exchange, Libor…
Sorkin: You used to think these were conspiracy theories. Right? You hear this about people manipulating LIBOR, you hear about people manipulating the silver market, and you’d say…
Michelle: And they are!
Sorkin: And they are!
Here’s the video: The punchline comes about 9 minutes in….
This one starts 3 minutes in…
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Here’s a treat from Gene Arensberg’s Gold Gold Report. Looks like we could be in for a rally…
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Here’s Max going ballistic…(about 12 minutes in)