Tuesday, June 7, 2011

Keep Your Eye On The Ball

Before I get started on my pontifiicating, I wanted to post what I believe could be a quote of the year candidtate from Don Coxe, the well-know Strategy Advisor to BMO's financial group (Bank Montreal):

"The only gold bubble likely to burst is the bubbling ridicule of gold."

I think that statement speaks for itself...

On to keeping your eye on the ball.  I was chatting with a long-time colleague this morning who made the comment that "the situation in Greece is getting ugly."  I agree that it is, but I remarked, "who cares about Greece?"  Greece is small change compared to the brewiing crisis with our banking and financial system.  Seriously.  I described the Greece/Europe situation to someone this weekend as pure "chaff" being used to deflect our attention from much bigger problems brewing in the U.S. financial/economic system.  "Chaff" is metallic material used by jet fighers to redirect radar-seeking missiles, giving the pilot time to maneuver out of harm's way.

The Greece problem is around $400 billion dollars. I'm sure quite a bit of that could be monetized if the country wanted to sell off a few national assets, like a couple of its awesome Aegean Sea islands.  I would sell Ios and Mykonos, which have already been ruined by tourism...But lets take a look at just a few of the Too Big To Fail (TBTF) banks in the U.S.

Per yesterday's commentary, the market is signalling enormous problems via the huge negative performance of the stocks of several TBTFs since mid-January.  Combined, BAC + WFC + JPM + GS + C + AIG have a total balance sheet of nearly $9 trillion.  Let's assume for the sake of a "handgrenade and horseshoe" argument that the combined net worth (assets minus liabilities) is around $900 billion.  That could be pretty close because BAC's book value is about 10% of its balance sheet size.  Now let's assume that the assets on this beast is only 10% over-priced (and I can guarantee you THAT is generous).  That means that just these banks alone have an insolvency issue TWICE the size of Greece. 

And the fact of the matter is that I'm only looking at the "on-balance-sheet" GAAP numbers.  We have no clue whatsoever what the off-balance-sheet liabilities look like, especially the massive derivatives positions.  What we do know is that took over $2 trillion in stimulus and money-printing by the Fed and U.S. Taxpayer to keep the TBTF's from collapsing.  A lot of that was related to AIG, which at the time had around a $1.4 trillion balance sheet.

The point is that, if I'm right, and I'm not the only one who is looking at this with a critical eye, then what the hell are we doing worrying about Greece and why is Greece dominating the daily conversations in the financial media?  This is what I mean when I say that the Greece situation is being used to deflect attention from the ticking financial nuclear bomb in this country.  And I have not even introduced the concept of the U.S. Government's looming insolvency, the several trillion in underfunded retirement funds (those numbers are widely available if you want to google them), or the dire financial condition of several large States....Greece?  You have to be kidding me...


  1. Dave, love the posts but not a good idea to mix up your flack with your chaff - especially when there is a heat seeking missile involved!

  2. (Dave in Denver)

    LOL. You are right. I worked on the financial restructuring of small company that provided air force services to the Navy back in 1990 as a summer intern in business school. That's how I knew about that "stuff." "Chaff" is the correct term.

  3. Dave check this out, Epic.


  4. You want change..sick of the banks, obama,fed?

    vote gold..vote silver..

    “Lifting the Veil”

    Mark Ames referred me to the documentary “Lifting the Veil.” I’m only about 40 minutes into it and am confident it will appeal to NC readers, provided you can keep gagging in the sections that contain truly offensive archival footage (in particular, numerous clips of Obama campaign promises).


  5. Case: The Mathematics of Gold

    Therefore, C/D = $12,454.8986 per ounce ~ $12,455 per ounce


  6. Chaff is to divert RADAR seeking missiles; flares are used for heat-seeking missiles. :)

  7. The difference is the US banking system doesn't have any assets that the anybody wants to own. Whereas Greece does and is as a result the subject of a hostile predatory attack.

  8. I certainly hope we are all correct regarding hard commodities - oil, gold, palladium, silver, platinum, uranium and copper. I have a substantial part of my portfolio invested in them, not to mention one hell of a lot of money. Right now I'm off 20% overall, and holding firm.

    I don't see how in hell this is happening - the dollar is worthless, gold is trading near all time highs, silver's off but still up overall. Many of my positions are through the floor so to speak - SLW tanked over 0.60 just after noon yesterday, recovered to 33.70 but I'm still deep in the hole on this baby.

    Call me insane, but now I'm looking to buy some of the cheaper producers, maybe a few thousand of each long - what do you or anyone else here think of picks like AXU, EXK and HL - from my analysis, they look way oversold, and dirt cheap.

  9. All we get are lemons....

    The financial system is on the brink of collapse after trillions in bad loans were issued by greedy bankers. If you were a U.S. political figure, would you:

    A.) Tell everyone to suck a lemon, and (maybe) let the economy implode.

    B.) Fire the bankers who made the bad loans, prosecute the guys who broke the law and guarantee a portion of the loans in a grin-and-bear-it show of good faith.

    C.) Reward the bankers who made the bad loans with billions of dollars in bonuses and guarantee every loan with U.S. taxpayer money (with interest, because we borrowed the money from China).

    If you answered C, then maybe you should run for office, support laws that funnel billions to insolvent companies, retire from politics and start working for one of the companies you helped bail out. Heck, that's what former Republican-senator Judd Gregg did (newly hired by Goldman Sachs).


  10. Did not this go on in pretty much every market?

    Comp sales valuations loved it...wonder who is sitting on all this bad debt?

    Talk show host Cutaia charged with fraud

    According to federal prosecutors:

    Cutaia used most of the investors' money to make payments to other investors and to pay personal and business expenses, a method first used by 1920s swindler Charles Ponzi. The alleged fraud took place from about March 2003 to about December 2006.

    Cutaia found investors through the talk show, real estate seminars and contacts with other real estate brokers. He told the investors that their money would be used exclusively to buy real estate in South Florida and elsewhere and that they'd receive quarterly interest payments of about 8 percent.


  11. why are the silver stocks getting pummelled ?
    EDR, SLW, FR, etc. all down huge the past 2 weeks even though silver has held steady.

  12. This is friggin beautiful...this guy regularly blows shit on cnbc...and now you find out he bows at the alter of goldman...you really can't get lower than this as far as journalistic integrity!

    The Times' Andrew Ross Sorkin Gives Goldman a Rubdown

    Now I’m bummed to see that Sorkin has written an elaborate defense of Goldman in the New York Times "Dealbook" section, arguing among other things that Lloyd Blankfein probably did not commit perjury and that the bank did not have a huge directional bet against mortgages in 2007. As evidence, Sorkin cites unsubstantiated Goldman documents and Goldman sources who claim, among other things, that the bank had $5 billion worth of long bets on MBS "in other parts of the company," offsetting the now-notorious "Big Short."

    The Sorkin piece reads like it was written by the bank's marketing department, which may not be an accident.

    But now? This looks like a joke. In Russia in the Yeltsin years, reporters had a term for selling editorial print content to mobsters. They called it "selling jeans," a play on the old Soviet-era black-marketeer practice of trading rabbit hats to tourists for their Levi's. This Sorkin piece has the unmistakable look of a brand-new set of 501s to me. Pieces like this undermine the great work that reporters like Gretchen Morgenson have done in the paper in recent years.

    At the very least, Dealbook, if it was determined to take startup money from Goldman, should have stayed agnostic about the great scandals swarming round the company for a good long while.


  13. Did not student loan credit expand yesterday?...hold on someone just kicked in my door...wake up America!!

    Education officials break down Stockton man's door

    The U.S. Department of Education issued the search and called in S.W.A.T for his wife's defaulted student loans.

    "They busted down my door for this," Wright said. "It wasn't even me."


  14. Afternoon dave

    European Rating- Agency Fari downgrades USA-Rating!


  15. Uncle Ben's perverted vice...rising Gold

    ...remember behavioral economics..they'll do anything to keep you away from it...

    The Fed’s Inflation Play

    5) Rickards says, “Financial repression only works if people cannot own gold.” Today, people can and are buying the yellow metal. Rickards sees gold, silver and other tangible assets as a way to preserve wealth as opposed to more traditional assets such as cash and Treasury bonds.


  16. Does this mean that we qualify for an IMF loan?

    Janet Tavakoli
    Third World America 2011: Forget "Fast Tracking to Anarchy" We've Arrived

    U.S. Downward Mobility

    The destruction of the middle class has accelerated. Housing values
    have plummeted, and investors earn negative real rates of inflation
    adjusted returns on "safe" investments like money market funds. Food,
    fuel, and medical costs have skyrocketed. Essential civil services are
    underfunded while taxes escalate. The middle class is sinking fast as
    saved wealth is destroyed and its standard of living erodes.

    After being subjected to a national financial crime wave with no
    meaningful consequences for white collar criminals, the middle class,
    the core of many cities and communities, is being subjected to a
    physical crime wave.

    The U.S. escalated its debt to fund the ongoing bailout of the banking
    system. TARP was a small part of it. The Fed now owns over a trillion
    in suspect assets it bought from banks, and it daily provides them
    with almost zero cost money so high spreads help them earn their way
    out of the financial hole in their balance sheets. No one went to
    jail, and bankers reward themselves with billions in bonuses.


  17. Afternoon Dave


    From minute 1:52....

    Il Folletto

  18. Pick a number?

    How do you spend it?

    How many side pockets are out there?

    Harbinger Said to Face $1B in Redemptions

    Those who withdrew money at the end of the first quarter were required to take more than half of their payment in non- tradable shares of LightSquared Inc., Falcone’s mobile-phone venture. As of May 26, the shares accounted for 62 percent of the fund’s assets.


  19. Folletto


    Federal reserve doesn't have any gold from 1934!

    Great Ron Paul

  20. One guy got bailed on crappy paper...the other guy puts up his capital like a real capitalist...who will be right?

    Bill Gross: "No QE 3"


    Jim Sinclair


  21. Yes, Dave agree with you that "The only gold bubble likely to burst is the bubbling ridicule of gold" this statement itself speaks. Thanks..

  22. Grazie per il video, Signore Folletto! LOL

    (Dave a Denver)

  23. Interesting development...how negative are rates?

    Introducing the Guild Basic Needs IndexTM

    Guild Investment Management has long believed that the existing indices used to measure cost of living changes in the United States are inadequate and misleading.

    For instance, the widely quoted inflation index — the Consumer Price Index (CPI) — is currently based on data collected from spending surveys given by the U.S. Bureau of Labor Statistics from approximately 14,000 urban families. In addition to basic needs, the CPI includes other expenditures, such as insurance and taxes. However, it also includes discretionary spending items such as personal care services and entertainment purchases such as the latest flat screen televisions and consumer electronics.

    Another point about the CPI is that the Bureau of Labor Statistics periodically alters its content, making adjustments to the weighting of the components, and smoothing seasonal patterns. Such tinkering with data, as we have mentioned over the years, usually results in an understatement of the inflation rate and creates an unreliable, misleading cost of living index.

    We believe a simpler index is necessary for tracking the price changes of basic needs. No such index exists. So, we are creating one: the Guild Basic Needs IndexTM. It will not reflect spending patterns of one segment of the population. Rather, it will measure the changing prices of essential living expenditures.


  24. Shit you would have thought the people would be happy to save the banks? Remember that stumbling buffoon paulson with his weekend shakedown with the excuse that main street would suffer if his alma mater and his brethren didn't get their grimy hands on the peoples money. oops

    June 8, 2011
    What are the chances the U.S. economy could eventually trigger violence in our country?
    Posted: 05:00 PM ET

    FROM CNN's Jack Cafferty:

    For the first time maybe since the Vietnam War or certainly since the civil rights movement, there are some darkening storm clouds on the civility horizon. A growing number of voices are continuing to suggest that if this economy doesn't turn around, and people can't start feeling optimistic about their futures again, we could be headed for some ugly scenarios. A new CNN poll says 48 percent of Americans think the country is headed for another Great Depression in the next twelve months. That is a stunning number.


  25. It's a pleasure, Dave!

    Il Folletto