Friday, March 8, 2013

They Did It Again: There's No BS Like BLS

The character of what’s in this gold market is so different from the bull market of the 1970s.  The bull market of the 1970s was mostly traders and some central banks, but there wasn’t a huge sovereign interest...What you are dealing with now is China and Russia, who are doing what they are doing in terms of accumulating gold because they know the end game.  The manipulators of the market will come face to face with that physical reality.  When they mess with these markets now they are playing with China and Russia.  - Jim "Mr. Gold" Sinclair (LINK)
The statistical magicians at the Bureau of Labor Statistics (BLS) managed to manufacture a headline grabbing non-farm payroll report that added jobs in February beyond anyone's expectations - or even imagination.

The headlines suggested that our economy in February added 236,000 jobs.  And unemployment fell to 7.7%.  But, once again, when you dig through the details, the facts are not surprisingly significantly different than the hype.

If you review the trading pattern of the S&P 500 and gold/silver futures, you'll find that the SPX spiked and gold/silver did a waterfall when the headline number hit.  Over the next 90 mintues, the SPX faded hard and the metals and the mining stocks hit their highs of the day.  Why, you might ask? Because the market had digested the analysis as I'm laying it out just below and adjusted accordingly.

To begin with, and most significantly, the statistical magicians use an "adjustment" to the numbers with something they dreamed up called "the birth-death model."  Briefly, this model guesstimates the number of jobs that would have been created and deleted - on a net basis - by guesstimating how many new businesses opened and closed during the month.  According the BLS, this number was 102,000 in February, adding that many theoretical jobs to the monthly not seasonally adjusted jobs number.  Then the BLS does its seasonal adjust hocus pocus and spits out the headline number.

You can see where the new businesses supposedly opened up last month, creating 102,000 jobs here: LINK.  All service-based industries highly dependent on either consumer disposable income or Government spending.  Does it make any sense whatsoever that leisure, hospitality and business service businesses started up, given that the consumer is getting squeezed both by increased payroll taxes AND record gasoline prices for the month of February?

Here's the distribution by industry of the jobs supposedly created by the economy overall, including the birth-death adjustment for February:  LINK  You'll note that retail trade supposedly added 24,000 jobs in February.   But how can this possibly be true when we know that retail sales have been coming in nearly flat on a nominal (with inflation) basis and negative on a real (inflation-adjusted) basis?  Not only that but I posted a piece several weeks back which highlighted the massive number of store-closings that would occur this year by many of largest, national chain retailers.  How can that retail trade number have any credibility whatsoever, given this?  14,000 jobs created in manufacturing.  Manufacturing what?  Printing presses for the Fed?   Professional and business services at 73,000 stands out as a serious outlier.  This is almost 1/3 of the total jobs gains in both the BLS headline calculation and the in the birth-death model plug.  I would love to see the back-up inputs for that number.

Finally, Zerohedge did a nice job pointing out some more inconsistencies with the "quality" of the BLS number.  The number of full-time jobs declined by 77,000 and the number of part-time workers rose by 27,467.  Also, the number of multiple jobs holders rose by 340,000.  Either people who can get them are taking more than one job because they're struggling financially or the employment number as calculated is completely bogus.  Either way, it's not a healthy number.  Here's the LINK

On another note, an interesting occurrence has surfaced in the precious metals and mining stock bounce that we've had this week.  The best moves during the trading day for this sector have been occurring when the Dow/SPX sell-off.   I bring this up because someone sent me an interesting chart that suggests that the Dow/SPX have a high probability of selling off severely:

 (click on chart to enlarge)
I apologize to whomever devised this chart because I don't know whom to credit.  But, having said that, this chart shows the relative value of the S&P 500 based on price-earnings multiples.  You'll see that when relative p/e's get up to where they are now, the stock market tanks - hard.

The reason I mentioned that gold/silver/mining stocks were "decoupling" from their correlation with the equity markets is that I've suggested privately to colleagues that the next big move in the precious metals sector might occur with the metals/miners moving in the opposite direction of the stock market.  In fact, the tremendous gains that occurred after October 2008 started when the Dow/SPX started tanking hard into the end of 2008 thru March 2009 and the precious metals/mining stocks - starting  in October 2008 - spent the next 3 1/2 years ramping up to new all-time highs (silver up to its 1980 all-time high).

Have a great weekend.


  1. It is the latter Dave, the numbers are totally bogus. I would never invest on any government numbers. The system is and has been broken for some time now. The real information comes from sources with no agenda other then using facts and logic. Thanks for being one of those sources.

  2. That chart is from Morgan Stanley... Just an FYI

  3. Who saw the economic crisis coming and why?

    "So any time in the last 15 years, we could have said 'hang on, this level of debt's too high, we have to stop this behaviour at this point now'. Even if we'd done it
    back then, we still would have had a mini-depression; the only difference is this crisis is far worse. Now, it is not so easy to rob a factory, you know, things can fall off the back of a truck so to speak, but it's much, much easier to police that and much, much harder to make large amounts of money out of theft of commodities. The theft of money is very easy, and of course banks are put in a position of judiciary responsibility towards the rest of society when they're given the capacity to create debt and therefore create money and that requires them to behave in the most responsible of fashions, but of course the way society develops over time, the most reckless of people get allowed to run banks and of course fraudulent behaviour is only a step away from that particular opportunity.

    "So it then means that what happens ends up being worse than what I'd predict in my models, because on top of irresponsible behaviour you get fraudulent behaviour and money that's supposed to be there is not there; financial assets that are supposed to be backed by real assets aren't backed by those assets; multiple ownership claims exist; outright stealing occurs; and that of course means that the shock that the system feels is far worse and of course it's allowed to continue because we don't actually prosecute that behaviour.

    "The thing which Bill Black can hold his head high is for the fantastic work he did when he was responsible for cleaning up the Savings & Loan mess, when he could send lots and lots of fraudulent people to jail. His successes these days have done absolutely nothing by comparison to what Bill did back then with a far less extreme instance of fraudulent behaviour than we've seen during the global financial crisis."

    LS: ''But it is deepening the crisis, that the criminal aspect of it isn't punished.''

    SK: ''That's right, if some of these people spent their entire life behind bars rather than on the Cayman Islands, then we might finally get a strong barrier to this sort of behaviour, at least for a while, because that experience gets seeded into the minds of others who might consider indulging in a career of fraud later. But if you actually reward them by rescuing them as we're beginning to do right now and punish the people who were innocent bystanders in the whole crisis thing, the people who are, you know, on public pensions or low paid jobs, depending upon state welfare, if they are in Greece and so on, you're rewarding fraudulent behaviour.

    You're being told being honest and being poor is not sensible, be dishonest and rich; that's the last message we want to send to society, but that's the one we are sending right now.''

    "be dishonest and rich"....seems to be working pretty well.

  4. "The U.S. government, both on the fiscal and monetary side, has adopted a stimulus approach since the 2008 crisis. It has the luxury to do so because the dollar is the global reserve currency. It gives the Fed room to expand money supply without worrying about a collapse in the dollar's value. The government can borrow way beyond what others can. Washington's policy has followed the path of least resistance.

    The United States' stimulus has worked magic in reviving speculative activities. The stock market is close to an all-time high and the credit spread an all-time low. That is what the Fed wanted to achieve. It hoped that the lower risk premium would boost investment and, hence, revive growth. Unfortunately, the latter hasn't happened. The Fed's interpretation is that stimulus is not enough. Hence, it is pursuing QE3 and QE4. The Fed's balance sheet has quadrupled since the crisis to above US$ 3 trillion. It is likely to add another US$ 1 trillion this year. Again, it is working wonderfully in encouraging speculation, yet failing to boost investment and the GDP growth rate.

    Even though most analysts interpret the spending cuts as a disaster, I view them as the first piece of positive news in Washington's policy-making over the past five years. With baby boomers retiring, the trend is for spending to rise further. Unless some cuts are made to reverse this, even the dollar's unique status cannot save the United States from a debt crisis within five years.

    The fiscal tightening will encourage the Fed to stick with massive QE for longer. I suspect that Ben Bernanke will keep the policy until he leaves office next year. The next chairman will have to deal with the messes that he leaves behind. Significant policy tightening is likely. If you are a speculator, better get out before Bernanke retires. What comes after could be quite bad."

    The virtuous cycle has come to a stop in the next few years.

  5. Nevada is now at 9.8 instead of 11.3 - couldn't help laughing at that one! 2/3 of the homes in Reno, Nevada are underwater and the housing market is IMPROVING here! The public bus system here is hurting so much for money that they plan to cut routes by July 1st. people don't have jobs so they don't need the bus as all job aplications are done on-line. If you can walk to a library to use a computer, you will. And the routes they want to cut are the ones that will directly affect those do take the bus to work (it's almost like they are trying bto force people to buy cars). The bus route where I'm at will be re-directed to end at a casino. nobody around me gambles nor work at a casino - they have no "disposable income". casino revenues were -11 percent in december 2012 and -12 for janurary 2013. but if the casion is paying for this re-route, it's going to happen. Nevada is trying to get on-line poker going and that's going to be a disaster!

    It's the public bus system's fault because all the federal monies they got went to top pay-checks and 10 million over-budget projects that has finally got their pork in a bind.

    two months from now, the BS-BLS data all get substantially revised down a lot lower. I'm waiting to see if GDP comes in negative in Q2 2013 or will that get manipulated to hide the truth some more.

    ECRI is saying we can expect more recessions and much higher unemployment from here on out:

  6. Dean LeBaron in conversation with CFRA’s John Budden

    gold bugs throwing in the towel....

  7. The figures coming out of the BLS are nothing short of laughable. My guess is that real unemployment (meaning, numbers that INCLUDE those who simply stopped looking for jobs) in this country is probably in the range of 16 - 20%.

  8. Be careful with that foreward earnings stock chart. Based on the chart title it suggests it simply is showing the percentage of stocks out of the S&P 500 that are deemed rich relative to forward earnings. That's not the same thing as measuring the market cap weighted S&P 500, which would give lower valuation metrics and make for the more appropriate aggregate to use to judge the "overall" market. For an Apple there are scores of smaller companies that tend to be younger, less developed companies with less immediate earnings power in the near forward years, but might very well still command a high valuation based on further out expectations.

    That said, I pretty much agree with the conclusion you draw about mining shares. If they get hit during a general correction or crash in the standard equity market, I'm expecting them to bounce harder and faster than in 2008/09.
    Eric Dubin

    1. The chart shows the correlation between the number of stocks with high forward p/e valuations relative to their five-year rolling average forward p/e valuation and the direction of the SPX. When this many stocks are overvalued based on forward p/e vs their 5yr rolling avg, the stock market takes a dump.

      It's a confusing chart,and the title of it is not clear, but it's actually a great measure of market optimism/sentiment. Clearly the market optimism right now using many measures is at a very high level.

    2. Both a market-cap weighted S&P 500 and non-weighted S&P 500 would show the same overall picture. I'm not debating that and your overall point is correct. But what I said is also correct.
      Eric Dubin

  9. When it comes to the BS-BLS numbers, certain metrics are left out. Every May, college students graduate but are never added to the unemployment numbers if they can't find a job. Every June, high school students graduate and, those who don't go to college, are not added as well if they can't find a job.

  10. Bankers Above the Law. . .There Will be Hell to Pay

    4) A key point of my recent book, Lawless Capitalism, is that "investment and financial markets can only be built upon trust." How can any investor trust a financial system dominated by megabanks that are above the law? Capitalism requires trust and trust can only be inspired by a rational rule of law applicable to all. Exemptions for the most economically powerful are likely to be the most economically damaging as they control the most concentrated resources. In other words, giving legal indulgences to those with trillions under their control means that trillions will be deployed with no care towards illegality. Only profit, no matter how cravenly grabbed, will matter. The American people are already rapidly losing trust in the system. In a recent Northwestern/Univ. of Chicago survey, only 22% of Americans trust the financial system. Holder's bold power-grab on behalf of the banks is sure to accelerate this unraveling of trust. That means severe economic pain.

    5) Another key point of Lawless Capitalism (as well as Daron Acemoglu and James Robinson's instant classic Why Nations Fail) is that laws and regulations must tether elite interests to macroeconomic growth and under conditions of high inequality that challenge intensifies. Holder's statement is simply further proof that elites will eschew the law and seek to operate outside legal constraints once too much economic wealth is concentrated in too few hands. We learned that in the run up to the subprime collapse and Holder seems intent on repeating that painful lesson. This can be termed the injustice of inequality.

  11. The relationship between money and prices

    Consider the Icelandic krona’s dramatic fall in purchasing power in October 2008. According to the equation of exchange, the sharp increase in domestic prices that followed must be the result of an expansion in the quantity of money and/or an acceleration of velocity of circulation. What actually happened was simply a collapse in the purchasing power of the krona that originated in the markets, which had nothing to do with any monetary equation.

    Velocity is an invention by economists to balance an equation conjured out of their own imagination, instead of understanding that the purchasing power of today’s fiat currencies is governed solely by the confidence placed in them. And because they have no intrinsic value, the quantity theory itself is a wholly inadequate explanation of the relationship between fiat money and prices.

  12. Fortress of Lies

    A republic with a sense of common decency -- and common sense -- would have stopped the nomination right there and checked the "no" box on Mary Jo White just for violating the most basic premise of credibility: that trip through the revolving door that shuttles banking regulators from the government agencies to the companies they used to oversee and sometimes back again.
    Has there not been enough national conversation about the scuzziness of that routine to establish that it's not okay? Does it not clearly represent the essence of dysfunction and corruption in our regulatory affairs? Didn't President Obama promise to seal up the revolving door? So how could Mary Jo White possibly be taken seriously as a candidate for the job? And how is it possible that everyone and their uncle, from The New York Times editorial page to the Sunday cable news political shows to the halls of congress, is not jumping up and down hollering about this? Well, because anything goes, nothing matters, and nobody cares.

  13. Banks saved, but a generation may have been lost

    While the article talks about Europe, the same is true in Japan, the UK and the US.

    Europe has spent hundreds of billions of euros rescuing its banks but may have lost an entire generation of young people in the process, the president of the European Parliament said.

    Since the region's debt crisis erupted in Greece in late 2009, the European Union has created complex rescue mechanisms to prop up distressed countries and their shaky banking sectors, setting aside a total of 700 billion euros.

    But little has been done to tackle the devastating social impact of the crisis, with more than 26 million people unemployed across the EU, including one in every two young people in Greece, Spain and parts of Italy and Portugal.

    That crippling level of unemployment has led to protests and outbreaks of violence across southern Europe, raising the threat of full-scale social breakdown, including rising crime and anti-immigrant attacks that can further rattle unstable governments.

    "We saved the banks but are running the risk of losing a generation," said Martin Schulz, a German socialist who has led the European Parliament, the EU's only directly elected institution, since January last year.

    "One of the biggest threats to the European Union is that people entirely lose their confidence in the capacity of the EU to solve their problems. And if the younger generation is losing trust, then in my eyes the European Union is in real danger," he told Reuters in an interview.

  14. Dylan Grice Explains How "Crackpot" Central Bankers Are Destroying Society

    But we must also understand that exchange is only possible to the extent that people trust each other: when eating in a restaurant we trust the chef not to put things in our food; when hiring a builder we trust him to build a wall which won’t fall down; when we book a flight we entrust our lives and the lives of our families to complete strangers. Trust is social bonding and societies without it are stalked by social unrest, upheaval or even war. Distrust is a brake on prosperity, because distrust is a brake on exchange.

    But now let’s get back to thinking about money, and let’s note also that distrust isn’t the only possible brake on exchange. Money is required for exchange too. Without money we’d be restricted to barter one way or another. So money and trust are intimately connected. Indeed, the English word credit derives from the Latin word credere, which means to trust. Since money facilitates exchange, it facilitates trust and cooperation. So when central banks play the games with money of which they are so fond, we wonder if they realize that they are also playing games with social bonding. Do they realize that by devaluing money they are devaluing society?

    But beneath the surface, the redistributive mechanism upon which monetary policy relies was at work. Like Cantillon’s gold miners, those closest to the new credit (financial institutions and anyone working in finance industry) were the prime beneficiaries. In 2012 the top 50 names on the Forbes list of richest Americans included the fortunes of eleven investors, financiers or hedge fund managers. In 1982 the list had none.

    Besides this redistribution of wealth towards the financial sector was a redistribution to those who were already asset-rich. Asset prices were inflated by cheap credit and the assets themselves could be used as collateral for it. The following chart suggests the size of this transfer from poor to rich might have been quite meaningful, with the top 1% of earners taking the biggest a share of the pie since the last great credit inflation, that of the 1920s.

  15. 1.6 Billion Rounds Of Ammo For Homeland Security? It's Time For A National Conversation

    Why indeed? It is utterly inconceivable that Department of Homeland Security Secretary Janet Napolitano is planning a coup d’etat against President Obama, and the Congress, to install herself as Supreme Ruler of the United States of America. There, however, are real signs that the Department bureaucrats are running amok. About 20 years ago this columnist worked, for two years, in the U.S. Department of Energy’s general counsel’s office in its procurement and finance division. And is wise to the ways. The answer to “why would DHS need such a vehicle?” almost certainly is this: it’s a cool toy and these (reportedly) million dollar toys are being recycled, without much of a impact on the DHS budget. So… why not?

    Why, indeed, should the federal government not be deploying armored personnel carriers and stockpiling enough ammo for a 20-year war in the homeland? Because it’s wrong in every way. President Obama has an opportunity, now, to live up to some of his rhetoric by helping the federal government set a noble example in a matter very close to his heart (and that of his Progressive base), one not inimical to the Bill of Rights: gun control. The federal government can (for a nice change) begin practicing what it preaches by controlling itself.

    Remember the Sequester? The president is claiming its budget cuts will inconvenience travelers by squeezing essential services provided by the (opulently armed and stylishly uniformed) DHS. Quality ammunition is not cheap. (Of course, news reports that DHS is about to spend $50 million on new uniforms suggests a certain cavalier attitude toward government frugality.)
    Spending money this way is beyond absurd well into perverse.

  16. One of First Iraq Veterans to Publicly Oppose War Will Die for Our Sins

    Young will die for our sins. He will die for a war that should never have been fought. He will die for the lies of politicians. He will die for war profiteers. He will die for the careers of generals. He will die for a cheerleader press. He will die for a complacent public that made war possible. He bore all this upon his body. He was crucified. And there are hundreds of thousands of other crucified bodies like his in Baghdad and Kandahar and Peshawar and Walter Reed medical center. Mangled bodies and corpses, broken dreams, unending grief, betrayal, corporate profit, these are the true products of war. Tomas Young is the face of war they do not want you to see.

  17. Govt. To Enact People's Happiness Fund

    Following up on President Park Geun-hye's election pledge to reduce debt burdens of troubled households, the government is setting up the so-called "People's Happiness Fund" to buy liabilities from financial companies and money lenders.
    The initial beneficiaries will be indebted individuals who could not service their debt for more than six months for their borrowing of less than 100 million won, or some 92-thousand U.S. dollars.
    The government first plans to use nearly 800-million dollars to take over at heavy discounts loans provided by various financial institutions such as banks, credit card and insurance companies.

  18. Staring Armageddon In The Face But Hiding It With Official Lies –Paul Craig Roberts

    Reflecting the dollar’s loss of purchasing power, the price of gold and silver in dollars has risen dramatically during the Bush and Obama regimes.

    For the last year or two the Federal Reserve and its dependent banks have operated to cap the price of gold at around $1,750. They do this by selling naked shorts in the paper speculative gold market.

    There are two gold markets. One is a market for physical possession by individuals and central banks. The rising demand in the physical bullion market points to a rising price for gold.

    The other market is the speculative paper market in which financial institutions bet on the future gold price. By placing large amounts of shorts, this market can be used to suppress price rises in the physical market. The Federal Reserve, which can print money without limit, can cover any losses on its agents’ paper contracts.

    It is important to the Federal Reserve’s low interest rate policy to suppress the bullion price. If the prices of gold and silver continue to rise relative to the US dollar, the Fed cannot keep the prices of bonds high and interest rates low. If the dollar is widely perceived to be declining in value in relation to gold, the price of dollar-denominated assets will also decline, including bonds. If the dollar loses value, the Fed loses control over interest rates, and the US financial bubble pops, with hell to pay.

    To forestall armageddon, the Fed and its dependent banks cap the price of gold.

    The Fed’s fix is temporary, and as the Fed continues to create ever more dollars, the price of gold will eventually escape the Fed’s control as will interest rates and inflation.

  19. If Corporations Don’t Pay Taxes, Why Should You?

    Go offshore young man and avoid paying taxes. Plunder at will in those foreign lands, and if you get in trouble, Uncle Sam will come rushing to your assistance, diplomatically, financially and militarily, even if you have managed to avoid paying for those government services. Just pretend you’re a multinational corporation.
    That’s the honest instruction for business success provided by 60 of the largest U.S. corporations that, according to a Wall Street Journal analysis, “parked a total of $166 billion offshore last year” shielding more than 40 percent of their profits from U.S. taxes. They all do it, including Microsoft, GE and pharmaceutical giant Abbott Laboratories. Many, like GE, are so good at it that they have avoided taxes altogether in some recent years.

    They want a huge U.S. government to finance scientific breakthroughs, educate the future workforce, sustain the infrastructure and provide for law and order on the home front, but they just don’t feel they should have to pay for a system of governance, even though it primarily serves their corporate interests. The U.S. government exists primarily to make the world safe for multinational corporations, but those firms feel no obligation to pay for that protection in return.
    Think of that perfectly legal and widespread racket when you go to pay your taxes in the next weeks, and consider that you have to make up the gap left by the big boys’ antics. Also, when you contemplate the painful cuts coming because of the sequester that undoubtedly will further destabilize the economy, remember that, as the Wall Street Journal estimated, the tax savings of just 19 of those companies would more than cover the $85 billion in spending reductions triggered by the congressional budget impasse. The most skilled at this con game are the health care and technology companies, which, as a Senate investigation last year revealed, have become quite expert at shifting marketing rights and patents offshore to low-tax countries.

  20. Myron Scholes Global Markets Forum
    March 6, 2013, 5:30 PM - 7:00 PM
    The Coming Crisis in Japan
    Kyle Bass, founder and principal of Hayman Capital Management, LP, described why he sees a looming economic crisis for Japan. Bass has previously pre

  21. You forgot to mention that 300000 people left the labor force in a month time.

  22. Universities Pile on Faculty Perks as Student Costs Grow

    The University of Chicago paid James Madara $2.5 million in severance when he stepped down in 2009 as medical dean and hospital chief. Madara, who remained on the faculty, later joined the American Medical Association.

    Congress is taking a look at such payments following disclosures that Jacob Lew, the new U.S. Treasury secretary, received a $685,000 bonus when he left New York University and had $1.5 million in housing loans from the school.

    Harvard and Stanford universities also offer real-estate loans with sweet terms, records show. While the amounts are small relative to university budgets, the perks insulate faculty and administrators from the costs upsetting many middle-class families, said Jonathan Robe, a research fellow at the Center for College Affordability and Productivity in Washington.

    “It certainly gives the public a clear example of how out of touch some universities are,” Robe said. “Parents will think, ‘Here I am scraping by, raiding my retirement plan to pay for college. Why are they making me do this just to enrich these executives?’"

  23. Italy is in fact already out of the Euro"
    13.03.2013, 06:36 clock

    exclusive Beppe Grillo, protest leaders and winner of Rome, will take a vote on the future of Italy in the euro zone. He proposes an online referendum on the euro. Also on Mario Monti, he is not speaking well.

    Interview Grillo expected sharply with the current Italian Prime Minister Mario Monti. This was "a bankruptcy trustee on behalf of the banks.

    Grillo sees itself not as anti-European. "Europe must not be afraid," he told Reuters in an interview. He asked, however, a strong reversal and "more democracy." For his party, he takes to claim. "We are the French Revolution - without guillotine" Europe needs a "Plan B," says the Italian politicians. "We must still ask: What happened to Europe? Why we have no common information policy, no joint tax policy, no common policy of immigration? Why only Germany has enriched? "

  24. JPMorgan Chase: Out of Control


    On Friday, the Senate Permanent Subcommittee on Investigations will release the final report on the losses associated with failures of internal controls in JPM’s CIO group. We expect that the findings will demonstrate significant failures of senior management and conclude that the Company’s own investigation was incomplete. It is important to remember that those losses, while the largest and most notable, are only one example of many such failures in recent years.

    In this report we will focus on the risk management and internal control environment at JPMorgan Chase, a bank whose balance sheet is almost one-ninth the size of the United States economy. JPMorgan’s financial filings, its “Task Force” investigation of losses in the CIO’s office and its recent history of significant regulatory failures demonstrate that shareholders of are continuing to be called upon to pay for the firm’s inability to ensure an acceptable control environment.

    We are not suggesting that JPM will meet the fate that Fannie did. But there are notable similarities in the actions taken by these institutions. JPM appears to have taken a page out of the Fannie Mae playbook in which the company perfected the art of cozying up to elected officials, dominating trade associations, employing political heavyweights and their former staffers and creating the image of American Flag-waving, apple-pie-eating, good corporate-citizen, all of which supported an “implied government guarantee” and seemingly lowered their cost of funding. Additionally, rather than being driven by the strength of its operations and management, many of the JPM’s returns appear to be supported by an implied guarantee it receives as a too-big-to-fail institution.

  25. Offshore London and the escape from the U.S. Dodd-Frank bill

    But this quote is merely context for a related issue, which is the thrust of Greenberger’s paper: ‘extraterritoriality’, a hugely important topic that few in the media seem to have paid any serious attention to. The idea is introduced with the stark words of Gary Gensler, chair of the Commodity Futures Trading Commission (CFTC:)

    transactions booked in London or anywhere around the globe can wreak havoc on the American public.

    In essence, British bankers and U.K. real estate agents have been taking the cream from wild west financial risk-taking, then foisting those risks and the ensuing fallout onto U.S. taxpayers and others. “Extraterritorial” reach is clearly a necessary aspect of financial regulation, worldwide; one might have thought it was a no-brainer that U.S. regulation should be able to reach across borders, if U.S. taxpayers are on the hook.

    In the real world, though, this is not so. Interviewees recently told me that the British government and the City of London have been lobbying furiously behind the scenes in Washington to water down Dodd-Frank’s “extraterritorial” reach. Hardly surprising, given the size of the international derivatives markets, with some $600 trillion in notional amounts outstanding, with the UK in a dominant position.

    There is plenty of pressure to gut Dodd-Frank from inside the United States too, of course: witness this bill, known as HR 3283, whose culinary equivalent would perhaps be a soup made of radioactive poison, mixed with ground glass, sewage and medical waste.

    Where the money goes?

    A Tale of Two Londons

    Who really lives at One Hyde Park, called the world’s most expensive residential building? Its mostly absentee owners, hiding behind offshore corporations based in tax havens, provide a portrait of the new global super-wealthy.

  26. Unpleasantness in Belgium, Silence in Ireland.

    You have to hand it to Sugarman. He has a knack for giving the authorities heartburn. I wrote an update about his case at the time of the Village Magazine piece which filled in a couple of interesting details.

    This time he happened to mention as an example of the total lack of financial regulatory oversight in Ireland during the bubble years the Belgian Bank KBC. As Sugarman said, just this month KBC Belgium had to give KBC Ireland another €100 million in order to bail it out. To illustrate how KBC had got itself into the state where it is still being bailed out by the Belgian tax payer via its parent company, he told how he himself had been given a mortgage by KBC in Ireland. As he said in the interview,

    “When I looked at the forms I had to fill in for KBC Ireland, it was a joke. I could have said I was Mickey Mouse and I work in La la land and I would still have a million euro to buy a house with maybe was woth 200 000 euro. Did anybody ask questions. No. The bank is growing. Where’s the problem.”

    Where indeed? What he didn’t say in the interview is that the bank did not actually bother to value the property he was buying before it gave him the mortgage. It looked at the house next door and guessed.

    So now given the continued bleeding and rotting going on inside KBC as well as the epic implosion of Dexia and the fact that, as in Ireland, no one has been held responsible, there are questions being asked in Belgium that powerful people don’t want asked.

    What Sugarman’s story reveals above all is how no one in power, whether that be financial, political or media power, wants any questions asked or truths exposed. Sugarman has been ignored by everyone in the Irish establishment: his bank, the banks regulator, all the Irish political parties, all the newspapers and I was there when he told his story to one of Ireland’s top TV journalists only to never hear from him again.

  27. Inflation Is A Self Fulfilling Prophecy – Billionaire Frank Giustra Interview

    Saturday, February 2, 2013.

    During their conversation, Giustra warned the audience not to expect the truth about inflation from central bankers. He commented, “Inflation is caused by the fear of inflation. Inflation is a self-fulfilling prophecy, and every central banker in the world knows that. If your expectations are that inflation is going up, then you’re going to push up prices, bond yields, everything… it’s the central bank’s primary job to manage those expectations.”