Tuesday, April 10, 2012

It's Getting Ugly

There will be a time when the middle class gets hit by a 2x4 in the back of the head that they never saw coming - Dave in Denver, circa 2004...That 2x4 is in motion - Dave in Denver, today
Major European bourses were down anywhere from 2% to 5% (Italy).  Italian and Spanish 10yr sovereign bond yields are soaring again.  Large fissures are forming again now that the ECB's latest version of money printing (LTRO/QE) has been applied and the dust has settled.  The problem is that the financial equivalent of Mt. Vesuvius is starting to rumble again.  I visited the ruins at Pompeii last summer.  Until then, I had never really grasped the true devastation caused by the eruption of Mt. Vesuvius.  It's truly horrifying.

The amazing thing to me is how few people understand that the European situation is nothing but one big deflection/cover-up for the catastrophic problems embedded in the U.S. financial and economic system.  If the quantifiable problems in Europe are "x," the quantifiable problems in this country are at least "5x."  Note: that is what's quantifiable.  Note #2:  Not "quantifiable" by what is being reported in the media but what is "quantifiable" by doing intelligent research, including knowing where to look for quantifiability (like applying what we know about true housing market values to the level 1, 2, and 3 assets listed in the footnotes of Bank of America's latest 10Q). 

The black swan on the horizon in this country is that which is not readily quantifiable.  An good example of that is the pension underfunding disclosure announced by the State of Illionois yesterday.   The State of Illinois announced that the State pension fund is underfunded by $83 billion.  Huh?  Here's the LINK  Now, there are two components of unquantifiabilty to this disclosure.  First, I wouldn't trust that $83 billion number any more than I'd trust Rick Santorum with my little nephew.  I would bet my entire net worth that the $83 billion number is not based on a true mark to market assessment of a decent amount of the pension fund's holdings, like real estate, real estate backed assets, derivatives and private equity investments.  The real number is much larger than $83 billion.  Second, as the article states, this number does not include "uncalculated billions in underfunded pension obligations for city, county and other local governments."  Unquantifiable underfunding - just in the State of Illinois.

Now if that's Illinois, imagine how ugly the truth of this particular problem is for California.  And New York, New Jersey, Ohio, Pennsylvania and Michigan are right behind Illinois.  But it's the "unquantifiable" truths that should be scaring the shit out of everyone.  Another example of the unquantifiable is an event like MF Global.  If MF Global is illegally stealing customer funds to use as collateral, I can guarantee you that other bigger brokerages are doing the same.  Jon Corzine is a thief, but he's not clever and he's not an original thinker. 

It's this unquantifiable reality that is the 2x4 that is going to hit most of the people in this country in the back of the head.  I would argue that the swinging of it has begun.   I just don't know when impact will be.  The market definitely senses the presence of this 2x4 that's been put in motion toward the collective heads of the middle class.  When the S&P 500 started dropping like Wile E. Coyote off a cliff, initially the metals and miners started down with it.  But then out of nowhere some "invisible hand" ignited a sharp reversal, first in gold and silver and then in the miners.  Some of the smaller cap mining stocks went from being down 5% at one point to going green on the day.  The S&P/Dow remained on their lows of the day, down about 1.5% each.

What caused this?  Two hours after the reversal occurred I have yet to find any news item or rumor that would have triggered the reversal in the precious metals and miners.  What I will say, though, is that gold (and silver) tend to sniff out big problems well ahead of those problems becoming obvious to all.  It's almost as if gold and silver started sensing that 2x4 in motion...if that's the case, the market will soon truly understand the role gold and silver play as flight to safety vehicles.


  1. It was just a few days ago that Wall Street was all giddy over the first quarter and we had to hear all the crap about gold's bubble being popped. Give me a break! And now, of course, our beloved pres funding $500 million to empower the IRS. I just read this morning that the Urban League in our county had revenue in 2010-2011 of $4.7 million. Of that 27.5 percent from Federal Grants, 7.3 percent from State grants, 20.2 percent from County grants. That's all taxpayer thief. The 2 x 4 is on the way!

  2. It's all good! lol

    Facebook just bought Instragram
    A billion was spent on this sham
    Is Zuckerberg nuts?
    For kids texting butts???!!!
    This deal shows that Facebook's a scam!

    The Limerick King


  3. Is the Fed Promoting Recovery or Desperation? QE "Appears" to Works Until It Obvious it Never Did

    Why does the Fed want this? Simple. Chairman Bernanke believes that by creating a bubble in speculative assets, people will "feel" wealthier and keep consuming - regardless of the fact that real incomes are stagnant and debt burdens are already intolerable, and despite the fact that there is extremely weak evidence for any such "wealth effect" in the historical record. Undoubtedly, it would be difficult for Bernanke to refrain from these reckless policies when everyone is crying "do something!" But the willingness to tolerate short-term criticism in the interest of long-term benefit is part of what separates leadership from cowardice.

    We would be far along the road to economic recovery had we dealt with our crisis the way Sweden durably dealt with its own a decade ago (essentially taking a large portion of the banking industry into receivership, wiping out existing shareholders, writing down bad assets, and then taking the banks public to recapitalize them under new owners). Bernanke, in contrast, has been at the forefront of the kick-the-can strategy of bailouts, accounting changes, customizable stress tests, and helicopter money.

    Forget that savings are discouraged, bad lending decisions are rescued, incentives and economic signals are distorted, and the accumulation of productive capital is disabled. We have the most creative, entrepreneurial nation on the planet, but our policy makers are intent on preventing debt restructuring and misallocating scarce capital.

    So, in spite of the fact his policies clearly are not working, Bernanke sticks with them. He is a one-trick pony with no common sense and no real-world experience, living in academic wonderland.

  4. 4% growth mixed with 4% ether

    Bush talks economics, says he won't 'undermine our president'

    In his 15-minute opening speech to the gathering of prominent conservative politicians and economists, Bush pushed heavily for a pro-growth economic strategy.

    “Much of the political debate — and I guess rightly so — is about our balance sheet,” he said. “That makes sense. I mean, when you look at the debt to GDP, it’s pretty high.”


    they all talk from same script.(except Ron Paul)

  5. Slow, creeping destruction of rights?

    Marine Being Kicked Out of Military Because of Anti Obama Facebook Entries


    1. Judge says Obama approaching totalitarianism
      Napolitano says White House now ‘dangerously close’

      Not many weeks ago, Barack Obama announced that Congress was being uncooperative, so he would have to go it alone with executive orders to make changes he wanted for America.

      Then he stated he is confident that the Supreme Court would not choose to overturn his health care law, through which the government requires Americans to buy a product approved by the federal bureaucracy or face fines.

      His diminishment of two of the three co-equal branches of government has caught the attention many citizens, and now a legal expert has weighed in with a stark warning about the future of the nation.

      “I think the president is dangerously close to totalitarianism,” Judge Andrew Napolitano, a Fox News analyst, said. “A few months ago he was saying the Congress doesn’t count. The Congress doesn’t mean anything. I am going to rule by decree and by administrative regulation. Now he’s basically saying the Supreme Court doesn’t count. It doesn’t matter what they think. They can’t review our legislation.


  6. Americans Agree: There Is No Recovery

    From the latest Washington Post-ABC News poll

    No matter how you break it down -- whether by party/ideology, household income, age, or any other category -- the majority of Americans agree on one thing: there is no recovery.

    Needless to say, those feelings are also shared by a segment of the economy that just happens to provide jobs for over half of the nation's private workforce.


  7. Talks about bank lobbyists...

    “Casino Jack” Abramoff breaks down how Government is Sold to the Highest Bidder

    US president Barack Obama makes the case in Florida for the Buffett rule — a minimum tax rate for millionaires. Then, he reportedly heads to a 15,000 dollar a head campaign fundraiser. So how does that work exactly? The presumably wealthy people paying 15 thousand dollars for dinner with Obama are giving him money so that he can raise their taxes? What exactly is in it for them?


  8. Excellent point you make Dave ... the possibility that Gold is sniffing something out that is not yet common knowledge. I was watching the miners like a hawk and could not believe the reversal (very heavy in Vista Gold for instance).. and as we all know.. there is always a reason.. I guess there is some chance that it's just the cartel working to suck longs back in for another smack down... we shall see.

    1 Kg Lunar Dragon.

  9. Scared shitless? How about pissed shitless? I'm just waiting for the sheople to wake up and realize that their FICO scores are NOT worth bending over for. If we all stop feeding this fraudulent debt growth ("we" being the middle class) it WILL bring about the changes gold holders are prepared for.
    But as long as we keep honoring the debt (myself included, I'm not going it alone either) we're doomed to drag this on forever. Most debt is fraudulent at this point. It has to be to continue growing so far past what the current human condition requires. Empty cities, abandoned skyscrapers, paper fortunes - all derivatives of "asset" based on (unrepayable) debt.

    Like I said, one person is a deadbeat. 300 million people is a REVOLUTION.
    When they realize the lifestyles they think they're upholding are doomed anyway, the 2 by 4 will be cracking against their skulls. Fools and their waiting game. Little by little.

    1. Country is not being run for the middle class....and it's "unquantifiable" who/what is really even running the country....?

      Why GOP Mega-Donor Sheldon Adelson Is Mad, Bad and a Danger to the Republic

      Richard Nixon liked to describe the influence a powerful person held over other powerful people as that person’s "stroke." Sheldon Adelson knows stroke. In another illuminating deposition, former LVS president Bill Weidner described Adelson on the phone asking Republican House whip Tom DeLay to kill a human rights bill that might get in the way of Beijing's bid for the 2008 Olympics. "I'm standing here with the mayor of Beijing," he said, which was true. The bill was withdrawn, though not, DeLay insists, for any reason having to do with Adelson. In any event, the scene is awfully suggestive of how a veteran political greaser operates: You earn stroke with someone powerful by making a credible case that you've been instrumental in their getting, and maintaining, power.

      Should the United States have been saddled with a President Newton Leroy Gingrich, Sheldon Adelson's stroke would have been pretty flippin' awesome.

      Even so, although the megalomaniacal former Speaker of the House and moon-colony aficionado's campaign is going the way of all flesh, Sheldon Adelson is emphatically not going away. On March 22 he hosted a dinner at his home chockablock with Mitt Romney supporters, including RNC chairman Reince Preibus. This man will have less stroke with Mitt Romney should the Mormon become president. But if he gives his Super PAC tens of millions of dollars, he may well have just enough.

      It's the kind of thing that makes you fear for our republic.

      Read more: http://www.rollingstone.com/politics/blogs/national-affairs/why-gop-mega-donor-sheldon-adelson-is-mad-bad-and-a-danger-to-the-republic-20120410#ixzz1rkfrlemP

  10. 9/11 Conspiracy Theory–Insane or Insightful?


  11. What If Housing Is Done for a Generation? (April 11, 2012)

    What if housing valuations are in a structural, multi-decade decline?

    A strong case can be made that the fundamental supports of the housing
    market-- demographics, employment, creditworthiness and income--will
    not recover for a generation. It can even be argued that housing has
    lost its status as the foundation of middle class wealth, not for a
    generation, but for the long term.

    Let's begin by noting that despite the many tax breaks lavished on
    housing--the mortgage interest deduction, etc.--there is nothing
    magical about housing as an asset. That is, its price responds in an
    open, transparent market to supply and demand and the cost of money
    and risk.

    There are a number of quantifiable inputs that feed into supply and
    demand--new housing starts, mortgage rates and income, to name
    three--but there are other less quantifiable inputs as well, notably
    the belief (or faith) that housing will return to being a "good
    investment," i.e. rising in price roughly 1% above the rate of

    If this faith erodes, then the other factors of demand face an
    insurmountable headwind, for the most fundamental support of housing
    is the belief that buying a house is the first step to securing middle
    class wealth.


    1. Thanks Anonymous,

      I commented on an article Dave in Denver wrote the other day asking when might be the time to consider trading PMs for Residential RE.

      You have convinced me to never trade the stack for any property attached to RE taxes in the USSA. I realize that there are few in the USSA, but maybe we can move from SF to S Dakota!

      The Other Dave in SF (where all of the swans are PINK AND WE'RE PROUD OF IT!)

      P.S. I've already spent way time on the machine today. I need to sleep now.

      P.P.S. I bought a small stack of dimes for my upcmpoing B-day gift to mysekf from the spouse. He didn't care one way orthe other. His eyes glazed when I told him that I had spent his money on them. I've got him trained!

      P.P.P.S. He got me this fancy (cheap) new laptop for my upcominging B-day. Has anyone seen how cheap high-quality laptops are lately? Very nice machine for under $400. No Deflation Here! But we got nailed at Costco for groceries! No inflation there, either!

  12. Precious Metals Déjà Vu For Morgan Stanley?

    The answer is simple. Morgan Stanley is based in The Land of Fraud (aka the United States of America). In The Land of Fraud swindling people (whether total strangers or long-term clients) is a way of life – just ask a former Goldman Sachs employee. Thus the Wall Street banksters can commit fraud without ever having to admit fraud.

    Indeed, Bloomberg explicitly confirmed that the SEC’s commit-but-never-admit policy has been standard practice for more than four decades, with such settlements then rubber-stamped by the U.S. judiciary. Bloomberg noted this institutionalized corruption when it criticized a (lone) U.S. judge who has had the temerity to challenge the commit-but-never-admit doctrine:

    …As part of the agreement, New York-based Citigroup neither admitted nor denied the allegations, a clause which has been standard in such settlements for at least four decades.

    But it gets better for the Wall Street fraud factories. Not only can they commit acts of fraud with impunity while never having to admit to them, but the “fine” they receive after being caught in the act is rarely more than 10% of their proceeds of crime – and often much, much less.

    A classic example was the travesty of American Justice when Wachovia Bank was caught laundering nearly $400 billion dollars of drug cartel profits. It paid less than $200 million in fines and penalties. This was less than 2% of the bank’s 2009 profits, and less than 0.05% of the drug-money it laundered.

    However, that was 2007 and this is 2012 – and Morgan Stanley is back in the bullion business, betting that the chumps who still bring their business to these fraud factories have very short memories. This time it has “refined” its approach to selling precious metals to its clients, as described by another commentator, Avery Goodman:

    …It is now offering to sell you gold, silver and platinum bars, and to keep them “safe”, but in a scheme in which they refuse to segregate client assets that they falsely label “allocated” ownership.

    Customers who take them up on their offer are going to be cheated. They will not be purchasing metal in allocated storage. Instead they will be purchasing an unsecured bond with repayment promised in the form of gold, silver or platinum. They will be investing in money, not to purchase real metal, but, rather, to fund the operations of a fractional banking scheme involving precious metals.

    In 2012 Morgan Stanley has added a different wrinkle. Instead of pretending to store precious metals on behalf of its clients (as was alleged in 2005), it has simply invented its own definition of “allocated”, where it is not required to actually hold any metal for clients individually – despite what it is advertising to them. Goodman supplies us with Morgan Stanley’s unique, 2012 definition of an “allocated account”:

    Allocated ownership means that the physical precious metals (bars and coins) you order from Morgan Stanley Smith Barney’s Precious Metals Trading Desk are purchased and stored on your behalf, but no specific metal bar or coin is specifically identified as belonging to you [emphasis mine]…


  13. Your comment on Santorum is disgusting and undermines your credibility. If you can be so insubstantial on the judgement of someone's character, then why should anyone trust you in any other matter?

    1. Everyone has their opinion and I post everything except repetitive "trolling" and anything blatantly malicious. Your comment is appreiated.

    2. "insubstantial on the judgement of someone's character" as in a politician?..lolololol...please.

      The comment added more kick than my afternoon jolt of coffee.

    3. Wow....Out of the frying pan, into the fryolator...

      Growth of Income Inequality Is Worse Under Obama than Bush

      Yup, under Bush, the 1% captured a disproportionate share of the income gains from the Bush boom of 2002-2007. They got 65 cents of every dollar created in that boom, up 20 cents from when Clinton was President. Under Obama, the 1% got 93 cents of every dollar created in that boom. That’s not only more than under Bush, up 28 cents. In the transition from Bush to Obama, inequality got worse, faster, than under the transition from Clinton to Bush. Obama accelerated the growth of inequality.

      The data set is excellent, it’s from the IRS and it’s extremely detailed. This yawing gap of inequality isn’t an accident, and it’s not just because of Republicans. It’s a set of policy choices, as Saez makes clear in his paper.

      Looking further ahead, based on the US historical record, falls in income concentration due to economic downturns are temporary unless drastic regulation and tax policy changes are implemented and prevent income concentration from bouncing back. Such policy changes took place after the Great Depression during the New Deal and permanently reduced income concentration until the 1970s.


    4. WOW. So much for one of the few remaining promises/campaign planks that Obama hadn't shit on yet.

  14. Talking about $hit...

    Rosengren Says U.S. Money Funds Threaten Financial Stability

    Risk Level

    Rosengren also presented data on the risk level of money fund holdings, as measured by the price of credit-default swaps, which represent insurance for debt buyers against default.

    Twenty-three percent of holdings in prime money funds as of Sept. 30 had an issuer, sponsor or liquidity provider with a CDS quote of between 200 basis points and 300 basis points, compared with 30 basis points for U.S. government securities, he said.

    “This highlights that credit markets are assigning a significant chance that some money market fund investments that current regulation deem permissible could in fact default,” he said.

    Rosengren’s speech comes after the fund industry has made increasingly public protests over the SEC’s plans, supported by the U.S. Chamber of Commerce and some members of Congress.

    Federated Investors Inc. (FII), the third largest U.S. money-fund provider, has threatened to sue should the SEC proceed with either of its plans.

    Rosengren, who was formerly a bank regulator at the Boston Fed, said some funds have taken on excessive credit risks that are not understood by investors and “absent some changes, still pose some risks to financial stability.”


  15. Bruno Iksil, JPMorgan and the Real Conflict with Credit Default Swaps

    BUT WE ALL KNOW THAT BY ITS CONTROL OF SYNDICATED LOANS, JPM CONTROLS WHEN ANY MAJOR ENTITY FILES CH. 11 (by controlling when the debtor-in-possession financing syndication will close). Thus the real question regarding Iksil and all large banks that trade CDS is whether the lending side of the house is speaking to the trading side of the house. My guess is “yes” based on observation of many default events and also conversations with people inside the largest banks.

    From the start of the CDS market, we saw this as a phenomenon where the bonds of a cash-short debtor fall as CDS spreads rise when "shorts" take a run at an entity by bidding up the CDS values when the short, naked, bonds by buying CDS. Then "magically" the bond market "opens" and the debtor's bonds skyrocket in value just before the Ch. 11 occurs. Think GM and Delphi, for those of you with short memories.

    The bond rally before the CH 11 is a "standard" pattern seen many times. As CDS rise with increasing shorts, the debtor is increasingly barred from selling new debt to avoid a crisis because the big banks "naturally" price new debt based on the implied price shown by rising CDS values for that debtor.

    Then, as a bankruptcy filing is being negotiated, "strangely" the timing of filing relates to the expiration of some batch of CDS contrcts (when major banks are "off the hook"). As the DIP financing is syndicated, there's suddenly a surge in the value of the debtor's bonds as hedge funds that are "naked" (lacking bonds to deliver with their CDSs on default) try like heck to buy bonds (in order to match them to the "naked" CDSs which results in 100% recovery).

    As readers of ZH may recall, in the last week before Delphi filed, its bonds jumped 25% in value as naked hedge funds sought to cover their CDS contracts. Does that help jog your collective memories?
    So please, my dear friends in the Big Media, it is time to get a collective clue. The real problem with CDS trading by large banks such as JPM is not the speculative positions taken by traders like Bruno Iksil, but instead the vast conflict of interest between the lending side of the house and the trading side, whether the trader is on the arb desk or, in the case of Iksil, working for the CIO trading for the bank’s treasury.

  16. Hey Dave


    Il Folletto

    1. Wow. Thanks. That will serve no purpose but to ramp up the black market over there even more. And it's already massive. Gresham's Law

  17. How far back? listen ...

    Why invest in gold?
    An ounce of gold is currently worth around $1650, still some way below last year's peak when it approached $2000 dollars. But with Eurozone fears resurfacing, will the precious metal once more prove to be an attractive safe haven?

    Peter Hambro, chairman of the Petropavlovsk, the UK-listed Russian gold mining company told Today programme business presenter Simon Jack about his career in mining and why people turn to gold in times of trouble.


  18. Central Banks are Steering Society Off the Economic Cliff: Lew Rockwell

    "None of this has been done for the average Jose."


    ...why do I have to go to RT to get a honest interview?

  19. Gold’s sentiment foundation bullish
    Commentary: Gold timers more discouraged than in three years

    Consider how far back in time we have to go to find another occasion when the HGNSI was as low as minus 15.7%: March 2009, more than three years ago. So the average gold timer is more discouraged and dejected today than he has been in three years, even though gold’s current price is nearly double what it was in March 2009.


  20. I will say, there's historically a very high correlation between negative readings on the HGNSI and gold bottoms. When the HGNSI goes negative, we usually get a monster move up

  21. This is very interesting post..and nice review about this article..Cheap Fiat For Sale

    1. those vans will be good to transport the banksters...!

      Should Corrupt Bankers Face the Death Penalty?

      Let’s be clear: financial misdeeds ruin lives. If a Madoff takes your money and uses it to pay off other investors in a ponzi scheme, you won’t be able to get it back. If a Blankfein underling issues you with misleading advice, and then bets against you (creaming himself a nice profit), you won’t be able to get it back. If a Corzine steals your money and uses it to bet on the European sovereign debt market, you might not be able to get it back. You might end up in poverty or worse. You might lose your children’s college money, your retirement money, or capital you needed for your business. You might lose your home.

      So shouldn’t we take a tough line against financial misdeeds? Shouldn’t tricking and stealing from investors, tricking and stealing from the public, tricking and stealing from clients carry a heavy disincentive, like death? Would a corrupt banker not think twice about their misdeeds if they knew that apprehension would mean a noose around their neck and a kicked bucket?
      A much better goal to aspire to is the end of bailouts, and the end of firing off wads of QE-dollars to preserve badly-run (but well-connected) companies and systems (zombification).

      Still, in matters of financial fraud I think it is important to seek out equivalent justice; you destroy a livelihood, we take your trust fund, and your Swiss bank account to compensate the victim. The status quo — where regulators shoot off tiny fines for huge financial crimes — is a joke.

  22. Facebook Hastens U.S. Slide into Economic Eclipse

    America’s long slide into economic eclipse continued this week with the announcement that Facebook is buying Instagram for $1 billion. What? You’ve never heard of Instagram? It’s a photo-sharing application for iPhones that was developed by two twenty-somethings. The company has about a dozen employees, no revenues nor even a business model, so it’s safe to say that Instagram has almost zero impact on the U.S economy. Let’s hope the venture capitalists and corporate insiders who have struck it rich with this deal spend their money – all of which will come from the pockets of infinitely greater fools – wisely.

    Not that anyone about to reap a multibillion-dollar IPO bonanza should be worried about anything. It is America that should be worried as the May date approaches for Facebook’s IPO, an offering expected to be worth as much as $100 billion. How, we should ask, can a company that produces absolutely nothing be worth so much? Chalk it up to the madness of crowds.

    As for the three hotties, when I clicked on the picture to get a better look, a Yahoo! message appeared warning that an “app” would be downloaded onto my hard drive to collect my “basic info” (??), my e-mail address, birth date and Facebook “likes.” This might seem innocuous, especially to the teeny boppers who comprise Facebook’s core demographic. But the uses to which such data could be put, in conjunction with other data collected on us whenever we browse or click, boggles the imagination. We already described here how retailers have learned to “triangulate” discount-coupon data so that they can “detect” when a female shopper is in her first trimester of pregnancy. Pretty clever, right? This feat pales in comparison to what they’ll be able to do when Facebook et al. have had a few years to compile reams of data on individual users.


  23. This explains a lot...lol

    Neural Responses Reveal Our Optimistic Bent

    Why adjusting our expectations to reality is so difficult

    Most of us hold unrealistically optimistic views of the future, research shows, downplaying the likelihood that we will have bad experiences. Now a study in Nature Neuroscience last October has found clues to the brain’s predilection for the positive, identifying regions that may fuel this “optimism bias” by preferentially responding to rosier information.

    This finding jibes with past studies that observed an optimism bias in about 80 percent of the population. Its absence can signal anxiety or depression. Yet being overly optimistic has consequences, too, Sharot says, preventing us from taking some precautions to avoid harm or misfortune. Realizing the brain’s partiality may be half the battle. “If you are aware of the optimism bias, you can commit to actions or rules that will help protect you,” Sharot notes.


  24. IMF: Gold Is Scarce “Safe Asset” And “Growing Shortage of Safe Assets”

    The IMF has warned regarding illiquidity in “safe haven” markets. Gold remains one of the most liquid markets in the world and the illiquidity in bond markets would see increased safe haven demand for gold.