Wednesday, October 31, 2012

Truth In Media? Is Another Government Bailout Coming?

Anyone besides me ready for this election to be over so we don't have to listen to the incessant and vile barrage of SuperPAC-sponsored campaign ads?  If I hear that commercial about Romney helping to bury some boy scout one more time I might jump out the window...I've said here before and I'll always maintain that the Citizens United v. Federal Election Commission Supreme Court decision has buried democracy and buried this country for the 99%'ers.

The corporate earnings charade has become so over-spun by the media that now it's impossible to tell what's real and what's fiction by looking at the headlines.  Today was a prime example when Mastercard released its quarterly earnings (this is so completely surreal that you can't make it up):

Headline from CNBC:  "MasterCard revenue misses for second time as consumer spending slows"  Here's the LINK

Headline from Reuters:  "MasterCard profit beats as consumers feel more confident"  Here's the LINK

What the hell?  Which headline are we supposed to believe?  I don't have time to go through Mastercard's numbers, but my bet would be that the Company utilized several non-cash GAAP accounting manipulations to produce a net income that "beat" expectations in order to off-set the revenue expectations disappointment.  Typical of the insidious fraud that has completely infected our financial system.

I wanted to point out the gigantic white elephant sitting out there in connection with Hurricane Tropical Storm Sandy that I have not seen mentioned anywhere.  First, let me say that both FoxNews and CNN shamelessly and horrifically over-hyped and over-promoted this storm for the sake of generating viewers.  To be sure, lower Manhattan suffered some pretty serious damage, as did the coastline of New Jersey.  But friends of mine living in NYC were actually at work yesterday (midtown/uptown).  And a friend/colleague who lives/works in Annapolis (eastern shoreline of Maryland) reported this morning that other than a brief blackout, his property was unscathed.

My fear is that, with the rapidly escalating estimated costs from damage to buildings and homes along the New Jersey, NY coastal areas, the Government may use this event as another chance to bail out insurance companies and big banks.  Sounds like a massive stealth bailout of New Jersey is being tee'd up.  It's the only reason I can see that NJ Governor Chris Christie is sucking up to the Democratic POTUS.

Let me explain.  The big property and casualty insurance companies will likely be on the hook for somewhere between $50-100 billion in damages.  You can be certain that they've laid off a good portion of this risk via OTC derivatives, with the big banks and hedge funds as counterparties.  When a hedge fund is a counterparty, by virtue of the 5-10x leverage extended to hedge funds by the big banks, it basically means the big banks are the ultimate counterparties to risks taken on by big hedge funds (if a hedge fund defaults on a big trade, the bank becomes the owner of the trade).

You can sure that if it looks like there will be a financial hurricane caused by Sandy, the Government will be there to monetize the situation, much like it did in 2008.  $50-100 billion in actual damages can potentially translate into the 5-10 times that amount by "virtue" of derivatives.  Given that the structural problems that took down the financial system in 2008 are actually worse now, the financial system would not be able to withstand the body blow of a $100 billion dollar counter-party derivatives default.  We'll see how this unfolds, but my bet would be that the Taxpayer bears the brunt of the expense from Sandy.

Friday, October 26, 2012

Is Stephen Colbert A Teabagger?

I'm out of town until Monday so this will be brief.  Everyone by now has heard about Donald Trump's "big" revelation on Wednesday.  Stephen Colbert has an equally "big" propostion for Trump.  This is absolutely hilarious:  LINK

This week I'm looking for the Broncos to cover the 7 pt. point spread against the New Orleans Saints in Mile High Stadium on Sunday night. I also think the latest price correction in gold and silver has run its course.  One caveat is that I would like to see more liquidation in the silver open interest on the Comex, but that's the only indicator that is still in "red flag" territory.  Everything else is "green light."

Have a great weekend.

Wednesday, October 24, 2012

Let Me Destroy Two Myths In Media Today

Myth #1)  New home sales soared to highest since April 2010

The Government reported today that new home sales came in at a seasonally adjusted 389k vs. 385k expected.  Please note the emphasis on "seasonally adjusted."  The prior month's reported number was revised lower (of course) to 368k (seasonally adjusted) from 373k.  No one knows except the insiders at the Census Bureau how the seasonal adjustments are calculated.

HOWEVER, if you read through the press release from the Census Bureau, you find that the actual number of new homes that were "sold" in September was 31,000.   Huh?  I'm drawing on the work from in this LINK, which also links the CB report.  Of the 31k homes actually sold, only 11k were completed homes.  10k were not actually started yet and 10k were under construction.  As noted, the 31k is below the 35k from May 2012.

I'm going to one-up zerohedge's analysis by pointing out that currently the new home cancellation rate is running close to 20%.  You can get this number by skimming new homebuilder quarterly reports.  If this number stays consistent, of the 20k homes not completed, it is possible that 4k of those could cancel.  Which would then mean that the real monthly number for September would be 27,000 homes that were sold.  Including seasonality, that would put the likely run-rate well below 300,000 homes based on a thorough cleansing and analysis of September's headline report.

Myth #2)  Facebook had a great earnings report based on the growth in mobile active users

The headlines could not have been more full of hyperbole and embellishment.  Facebook's stock spiked over 20% and all the financial analysts/reporters were falling over themselves with delight.  CNN Money has a video titled "Facebook cashes in on 1 billion users." LOL.  Certainly insiders and Morgan Stanley (the IPO underwriter) cashed in big time on zombie investors.  That much is a true statement.

Here's the problem with the headline declarations:  when I go to the 8-k filing with FB's quarterly SEC earnings report, I can't figure out where the "cash earnings" are.  Maybe I need a visit to the eye doctor, but I was actually quite amused by what I saw with my own eyes in FB's 8-k:  LINK

If you parse through the reported financials, to begin with, there's not a lot of "color" from management about the operations.  Compare that to one of the recent big bank 8-k filings and you'll see what I mean.  This is an analytic red flag and it means to me that there's just not that much to talk about.

Second, if you click on the link and scroll down to the Statement of Cash Flows, you'll find that cash flow from operations declined from $565 million in Q3 2011 to $250 million in Q3 2012.  Cash flow from operations for the 1st nine months of the quarter declined from $1.039 billion in 2011 to $931 billion in 2012.  Notice anything there?  There was a deceleration in amount of cash flow generated in the third quarter of 2012.  This should not be happening with a "growth" business.

Finally, the media/Wall Street is shamelessly pimping FB's "active mobile user" base.  This totally reminds me of the "clicks and eyeballs" phrase from the internet bubble era.  Remember Henry Blodget getting on CNBC in front of a beaming Maria Bartiromo and promoting the new economics of page views?  ROFLMAO.   Here's the truth:  Mobile active users represented 60% of monthly active users in Q3.  However, the MAU category generated only 14% of ad revenues.  Someone please explain to me how that is bullish?   Am I hallucinating?  But hey, the company updated its Messenger for Android and iOS and made Facebook Camera available in 18 languages.  So the company has that going for it, which is nice...

I don't see how our system and financial markets can get any sillier than they are now, but I'm sure they will.  The reason FB stock is up so much today is that there's a massive short squeeze in the shares shorted.  I say this because the shares are extremely hard to borrow and the reality of the economics and cash flow underlying FB's business model does not come remotely close to representing the $50 billion market cap of the stock.  With the global economy starting to contract in a major way, the cash flow numbers for FB are not going to do what they need to do in order to justify even half of the current market cap.  And the housing market is not recovering...

Tuesday, October 23, 2012

What's Real?

I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing. - Thomas Jefferson (source link below)
I wasn't going to post anything today but after last night's pathetic "showdown" between Obama and Romney, I wanted to share a few thoughts and then link a commentary that is a must-read.  I was discussing the political situation with a friend and colleague and I expressed this view:
I listened to all three debates, there's really not much difference in the platforms between Romney and Obama, other than the "moral" stuff (birth control, planned parenthood, etc).

To me, the same ultra-elitists control either candidate.  At the margin there's the Koch/Adelson whackos who give a lot of money to Romney. I'm not sure which left-winger ultra-elitists give money to Obama other than Soros.  But I think our elections have come down to nothing more than a dog and pony show in order to make the 50% who actually vote think that their vote makes a difference.  What's been the difference between Bush and Obama besides Obama maybe kicking a little more down to the welfare class?  Do you really think that McCain would have let GM/Chrysler disappear?  McCain led the charge for TARP.

My business said this morning: "well at least the Republicans give lip service to free enterprise"  My response was "all lip service is good for is oral sex."
Honestly it's not going to make a difference for the most part which candidate is in the White House.  The political system has been completely captured by the big corporate and ultra-wealthy money (please review Citizens United v. the FEC SCOTUS decision if you don't believe me).

Rather than lay out my own pontification, please read the following commentary:  
Prior to every election, politicians from both parties swear up and down that they will do something about our exploding debt, but it never happens.  Once again this year, our politicians are making all kinds of grand promises about getting U.S. government finances under control.  But they are also promising all kinds of new plans and programs which are going to cost a lot more money on top of what we are already spending.
Here's the LINK

Monday, October 22, 2012

What Economic Recovery? Your Taxes At Work?

I'm going to do a post on the bogus housing "recovery" but it will require some extra work. As a teaser, based on the data and analysis I've looked at - in conjunction with and confirmation of my own thinking - the so-called "housing recovery" as its being promoted in the media is as phony and manipulated as any other economic statistic. But for the amount of time I have to post something today, I wanted to unload some news reports that irritate the crap out of me, which means you'll have to read them if you decide to read my post today.

To begin with, lets shoot down this notion that the economy is regaining health. I saw an article on the Financial Times blog this morning that suggested that the U.S. economy was the only relatively bright spot around the globe. I'm scratching my head on this one. Here's how John Williams ( summarized last weeks main economic reports: Quarterly Industrial Production Contracted for First Time Since Official Recession, Quarterly Pace of Inflation Picked Up, With CPI and PPI Topping Market Expectations, September Year-to-Year Inflation: 2.0% (CPI-U), 9.6% (SGS), Real Average Weekly Earnings Continued to Tumble, Inflation Provided Half of September Retail Sales Growth. CPI-U is the Government number and CPI-SGS is Williams' alternative calculation of inflation. I know my own spending experience is a lot more consistent with the SGS measurement.

To be sure, the massive Government and Fed stimulus initiated in late 2008, and continuously administered since then, somewhat stabilized the economic shock from the 2008 banking system collapse. However, if you apply a true inflation measure rather than the Government-rigged CPI metric, there is a very valid argument that the economy never achieved real growth (real growth = nominal GDP minus real inflation). Based on many factors, including the data I posted on Friday, it would appear that the economy is heading back into tailspin. Caterpillar announced its earnings this morning and, like the major GDP/infrastructure companies that reported last week, it reported earnings that fell short of expectations and had to lower future expectations: LINK

 A big part of how the Government has created a tenuous safety net for the economy has been to take your tax dollars and heavily subsidize automobile manufacturing and ramp up welfare spending.  Everyone knows about the massive bailout of GM and Chrysler.  But check out this news item from a local Michigan newspaper about the "success" of the Government's Chevy Volt program:
Workers at LG Chem, a $300 million lithium-ion battery plant heavily funded by taxpayers, tell Target 8 that they have so little work to do that they spend hours playing cards and board games, reading magazines or watching movies.
Here's the LINK  Speaking of the Volt, I saw a report about two weeks which had calculated that the Government was spending something like $40,000 per car to produce the Volt, which has been a colossal failure.  You can probably use google to find the report if you think I misread.

In addition, everyone knows that entitlement spending on student loans and social security disability has started to go parabolic since Obama took over the Government (please note:  I believe that Government spending and debt accumulation would have ramped up like this regardless of which Party controlled the Oval Office).   It was reported  last Thursday that Federal welfare spending has increased 32% over the last four years.  In fact, Federal and State welfare combined is now $1.03 trillion:  LINK  That number is over 25% of total Federal reported spending (as opposed to "off-budget" spending).  But that's okay.  Even though private sector wages are declining on average, Obama wants to make sure Government employees are well taken care of:  LINK

Make no mistake in thinking that any of the above numbers would have been any different under a Republican administration.  Look at Government welfare and union-industry bailouts as "insurance" payments against widespread revolt.  If the Government were to cut back on any of its spending, without real private-sector growth replacing that Government spending, our economy would collapse into the worst depression in the country's history.  I'm not defending it, I'm just telling it like it is.

The bottom line is that this is completely unsustainable.  And neither Presidential candidate has clarified with specifics as to how they would address the above mess.  I have heard plenty of grandiose political platitudes and promises, but no workable solutions.  I don't think there are any.  I have no idea how or when this is going to hit the wall, but I do know it will be most unpleasant.  You can soften the blow to yourself and your family by moving as much of your fiat-based wealth out of the system and into precious metals...I plan on switching between the NLCS game and the Monday Night Football game tonight - the Presidential debate will go unwatched by me - the first two were just not entertaining enough...

Friday, October 19, 2012

Will The Real Economy Please Step Forward...

"I'm Dave In Denver and if you really believe that voting makes a difference, then I recommend voting early and often"
It really irritates me when I hear on financial tv and read in the online media/newspapers that the economy and the housing market are "recovering."  So I wanted to go over some data that is not widely presented in the above sources of news and let readers draw their own conclusion.  My contention is that, while on the surface the trillions pumped into the economy so far has provided a small, nominal "bounce" in the economy, beneath the "veneer" of this highly promoted bounce is an economy that is still rotting away at the core and that none of the structural and financial problems that caused the 2008 collapse have been fixed or even addressed.

First to address the economy in general.  I think most people who read this blog accept the concept that the Government manipulates and massages the economic numbers it reports, especially the big ones like unemployment and GDP.  They key to analyzing the extent to which they do so is to dig around for actual proof.  I've addressed unemployment in several recent posts, but if you want to see yet another take on this, read this report from John Crudele of the NY Post, who does the only truthseeking reporting in the mainstream media:  LINK

As for the economy, let's take a look at a couple earnings reports from this week.  IBM reported earnings earlier this week and its revenues fell more than analysts had forecast.  IBM is a GDP company people.  When IBM's revenues drop, it means the economy is not growing.  It's revenues in its "Americas" segment dumped 4%.  The U.S. market would be its largest market for both hardware and software services.  Businesses are not ordering hardware and services because they are not investing in growth because they don't see any.

Two more tech-oriented companies reported this week, Intel and AMD.  Combined they produce by far the majority of microprocessors in this country.  Intel's earnings and revenues "beat" estimates, but the estimate-bar had been lowered enough already by management and Wall Street to make it an easy one to jump over.  More significant, Intel lowered its outlook:   "The reasons for the lackluster report are pretty obvious. The PC market is crumbling; corporate IT departments have turned cautious, and the supply chain is trimming inventories"  LINK  Similarly, AMD reported disappointing results, lowered its outlook for the future and is cutting 1700 jobs:  LINK  Because microprocessors are used in almost everything electronic (durable goods), the microprocessor industry is a bellweather for the economy.

The last two company results are pretty much self-explanatory.  Both GE and McDonalds reported disappointing results.  Remember, we don't give a crap about reported net income, because that number contains a lot of accounting fiction and gimmicks in order to produce the headline grabbing, serially counterfeit earnings "beat."  GE's infrastructure-based orders dropped by over $21 billion and GE reduced its outlook  LINK  McDonald's actually missed its profit expectation and remarked that its growth was slowing.  I think we can all agree that these two significant GDP-relevant companies.

Obviously Google reported horrible earnings and, based on its stock action, the expectation for AAPL is that its ability to produce incremental growth is likely max'd out.  What all of the above indicate is that  big companies are not investing in growth and consumers are starting to really feel the bad economy, lack of jobs, and declining average income in their ability to spend over and above necessities.  Quite frankly, if the Government were to use a bona fide inflation number when it calculates the quarterly GDP, we would find that economy is actually contracting (negative real GDP) and has been for several quarters.

I wanted to go over the housing market today but I've run out of time to spend writing.  The bottom line for the economy, based on real numbers coming from companies which are considered, infrastructure/consumption/GDP-affecting businesses, is that the economy is in contraction.  I'll review the housing market next week, but once the affect of the recent massive Fed/Govt stimulus cycles through the housing market - and it largely has already as you'll see Monday - our economy is likely to go into crash mode.  My bet is that is why the big hedge-fund cash flow driven stocks like AAPL and GOOG are plummeting, meaning big hedge funds are pulling their cash out of the stock market.

Please note:  I will be a guest on new a.m./internet radio show based in Phoenix tomorrow at 2 p.m. Denver time.  The show is sponsored by All-Pro Gold, the program discusses wealth preservation, and you can listen to it by clicking on the "Listen Live" tab here:  LINK   Have a great weekend.

Wednesday, October 17, 2012

Look Out Below

"I'm Dave In Denver and I approve this blog post"

Please note:  I am completely politically atheistic with regard to who might have "won" last night's debate, as well as the outcome of the election.  Regardless of who you support, for whatever ridiculous reason, last night's debate was a god damn embarrassment to our country and a complete insult to the intelligence of those who understand the extent to which our country is in a state of collapse.

First off, I want to say that Candy Crowley is grotesquely overweight.  All I could think about during the healthcare part of the scuffle was that my tax dollars under both Obamacare and medicare will be used to subsidize all of the health-related physical ailments Crowley likely suffers and will suffer as a result of her obesity.  She is emblematic of what's wrong with our Government subsidized healthcare system and our society in general.  Put to the test of nature and Darwinian forces - and believe me, that world will eventually descend on our system - she would not survive.

I have to say that I was a bit disappointed in Obama's counter-punch tactics after the thorough beating he took in round 1.  I thought he might of come out ahead at the end, but if this were only a two-round fight, Romney would be the winner by decision.  I was really hoping to see a knock-out performance by either candidate.  Furthermore, I was a bit startled by the lack of grace exhibited by Romney at several points during the whole debate, including his near-dismissal of one of the questions so that he could circle back and get in his final words on the previous topic.  He should have moved on because at that point I'm sure most viewers had gotten up to freshen up their cocktails or check their text messages.  Frankly, Romney's behavior completely belied the type of religion-derived "spirituality" and grace to which he laid claim during the debate.

But on to the more interesting topic of the U.S. dollar.  Coincidentally, I have been invited as a guest on a new a.m. radio program out of Phoenix that discusses wealth preservation this Saturday at 4 p.m. eastern standard time.  The show is sponsored by All-Pro Gold and you can tune-in on this link:  All Pro Gold and click on the link in the middle of the left side of the website.  The topic will be the future of the Petro-Dollar and how it will affect your wealth.

I was looking at a chart of the U.S. dollar a couple days ago and I had not realized that, technically, the U.S. dollar looks vulnerable to a substantial sell-off.  Since the end of April 2011, the dollar staged a 7% move higher, which is a pretty big move in currency terms.  Not coincidentally, the move up in the dollar is directly correlated with the big correction in precious metals.  What surprised me when I glanced at the chart the other day was the trouble the dollar seemed to be having in recovering from the big drop it has taken since it started pricing in the expectation of more QE at the end of July:

(Click on chart to enlarge)

From a technical standpoint, as you can see from my markings on the above chart, the U.S. dollar is forming a "bearish rising wedge."  In fact, today the dollar is down another .5% down to 79.05, which is below the bottom boundary of the "wedge" that I drew yesterday.

The fundamental factors that are likely to drive the dollar a lot lower from here include  1) the inability of the Government to reduce spending, debt accumulation and the massive spending deficit  2) the deteriorating economy - I've addressed the difference between truth and media/political fiction in several recent posts 3) the continued implementation by China of strategic currency alliances with its largest trading partners which use the yuan for trade rather than the dollar 4) QE1, QE2, QE3/to infinity 5) the approaching "Fiscal Cliff" and the Government's inability to implement any kind of fiscal programs which would address the nature of this "cliff."

There are several other fundamental factors which will undermine the value of the U.S. dollar, but the above list is the most obvious and the easiest to understand.  I would like to point out that while both candidates last night boastfully presented their "unique" programs to address 1-5 above, neither of them could explain what they would do specifically to miraculously create 12 million jobs, lower taxes for everyone, increase military spending, improve Government entitlement programs and reduce both the Government debt load and the spending deficit.  When you look at this list of promises with no actual plan of action to deliver on those promises, you can understand why the U.S. dollar is in danger of taking a precipitous drop lower soon.

Tuesday, October 16, 2012

The Broncos Don't Need "Plan B" - We Better Pray Bernanke Has A "Plan B" That Works

Plan B?  No we don't have Plan B.  We're goin' Plan A! -  John Elway in response to a reporter's qustion about what the Broncos would do if Peyton Manning couldn't play because of his neck injuries - LINK (worth the 12 seconds to see Elway's grin)
Anyone who watched last night's Monday Night Football game knows that Elway took a big risk and it's paying off.  He doesn't need "Plan B."

But anyone paying attention to the smoke signals coming from the Too Big To Fail Banks understands that, so far, Bernanke's Plan A isn't working and he better have Plan B lined up and ready or our entire system could collapse.

Originally I was going to write more about how Citibank's earnings report yesterday was comprised largely of fictitious accounting gains and was total b.s.  But you can read the details here:  LINK If you don't want to read the details, suffice it to say that Citi fraudulently took a big gain from reducing its loan loss reserve at the same time that the default rate in its large home equity loan holdings spiked a lot higher.

Furthermore, despite the view being propped in the media about U.S. household debt levels declining, the truth is that the middle class in this country isn't deleveraging.  The average household is defaulting away its obligations, leaving systemic losses that are either being absorbed by accounting chicanery, per Citi's and JPM's earnings reports, or are being papered over by the Fed.

But the truthful bottom line is that the systemic problems that existed when our financial system basically collapsed in 2008 have never been fixed.  The reason I bring this up is because something very ominous is going on beneath the surface.  A good friend of mine in NYC called this morning and told me that he had heard that insiders at JP Morgan are basically terrified by the problems mounting there.  Without going into specific details, suffice it to say that the London Whale situation is the tip of the iceberg.

My friend pointed out that there's a lot more than meets the eye with the recent departure of JPM's CFO.  The London Whale situation, while appropriately knocking out JPM's Chief Investment Officer, should not have been enough to knock out the CFO.  He was clearly thrown under the bus by Dimon.  Furthermore, less noticed, was the departure of Barry Zubrow, previously the head of JPM's risk management and the person who was in charge of that area when the London Whale loss hit.  He was described as being one of Jamie Dimon's "trusted lieutenants."  Both of these "assassinations" are indicative of much bigger problems than just the supposed $2 billion Whale loss.

Same deal with the unexpected and abrupt resignation of Citibank's CEO, Vik Pandit.  Citi reports "fabulous" earnings yesterday and the Government claims that Citibank is completely turned around and the CEO leaves the next day?  That does not pass the smell test. It reeks like Pandit is walking away from a ticking time bomb just when it most appears like he's "successfully" navigated the bank back to health.

The Government/Taxpayers wrote a multi-trillion dollar check in 2008/2009 to save the banking system but nothing was ever really fixed.  The banks are not really deleveraging and have been substantially masking bad assets still on the balance with phony "mark to market" accounting gimmicks.  Moreover, the derivatives positions - those insidious weapons of mass financial destruction - are now substantially larger than they were in 2008 right before the financial crisis.  In other words, the banks not only never changed their business model, they've essentially re-upped the catastrophic bets that took them down in 2008.  Sounds a lot like gambling, doesn't it.

In fact, it looks a lot like Bernanke's "Plan A" was nothing more than a multi-trillion dollar hail mary predicated on false economic assumptions and fraudulent monetary theories that have never been tested but, to be sure, run egregiously contrary to all known laws of economics.  My friend worked at Lehman before it blew up in 2008.  He commented this morning that the situation on Wall Street feels a lot like it did in the months preceding the Lehman blow-up.  I wonder if Bernanke has Plan B...

Friday, October 12, 2012

Fact vs. Fiction

"I'm Dave In Denver and I approve this blog post"

JP Morgan reported its much-anticipated 3rd quarter earnings this morning.  Naturally the headline number was boastful and resplendent.  I was going to do a full-blown, in-depth analysis showing why JPM's headline numbers were misleading and somewhat fraudulent, but it's a lot of work and I don't get paid to write this blog.

Instead, I did a quick "drive-by" look-see at JPM's 8-K filing.  The 8-K is a filing that reports "material" events as required by the SEC.  The 8-K will be filed to report quarterly results prior to  the more complete 10-Q.  Often the Statement of Cash Flows is not included in the 8-K, especially with banks.

At any rate, JPM's earnings growth, despite the grand proclamations issued by the CEO - supported by "smoothed out" GAAP numbers reported for each business segment - were a product primarily of two events:  1) significantly increased fees from mortgage origination and mortgage sale activity and 2) a paper income generating accounting reversal in their "allowance for loan losses."

Let me quickly elaborate.  JPM reports $5.7 billion in net income this quarter, vs $4.96 billion in Q2 '12 and $4.3 billion in Q3 2011.  Nice growth, right?   But of that increase, $600 million of the $1.4 billion increase over Q3 last year is accounted for by its mortgage activity.  The bulk of the mortgage activity is refinancings that are either subsidized by taxpayer funded Government programs or by taxpayer supported Federal Reserve interest rate and QE policy.  JPM takes a fee on the refinancing, takes a small profit flipping the mortgage into a mortgage investment trust and gets a fee on any servicing rights it retains.  You can read about that here:  LINK

As for the balance sheet loan loss reserve reversal.  This is more of the same game JPM and all of the banks have been playing with GAAP accounting and fraudulent risk assessment for the past 2+ years.  For this quarter vs. the last quarter, JPM reduced its loan loss reserve by $967 million dollars.   This means close a $1 billion of JPM's $5.7 billion net income this quarter was an accounting maneuver.  If you strip this accounting chicanery out, JPM reports a decline in net income this quarter vs. last quarter.  If you assume the mortgage activity income is not sustainable, the true quality of JPM's earnings come into serious question.  I'd bet my last nickel that this was not mentioned on CNBC, Bloomberg or Fox Biz.  This is fictitious income predicated on JPM's CFO being accurate on his risk assessment of all of JPM's loan and trading positions.  Given what recently happened in London, I'd bet against this.  Here's JPM's latest 8-K in case you get bored this weekend:  LINK

In fact, let's look at another truth to see how confident the CFO is in the numbers he's reporting to investors and to the world.  Most of you are aware that the Fed is conducting "stress" tests of the big bank balance sheets (all of the banks but it's the big banks that count because that's where bulk of the risk is in the system).  The data sent to the Fed is essentially the same data used to compile bank financial statements.  Specifically and critically, it's the data used to price and account for assets as reported on the above-linked 8-K.  Interestingly - no, shockingly - if you read through this article about the stress test procedure, LINK, the CFO's do not have to sign off on and attest to the accuracy of this data.  I nearly fell of my chair when I read about this.  Bottom line:  the numbers being used to prepare the big bank earnings and financial statements, used by the entire financial world, may or may not be accurate.   Given the reluctance of CFO's to sign off on this data, I would bet the data is inaccurate to outright fraudulent.  Think about that one...

Thursday, October 11, 2012

Will The Real Jobless Benefit Claims Number Please Step Forward?

There's no B.S. like the b.s. from the BLS   - My name is Dave In Denver and I approve this blog post
The headline report from all the news services reads:  "Jobless Claims Plunge To New Four-Year Low," among other misleading statements.  That is also the headline report that will be reported to the hoi polloi who watch their local nightly news rather than stay current with what's going on with Snooki.  That is also the headline that will be read by those who actually pick up a newspaper tomorrow (the dwindling few in our society who actually try to keep up with the news).

But, alas, just like all the other economic reporting by the Government, this jobless claims headline is complete bullshit.  The BLS itself, in post-report comments, states that "a single large state was responsible for most of the drop in claims."  As it turns out, this "large" unidentified State is thought to be California:
As a result, there is an accumulation of claims that are likely submitted over a period of several weeks but not processed until the turn of the quarter. Apparently, the state in question (and it pretty much has to be California to account for anything close to 30,000) forgot to include that stockpile of unprocessed claims in their tally for this week (which is the first week of a new calendar quarter). Since the seasonal factors expected an unadjusted surge of almost 20% in the period to account for the quarterly filing pattern, failure to adhere to that pattern in the raw data (unadjusted claims were only up 8.6%) creates a big drop seasonally adjusted  (LINK)
Once again, the Government leaves out facts in reporting the headlines and most of the financial media analysts choose to debate the headline number, which is clearly a false number, rather than dig for and discuss the truth.  Although, I'm told that Steve Liesman, CNBC's obsequiously ubiquitous apologist for all headline economic reports, was uncharacteristically speechless over this headline report.  Liesman is one of those guys with whom it is apparent that his brains fell out of head along with his hair.

Interestingly, the "unadjusted" claims number for the reporting week showed an increase of 25,990 claims vs. the previous week.  I would argue that the unadjusted number would be a lot more relevant since the headline number did not include from California a big piece of data that is used for the "seaonal adjustments" calculation and we have no earthly idea how the BLS calculates its "seasonal adjustments" OR even if the theories underlying the calculations for these adjustments make any rational sense.  Here's the BLS report:  LINK

I've been dragging this article around from the Washington Post so I decided to post it today.  It discusses the degree to which members of Congress have - on average - managed to increase their wealth by a substantial amount over the last 8 years, while the 99% class in this country has seen its wealth decline and the its average personal income decline.  This article alone explains in economic terms why it doesn't matter which Party is in control of the White House OR Congress:  LINK

Despite that article, I still can't figure out how Senate Majority Leader Harry Reid, a Mormon from Nevada, managed to go from being pretty much penniless to worth several million dollars since his first term in the Senate commenced in 1987.  Here's a guy who's law practice was in shambles and who barely had a pot in which to piss and now he's part of the .5%'ers (point five percenters).  Anyone got any explanation for that?  I don't and neither do the people I know who have lived in Nevada their whole life.  I will say, I wonder if Reid will secretly support his faith and vote for his Brother Romney in November...

Tuesday, October 9, 2012

Will The Real Unemployment Rate Please Step Forward?

If you tell a lie big enough and keep repeating it, people will eventually come to believe it. - Joseph Goebbels, Hitler's Minister of Propaganda
Last Friday's non-farm payroll report and the supposed decline in the reported unemployment rate to 7.8% stirred up quite a debate in media over whether or not the number was artificially manipulated lower for Obama's political benefit.  I have detailed extensively in previous posts, with plenty of data to back it up, the assertion that the employment report is heavily manipulated.  Much of it comes directly from the BLS website.  What I found quite strikingly obvious is that not one media outlet defending the report - Bloomberg, CNN, MSNBC, CNBC, Fox News - ever presented any data to back-up their defense.  It's kind of like Obama and Romney tossing out their "programs" to solve our problems without ever detailing how they'll accomplish their platitudinous political promises.

To summarize the situation regarding whether or not the BLS manipulates its economic data, here's a quote from John Williams' Shadow Statistics report.  John Williams has been tracking and analyzing Government economic statistics for several decades.  I doubt there's anyone outside of the BLS brain trust who knows more about how and where the numbers are manipulated:
The August-to-September change in the headline unemployment rate almost certainly was not a 0.3% decline.  The Bureau of Labor Statistics (BLS) knows the reported change in unemployment was wrong—other than by extreme coincidence—and it knows what consistent reporting actually showed.  Only politics prevents the BLS from releasing the correct number, whether the unemployment rate actually declined, held even, or rose as predicted by consensus forecasters.  The lack of transparency here in the data preparation allows for direct political manipulation.
If you are interested in his detailed analysis, you can subscribe to his reports HERE  If you have never read his work but are curious about the truth, it's worth subscribing.

As always, the golden truth lies in "following the money."  While common sense, combined with Williams' excruciating analysis of the data, suggests the headline-reported unemployment is total bullshit, the pay-off is always about money.  Show me the money!  It just so happens that Bill King, who publishes his daily "The King Report," presented a dollars and sense analysis which confirms that the unemployment report was fictitious, a Goebbelian lie.

Because The King Report is also a subscription service, I will provide a summary of his "follow the money" findings.  Mr. King did the logical thing and looked at payroll tax receipts for September and compared them to August.  One would expect that if the economy generated the number of jobs claimed in the September employment report, the Treasury would have collected more payroll tax receipts, right?  It turns out that the payroll tax receipts for September declined by $2.2 billion.  How can that be?

He also looks at year-to-date FICA witholdings (Social Security tax).  Presumably, if the economy has generated the number jobs this year, as claimed by the Government, we would expect an increase in FICA witholdings for 2012 vs. 2011.  As it turns out, FICA witholdings through the end of August 2012 are $7.2 billion lower than for the same period in 2011.  Could Steve Liesman on CNBC please explain that one?

Finally, and this one is my favorite, Mr. King puts the nefarious Birth/Death model assumption to the test of money.  For the September employment report, the Government number includes the addition of 546,000 new jobs from the formation of new businesses.  These would be you mom and pop small local businesses.  To test that, we would expect to see a large increase in "self-employment taxes" per the Self-Employment Contributions and Federal Disability Tax Acts.  As it turns out, self-emploment tax contributions year to date are lower in 2012 than for 2011. If you are interested in looking at the Treasury data Mr. King analyzed, the link is here:  LINK
One more point, consumer spending slowed down considerably in September.  Wouldn't it seem logical if the economy were producing a large number of jobs that, on a macro level, consumer spending should be increasing along with what should be a larger "pool" of personal income?

There is no question in my mind that the Government egregiously manipulates the major economic reports for political purposes.  I have been reading and researching this for over 10 years now.  As I stated before, the analysts who report the manipulation back everything up with extensive and detailed analysis.  Those who report and defend the Government back up their claim with empty rhetoric.  I'll leave it to you to further investigate and decide if the Government is lying or if the analysts who back up "manipulation" assertions with actual proof - statistical and monetary - are black helicopter conspiracy theorists, as they've been called by Bloomberg and others in the media.

Friday, October 5, 2012

There's No Politics Like Deep-Dish Chicago-Style Politics

This is mythically corrupt (in reference to the rigged unemployment rate)
- Friend of Dave in Denver
Former General Electric CEO, Jack Welch, referred to today's unemployment report as being the epitome of Chicago-style politics in action:  "Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers."  Miraculously, the unemployment rate dropped 30 basis points from last month to 7.8%.  Recall that Obama promised in 2008 to get the unemployment rate below 8%.  Obviously, we are only discussing theoretical numbers here, as the Government's employment report numbers - as dissected ad nauseum on this site and many others - is quite likely the most fraudulently reported statistic in the history of the planet.

Obama has taken a lot of campaign heat for failing to deliver on this promise, as the "unemployment rate" has been over 8% since he was elected.  Miraculously, two days after Obama was thoroughly trounced in debate, the Government releases a monthly employment report which purports an 7.8% unemployment.  Quite honestly, unless we're talking about someone who is completely brain-dead, this attempt at credibility has to challenge the ability to suspend disbelief of even the most passionate Obama supporters.

Recall that yesterday I surmised that we might see a surprise in the actual number of jobs "created" due to the temporary hiring by the Government of workers in connection with the Presidential election.  Indeed, as compiled by my friend and colleague, "Hal," who coincidentally happens to live in Chicago, it turns out that 582,000 of the 114,000 jobs "created" are accounted for by part-time jobs.  Incidentally, for those paying attention to the math, that means somewhere buried in the calculations behind the numbers, roughly 460,000 full-time jobs were lost.  You can go through the numbers to your heart's content using this LINK  But don't bother wasting your time because, as I pointed out to Hal earlier, what makes the entire media/analyst circus surrounding this monthly report entirely absurd is the undisputed fact that the numbers are completely fictitious/fraudulent and bear absolutely no fathomable true relationship with the actual number of unemployed vs. employed in this country.

I don't want to spend any more time on this exercise other than to point out the absurdity of all the media analysts and political commentators (especially on CNBC and the Sunday morning political tragicomedy programs) who discuss, debate and dissect the Government economic reports.  Here's the picture:  you have a bunch of supposedly educated and experienced analysts sitting around a table discussing numbers which are completely fabricated.  I can't think of a bigger waste of time...It's too bad the likes of Charles Dickens or William Thackery are not around to at least convert the absurdity into readable entertainment...

On to something real and concrete that can be discussed:  Manning vs. Brady on Sunday.  I'm not sure an early-season football game can have any more excitement and anticipation than the match-up between the Denver Broncos against the New England Patriots, featuring two of the arguably top-5 QB's of all time.  With Denver coming off of a beat-down of the Oakland Raiders that rivals the beat-down of Obama by Romney Wednesday night, I like Denver's chances of winning on the road this week.  Have a great weekend:

Thursday, October 4, 2012

Form vs. Substance

Unless we begin to close this gap [the widening Govt spending deficit as a percentage of GDP], then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline. Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the “Ring of Fire.” -  Bill Gross, Pimco Asset Management
I have nothing to say about last night's Presidential debate other than that Romney cleary kicked Obama's ass - thoroughly.   The reason I have nothing to say about it is that there was absolutely zero substance behind the statements and rebuttals.  I heard nothing concrete, with specific examples, of how either candidate would specifically address the catastrophic fiscal and economic problems we face.  Great, Romney got an "A" in debate class and Obama got a "D."  I will be surprised if it makes much of a real impact on support for either candidate from actual voters and it will likely not move the "needle" on the distribution of electoral college votes.  But it sure sells a lot of advertising for all the network news programs who broadcast and dissect the empty rhetoric.

Having said that, do not make the mistake of believing the mass media myth that the stock market is staging a big rally today because Romney won the debate.  That's just outright silly.  To begin with, from a percentage standpoint, gold, silver and mining stocks are up significantly more than the broad equity indices.  The reason the markets are higher is seeded in my comment about the lack of actual details or gameplan for the implementation of fiscal and economic policy.  In fact, in that absence - beneath the platitudes and empty campaign slogans - was the implication that the market can expect a whole helluva lot more money printing and Treasury debt issuance. That is the reason the precious metals and mining stocks are leading the markets higher and why the dollar is getting hammered today.

Now that I've got that out of the way, I will focus on the real issues affecting our system.  The biggest issue is the strength - or lack thereof - of our economy.  Yesterday a "touchy feely" economic report, the "services" ISM index, was released and it showed a slightly better gain than expected.  Of course the commentators and analysts jumped all over this as a signal that the economy is improving.  Of course, when you look at the individual components of the index, a different picture emerges.  The prices component jumped 3.8% - vs. a 1.8% gain overall for the index - and the employment component declined 2.7%.  Not sure how that can interpreted as anything but grim.  But since Bernanke has pegged his QE policy to employment, it means we will see more QE than was announced after the last FOMC meeting.

Today the factor orders metric for August was released.  It showed 5.2% drop.  Orders for aircraft and computers plummeted.  Not mentioned in the media about the report is the fact that the 2.8% gain for July was revised lower to 2.6%.  The Government loves to play this game of reporting a number and then revising that number down the next month, knowing most eyes are focused only on the current month's metric.  They are really notorious for doing this with the jobless claims number.  In fact, just today the weekly jobless claims number was reported 367k in jobless claims, a little lower than expected but higher than last week's number.  It just so happens, that last weeks number was revised higher by 4k to 363k.  The Government plays this game every week with the jobless numbers.

Just a note ahead of tomorrow's non-farm employment report for September.  The mean expected number is a 113k gain in jobs.  I would not be surprised to see the number reported to exceed this estimate.  Every four years there's a seasonal gain from temporary employment connected with the Presidential election.  Because a good number will benefit Obama, I'm sure the brain trust at the BLS has been instructed to conveniently leave out the "seasonal adjustments" that might otherwise be used to account for the temporary election-related hiring.  Just speculation on my part, but I bring it up in case a "good" number is reported. 

Tuesday, October 2, 2012

The Presidential Election "Double Tap"

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