Thursday, November 1, 2012

The Economy Is Crumbling

If you lie down with dogs, you wake up with fleas  (attributed to Benjamin Franklin)
Before I chat briefly about the subject of the title, I want to point out that today's action in the mining stock HUI index (-1.8% vs. the SPX +1%) is largely a result of American Barrick and it's big earnings miss released today.  ABX is currently down 9%.  ABX accounts for 15.4% of the HUI index.  Barrick announced crappy operating results plus a pretty big bump in cash costs, which led to the huge earnings miss.  Plus there's this item:  "$71 million in unrealized losses on non-hedge derivative instruments."  I like the way they qualify that as "non-hedge."  Remember they supposedly removed their hedges in 2009, but I never trusted that and it turns out they still have "non-hedge" hedges in place - lol.   I've always thought ABX was a poorly managed company and have steered investors away from it.  ABX is the poster-child of the quote above...

Several economic reports were released today.  Actually, yesterday the Chicago Purchasing Manager's Index was released and was lower than expected.  Worse, the sub-index of component measures was ugly.  Today it was followed up with a slight "beat" by the touchy-feely ISM manufacturing index.  Consumer confidence came in lower than expected and construction spending missed expectations.  In addition, the notoriously manipulated jobless claims weekly report of course came in slightly better than expected (lower claims supposedly) but last week's "better than expected" was of course revised quite a bit lower and below last week's expected number. 

For those paying attention to the Government-sponsored (i.e. Taxpayer financed) General Motors, it was reported that the inventories at GM dealers soared to a record level.  Zerohedge does a great job following this metric:  LINK  A lot of tech hardware and manufacturing companies "stuff the channel" with inventory in order to inflate revenues.  This is because the way GAAP accounting works, when a manufactured good leaves the manufacturer's factory and is shipped to the middle man distributor, it is counted as a sale, even though technically it's never really a sale until it's in the end-user's possession and paid for.  What makes GM's channel-stuffing inordinately egregious is the fact that GM dealer inventories are financed with Taxpayer money.  So when the music finally stops in our fractional-reserve Ponzi system, the Taxpayer will be left holding the bag on millions of unsold cars.   And, of course, the top brass at GM will have walked away with tens of millions in bonus money based on artificially inflated sales.  That particular bubble, by the way and just so readers don't think that my Presidential-candidate hatred is limited to Romney, is being blown by Obama.  Helluva blow job there, Barack.

The point of all of this is that our economy is starting to spiral downwardly out of control and that process is starting to pick up some speed.  Rest assured that the Fed will come to the rescue after the election with another big slug of QE.  This time it will consist of expanding the Treasury financing being done by the Fed.  Interestingly, more on this is future posts, the trickle of fiat money globally that is converting into non-fiat gold/silver bullion is also starting to increase in velocity...


  1. If you've got fleas, you've got fleas...

    Hedge Fund Side-Pocket Liquidator Hired By Bank

    Until now, Multiplicty has worked primarily for institutional investors, private banks and funds of hedge funds. All told, it has wound down US$2 billion in assets, one-fifth of which were illiquid.

    "The big elephant in the room that has not been addressed is that banks are holding large portfolios of illiquid assets," Multiplicity partner Andres Hefti told FN. "Although banks are reluctant to mark down the value of these positions, one day they will realize that they can no longer justify the value with their auditors, who need to independently verify them."


    1. Greyerz - Gold & The Incredible Financial Destruction We Face

      “Every time we look at these positions closely and value them, which is when there is a problem, the banks realize the positions are not worth anywhere close to what they believed they were. The real, underlying problem is that even management at the banks don’t understand these derivatives. They don’t know how to value them, so they have no understanding of the true value of the positions.

      Many times they are virtually impossible to understand, therefore the traders can value them at whatever they want. Of course they are unregulated and they are not traded on any exchange, and most all of this is held off-balance-sheet. Meaning they are not included on the banks balance sheet.

      What the banks do is net down the positions to a very small total because they assume that counterparties will pay. Well, we know when something happens in the banking world, take Lehman as an example, and we will have many more Lehmans in the future, the counterparty doesn’t pay or isn’t able to pay.

      What that means is the gross remains the gross, and again, we have an outstanding exposure, worldwide, of an unfathomable $1.1 quadrillion. You also have to realize that there are virtually no reserves against these enormous positions.

      This is why investors that hold major assets in banks are taking risks they shouldn’t take. The reality is the banking system is incredibly fragile because of the ongoing risk of the derivatives bubble blowing up at some point. I would add that the risk of this happening is very high in my view.

    2. "The refusal of King George III to allow the colonies to operate an honest money system, which freed the ordinary man from the clutches of the money manipulators was probably the prime cause of the revolution."
      -Benjamin Franklin

  2. It happens, slowly ... at first. Then all at once.

    I've seen the headlines converge before but this time you have repatriation, Iran, the BRIC currency deals. Everything we predicted, all happening so fast now.

    And the FED responding by hyperinflating the currency.

    "Saving the debt at any cost, even buying it outright for cash"

    They are buying you time.

  3. Small Indian businessman faces three years in jail for speculating which politician is more corrupt on twitter

    Ravi Srinivasan faces up to three years in jail if found guilty

    Does a tweet on reports of corruption, sent out to 16 followers, deserve a possible penalty of three years of imprisonment? The answer seems to be yes, at least according to Congress leader and Union Finance Minister P. Chidambaram’s son Karti, who filed a complaint against small-time Puducherry businessman Ravi Srinivasan, and the Puducherry police which charged Mr. Srinivasan under Section 66-A of the Information Technology Act, 2008.

    Section 66-A deals with messages sent via computer or communication devices which may be “grossly offensive,” have “menacing character,” or even cause “annoyance or inconvenience.” For offences under the section, a person can be fined and jailed up to three years.

    Mr. Srinivasan, a 45-year-old supplier of plastic parts to telecom companies and a volunteer with India Against Corruption, had on October 20 tweeted from his Twitter account @ravi_the_indian : “got reports that karthick chidambaram has amassed more wealth than vadra.” Other such tweets reportedly made references to Mr. P. Chidambaram.

    Mr. Srinivasan is however appalled by the reaction his tweet has provoked. “At 5 a.m. on Tuesday [October 30] morning, I was woken up and pulled out of my house by CBCID men and told I was under arrest because of my tweets,” he told The Hindu. “My wife and two daughters were in shock. What wrong have I done?”

    The police told him he was being charged because of an e-mail complaint sent by Mr. Karti Chidambaram to the Inspector General of Police, in which he accused him of malicious intent to defame a good man. He was produced before a judicial magistrate and released on bail that evening.

  4. Fraud Case Delayed By 2 Months

    Now, Caribbean Pacific Marketing — a company without revenue since it was created earlier this year — appears to have become the first “emerging growth company” as defined by the JOBS Act to have prompted charges of securities fraud by the Justice Department and an effort by the Securities and Exchange Commission to halt sales of the stock. The government claims a disbarred lawyer from Boca Raton, Fla., is really behind the company.

    Those charges came two months after the S.E.C. allowed the company to begin selling shares under a prospectus that the government now says it knew to be inaccurate.

    The Jumpstart Our Business Start-ups Act defined nearly every business in the United States as an “emerging growth company.” No growth was needed to qualify as such a company, only that it must have less than $1 billion in assets, less than $700 million in shares in public hands and less than five years as a public company. Such companies could sell stock to the public with fewer restrictions, and then report less information to their shareholders than was required from normal companies.

    The idea was that numerous new companies would get financing, and in that way promote job growth. Critics warned that some provisions might simply make it a lot easier to commit securities fraud. Alternate titles like “Jumpstart Our Bilking of Suckers Act” were suggested.

    Asked why the S.E.C.’s division of corporation finance allowed the offering to proceed, John Nester, an S.E.C. spokesman, said, “As is always the case, Enforcement and Corporation Finance staff closely and appropriately coordinated their efforts in this case. As soon as staff had the necessary and required evidence to support the pending action in this case, we filed the case.”

    Neither Mr. Lanham nor the federal public defender representing Mr. Reilly in the criminal case returned phone calls seeking comment. Nor did the company return a call left on an answering machine at the number that it gave in the prospectus. A spokeswoman for the United States attorney’s office in Miami declined to comment.

    The Jumpstart Our Business Start-ups Act...get ready for some real doozies.

  5. "When it comes to Wall St. Eric Holder couldn't prosecute a ham sandwich that sold itself as kosher" Good article in this weeks Village Voice - 'Country Club Sopranos' but oddly enough I could only find it in the print version and not online but a few publications around the country featured it as well.
    For most people that read this blog there really isn't anything overtly shocking but nevertheless a good read and the Houston Press featured it on page one

    1. Nice catch...

      Country Club Sopranos

      American banks are on a massive crime spree. Obama and Romney hope you won’t notice.

      If they'd been common robbers, the bankers surely would have faced indictments. After all, their scams have run for years, their breadth and coordination breathtaking.

      But not a single boss went to jail. Some firms settled for just a fraction of what they'd stolen. Most have never admitted wrongdoing. And in the ethics-optional land known as Wall Street, many saw their stock prices rise.

      America's country club set has forged its own replica of the Mafia — only bigger, broader and capable of unleashing far more damage on the U.S. economy.

      "Unquestionably, that's true," says Notre Dame law professor G. Robert Blakey, whose career prosecuting organized crime runs all the way back to the Kennedy administration. "I was looking at stuff on Mulberry Street, and the real theft was on Wall Street...All of the people who ran the scams have their big houses and their airplanes, and they're laughing — they got away with it."

      The situation leaves Sam Antar with a sense of longing. He's a former chief financial officer convicted of securities, mail and wire fraud.

      "My biggest mistake in life was that I committed my crimes in the 1980s," he says. "If I committed them today, I wouldn't even get house arrest. I'd just hire a good lawyer and pay a fine and I'd be free."

    2. Demand Justice for America

      In 2008, the USA experienced a massive financial crisis brought on largely by fraud in the financial sector. The reaction was for the government to step in to protect, reward, and promote the worst actors leading up to the crisis. Trillions of taxpayer dollars were used to prop up failed industry and corrupt individuals.

  6. Money For Nothing – An Upcoming Documentary About The Fed

    More details from Ariel Cannon, a co-producer of the film:

    Ours is the first film to ever feature strikingly critical commentary about the Federal Reserve – from current and former Fed officials themselves.

    Our interview subjects include Jeremy Grantham, Jim Grant, Allan Meltzer, Raghuram Rajan, Gary Shilling, current and former Fed officials such as Paul Volcker, Tom Hoenig, Jeff Lacker, Charles Plosser, Richard Fisher, Peter Fisher (former Head of Open Market Operations at the NY Fed), and many others.

    A 3 minute trailer can be viewed at:

  7. Stephen Grover Cleveland (March 18, 1837 – June 24, 1908) was the 22nd and 24th President of the United States.

    At times like the present, when the evils of unsound finance threaten us, the speculator may anticipate a harvest gathered from the misfortune of others, the capitalist may protect himself by hoarding or may even find profit in the fluctuations of values; but the wage earner--the first to be injured by a depreciated currency and the last to receive the benefit of its correction--is practically defenseless. He relies for work upon the ventures of confident and contented capital. This failing him, his condition is without alleviation, for he can neither prey on the misfortunes of others nor hoard his labor. One of the greatest statesmen our country has known, speaking more than fifty years ago, when a derangement of the currency had caused commercial distress, said:

    The very man of all others who has the deepest interest in a sound currency and who suffers most by mischievous legislation in money matters is the man who earns his daily bread by his daily toil.

    Friday, November 2, 2012
    Labor Market Sends Message of Deterioration While Few Listen
    The first causality of a decline Republic is the truth. The "truth" has been distorted for so many years, generations of Americans have lost their feel for the trends in place.

    Trends in place:

    Declining goods-producing sector jobs (chart 1). This includes mostly manufacturing jobs.
    Advancing service-producing sector jobs (chart 2). This includes jobs such as food service-, bar tending-, healthcare-, hospitality-related jobs.
    The two trends above have contributed to a steady deterioration real (nominal less inflation) average hourly earnings since 1970's.

  8. Glenn Greenwald: Rule-of-Law in America is being Destroyed by Wealthy Elites Who are Co-opting Our Political and Legal Institutions

    Greenwald's journalistic evolution: When Greenwald started writing about politics, he thought he was a high end consumer of political news. He was reading the New York Times and The Atlantic and the New Yorker and all the media journals that sophisticated consumers of news read. But as a full time journalist he could speak to sources and go to original texts and speak to newsmakers - and look at the evidence firsthand. And he realized that much of what he believed was myth.

    How media has changed in America: If you go back 40 or 50 years, anyone that went into journalism was likely to remain poor. They tended to be people who wanted to subvert power. They wanted to be a check on power. They wanted to empower the powerless. They wanted to expose improprieties. What has happened over the past 4 or 5 decades is that media outlets have been purchased by large corporate conglomerates. They are now highly paid employees of major corporations. People who thrive in big corporations tend to be people who are comfortable accommodating power, rather than subverting it or being provocative.

    What independent journalism means for us: Independent journalism is a rejuvenation of the resurgent force to check those in power. A lot of it is driven by disposition and personality. Greenwald says that the constitutional law he practiced was representing the powerless and marginalized against the powerful. That is also the kind of journalism he wants to do.

    Rule of law was to be the anchor for society - but is disappearing: The Founders anticipated differentials in outcome inequalities - such as in wealth and success. But that society of unequal outcomes was to be anchored by equality in law and politics. The rule of law was to accomplish this - by applying rules and constraints to those who needed it the most. Rule of law was intended to prevent abuse of power. This is a central requirement of a just society. The more wealth and power you have the more transparency, the most safeguards, are ultimately the intent of the law. Now we see the more powerful one is, the more free of restraint one is. Inevitably that power will be abused if it is not safeguarded with all kinds of constraints.

  9. Stock certificates feared damaged by Sandy

    Trillions of dollars worth of stock certificates and other paper securities that were stored in a vault in lower Manhattan may have suffered water damage from Superstorm Sandy.

    The Depository Trust & Clearing Corp., an industry-run clearing house for Wall Street, said the contents of its vault "are likely damaged," after its building at 55 Water Street "sustained significant water damage" from the storm that battered New York City's financial district earlier this week.

    The vault contains certificates registered to Cede & Co., a subsidiary of DTCC, as well as "custody certificates" in sealed envelopes that belong to clients.

    The DTCC provides "custody and asset servicing" for more than 3.6 million securities worth an estimated $36.5 trillion, according to its website.

    "At this point, it is premature to make an accurate assessment as to the full impact of the water damage nor would it be helpful to project on what specific actions need to be taken with respect to our vault," said DTCC Chief Executive Michael Bodson in a statement. "We are aggressively working on this situation to minimize disruption to our clients and will provide additional updates as more information becomes available."

    uh oh...