Grinsanity

• *GREENSPAN SAYS EQUITY STIMULUS IS HELPING TO DRIVE ECONOMY
• *GREENSPAN SAYS EQUITY STIMULUS IS UNDERESTIMATED
• *GREENSPAN SAYS EQUITY IS COLLATERAL OF FINANCIAL SYSTEM

- Alan Greenspan on CNBC (sourced from zerohedge)

I guess all you can do is let Greenspan's remarks put a grin on your face.  The source of the grin being the knowledge that Greenspan is now nothing more than a senile old man who will go down in history as the one who started the fiat monetary inflation (printing) of our system that will ultimately be its demise.

Let's consider for a moment what exactly it would mean if "equity," meaning the stock market, were truly the "collateral" of the financial system.  "Collateral" is something of perceived value that a borrower puts up to secure a loan.  Gold is now being used as the collateral of necessity for interbank lending purposes in Europe.  Why?  Because lenders do not trust anything else that's allowed to be used for that purpose.  In an opaque, tenuous form the U.S. Government's "full faith and credit" is being used as "collateral" to back its catastrophically enormous debt issuance and the money being printed up to fund that debt.  "Home equity" was the collateral source of the housing market bubble and collapse.

GAAP Accrual Accounting Methodology Is At The Root Of Financial Fraud

Let's think about this in terms of using an individual stock as "collateral" by taking a quick peak at Amazon.com (AMZN).  I have maintained for over a decade that AMZN takes fraudulent advantage of GAAP accounting gray areas - i.e. stretches them beyond the "grey" area of legality - in order to generate GAAP income.  As we know ad nauseum, this wouldn't be the first case in which the SEC and FINRA look the other way. Without going into technical details that would put you to sleep unless you love hard core accounting, in effect AMZN is a giant ponzi scheme which relies on the ability to grow sales every quarter in order to generate enough cash to cover last quarter's expenses.

The perfect example of this process starting to sputter and fail is AMZN's latest quarterly report.  In that, AMZN used non-cash gimmicks to generate almost 70% of its reported net income (equity method of income from investments).  It also sustained a $3 billion drawdown in its cash balances in order to pay off its bulging accounts payable account.  It's sales margins were almost negligible because AMZN subsidized the cost of everthing it ships (fulfillment) in order to generate sales.

At any rate, here's a look at AMZN's value as equity "collateral:"  It has a market cap of $104 billion; a p/e ratio of 191 - note: the true p/e ratio calculated by stripping away accounting games is likely at 4-5 times higher;  book value is $7.2 billion BUT nearly 50% of this is comprised of the intangibles of deferred tax assets and goodwill;  strip away intangibles and tangible book value is $3.8 billion, leaving a market cap to book value ratio of 27x.  One note of caveat, the tangible book value assumes a prima facie acceptance of AMZN's fixed assets, listed at $4.6 billion.  No doubt the market value of AMZN's fixed assets is likely lower.

So there you have it.  A good example of equity "collateral" according to Greenspan is a stock that trades at a near infinite multiple of true earnings and an absurd multiple of book value (most banks trade at a book value multiple of 1 or less).  Please indicate to me if you would lend your money against AMZN (if so, I may want to borrow some money from you lol).

Don't get me wrong, I love AMZN's service.  If I don't need something immediately, I can shop on AMZN and get a better price on almost anything than at any competing store in Denver.  Not only that, the price includes shipping in most cases.  It's great for the consumer.  But AMZN is one of the "poster child" stocks that represents the extreme liquidity and fraud bubble that now permeates every aspect of Wall Street and DC.  Eventually AMZN will collapse.

So looking behind the words that came out of Greenspan's mouth on CNBC - aka Bubblevision - we can see the true absurdity of the [Money Printing] Maestro's comments.  It's actually quite poignant to see the incredible intellectual decay of the author of "Gold and Economic Freedom" (1966) LINK  into a senile old babbling apologist for the monetary policies destroying this country.  In a way, the path of degeneration from the 1966 Greenspan to the 2012 Greenspan is emblematic of the path of decline of the United States...

Economy May Be Headed Into Free Fall Again

Many borrowers, particularly since late 2010, thought they were buying at the bottom of a housing market that had already suffered steep declines, but have been caught out by a continued fall in prices in wide swaths of America. - source link below

First things first.  Remember this big dog and pony show Bernanke went on a couple weeks ago to pontificate on how open the Fed is about how it conducts its operations now?  Well it turns out that is just another well-crafted cover-story for the truth.  Those of us who follow and understand the truth know that Bernanke is about as full of shit as they come.

Now comes this:  When Bank of America took over Merrill Lynch, it was largely thought by those who analyzed the numbers - as opposed to gobbling up the garbage spooned out by the Fed, politicians and media - that Merrill Lynch was in trouble similar to Lehman before Lehman collapsed and that the deal was a "shot-gun" marriage brokered by the Fed and smoothed over by the injection of $20 billion in Taxpayer bailout money to Bank of America.  Recall that John Thain, who left Goldman to become the CEO of Merrill Lynch for about 20 seconds before BAC absorbed Merrill.  Thain was given a $15 million signing bonus and spent $1.2 million refurbishing the CEO office. 

It turned out that after the merger was completed, Merrill reported billions in losses that were not disclosed before the shareholder vote on the deal.  Apparently there many phone calls that included then CEO of BAC, Ken Lewis, and Bernanke and Thain.  There's a shareholder lawsuit on this matter and it turns out that the shareholders would like question Bernanke about conversations he had with Lewis prior to the closing of the merger.  The Fed and Bernanke are vigorously fighting this subpoena:  LINK

Quite frankly, I think Taxpayers should be just as interested in this fraud as BAC shareholders. Anyone who still places faith and trust in the Fed, and specifically in Bernanke, is either hopefully naive or hopelessly ignorant.

On to the economy.  Today the personal income and spending report by the Government was released.  It showed a slight increase in personal income.  Per this keen analysis by zerohedge, if you strip out the increase in Government transfer payments (welfare, social security), personal income declined, personal spending declined and the savings rate bumped a slight amount, but is still substantially below the March 2011 savings rate:  LINK

In addition, the Chicago Purchasing Managers Index showed a big plunge in March from its February reading and the headline number is the worst it's been since November 2009.  Also, the Dallas Fed released its manufacturing survey, which plunged into a negative reading, -3.4 from its prior reading of 10.8, dropping to its lowest reading in 7 months.  You can see the action HERE

Finally, I happened to run across an item reported on CNBC's website last Thursday in which Reuters reported a Corelogic survey that showed "(m)ore than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth..."  Here's the LINK.

Not sure how those who are promoting a bottom/recovery going on in the housing market would like to respond to that data.  Corelogic is not an industry-motivated promotional association, so the numbers are likely to be pretty accurate.

To be sure, there are some very select areas around the country that are showing a slight bounce in the overall health of the housing market in those areas.  However, I believe that even in those areas the "bounce" will be ephemeral.

Put everything above into the same context and you have an economy that is starting into a free fall.  Why does it not seem that way? 1) The mainstream media is regurgitating the b.s. that is fed to it by Wall Street and the Government, similar to the way Obama reads from his teleprompter (TOTUS - Teleprompter of the United States);  2) over 50% of all Americans receive some form of Government transfer payment, of which roughly 47 cents on every dollar is borrowed by the Treasury in order to make that payment.  The Taxpayers of this country are providing one massive safety net that is making the true economic conditions seem less severe.  

This can't go on ad infinitum.  At some point the U.S. debt creation machine will hit a wall.  For sure a blow up in Europe in Spain or Italy will fingered as the culprit.  But the Truth is that the United States is in worse condition than any individual European country and the EU collectively.  It is what it is - just better pray that history's guidebook for how these situations end up does not happen this time...

Yes Virginia, There IS A Free Lunch In The U.S...

I've been collecting some articles that I've wanted to post and comment on this week but didn't have time.  Instead, I'll post them for everyone to read and form their own conclusions.

First, Meredith Whitney buckled under the intense criticism of her assessment last year that many municipalities would go bankrupt.  I guess since that particular shit didn't hit the fan within a standard 3 month/one-quarter time frame, Ms. Whitney's confidence crumbled.  Well, last week this item hit the newswire, and I'm sure it wasn't reported on CNBC/Bloomberg/WSJ/Barron's:  LINK  Ms. Whitney was right, now she has to grow some "brass."

Second, the Government "one-upped" itself.  Currently it pays unemployed workers, who qualify for benefits, to not work.  One can get paid not to work for up to three years now.  May as well let Mexican workers sneak in to the country and be vilified for doing the jobs that those who are getting paid not to do those jobs taken by the "illegals" would otherwise have to take if they weren't getting the Government welfare payments (unemployment benefits are indeed "welfare").  So now the Obama Administration is implementing a program that lets employers hire jobless benefits workers as temps AND enables these workers to continue receiving welfare.  In other words, the Taxpayer is going to pay for temporary workers to work at no cost to employers who take them on:  LINK  Whoever said there's no such thing as a free lunch has never met Barack Obama or the U.S. Government.

Speaking of free lunches, Michelle Obama's luxurious travel schedule has been a point of irritation for me since Obama was inaugurated.  Talk about milking the system.  The Taxpayers are constantly paying for her, her friends and all the security involved while she takes vacations normally taken by wealthy trust fund heiresses and nouveau riche trophy wives.  It's beyond appalling.  In January she was in Aspen for a long holiday weekend courtesy of the Taxpayer.  I doubt she even knew what Aspen was before Barack Hussein was anointed El Hefe.

Today, someone sent me this snapshot of an ad someone placed in the Panama City (FLA) News Herald back in February:

 

Have a great weekend!

Shove This Up Your Ass, Warren...

Reuters’ McGeever acknowledges how the “gold market is tiny” compared to “trillions and trillions of dollars worth of cash and assets sloshing around the world financial system.” He asks how can countries back “all of that” against such a “tiny and finite amount of gold?”  Butler responds by saying that “the amount of gold is finite by weight or volume, it is not finite by price   - article linked below

I will get to the article which is the source of the above quote below.  But first I wanted to link a speech given to the NY Fed by a guy named Robert Wenzel, who authors the Economic Policy Journal blog.  In this speech, he highlights the failure of Ben Bernanke's policies, why they are failing and why Government intervention in the economy leads to failure.  He does a brilliant job of translating basic economic laws and theories into layman terms.  With regard to the fact that Government "helps" the unemployed by taking taxpayer money and giving to the unemployed, he states rhetorically: 

In present day America, the government focus has changed a bit. In the new focus, the government  attempts much more to prop up the unemployed by extended payments for not working. Is it really a surprise that unemployment is so high when you pay people not to work?

I've made this comment to friends and colleagues many times.  He also cites work done by the recipients of the 2010 Nobe Prize in economics for work which shows that Government interference (transfer payments, regulations, etc) causes a higher rate of unemployment.

Here's the LINK.  If you only have time to read that today, stop reading this blog and read that.

On the quote at the beginning.  Goldcore.com posted an essay today making the argument that one of the BRIC countries is likely to introduce a gold-backed currency at some point in the near future that will replace the dollar.

I have always believed - and I have posted my theory in the past - that China would be the likely candidate for this once it had accumulated enough gold to enable it to make the claim as having the largest gold stock in the world.  The U.S. used that claim after WW2 in order to back its move to make the dollar the reserve currency per Bretton Woods. 

If this does indeed occur, the dollar will likely collapse.  Of course, the other interesting aspect to this would be that China/Russia would likely force the U.S. to make good on its claim that it still owns 8,100 tonnes of gold.  In that regard, Mr. Wenzel from above had this point to make:

I am very confused by the response of Chairman Bernanke to questioning by Congressman Ron Paul. To a seemingly near off the cuff question by Congressman Paul on Federal Reserve money provided to the Watergate burglars, Chairman Bernanke contacted the Inspector General’s Office of the Federal Reserve and requested an investigation [12]. Yet, the congressman has regularly asked about the gold certificates held by the Federal Reserve [13] and whether the gold at Fort Knox backing up the certificates will be audited. Yet there have been no requests by the Chairman to the Treasury for an audit of the gold.This I find very odd. The Chairman calls for a major investigation of what can only be an historical point of interest but fails to seek out any confirmation on a point that would be of vital interest to many present day Americans.

In this very building, deep in the underground vaults, sits billions of dollars of gold, held by the Federal Reserve for foreign governments. The Federal Reserve gives regular tours of these vaults, even to school children. [14] Yet, America’s gold is off limits to seemingly everyone and has never been properly audited. Doesn’t that seem odd to you? If nothing else, does anyone at the Fed know the quality and fineness of the gold at Fort Knox?

Clearly, the gold investing community is not the only one which would be interested to see an open, legitimate, independent audit of the U.S. gold inventory - something which has not been legitimately undertaken since Eisenhower was the President.  The Fed/Bernanke has jumped up and down like a lunatic promoting its new policy of "transparency."  How about making good on it rather than relying on the tenuous concept of "full faith?"

At any rate, this essay on Goldcore is another must-read:  LINK, as it responds with the free market, capitalist answer to the concern that there's not enough gold in the world to make a gold standard practical.  To that, the correct response is, "why not?"  The value of the gold is the key variable.  Value is calculated by the product of quantity and price.  If the quantity is relatively fixed, and there needs to be more "value," then the price has only one way to go...

Given the enormous amount of paper fiat currency in circulation globally that has been printed up since the last time gold was used to back money, it is understandable that from a value standpoint, that the price of gold is significantly undervalued....Warren Buffet can take my last statement there and shove it up his ass.

In The Context Of What Jon Corzine Is Getting Away With

in his illegal plundering of $1.2 billion in customer assets, the fact that the SEC is wasting its time suing Egan Jones - on the heels of EJ downgrading the credit quality of the U.S. Government - is just beyond appalling:   LINK

Notwithstanding the fact that this lawsuit is a massively frivolous waste of Taxpayer money, it's emblematic of the fact that our system is collapsing.  Our Government is pathetic.

Think about what Jon Corzine is getting away with when you read this quote.  And keep in mind that Obama is still happily spending the campaign money Corzine raised for him.  I bet that money is tainted with fraud and corruption as well: 

When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see money flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self sacrifice - you may know that your society is doomed. (Francisco D'Anconia, "Atlas Shrugged")

Government Creep

While the government struggles to save one crumbling enterprise at the expense of the crumbling of another, it accelerates the process of juggling debt, switching losses, piling loans on loans, mortgaging the future and the future's future. As things grow worse, the government protects itself not by contracting this process, but by expanding it.  - Ayn Rand, 1973

As an example of the mis-direction and "spin" put on economic news, I want to illustrate how today's release of the Case Shiller 20 metro city home price index for February.  The index showed a slight gain (.15% adjusted) across the metro areas used in the index, but it missed the degree of gain that Wall Street was expecting.  However, prices declined in 15 of the 20 cities.  Moreover, if you use the unadjusted numbers in the report - but not reported in the media headlines, home prices actually declined again by .8%, for the 6th month in a row.  Furthermore, the C/S price index hit its lowest level in 10 years. 

When the news report hit the tape, CNBC immediately posted this headline "home prices post surprise monthly gain." Clearly CNBC was not at all interested in presenting the facts or the truth. Here's the news link from the Washing Post - keep in mind that this is what a lot of the politicians, lobbyists etc will see:  LINK  You can draw your own conclusions on what motivates CNBC or the WashPo, but in my view the Government machine is teeing up the next round of money printing, Government stimulus deficit spending - both also known as "dollar devaluation."

I was going to write about this yesterday, but thought that the Spellman piece was a lot more interesting, since I've been warning anyone who would listen for about 10 years that eventually the Government was going to go after retirement fund assets eventually as means of financing Government deficits.

Many of you have already seen this, but there was a report in the NY Post over the weekend that Congress is starting to look at ways to shoehorn money out of your IRA/401 account.  You can read the specifics here:  LINK 

This comes as no surprise to me and this is going to be just the start.  I said back in late 2002 that "the elitists who control the system would hold things together until they had swept every last crumb of middle class wealth off the table and into their pockets.  This includes eventually de facto confiscating retirement funds in order to fund Government deficit spending."

This is a concept that is so anathema to the thinking and expectations of the general population, that 99% of the people in this country would never believe that Government will pillage their retirement account...that is, until it actually happens. 

Most are not aware of this, but during the election/transition period back in late 2008, there was a symposium held in Congress in which academics presented alternative methods of structuring the retirement system in this country.  The most plausible scenario, and one which has well-received by the audience of Congressmen, was a plan in which the Government would "annuitize" all retirement assets by exchanging your current retirement plan for one in which, in exchange, you would receive a guaranteed annuity benefit that would be collateralized by Treasury bonds.  And of course, Wall Street would be put in charge of managing the whole process.

Think about what this plan does.  It scoots around any eminent domain issues - not that Obama gives a rat's ass about Rule of Law and the Constitution, but it will enable the Government to issue trillions more in Treasury paper that will be exchanged for the assets in your retirement fund.

Please make no mistake about it, whatever legislation is born from proceedings described in the NY Post report, it is merely embryonic.  As we've seen with everything else that is Big Government, it starts small and the slow creep turns into an avalanche of Government administration and control.  If you think that you have some kind of divine right to keep and maintain your own retirement account, you are going to find out in time that you do not.

The Gold Standard Shuffle

What we are witnessing is a sea change in which market forces are driving a de facto return to the gold standard. All that is missing for this to be a de jure gold standard is some regulatory and legal recognition and one has been proposed. The Basel Committee for Bank Supervision, the maker of global capital requirements is studying making gold a bank capital Tier 1 asset.    -  Professor Lew Spellman, University of Texas from The Spellman Report (link below).

The source of that quote is a must-read essay written by Lew Spellman, who is a professor of finance at the University of Texas of business school.  He has also served as Assistant to the Chairman of the President's Council of Economic Advisors and as an economist at the Federal Reserve.  It is the latter two prestigious roles which make it both surprising that Professor Spellman would have written this essay and, yet at the same, thereby reinforces its validity.  You will not find this piece mentioned in ANY mainstream media news source in this country.

Spellman lays out the case for for the subtle, systemic manner in which gold is slowly creeping back into use by the banking system as an asset being used to back paper currencies and financing transactions. Those of us who study the precious metals markets on a daily basis, in the context of the overall global financial system, have been pointing to this dynamic for a while now.  For instance, Spellman links the announcement in which the Basel Committee is studying making gold a Tier 1 banking asset.  This was announced several months ago and remarked upon widely in the precious metals community.  I doubt anyone's financial adviser called them up to point this out.

The market, along with the massive Central Bank accumulation of gold by China, Russia and several of China's strategic allies - like the other BRIC countries - is starting to force this transformation.  I say "the market" because most of the collateral that has been pledged to secure paper financial transactions has been pledged/rehyopothecated (see MF Global, Lehman, Madoff).  This is especially true in the repo market where sovereign paper/Treasuries was historically the only asset to be used.  Now Central Banks have stretched the range of credibility and extended collateral status to everything except the Brooklyn Bridge (who knows how many times that's been rehypothecated...).  The last man standing is gold and it is being forced by the market back into the system as a paper anchor by necessity.  Eventually gold will remain as the bastion of "flight to safety" because of its ultimate utility for that purpose.

Everyone needs to read this essay and make sure they understand what is happening and why.  Here's the LINK  For me, this essay has "seminal" status because it was written by a former "insider" to elite circles - the elite circles which constantly denigrate and revile gold - and because it will likely expose a wider circle of market observers to a systemic dynamic that is taking place with little or no acknowledgement by 99.5% of all market participants.