Blink! U.S. Debt Just Grew by $11 Trillion

by Laurence Kotlikoff and Scott Burns, Bloomberg:

Republicans and Democrats spent last summer battling how best to save $2.1 trillion over the next decade. They are spending this summer battling how best to not
save $2.1 trillion over the next decade.
In the course of that year, the U.S. government’s fiscal gap — the true measure of the nation’s indebtedness — rose by $11 trillion.
The answer for the U.S. isn’t pretty. Closing the gap using taxes requires an immediate and permanent 64 percent increase in all federal taxes. Alternatively, the U.S. needs to cut, immediately and permanently, all federal purchases and transfer payments, including Social Security and Medicare benefits, by 40 percent. Or it can mix these terrible fiscal medicines with honey, namely radical fiscal reforms that make the economy much fairer and far stronger. What the government can’t do is pay its bills by spending more and taxing less. America’s children, whose futures are being rapidly destroyed, are smart enough to tell us this.
Read More @ Bloomberg

Gory Gory Man United

Manchester United IPO'd at $14, opened at $14.10, popped to a huge $14.20, and is now being heavily defended at $14.00...

On Using World War 2 Flashbacks To Shame Germany Into Perpetual Bail Outs

Lost in the complete and utter lack of newsflow yesterday (no pun intended) were some comments from Otmar Issing, former chief economist of the ECB. Also a German. Also an advisor for Goldman Sachs. In the absence of Angela Merkel and Schauble, both of whom are still conducting privatization due diligence on Santorini, he decided to present the German view to all the recent bluster and posturing by Europe choosing beggars. What he so conveniently explained is just why "European Union" is the biggest oxymoron imaginable, and why Germany will hardly smile quietly as the rest of the continent uses history as its only leverage to shame Germany into funding the bailout of its broke neighbors. In fact, what Issing confirms, is why any hope that a Federalist union in a continent in which deep seated hatred runs deep, and will promptly overtake any of the happiness associated with the recent 30 years of fake prosperity, is doomed. Art Cashin explains.

Drought, food prices fan fears of new crisis

Eric De Groot at Eric De Groot - 6 minutes ago

The global food crisis driven by demand rising faster than supply has been an ongoing problem for decades. Recognition of the problem has only attracted media attention since 2008. The world is unprepared for a resumption of the 2000 up trends highlighted by the green arrows in the charts below. Chart 1: CRB Spot And Year-over-Year (YOY) Change Chart 2: ... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

 

U.S. Trade Gap Contraction Does Not Suggest An Economic Recovery

Eric De Groot at Eric De Groot - 1 hour ago

A narrowing trade gap, often applauded by the media as a sign of recovery, is a troublesome for an economy with structural deficits. For example, when the trade gap started to contract in 1973, 1978, 1987, and 2006, it foreshadowed a significant economic recessions and/or crises (chart). While an upside turn in the annual trade deficit has yet to occur, it should... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

Visualizing European Stock Hope And Prayer

It's been six weeks since the EU Summit that apparently laid the foundation for all that is good in Europe to evolve. Between the EU Summit's euphoria-to-dysphoria flip-flop and Draghi's believe-to-deceive-to-promise roller-coaster, bond prices/yields and stock prices have had a wild ride - but there is a very clear disconnect now. Since 6/28, Spanish and Italian 10Y spreads are unchanged - yes the very instrument that is supposed to benefit from all this chin-wagging and jawboning has done nothing! Meanwhile - the previously synced at the hip equity markets of these two nations have soared - both now above immediate knee-jerk highs of the EU Summit. This leaves Italy's FTSEMIB almost 7% over-valued relative to its credit risk and Spain's IBEX around 6%; whether this is due to the short-sale ban or simply an irrational willful ignorance of fact over hope - we suggest the convergence offers some better hope (especially as Rajoy sees his party support waning).

Chart Of The Day: Schrödinger (Dis)Inflation

As reported on Wednesday night, China's economy is contracting faster than anyone expected. As further reported last night, China loan creation at 540.1 billion yuan was far below economist estimates of 700 billion. In other words: the world's marginal economy is starting to crack. So the PBOC has no choice but to ease right? Wrong. As we showed yesterday, the Chinese central bank has one mandate above all: food price stability, or else suffer the consequences of "1+ billion people instability." And as the USDA report just confirmed, Soybean is going nowhere but up. Which in turn means Chinese food inflation, which makes up 30% of the headline CPI (unlike America's 7.8%) is set to follow. Still hoping and praying that the PBOC will ease even as the deep fried black swan we warned about 2 weeks ago is rapidly flapping its wings toward Beijing? Hope and pray harder.

US Corn Crop Estimate Cut 17% With Yields Forecast To Drop To 17 Year Lows

Corn was already surging to new record highs before the USDA released the WASDE report this morning. With a consensus view of 10.929 billion bushels (compared to USDA's prior 2012 estimates of 12.97 billion), the USDA's 10.779 billion bushel forecast means a 17% slashing in harvest expectations. Crop conditions were the worst since 1988 with 69% of the Midwest in drought. Soybeans likewise were expected to show a 2.796 billion bushel production forecast (based on Bloomberg's survey) which compares with the 3.05 billion prior forecast from USDA and just came 4% below expectations. Bloomberg notes: "The U.S. drought means that global corn supplies will be critically tight for the next year; Livestock and milk-product prices will have to rise to cover the increased feed costs. Eventually, global consumers will have to pay the bill." It appears the algos were at play immediately after the report as prices surged (in corn) to $8.49 before falling rapidly back to $8.19, and are now up fractionally at $8.31. The biggest consequence is a heavier drag on any possibility of a sizable Chinese stimulus as food price inflation, as we noted last night, is set to stymie any flood of money.

Surveying The Landscape

Look around. Take a good long and hard look because the data is becoming unsettling and it is pouring in from all over the world. In China, where a hard landing was thought to have been avoided; one moment please, not so fast. The world’s growth engine is sputtering and there will be consequences. In Europe the situation is dramatically worsening with virtually every country in a recession with the notable exception of Germany though we predict they will join the club by the fourth quarter of this year or by the first quarter of next year. For those that think that the Fed will save the day, if not the planet, we suggest to you that you may be in for an unpleasant surprise. There is only so much they can do now and each Fed action is being met by a less and less reaction in the markets and of a shorter duration.

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Cash Out Of Gold And Send Kids To College?

The Financial Times published an interesting article on Wednesday by a Tokyo-based analyst with Arcus Research, Peter Tasker, entitled of 'Cash out of gold and send kids to college'. The article is interesting as it is an articulate synopsis of those who are either negative on and or bearish on gold. It clearly shows the continuing failure to understand the importance of gold as a diversification and as financial insurance. Tasker incorrectly states that gold is "just another financial asset, as vulnerable to the shifts of investor sentiment as an emerging market." He conveniently ignores over 2,000 years of history showing how gold is a store of value. He also ignores recent academic research showing gold to be a hedging instrument and a safe haven asset. Another fact unacknowledged is how gold has clearly been a store of value since the current financial and economic crisis began in 2007. Since then gold has protected people from depreciating financial assets (such as equities and noncore bonds) and from depreciating fiat currencies such as the dollar, the pound and more recently the euro.

Daily US Opening News And Market Re-Cap: August 10

European markets opened lower as risk-off was observed across the asset classes as participants reacted to the disappointing data from China overnight. Continental equity futures have moved horizontally throughout the session so far with little newsflow or influential data to sway price action. Heading into the European open, little has changed as all European indices are in the red, being led lower by consumer goods and utilities. China posted a sharp narrowing in their trade balance surplus to USD 25bln from USD 32bln in June, as the growth in exports slows across the month. As such, it is not a surprise to hear the usual market chatter of the Chinese central bank taking an imminent move to cut their Reserve Requirement Ratio today. However, as nothing has materialised, the riskier assets have not seen any significant lift from the talk.

Frontrunning: August 10

• World’s Oldest Shipping Company Closes In Industry Slide (Bloomberg)
• Japan Growth May Slow to Half Previous Pace as Exports Wane (Bloomberg)
• China Export Growth Slides As World Recovery Slows (Bloomberg)
• Weidmann tries to muffle not spike Draghi's ECB guns (Reuters)
• Draghi lays out toolkit to save eurozone (FT)
• Concerns grow over prospects for sterling (FT)
• RIM Said To Draw Interest From IBM On Enterprise Services (Bloomberg)
• UN urges US to cut ethanol production (FT)
• Goldman Sachs Leads Split With Obama, As GE Jilts Him Too (Bloomberg)
• New apartments boost US building sector (FT)

Bill Ackman Stalked By Ghost Of Pershing Square IV As J.C. Penney Implodes

There was a time when Bill Ackman, constantly misperceived as a retail investing genius, blew up an entire fund solely dedicated to investing in Target, mostly via calls as in something out of Whitney Tilson's wettest dream (incidentally, another "investor" who could not get enough of JCP at $27), Pershing Square IV (full hilarious letter from Pershing Square Capital Punishment to the PSIV investors here). His current massive investment in JCP is luckily not a standalone fund, but it is now certainly stalked by the ghost of PSIV as JCP literally blew up overnight and any hope of the rumored "10-15 return" that Ackman predicted in the stock has now gone up in smoke. Oh well: there is always the gamble on Procter and Gamble.

 

Overnight Sentiment: Turning

The markets have been treading water over the past week, yet courtesy of the non-existant volume and the lack of sellers, VWAP algos have been levitating the S&P ever higher despite the lack of any new or credible reason for it to do so. Call it the Merkel vacation doldrums. It is so slow in Europe even Rajoy - now the gatekeeper for the next European phase of sovereign bailouts - is soaking in the sun somewhere, whether or not he may want to return to his job is another matter. As Reuters reports, his popularity is plummeting meaning the government will not survive if and when Rajoy demands a Spanish bailout: "Spanish Prime Minister Mariano Rajoy faces a cloudy return from his short summer break as his expected request for European aid in September will spur protests on the street and deepen cracks emerging in his conservative People's Party... According to an official poll released this week, if a general election were to take place now, Rajoy's People's Party would still win but would get only a 36.6 percent of the vote, down from 40.6 percent in a poll in May and 44.6 percent in the November vote." Which in turn means that Spain demanding a bailout could well mean a violent government overthrow and a follow through mimicking precisely what we saw in Greece, with the opposition party set to undo any bailout request by Rajoy (who knows all of this). In the meantime Bloomberg confirms that sentiment in Europe is resuming its turn as European markets fall led by the Spanish and Italian markets, 10yr yields in those countries rise. Chinese import & export data and French industrial production data were below estimates earlier. The euro is weaker against the dollar and commodity prices fall led by industrial metals. U.S. import price data is released later.







Today’s Items:

First…
Full-Scale War in Syria
http://sjlendman.blogspot.com

A Civil war implies two internal warring sides; however, with Syria, this is clearly not the case. Mercenaries and volunteers from other states are in the mix. In fact, Obama has given a direct order to the CIA to help Syrian opposition that is aided by Al-Qaeda.  With that in mind, Obama, and those obeying his orders, are guilty of international terrorism.

Next…
U.S. Drought Drives Up Food Prices Worldwide
http://money.cnn.com

Aside from speculators, the real world drought conditions in the U.S. are causing food prices to surge worldwide. Food is a major U.S. export, so the drought affects prices around the globe. Food prices jumped 6% in July, after three months of declines. The U.N. index of cereal prices soared 17%, nearing an all-time high, last month. One can just imagine the worldwide food crisis as the Mississippi River begins to run dry.  With this said, it may be a good idea to get your long-term food supply in order.

Next…
Has The Perfect Moment To Kill The Dollar Arrived?
http://www.zerohedge.com

The reality is that the collapse of the U.S. Dollar is not a singular event, but a process. Last month, the Fed announced that it was formulating a plan to “expand its tool kit”. The IMF has been consistently calling for the end of the dollar as the world’s reserve currency and replace it with the flawed SDR. In tune with France, China, Russia and the UN, the nails are slowly being hammered into the U.S. Dollar’s coffin.   The Libor scandal only re-focuses the light on the manipulation of the Dollar and now everyone is looking, but not racing yet, for the exit.

Next…
More Than 100 Million Americans Are On Welfare
http://endoftheamericandream.com

Approximately 110 million Americans are on some form of financial welfare and it is increasing.    The number of Americans on Food Stamps is about 46.4 million…   Up from 17 million in 2000.   The Food Stamp program cost $71.8 billion in 2011. Just imagine the situation when Obamacare really kicks in.

Next…
Almost Half Of Americans Die With Less Than $10,000 In Assets
http://connecticut.cbslocal.com

46% of Americans die owning under $10,000 in financial assets, with senior citizens relying heavily on Social Security to help get them through their retirement years.   Many of these Americans undoubtedly believed that Social Security was a retirement plan and planned accordingly.   Just imagine the impact on people when Social Security goes the way of the dodo bird.

Next…
ATF Gun Part of Plan to Kill Juarez Police Chief
http://www.wnd.com

Well, it must be comforting for Eric Holder, and others, that their wonderful plan to attack the 2nd Amendment of the U.S. Constitution, nearly cost the life of the Chief of police in Tijuana, who later became the Juárez police chief.   Now, gee…   What are the chances that this police chief will be willing to work with U.S. authorities after he was targeted for assassination?   Hey, Holder…   Maybe you can brainwash him!

Finally, please prepare now for the escalating economic and social unrest. Good Day!

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