Money from Nothing - A Primer On Fake Wealth Creation And Its Implications (Part 1)

What is fraud except creating “value” from nothing and passing it off as something? Frauds interlink and grow upon each other. Our debt-based money system serves as the fraud foundation. In our debt-based money system, debt must grow in order to create money. Therefore, there is no way to pay off aggregate debt with available money. More money must be lent into the system to make the payments for old debts. This causes overall debt to expand as new money for actual people (vs. banks) always arrives at interest and compounds exponentially. This process is called financialization. Financialization: The process of making money from nothing in which debt (i.e. poverty, lack) is paradoxically considered an asset (i.e. wealth, gain). In current financialized economies “wealth expansion” comes from the parasitic taxation of productivity in the form of interest on fiat lending. This interest over time consumes a greater and greater share of resources, assets, labor, and livelihood until nothing is left.

First…
The Greek €107 Billion Contingent Liability Gorilla Exposed
http://www.zerohedge.com

To anyone who has been watching what is going on, this will be no surprise. It appears that we were mislead; in that, the guaranteed debt was not listed in the official Greek sovereign debt figures. Adding the IMF loan of €172 billion with the now exposed €107 Billion debt, Greece now has a debt of €279 Billion. Stick the fork in Greece folks… It is cooked!

Next…
China Posts Biggest Trade Deficit Since 1989
http://www.bloomberg.com
http://www.zerohedge.com

In 2012, virtually every major economic block in the world is importing. Australia Records First Trade Deficit in 11 Months on 8% Plunge in Exports. Brazil posts First Monthly Trade Deficit in 12 Months. China has a $31.5 billion trade in-balance with imports increasing 39.6 percent. One reason that China is having a trade deficit is the record amount of crude being imported. The cost of crude is also driving the Chinese to divest of U.S. Treasuries as well.

Next…
President Obama Strikes Back At GOP Critics On Gas Prices
http://washington.cbslocal.com
http://abcnews.go.com
http://www.businessweek.com

Obama, the liar and Charlatan, is actually trying to convince the people that he addressing gas prices. Yes, by dumping billions into alternative energy sources that contributed to his campaign. By killing the keystone pipeline – forcing Canada to do more oil business with China. He goes on to say that we cannot drill our way to lower gas prices.  Do America a big favor Mr. President and please just shut up… Your nose is almost as big as your ears!  Why don’t you spend more time trying to find that fraudulent birth certificate of yours?

Next…
Got $100,000? Have a Cookie: Banks Try Luring the Top 10%
http://www.cnbc.com/id/46696979

Times are tough for liquidity strapped banks,  as they more aggressively targeting people with assets in the hundreds of thousands of dollars, not just millions. As an example, last year, JPMorgan opened 246 Chase Private Client locations. Of course, if you have $50,000, you will get the same old service with the increasing fees. In short, get out of banks and at a minimum, put cash into a credit unions, where you are a part owner!

Next…
Small Firms Say Captive to Credit Card Changes
http://www.cnbc.com/id/46668113

Small business are not covered by the Credit Card Accountability Responsibility and Disclosure Act passed two years ago. As a result, they are seeing their interest payments jump dramatically. For example, from 9.9 to 23.9 percent. This is loan shark territory folks and the resulting implications are very bad for the economy. Small businesses play a crucial role in an economic recovery as the major source of new jobs.

Next…
All Hell May Break Loose & Gold is Way Undervalued
http://kingworldnews.com

Jean-Marie Eveillard, who oversees $50 billion at First Eagle Fund, believes that the Greek situation is beyond repair. He goes on to say that the top five central banks in the world have, in the past three years, increased the amount of physical gold holdings to 70% of the gold ever mined in the past 3000 years. While the rest of the world focuses on the equity markets, very quietly, gold is outperforming stock markets and is yet again the best performing asset.  In short, keep stacking!

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

3 Charts On Not Buying The 'Global Recovery' Risk Rally

While 'good is good, and bad is better'-market continues to price a higher and higher strike price for Ben, Mario, and Xiaouchuan, the twin (d)evils of energy and food price inflation could be tamping their enthusiasm for their new-found experiment. Critically, for all those 'hoping' for the pump to be primed and a self-sustaining recovery to take hold, we present three charts to rain on that parade. Whether the world's central bankers come back to the table is unclear, given their clear concerns at what they have done recently, but we suspect this is much more a 'when' than 'if' question and given the performance of asset and volatility markets, it seems this is more than priced in.

Consequences Of Infinite Liquidity

Eric De Groot at Eric De Groot - 35 minutes ago

The charts below illustrate several points about the evolving sovereign debt crisis. External debt levels and equilibrium price of gold (external debt divided by ounces held United States) continue soar in an increasing comical and distrubing fashion. China is slowly reducing their exposure to U.S. Treasuries. Chart 3 (Federal Debt Held by Foreign & International Investors As a % of GDP... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] more »

 

 

Markets Are Overbought, A Correction Is Coming

Admin at Marc Faber Blog - 40 minutes ago

“Markets are overbought, technically they have deteriorated, and we have very heavy insider selling, so I think a correction is coming. ...I don’t think investors should be shooting for huge gains, but rather for preservation in capital.” - *in a recent CNBC video interview* *Related, SPDR S&P 500 ETF (SPY), iShares MSCI Emerging Markets Index ETF (EEM)* *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* more »

 

 

Nobody Knows How Much China Is Growing, Including China

Admin at Jim Rogers Blog - 45 minutes ago

Nobody knows how much China is growing, including China. I don’t pay attention to all of these figures. They’re not important to me. They’re irrelevant. China is certainly doing better than most countries and it will continue to do so. It will have setbacks. There’s nothing that says China should not have a recession. But China has a lot of money saved for a rainy day and when it rains they’re going to spend. America doesn’t have any money saved for a rainy day. And when it rains we’re going to try to borrow it or print it, neither of which is good for America or for the world. - *in... more » 

 

 

As If There Was No Risk Tomorrow: Complacency Hits Record As VIX Craters

As VIX drops below 15 for the first time in almost a year, the clarion calls of 'all-clear' should perhaps be tempered with the record-steepness of the volatility term-structure. Simply put, everyone and his mom is now selling short-dated vol but mid-term vol remains stubbornly high - in English, we're safe today but tomorrow could be a disaster - or given medium-term risk outlooks, short-term traders are the most complacent they have ever been.

Market Shorts At 4 Year Lows, In Hibernation For Second Straight Month

Following the unleashing of $2.5 trillion in central bank liquidity, market shorts have predictably gone into hibernation, and as the just released NYSE short interest update confirms, the total number of outstanding shorts is at the lowest it has been in the past 4 years for the second month running, at 12.6 billion. Once the realization that central banks are limited from pumping incremental liquidity in the market is strictly limited by $9/gallon gas in Europe, and the inflection point in risk is reached, look for there to be almost no natural buying buffer to the downside. Then again with central planners out there with their CTRL+P willing to micromanage every downtick of the stock market, does anyone even care any more? Certainly not the retail investor.

How Many Days Will It Take To Sell $10 Million Of...

It will come as no surprise to any reader that volumes in general are dismal. This leads inevitably to the question of just how liquid markets are in general. This may not be a critical question for mom-and-pop buying some IBM or CAT at the margin but for institutional investors it is critical to the decision to enter a position. Pairing off reward expectations with risk concerns tends to focus too much on volatility and too little on liquidity and by looking at daily market turnover and the bid-offer spread of each asset class, UBS finds taking liquidity into account can make a huge difference to performance (and risk-appetite). Unsurprisingly, the most liquid assets are large cap equities and US Treasuries. The least liquid assets include various fixed income securities, and in particular high yield credit. Perhaps this goes a long way to explaining why US Treasuries have maintained their strength and why large cap equities have been so strong relative to credit markets (a topic we have discussed at length) as money finds its 'easiest' hole to fill and thanks to liquidity concerns, high yield credit investors remain more pragmatic entrants to an ever-inflating bubble of liquidity (as exits will be small and crowded at the first sign of tightening). We suspect the increasing dispersion between the most and least liquid securities in each asset class will likely feed on itself as fewer funds are willing to 'earn' an 'illiquidity' premium given the bigger binary risks facing all markets.

Jon Hilsenrath Is Scratching His (And The NY Fed's) Head Over The Job Number Discrepancy And Okun's Law

A month ago Zero Hedge, based on some Goldman observations, asked a simple question: is Okun's law now terminally broken? Today, with about a one month delay, the mouthpiece of the New York Fed (which in itself is nothing but a Goldman den of central planners, and Bill Dudley and Jan Hatzius are drinking buddies), Jon Hilsenrath shows that this is just the issue bothering his FRBNY overseers. In an article in the WSJ he ruminates: "Something about the U.S. economy isn't adding up. At 8.3%, the unemployment rate has fallen 0.7 percentage point from a year earlier and is down 1.7 percentage points from a peak of 10% in October 2009. Many other measures of the job market are improving. Companies have expanded payrolls by more than 200,000 a month for the past three months, according to Labor Department data. And the number of people filing claims for government unemployment benefits has fallen. Yet the economy is barely growing. Many economists in the past few weeks have again reduced their estimates of growth. The economy by many estimates is on track to grow at an annual rate of less than 2% in the first three months of 2012. The economy expanded just 1.7% last year. And since the final months of 2009, when unemployment peaked, the economy has expanded at a pretty paltry 2.5% annual rate." Hilsenrath's rhetorical straw man: "How can an economy that is growing so slowly produce such big declines in unemployment?" The answer is simple Jon, and is another one we provided a month ago - basically the US is now effectively "printing" jobs by releasing more and more seasonally adjusted payrolls into the open, which however pay progressively less and less (see A "Quality Assessment" Of US Jobs Reveals The Ugliest Picture Yet). After all, what the media always forgets is that there is a quantity and quality component to jobs. The only one that matters in an election year, however, is the former.  As for whether Okun's law is broken, we suggest that the New York Fed looks in the mirror on that one.

Mark Grant On The Increased Risks of Owning European Sovereign/Bank Debt

Many lessons are available to learn from the Greek debt crisis. Several more are probably to come as the intended and unintended consequences of what the Europeans have done begin to infect the bond markets. I point this morning to the vast differences now between the ownership of American debt and European debt and, as the immediate effects of the LTRO begin to wear off, several dawning realizations that I think will cause European debt to gap out against American debt regardless of the yields of Treasuries. 

Daily FX Trading Activity: $4.7 Trillion

Over the weekend, the BIS released its latest quarterly review of financial organizations, which despite being chock full of assorted data, merely summarizes what banks already report. As such, it completely avoids the potentially black swan areas, such as derivative, off-balance sheet and shadow banking exposure. In other words, it is largely a waste of time. One section, however, that is useful,is the analysis by Morten Bech on "FX volume during the financial crisis and now" which has created a constant time series to evaluate FX trading volumes all the way through October 2011, as opposed to the traditional BIS Triennial survey, the next of which is due in April 2013. Morten's finding: "I estimate that in October 2011 daily average turnover was roughly $4.7 trillion based on the latest round of FX committee surveys."

Frontrunning: March 12

• Greek Bailout Payment Set to Be Approved by Euro Ministers After Debt Deal (Bloomberg)
• China Trade Deficit Spurs Concern (WSJ)
• Sarkozy Makes Populist Push For Re-Election (FT)
• ECB Calls for Tougher Rules on Budgets (FT)
• As Fed Officials Prepare to Meet, They Await Clearer Economic Signals (NYT)
• PBOC Zhou: In Theory 'Lots Of Room' For Further RRR Cuts (WSJ)
• Latest Stress Tests Are Expected to Show Progress at Most Banks (NYT)
• Monti Eyes Labor Plan Amid Jobless Youth, Trapped Firemen (Bloomberg)

 

Overnight Sentiment: Slightly Overcast

Quiet trading so far with some risk off episodes in Europe (Monte Pasci halted after dropping 5%), and total confusion in the Greek bond market, with old bonds, new bonds, and CDS all trading as nobody has a clue just what is eligible for trade and what isn't (one thing is certain - GGB2s continue to trade well wide of Portugal, yielding around 18-20% for the 10 year spot). Here is how BofA sees the trading session so far.

Summary Of Key Events In The Coming Week

While hardly expecting anything quite as dramatic as the default of a Eurozone member, an epic collapse in world trade, or a central banker telling the world that "he has no Plan B as having a Plan B means admitting failure" in the next several days, there are quite a few events in the coming week. Here is Goldman's summary of what to expect in the next 168 hours.

View From The Bridge: And They Think It’s All Over…

So Greece has been saved – is that right? Well according to ISDA (the International Swaps and Derivatives Association) a “Restructuring Credit Event has occurred with respect to the Hellenic Republic” which in the vernacular means the Greeks are bust; tell us something we don’t know! The importance of this statement is that credit default swaps (CDS) on Greek debt are now triggered and holders will have their losses made good. There were any number of scurrilous rumours that ISDA would not declare a credit event to preclude their illustrious members from paying out, but when the net downside of $3 billion needs to be shared out amongst the likes of Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, UBS, BNP Paribas and Societe Generale, then a quick whip round in the bar after close of business and the jobs a good’un.

Encumbrance 101, Or Why Europe Is Running Out Of Assets

Since the much-heralded 3Y LTRO program was envisioned and enacted, we have been clear in our perspective that while this appears to have signaled a removal of downside (contagion-driven) tail-risk for banks (and implicitly to sovereigns), the market's perceptions are once again short-termist. Missing the 'unintended-consequence' for the 'sugar high' is the forest-and-trees analogy that we have seen again and again for the past few years but we worry that this time, given the sheer size of the program, that the ECB has got a little over its skis. By demanding collateral for their bottomless pit of low-interest loans, the ECB has not only reduced banks' necessary deleveraging needs (and/or capital raising) but has increased risk for all bond-holders (and implicitly equity holders, who are the lowest of the low in the capital structure remember) as the assets underlying the value of bank balance sheets are now increasingly encumbered to the ECB. Post LTRO, Barclays notes that several banking-systems (PIIGS) now have encumbered over 15% of their balance sheets but LTRO merely extends a broader trend among European banks (pledging collateral in return for funding) and on average (even excluding LTRO) 21% of European bank assets are now encumbered, and therefore unavailable for unsecured bond holders, ranging from over 50% at Danske (more a business model choice with covered bonds) to around 1% for Standard Chartered. As the liquidity-fueled euphoria starts to be unwound, perhaps this list of likely stigmatized banks is the place to look for higher beta exposure to the downside (especially as we see ECB margin calls start to pick up).

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