David Rosenberg On A Modern Day Depression Vs Dow 20,000

This is looking more and more like a modem-day depression. After all, last month alone, 85,000 Americans signed on for Social Security disability cheques, which exceeded the 80,000 net new jobs that were created: and a record 46 million Americans or 14.8% of the population (also a record) are in the Food Stamp program (participation averaged 7.9% from 1970 to 2000, by way of contrast) — enrollment has risen an average of over 400,000 per month over the past four years. A record share of 41% pay zero national incomes tax as well (58 million), a share that has doubled over the past two decades. Increasingly, the U.S. is following in the footsteps of Europe of becoming a nation of dependants. Meanwhile, policy stimulus, whether traditional or non-conventional, are still falling well short of generating self-sustaining economic growth.

Desperate CME Tries To Regain Client Confidence In MFG, PFG Aftermath; Sends Letters To Customers

The CME, which is seeing an unprecedented exodus in trading and clients due to the recent fiascoes at MF Global and Peregrine Financial, and which is completely helpless to do anything about what is fundamentally a core feature of modern US 'capital markets', has resorted to the last ditch effort of every failing enterprise: writing and mailing letters to clients full of hollow promises. "We want you to know that CME Group is committed to making whatever changes are necessary to strengthen customer protections, restore confidence in the futures industry and ensure the effectiveness of these critical markets." Or until the next MFG or PFG at least. Sorry: too little, too late.

Oil And Gold Seasonals Suggest BTFD

The long-term seasonal data for gold and oil has not just remained relatively highly correlated over time but, as Barclays points out today, has very clear periods of bearishness, consolidation, and bullishness. While Gold may have another month of treading water, the period from September to mid-October is empirically bullish while Brent's August to mid-October period is the most bullish segment of the year. Given gold's stability in the past month or so since the EU Summit, and oil's surge (and modest pull-back very recently), seasonals certainly provide some technical support for BTFD here in these QE-sensitive, real assets.

Presenting The Real Impact Of US Stress Test Transparency

Far be it from us to reflect Schadenfreude here but at the time of the squeezefest leading up to and after the announcement of the lipstick-on-a-pig US Stress Tests in mid-March, when CDS were remaining wide and hardly budged, we questioned the reality of the assumptions and the lack of contagion comprehension. Most critically, in the 4 months since that wondrous day when all was proved great in the world of US banking, the major financials are down a stupendous 25% on average with Wells Fargo taking over the mantle of least used bed-pan in the E-Coli ward - at an unimpressive unchanged since 3/13.
 

LCH Adds Margin Call To Injury, Hikes Spanish, Italian Bond Margins

Hopefully nobody will be surprised to learn that after Spanish bonds closed at all time records earlier, just shy of 7.50%, that LCH has decided to hike margins on not only Spanish bonds, in the 7-30 year duration windows (from 11.80% to 12.20% for the benchmark 10 Year), but also on Italian bonds, at both the short and long-end, which are now also rapidly approaching the 7% threshold, pushing the 7-10 Year duration window from 9.50% to 11.65%, and which will approach it much faster now that there will be even more forced margin selling to cover collateral calls.

Moody's Changes Aaa-Rated Germany, Netherlands, Luxembourg Outlook To Negative

In a first for Moody's, the rating agency, traditionally about a month after Egan Jones (whose rationale and burdensharing text was virtually copied by Moody's: here and here), has decided to cut Europe's untouchable core, while still at Aaa, to Outlook negative, in the process implicitly downgrading Germany, Netherlands and Luxembourg, and putting them in line with Austria and France which have been on a negative outlook since February 13, 2012.The only good news goes to Finland, whose outlook is kept at stable for one simple reason: the country's attempts to collateralize its European bailout exposure, a move which will now be copied by all the suddenly more precarious core European countries.

Things That Make You Go Hmmm - Such As The Fiscal Cliff

The effect on the USA of its casually wandering over the Fiscal Cliff will be catastrophic; adding approximately $607bln to the US deficit which in turn would sap anywhere up to 4% (according to the CBO) or possibly even 5% (if Chairman Bernanke—in full-on ‘scare Congress’ mode—is to be believed) from US GDP and send the country crashing into outright recession (or further into recession depending on how things continue to deteriorate in the coming months). “That we cannot have” was the opinion of Erskine Bowles who, along with former Sen. Alan Simpson, devised a debt reduction plan last year to prevent this doomsday scenario.... According to the OMB estimates, any attempt to do something remotely meaningful will result in at least a percentage point reduction in US GDP, which is fine in a world of 3% growth, but today that 1% is not something these guys have to play around with. In the run-up to December 31, you can guarantee that the issue of the US Fiscal Cliff will replace Europe as the major concern facing the world in general and the US in particular and, if things continue to deteriorate at their current pace, anything that will lead to even a 0.5% cut inGDP will be seen as a  disaster.

The US Drought In Context: Spot The Global Warming

"The drought that has settled over more than half of the continental United States this summer is the most widespread in more than half a century," and as the New York Times points out "is likely to grow worse." However, a glance at the last 112 years' June 'drought' conditions does not suggest this is a systemic trend (a la global warming) - with notably drier/hotter periods in the past - but we do note some interesting analogs as drought conditions as epic as the current one evolve and fade: from 1936-1938 the Dow fell almost 50%; from 1955-1957 the Dow fell over 18% (11% p.a.); and 1987 of course saw a 40% plunge. "It’s got the potential to be the worst drought we’ve ever had in Arkansas," said Butch Calhoun, the state’s secretary of agriculture. "It’s going to be very detrimental to our economy."

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Same Old Same Old As VIX Dips, EUR Rips, And Equities BTFDs

UPDATE: TXN misses and guides down:For the third quarter of 2012, TXN expects:
Revenue: $3.21 – 3.47 billion vs consensus Exp. of $3.53 billion,
Earnings per share: $0.34 – 0.42, vs consensus Exp is $0.43

VIX opened north of 20%, traded to 20.49%, and then it was decided that this level of premium over a recent calm realized vol period is too much and the front-end of the volatility market was crushed over 2 vols lower. While VIX closed up 2.3vols at 18.6%, the sell-off into Europe's close recovered handsomely on low volume leak back up to VWAP (thanks to HYG and VXX's stability) and then an afternoon push to last Monday's close before giving most of the afternoon gains back in a few mins after the cash close. The EUR dip-and-rip, the stick-save in the S&P whenever it tumbles with any kind of velocity, the fearless selling of short-dated vol, juxtaposes the general state of safe-haven seeking in Treasuries (and Swiss/German bonds) as the entire TSY curve saw record closing low yields amid a 3bps flattening at the long-end. Equity volume was meh, average trade size was meh - though as cash closed near day-session highs we saw heavy blocks selling, and ES traded between its 61.8% and 50% retracements of the March-to-June swoon. Broad risk assets did not play along with stocks this afternoon (though equities and gold recoupled) and neither did TRIN which remained very flat all day. The USD ended stronger by 0.2% (in line with EUR weakness) but SEK was the day's best major performer as AUD lagged (down 1% against the USD today). Volatility pulled plenty cheap to equities once again which remain notably more sanguine than credit and TSYs but the magic 1340 level in ES appears to be the line in the sand for now - though given a 10Y at 1.40%, do not expect NEW QE anytime soon - though Gold outperformed its peers on the day as WTI slid over 4% from Friday's close.

Is Spain's 15%+ 'Legal-Arbitrage' 6 Month Return Signaling An Imminent Bailout?

In what has become one of the most widely read and distributed of our posts, we first introduced the world to the intricacies of legal 'subordination' and protection among European bonds back in January of this year (and reaffirmed it specifically for Spain in early June). This strategy proved exceptionally successful in the case of Greece, and has, in recent weeks, also done extremely well in the case of Spain. Since we first noted it, the local-law Spanish 2029s are down over 14% while the non-local 'UK-law' Spanish 2029s have managed to gain 1.1% providing arbitrageurs with a massive profit on a duration-matched low-capital pairs trade. More importantly, for all the European fixed income asset managers who owe their clients as least some fiduciary duty, we can only hope they rotated to the non-domestic-law bonds before early May - when trouble really hit. While gloating on one's success at non-vaporizing cash once again is not our way, we much more critically note that one can read the fundamentals (as opaque as they are and known to everyone) or one can look at what the market is saying. What it is saying is that the differential between UK- and non-UK-law bonds has been crushed and is absolutely on a path to repeat the Greek PSI experience. There is plenty of room left for the trade since the UK-law bonds will likely be taken out at Par (just as with GGBs) while Spain's PSI is just as likely to be the 20s/30s - and any TROIKA funding will prime everyone but the UK-Law bonds.

European Bloodbath Continues As Spanish 2Y Is Crushed To Record High Spreads

While Monti claims there is no need for an emergency summit and Spain and Italy ban short-sellers (but not long-sellers yet), Europe's Dow-equivalent is down around 2.5%. Interestingly Italy and Spain 'bounced' off ugly lows intraday (which we are sure Monti/Rajoy are patting themselves on the back briefly) but France's CAC40 and Germany's DAX were sold hard - both down around 3% (as proxies as much as contagion-gatherers). More critically, equities are catching down to European credit markets. European financial credit is now notably wider than pre-Summit levels but it is the front-end of the Spanish and Italian sovereign yield curves that has been absolutely monkey-hammered in the last few days. Spain 2Y is now at 16 year highs in yield (biggest 1- and 2-day jumps in over two years) but all-time record wides in spread as we await for the ultimate death cross of inversion to signal the approaching endgame. EURUSD hovered around 1.2100 (down around 50 pips from Friday) and while oil prices slumped, Brent priced in EUR remains above its levels 2 months ago. Meanwhile, Swiss 2Y rates are at a new record low of -44.4bps, German 2Y same at -8bp, and Denmark remains -31bps - though we do note some of the other higher quality 2Ys leaking a little higher in yield such as Austria and France.

65 Year Old Video Says Gold Is 'Good Money'

From spearheads to shells, this Government-issue 1947 "Know Your Money" clip explains that "none of these met all the requirements of good money". From such trying historical experience, Gold and Silver emerged as the most durable, most convenient, and most satisfactory money. Luckily, governments took over the management of good money and saved us all the bother of worrying about credibility...

My View Of China

Admin at Jim Rogers Blog - 44 minutes ago

China will have problems as it rises. In the nineteenth century, the US had 15 depressions. It was a huge mess, but out of that came a successful country in the twentieth century. That is my view of China. - *in Investment Week* Related: iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI) *Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC.*

 

Spanish 10 yr bond rises to 7.5%/Italian 10 yr bond yields 6.33%/

Harvey Organ at Harvey Organ's - The Daily Gold and Silver Report - 1 hour ago

Good evening Ladies and Gentlemen: Before commencing, I forgot to give you on Saturday, our latest 5 entrants into our banking morgue.  So without further ado, here they are courtesy of Jim Sinclair's commentary: Bank Closing InformationJuly 20, 2012These links contain useful information for the customers and vendors. Second Federal Savings and Loan Association of Chicago, Chicago,

 

Chris Hedges Appearance in NYC on July 25

Gold Daily and Silver Weekly Charts - A War On Silver and Gold

SP 500 and NDX Futures Daily Charts

 

Bullish On Myanmar

Admin at Jim Rogers Blog - 5 hours ago

I saw a disciplined, educated, ambitious workforce and vast, vast mineral resources. It is starting from ground zero. I can’t think of a better neighbour to have in the 21st century than China. I wouldn’t worry about what happens to the rest of the world.- *in MM Times* *Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC.*

 

The Big Easy

Dave in Denver at The Golden Truth - 6 hours ago

*“How did you go bankrupt? Two ways. Gradually, then suddenly.”* - Hemingway, *The Sun Also Rises* I wanted to work in a congratulatory note to Ernie "The Big Easy" Els for his perseverance in grinding his way to a British Open victory yesterday. And then I started thinking about his nickname - which is given for his smooth, easy golf swing - in the context of how Easy it is to understand the U.S. financial predicament. It's The Big Easy because it's easy to figure out how our systemic problems terminate, which is in one of two wa... more »

 

Study Finds About 20% of US Public Companies Cheat On Earnings Reports

Spanish bailout fears to spark stock sell-off

Eric De Groot at Eric De Groot - 7 hours ago

Risk-off money flows dominated the landscape as the stock market rallied and short-term traders forecasted higher prices last week. This technical setup urged caution despite a growing message of hope and optimism. While signs of accumulation are beginning to materialize, they're still 'soft' in comparison to long-term capital flows. Once... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

Problems Point To Higher Agricultural Prices, And Investors Should Buy Now

Admin at Jim Rogers Blog - 8 hours ago

The drought is a big deal if it's not raining on your farm. But it is good for farmers in other parts of the world. You can't have perfect weather conditions everywhere, every year. And with all the other problems, we're hitting trigger points. Such problems point to higher agricultural prices, and investors should buy now. Any weather problems will have big effects because of the dire situation in farming. Agriculture will be one of the best sectors of the world economy for years as I have told you often. - *in Newsmax.com* Related: John Deere (DE), Potash (POT), Mosaic (MOS) *Jim... more » 

The Dawn Of The Great California Energy Crash

California, which imports over 25% of its electricity from out of state, is in no position to lose half (!) of its entire nuclear power capacity. But that’s exactly what happened earlier this year, when the San Onofre plant in north San Diego County unexpectedly went offline. The loss only worsens the broad energy deficit that has made California the most dependent state in the country on expensive, out-of-state power. Its two nuclear plants -- San Onofre in the south and Diablo Canyon on the central coast -- together have provided more than 15% of the electricity supply that California generates for itself, before imports. But now there is the prospect that San Onofre will never reopen. Will California now find that it must import as much as 30% of its power? The problem of California’s energy dependency has been decades in the making. And it’s not just its electrical power balance that presents an ongoing challenge. California’s oil production peaked in 1985. And despite ongoing gains in energy efficiency via admirably wise regulation, the state’s population and aggregate energy consumption has completely overrun supply. Essentially, California, like the rest of the country, has built a very expensive system of transport, which is now aging along with its powergrid.
Who will produce all the energy that California will need to buy in the future?

Is Vegas Signaling The Consumer Is Folding?

Visitor volume to Las Vegas is the highest since 2007, despite rising hotel rates, but gaming revenues are near flat.  Online gambling is popular with Europeans – the Brits and Greeks in particular – yet it has slowed over the past 3 months. ConvergEx's latest off-the-beaten-path economic indicator – gambling – shows an increasing global reluctance to leave household finances at the whims of blackjack and poker tables, be they in actual casinos or online betting parlors. Discretionary spending behavior is reliant on consumer sentiment and economic outlook; gambling is the ultimate “luxury item” because there’s absolutely no guaranteed return, so gambling behavior is a near real-time indicator of changes in consumer confidence.  Our gambling indicators, both domestic and abroad, show what feels a lot like recessionary behavior and point to another leg down in the latter half of 2012.

On 'Silly Season' And The Danger Of European Politicians

The coincidence of comments from Germany - both the Bundestag's Hasselfeldt "If a country is not in a position to fulfill its obligations, or is unwilling to, then it must leave the Euro zone"; and vice-Chancellor Philip Roesler (of the FDP) to the effect that the dangers associated with a Greek exit had faded - and the IMF (which has been suspect for a while in its 'steadfastness' with regard Greece, seem to suggest as UBS notes, that there is notable suspicion of collusion among the politicians to apply pressure to the Hellenic Republic. Against becoming too concerned there is the Realpolitik of the Euro area. Decisions about the direction of the Euro project are taken by a very small coterie of political leaders within the Euro area, and we should be concerned not necessarily because of the specifics of the comment or the associated “hardball” bargaining stance, but because politicians still feel that comments like this can be made at all without fear of repercussions. As silly season is set to begin, we should prepare for the impact of politicians need to hear themselves speak.

All The World's A Stage

The European Union has been, in a very real sense, like a masquerade ball. The intricately painted masks covering manipulated stress tests, hiding inaccurate debt to GDP ratios, falsified accounting practices, glossing over any sort of contingent liabilities as if the scars were not there and double counting assets however, like all extravaganzas of this type, is about to reach a conclusion. The night has been long and the hour is late but one by one the masks are being removed and the characters are seen for what they are; a less than pretty sight. There are negative yields in the short maturities for Germany, France and the Netherlands which might soon be found in the United States. We are not sure what Mr. Bernanke will make of institutions paying him to leave their money with the United States government but it will be a classic example of a point in time where “Return OF Capital” became much more important that “Return ON Capital” but as we have asserted time and time again, given the 36% loss of wealth during the American Financial Crisis, that “Preservation of Capital,” are manifestly the byword of the Faith at present.

You’ll Love The New Nickname They Have For The Dollar Here…

No doubt, Eastern Europe is a part of the world where people are accustomed to being abused by politicians. After decades of Soviet Rule, the cultures in places like Ukraine, Moldova, Azerbaijan, Belarus, etc. have been inculcated with a strong mistrust of government. All government. One obvious sign of this is how little confidence people have in their own national currencies. Here in Ukraine, for example, people who have any level of wealth whatsoever hold hard currency– dollars and euros, rather than the local hryvna. (Naturally, their relative confidence in dollars and euros is misplaced, though I was pleased to see that gold is starting to penetrate the cultural psyche here.) They even have a funny nickname for these regional currencies that get inflated and devalued by corrupt central bankers and politicians– rabbits… because they grow and multiply in such huge numbers so quickly. As two different economics students this weekend told me, ‘we are starting to look at the US dollar in the same way…’ I guess that makes the euro a dodo bird.

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