Never Just One Cockroach

H/T Zero Hedge

China Opens The Gold Window

Well Gold ATMs actually.

China is one of the world's largest producers and purchasers of precious metals, especially gold and silver. Beijing has now unveiled its first gold ATM machine in a shopping district. More than 2,000 will be installed in the next two years.

I wonder if this is meant to sop up the money that no longer has confidence in Chinese real estate?

Cross Posted at Classical Values

Dialog With The 99%

The New American has some thoughts on the OWS (is that like multiple owies?).

Wall Street drank the alcohol that the Federal Reserve poured. If there was no Fed pouring the alcohol, if Fannie and Freddie weren’t guaranteeing all these mortgages, Wall Street wouldn’t have originated them. So it was Wall Street working with government, but the source of the problem was the government. Government started it. That’s how come when I was warning about the crisis back in 2004-2005, begging the Fed to raise interest rates, trying to get Fannie and Freddie out of the mortgage guarantee business, nobody wanted to listen to me.

Read the whole thing. And watch the video.

Melt Down In The Works

According to Zero Hedge our financial system is on the brink of a collapse bigger than the one that happened in 2008. This all comes about because the risks the banks are taking internationally are accounted as if the financial system is going to work properly and cover them. But what if the system can't cover?

A little over a month ago, Zero Hedge started an avalanche in the financial sector, and an unprecedented defense thereof by the "independent" financial media and conflicted sell side, by being simply the messenger in pointing out that the gross exposure of one Morgan Stanley to the French banking sector is $39 billion. The firestorm of protests, which naturally focused on the messenger, and not the message, attempted to refute the claims that Morgan Stanley (and many others) are overexposed to Europe (both banks and countries) by stating that gross is not net, and that when one nets out "hedges" the real exposure is far, far lower. The logic is that bilateral netting, as the principle behind this argument is called, should always work - no matter the market, and that counterparty risk, especially when it comes to hedges, should always be ignored because banks will always honor their own derivative exposure. Obviously that this failed massively when AIG had to be bailed out, to preserve precisely the tortured and failed logic of bilateral netting was completely ignored, after all things will never get that bad again, right? Well, wrong. Because the argument here is precisely what the exposure is when the chain of netting breaks, when one or more counterparties go under (such as MF Global for example, which filed bankruptcy precisely due to its hedged (?) European exposure - luckily MF was not in the business of writing CDS on European banks or else all hell would be breaking loose right now). So little by little the story was forgotten: after all when everyone says gross is not net, contrary to what history shows us all too often, everyone must be right. Today it is time to refresh this story, as none other than Bloomberg pulls the scab right off and while confirming our observations, also goes further: yes, banks are not only massively exposed to Europe, but they are in essence misrepresenting this exposure to the public by a factor of well over ten!

For all intents and purposes Greece is gone. Terrible to be sure but barely manageable. But what happens when Italy goes? Or Ireland, or Spain, or Portugal, or all of them plus others? Like China.

Whoopsie.

Cross Posted at Classical Values

Technology And Employment

I came across an article from a while back discussing the impact of technology on employment.

I've been arguing that as machines and software become more capable, they are beginning to match the capabilities of the average worker. In other words, as technology advances, a larger and larger fraction of the population will essentially become unemployable. While I think advancing information technology is the primary force driving this, globalization is certainly also playing a major role. (But keep in mind that aspects of globalization such as service offshoring--moving a job electronically to a low wage country--are also technology driven).

The economists sometimes mention technology, but in general they find other "structural" issues to focus on.

I'm not sure I agree with his thesis. People will eventually do different things than they did in the past. Just as they eventually did after collapse of farm labor in the 1930s. But the change was wrenching and it took 15 or 20 years to complete. More or less a generation.

We are in for rough sledding for quite a while longer if we count the beginning of the reorganization as 2008. We are well under a 1/4 of the way through the change.

In any case the author has made his book available for free (you can pay any amount you like too) at The Lights in the Tunnel.

This post was prompted by the comments to this article: The Technosponge.

Cross Posted at Classical Values

America Is On The Mend

The job market is bad. The economic scene is worse. And Federal debt is spiraling out of control. How can America be on the mend? Ambrose Evans-Pritchard tells the story.

He mentions shale gas. We now have at least a 50 year supply and maybe 100.

Then there is shale oil.

Total US shale output is "set to expand dramatically" as fresh sources come on stream, possibly reaching 5.5m b/d by mid-decade. This is a tenfold rise since 2009. The US already meets 72pc of its own oil needs, up from around 50pc a decade ago.

That is a pretty dramatic rise.

Ah. But there is more.

"Made in America, Again" - a report this month by Boston Consulting Group - said Chinese wage inflation running at 16pc a year for a decade has closed much of the cost gap. China is no longer the "default location" for cheap plants supplying the US.

A "tipping point" is near in computers, electrical equipment, machinery, autos and motor parts, plastics and rubber, fabricated metals, and even furniture.

"A surprising amount of work that rushed to China over the past decade could soon start to come back," said BCG's Harold Sirkin.

Feathers in the wind? What about actual companies? What are the people who make corporate decisions doing?

The list of "repatriates" is growing. Farouk Systems is bringing back assembly of hair dryers to Texas after counterfeiting problems; ET Water Systems has switched its irrigation products to California; Master Lock is returning to Milwaukee, and NCR is bringing back its ATM output to Georgia. NatLabs is coming home to Florida.

Boston Consulting expects up to 800,000 manufacturing jobs to return to the US by mid-decade, with a multiplier effect creating 3.2m in total. This would take some sting out of the Long Slump.

As Cleveland Fed chief Sandra Pianalto said last week, US manufacturing is "very competitive" at the current dollar exchange rate. Whether intended or not, the Fed's zero rates and $2.3 trillion printing blitz have brought matters to an abrupt head for China.

Fed actions confronted Beijing with a Morton's Fork of ugly choices: revalue the yuan, or hang onto the mercantilist dollar peg and import a US monetary policy that is far too loose for a red-hot economy at the top of the cycle. Either choice erodes China's wage advantage. The Communist Party chose inflation.

On the inflation front we are working hard but we got beaten by the Chinese. Good for us. Bad for them.

Now for the bad news. Which I alluded to at the start.

The switch in advantage to the US is relative. It does not imply a healthy US recovery. The global depression will grind on as much of the Western world tightens fiscal policy and slowly purges debt, and as China deflates its credit bubble.

Yet America retains a pack of trump cards, and not just in sixteen of the world’s top twenty universities.

It is almost the only economic power with a fertility rate above 2.0 - and therefore the ability to outgrow debt - in sharp contrast to the demographic decay awaiting Japan, China, Korea, Germany, Italy, and Russia.

Our bad policies at the top are temporary. Our natural advantages manifest. And we have something no other country has. The American Spirit.

Cross Posted at Classical Values

Feds Go On A Diet - Spending Up Only 5%

I guess this is what passes for fiscal restraint these days.

Despite all of the rhetoric coming out of Washington about cutting federal spending and living within our means, the numbers don’t lie. According to the recently released numbers by the Congressional Budget Office, our Federal Government spending was up 5% in 2011 over what we spent in 2010. This marks the largest year of budget expenditures in our nation’s history.

The Federal government spent an alarming $3.6 trillion dollars in 2011, more than the previous year and even more than 2009 when President Obama pushed his failed Stimulus package through an attempt to spend us out of a recession.

Eventually this will end. I predict not well.

Looting

The audio is not so hot (it sounds like it was recorded off a playing TV), but the information is excellent.

More here. Watch the above first for background.

H/T Zero Hedge

Cross Posted at Classical Values

To Tell The Truth

Them crazies at Zero Hedge are at it again. The head of UniCredit global securities Attila Szalay-Berzeviczy had this to say:

"the euro is “practically dead” and Europe faces a financial earthquake from a Greek default"... “The euro is beyond rescue”... “The only remaining question is how many days the hopeless rearguard action of European governments and the European Central Bank can keep up Greece’s spirits.”...."A Greek default will trigger an immediate “magnitude 10” earthquake across Europe."..."Holders of Greek government bonds will have to write off their entire investment, the southern European nation will stop paying salaries and pensions and automated teller machines in the country will empty “within minutes.”

The Zero Hedge guys have it pegged: Welcome to the Apocalypse...

The Zero guys have more at the link. Batten the hatches boys because we are in for a hell of a storm.

Cross Posted at Classical Values

Too Big To Fail Is Now Too Big To Save

Zero Hedge tells an interesting tale.

The latest quarterly report from the Office Of the Currency Comptroller is out and as usual it presents in a crisp, clear and very much glaring format the fact that the top 4 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system. Specifically, of the $250 trillion in gross notional amount of derivative contracts outstanding (consisting of Interest Rate, FX, Equity Contracts, Commodity and CDS) among the Top 25 commercial banks (a number that swells to $333 trillion when looking at the Top 25 Bank Holding Companies), a mere 5 banks (and really 4) account for 95.9% of all derivative exposure (HSBC replaced Wells as the Top 5th bank, which at $3.9 trillion in derivative exposure is a distant place from #4 Goldman with $47.7 trillion). The top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure. As historically has been the case, the bulk of consolidated exposure is in Interest Rate swaps ($204.6 trillion), followed by FX ($26.5TR), CDS ($15.2 trillion), and Equity and Commodity with $1.6 and $1.4 trillion, respectively. And that's your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all time high and up $5.3 trillion from Q1 as they have to risk ever more in the derivatives market to generate that incremental penny of return.

That $5.3 trillion of exposure represents about 1/3 of US GDP this year. Suppose they are doing that every quarter. That means they are exposed to 4/3 of US GDP every year. Now it is not quite as bad as all that if the expected failure is slow and orderly. Currently the expected net exposure is 10% of the total. That would be roughly $25 trillion. That still is a LOT of money.

I remember when Everett Dirksen, who died in 1969, said:

"A million here, a million there, pretty soon, you're talking real money."

Where will that kind of money come from? And if the crash is fast and disorderly? Hold on to your hats kiddies because we are in for a wild ride.

Cross Posted at Classical Values

The Protection Racket

If winning elections is our goal then we will lose. Our goal must be to change the game. We have had too many years of winning without change.

We have had too many years of the nanny state: The Ds want to be protected from Economic failure and the Rs want to be protected from Moral failure (generally). When in fact the state can do neither and can at best be neutral and at worst promote failure.

When the state protects out economics too much our economic muscles grow weak. When it protects our morals too much our moral muscles grow weak. Reliance on the state promotes weakness.

Zero Hedge View Of Market Conditions

From So... What About Those Next 20 Days?

Cross Posted at Classical Values

Taking Out Insurance

Lloyd's of London is pulling cash from European banks.

First it was US money markets; then it was various European industrial concerns (which somehow double down as banks); then it was China; now the bank runs shift to insurance institutions when, as Bloomberg reports, Lloyd's of London has decided to pull peripheral Euro bank deposits. What next: complete collapse of European interbank market as bank runs become a daily thing at both the retail and institutional level? Well, we already anticipated that. But it is something totally different to see it happen in practice.

From Bloomberg: "Lloyd’s of London, concerned European governments may be unable to support lenders in a worsening debt crisis, has pulled deposits in some peripheral economies as the European Central Bank provided dollars to one euro-area institution. "“There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with,” Luke Savage, finance director of the world’s oldest insurance market, said today in a phone interview. “If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them.” Lloyd’s, which holds about a third of its 2.5 billion pounds ($3.9 billion) of central assets in cash, has stopped depositing money with some banks in Europe’s peripheral economies, Savage said, declining to name the countries or institutions. “We have a very conservatively positioned balance sheet,” Savage said. Lloyd’s also holds about a third of its assets in mainly U.S. and U.K. government bonds and a third in corporate bonds, he said." As usual, the biggest threat for European banks are not short sellers, not even naked CDS traders: it is precisely this - a deposit run, which saps the liquidity lifeblood out of any bank, hence making its collapse a matter of time.

"Europe" is coming apart at the seams.

Cross Posted at Classical Values

The Yockey Puck

My favorite Lesbian Conservative Cynthia Yockey is at it again. (you might like to review my recent post about Cynthia: The Keys To The Next Election) She explains why gay equality will come from the Right. But first she lays into the pretensions of a vast swath of social conservatism.

I will point out to the Right that the unwillingness of lesbians and gays on the Left to dialog too often comes from the bitter experience of being rejected by their own families for being gay. Betrayals of that magnitude do not foster trust. And it is very difficult from the Left to distinguish among all the different ideologies on the Right. This is especially so since social conservatism is antithetical to liberty, religious freedom and fiscal conservatism — as well as gay equality — because it is really animated by the desire of religions to be the sole possessors of the one ring the coercive powers of government.

What is bizarre about lesbians and gays not understanding the Right is that no other group in the United States embodies the values of fiscal conservatives more than the lesbian and gay community. This is because we know we cannot rely on the government, our own families or our religion for support or protection. So lesbians and gays in large numbers must be entrepreneurs, self-reliant and resourceful. We also must set up and fund our own non-profits and charities. In contrast, one of the big objections social conservatives have to gay equality that is antithetical to fiscal conservatism is that their churches will no longer be able to get rivers of cash from the government for their evangelical enterprises, such as adoption agencies, which ought not to be receiving any government money, unless they agree to treat gays equally.

Ah rivers of cash from the government to the churches. Bush's "compassionate conservatism" put that whole endeavor on rocket fuel (I'm tired of steroids).

How about those rivers of money?

The Faith-Based Initiative is a federal program that seeks to vastly expand opportunities for religious organizations and faith-based institutions to receive federal social service grants. Under this initiative, for the first time, houses of worship and other pervasively sectarian institutions are eligible for billions of taxpayer dollars.

President Bush originated the Faith-Based Initiative in January 2001 with the creation of the White House Office of Faith-Based and Community Initiatives. The Administration has advanced its initiative through a series of Executive Orders, complemented by the creation of separate federal agency faith-based offices and the adoption of new grant making and contracting rules by these agencies.

I guess we have gone from the faith of our fathers to "crony religionism". Churches sanctified by government money and government sanctified by the fealty of the churches to government money. Faith says: government is good - it gives us money. Government says: Faith is good. It bows to us. It is a very old story. Of course when the State religion changes there are often religious wars. Supposedly that story was supposed to be ended by the First Amendment.

Once we get religion out of politics there will be a lot of changes made in this country. Or maybe it will go the other way around when the fall of Drug Prohibition discredits the churches that supported it. Especially when you consider all the people who have died because government denies that Marijuana IS Medicine. I don't see how those churches can claim to be healers of the sick when in cahoots with a government that denies the sick medicine. It is probably that "compassionate conservatism" I have heard so much about.

And what will be the #1 driver of the End of Drug Prohibition? About 75% of Americans say the Drug War is not working and Government at all levels is broke. Sounds like an opportunity for the first Party that raises the question.

Cross Posted at Classical Values

A Chance

Thirty seconds of political truth. And it may just sell some autos.

H/T Libertarian Republican.

Cross Posted at Classical Values

Both Parties Have Blood On Their Hands

How an Economy Grows and Why It Crashes
schiffradio.com

H/T Reason Magazine which has some nice text that expands on the video.

Update: Frank left a link in the comments at Classical Values to Schiff's Testimony to Congress.


Cross Posted at Classical Values

A Bigger Fan

Zero Hedge is discussing the latest news in the ongoing financial meltdown. Which prompted a couple of comments (among many others).

how does this compare to the Lehman shit fest of '08?

And the reply:

Were gonna need a bigger fan.

I have nothing to add.

Cross Posted at Classical Values

Go Long Idiocy

Yep. The value of idiocy is rising. However, I fear it is a bubble. Wot? A French Bank is going after the Wall Street Journal for Euro failure opinion piece. Evidently they are not aware of the American Constitution. Namely the First Amendment. Something about freedom of speech I hear.

Reuters has a tit bit.

(Reuters) - BNP Paribas said on Tuesday that it had asked French market regulator AMF to open an enquiry about a Wall Street Journal opinion piece claiming that France's largest bank could face a dollar funding crunch.

I guess that in France you are not allowed to have the "wrong" opinion.

So far the US has not gone too far down that path. Unless you count "hate" speech laws.

Cross Posted at Classical Values

Why Turkey Is Causing Trouble With Israel

Turkey is seriously saber rattling with Israel. Why you ask? The usual reason. Economic problems at home.

...the Turkish market has lost two-fifths of its value in dollar terms, and the Turkish lira has fallen farthest of the world's major currencies, close to its 2009 crisis low. Turkey's financial unraveling has only begun. On March 1, I warned that Turkey was "a developing market to avoid". With the carnage in global markets, Turkey's problems barely made the back pages. But the strategic importance of Turkey's currency route will become a major theme for foreign policy during the next several weeks.

It looks like the foreign policy implications are already with us.

Cross Posted at Classical Values

Aftershock

The video is mostly a commercial for the services these folks are offering. I still think the advice presented is sound. Having for practical purposes no assets or cash all I can do is sit back and watch. The video was posted to YouTube on 18 July 2011. As far as I can tell the free offer is no longer available. Here is a link to the Amazon version of the book:

Aftershock 2nd Edition

Update: I had meant to add this to the post because I follow the electronics market and because I think it gives an idea of where we are headed. From Semiconductor Foundries Reducing Production.

LONDON – July sales at foundry Taiwan Semiconductor Manufacturing Co. Ltd. were down on a sequential basis running against historic trends for the month at the company. Coming immediately after rival foundry UMC posted soft July sales, the decline was expected but appears to indicate the semiconductor industry is headed into a weak third quarter.

Just a feather in the wind. So far.

Cross Posted at Classical Values