Thursday, September 30, 2010

What We Learned About Steve Jobs, Today

You don't piss off Jobs, even if you work in a different city, in a different company, in a different industry. You will get fired.

We also learned that Jobs and Rupert Murdoch have been spending more quality time together.

Here's ValleyWag:

Gordon McLeod has been packing up his office; today is his last at the Wall Street Journal. His ejection is complicated. But some coworkers think they know what did him in: insulting Steve Jobs in Rupert Murdoch's presence.

McLeod's exchange with Jobs, the fiercely willful Apple CEO, came one night this past June, at Murdoch's ranch in Carmel, California. An annual News Corp. retreat was under way and the theme, at least for the evening in question, was apps of the sort that run on Jobs' iPhone and iPad.

Jobs arrived for dinner by helicopter. He stayed maybe an hour; two tops. But he left an outsized impression, and not an entirely pleasant one: Even accounting for his reputation, some present were struck by what they saw as his arrogance and disdain. Over the past three decades, Jobs has left plenty of people feeling that way — underlings, competitors and especially journalists. But in Carmel, the assembled crowd had a reason to take it personally...

Read the rest here.


Meredith Whitney: Bailouts of States by U.S. Coming

Meredith Whitney, who just completed an analysis of the dire straits of many Wall Street firms,now does great work in breaking down the problems for the states.

The must see video is here.

Goolsbee Simplifies Tax Cuts So That the Envious Can Get It

Austan Goolsbee, the new chairman of President Obama’s Council of Economic Advisers, is out with a blackboard talk video on tax cuts. Bottom line: His show and tell rams home the point that only rich bastards are going to be taxed under the Obama Plan.

The problem, of course, is that it is rich bastards that invest money so that new products and services are launched. It's real simple (though Goolsbee doesn't get this simple), tax the rich means a lower standard of living for all because there will be fewer investments made and thus fewer products and services in the market.

Expose: How Big Wall Street Firms Get Advance Word on Federal Reserve Activities

Reuters is out with a bombshell report that provides a play be play of how former Fed staff move to the private sector and sell their access to the Fed, through consulting and reports, to large investors:
To the outside world, the Federal Reserve is an impenetrable fortress. But former employees and big investors are privy to some of its secrets -- and that access can be lucrative.

On August 19, just nine days after the U.S. central bank surprised financial markets by deciding to buy more bonds to support a flagging economy, former Fed governor Larry Meyer sent a note to clients of his consulting firm with a breakdown of the policy-setting meeting.

The minutes from that same gathering of the powerful Federal Open Market Committee, or FOMC, are made available to the public -- but only after a three-week lag. So Meyer's clients were provided with a glimpse into what the Fed was thinking well ahead of other investors.

His note cited the views of "most members" and "many members" as he detailed increasingly sharp divisions among the officials who determine the nation's monetary policy.

he inside scoop, which explained how rising mortgage prepayments had prompted renewed central bank action, was simply too detailed to have come from anywhere but the Fed.

A respected economist, Meyer charges clients around $75,000 for his product, which includes a popular forecasting service. He frequently shares his research with reporters, though he kept this note out of the public eye. Reuters obtained a copy from a market source. Meyer declined to comment for this story, as did the Federal Reserve...

This selective dissemination of information gives big investors a competitive edge in the market. In the past, Fed officials themselves have privately expressed discomfort about the cozy ties between the central bank and consultants to big investors, though their concerns have largely fallen on deaf ears...

Against the backdrop of today's shaky recovery and the Fed's efforts to provide ongoing support to growth, information about what central bank officials agree or disagree on can be even more valuable than usual.

Haag Sherman, chief investment officer of Salient Partners, a Houston-based money management firm that oversees around $8 billion in assets, says even the slightest hint of the possible direction of policy can give investors a huge leg up.

"The fact is that government today is driving the markets more than any time in recent history and having insight into near-term and long-term plans provides a money manager with a significant competitive advantage," Sherman said.

Markets have been particularly sensitive to Fed policy in recent months as renewed weakness in the economy sparked widespread speculation that the central bank would try to ease borrowing conditions further, probably by ramping up its purchases of U.S. government bonds...

five days after Meyer's note, the Wall Street Journal published a more detailed account of the divisions on the Fed's policy-setting committee. The newspaper report was credited with moving bond yields 0.20 percentage point, a relatively steep decrease.

Small wonder that large funds are willing to shell out tens of thousands of dollars a year to receive "color" -- as investors refer to the useful tidbits that plugged-in consultants supply.

The precise number of former Federal Reserve employees tapping their network of old colleagues can't be determined, but by most accounts they are a sizable group.

"The revolving door between the Fed and the private financial sector is quite significant," said Timothy Canova, professor of international economic law at Chapman University School of Law in Orange, California...

former Fed staffers are hotly sought after on Wall Street and in the investment community.

Meyer founded his consulting firm, then called Laurence H. Meyer and Associates Ltd, before joining the Fed in 1996. When he left the Fed in 2002, he returned to his firm, now called Macroeconomic Advisers.

Another example is Susan Bies, who retired from the Fed's board in 2007, and took a job on the board of Bank of America in 2009. A number of chief economists at top U.S. banks at some point have also held staff positions at the Fed.

Going the other way, William Dudley, head of the powerful New York Federal Reserve Bank, was the chief economist at Goldman Sachs and a partner at the firm.

Critics say this revolving door structure makes it difficult for Fed staffers to be disciplined in not inadvertently revealing too much in conversations with old colleagues and friends.

Fed board staffers who retire even get to keep their pass for the central bank's building, which boasts fitness facilities, a barber and a dining room.

Though their identification badges designate their "retired" status, they are not restricted to where they can go once inside the building -- even if they now work in the private sector.
What can be said other than we all know it goes on, and it is a total disgrace.

Read the full report here.

Government Sachs Explained

(ViaLew Rockwell)

St. Louis Financial Stress Index at May Lows

This Index is  more of a coincident indicator, than a leading indicator. If some kind of trouble starts to brew somewhere in the financial sector, this index will sky rocket again. That said, this indicator remains far above "normal" levels of the 1990's

Rahm Emanuel To Resign Today

I am not as concerned about the rats leaving the sinking ship, as the new rats coming on board.

There's not much good to say about Emanuel or Larry Summers and what they did in the White House, other than that their replacements are likely to be worse.

Tony Curtis RIP

Movie great Tony Curtis has died. He was 85.

I had the great pleasure of spending most of an Academy Awards after party hanging at a Beverly Hills Hotel bar with Curtis. He was probably 80 that year, but was full of life, told great stories and could still put down more than a couple of drinks.

That night he wore his Ordre des Arts et des Lettres  medal that he received from France in 1995 and was clearly very proud of it.

Meredith Whitney Predicts 80,000 Layoffs for Wall St (Bonuses will disappoint)

Whitney really does her homework (one of the few on the Street that does) before throwing out numbers like this,  so you have to think she is probably right in the ball park as to what is going to happen. Most of these guys (and some gals)  that will be laid off will never be able to earn elsewhere the money they earned on the Street. Does this finally break the Manhattan real estate market?

Note also Whitney's comment on the Fed buying paper held by the investment banks. She is spot on. That is where Wall Street "trading profits" came from last year. I have been pounding home this point. The trading profits were really gifts from the government. Now that those programs are winding down those "profits" are no longer coming down the scam tunnel.

BlackRock Prez: Gold Could Hit $2000

"Since 2001, gold has returned about 17 percent a year, so it’s a very good long-term investment,” Robert Kapito, President of BlackRock, said in an interview on CNBC. “Clients are looking to get exposure into something that they feel comfortable with, and gold is proven to be a good investment.”

“If you adjust for inflation, gold can go up to the $2,000-area,” said Kapito.

Geez, I wish I could get data like Kapito is referencing, for EPJ readers. Oh yeah, covered this Monday.

Note: Although the inflation adjusted gold price is interesting to look at, the keys are supply and demand factors, which are both changing to the bullish side for gold--especially on the supply side with central banks now net buyers of gold, and mining companies no longer hedging future production.

Third Estimate on GDP Continues to Indicate Down Trending Economy

Don't let the supposed label of "third estimate" fool you into thinking that GDP is a very precise number. It is not. It is a very rough approximation of what is going on in the economy. 

That said, real gross domestic product grew at an annual rate of just 1.7% in the second quarter of 2010, according to today’s third estimate.  This follows a growth rate of 3.7% in the first quarter.

EPJ Spanning the Globe

Today, in the U.S., the  EPJ post Government Sachs is featured at  the number one source for information on free markets and personal liberty,

Across the pond, in London, the Financial Times features our story, Rubinstein on China, Oligarchs and Gold.

In Portugal, Social Democrats = Tax Cutters

Let's hope when the deficit problems start making headline news here in the states that the center-right Social Democrats of Portugal send up a case of whatever they are drinking to U.S. Congressional Democrats.

In Portugal, with a severe budget crisis, Social Democrats are calling for smaller government and spending cuts, as opposed to higher taxes.

Roubini Global Economics reports:

Portugal's center-right opposition has refused to back the 2011 budget. After a meeting with President Anibal Cavaco Silva, leaders of the Social Democrats said they were open to talks if the minority Socialist government agreed to cut spending rather than raise taxes. Opposition head Pedro Passos Coelho said he would support the budget under certain conditions, including an emphasis on spending cuts. More here.

One on One Face Time with the President for Geithner, Today

On Thursday morning, Treasury Secretary Geithner will attend the President's Economic Daily Briefing at the White House. He will then meet separately with the President.
In the afternoon, the Secretary will participate in The Financial Services Roundtable 2010 Fall Conference at the Mandarin Oriental in Washington, DC to discuss next steps on financial reform implementation before an audience of financial services executives. .

Later in the afternoon, Secretary Geithner will participate in a moderated question and answer session at the Washington Ideas Forum hosted by the Atlantic and the Aspen Institute at the Newseum.

Also at 10 am on Thursday, Deputy TreasurySecretary Neal Wolin will testify before the Senate Banking, Housing and Urban Affairs Committee about the progress Treasury has made in implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act.

According to Treasury, Deputy Secretary Wolin, who will testify along with other Federal regulators, will discuss the broad principles guiding Treasury's efforts as well as the Department's role in helping to establish the Financial Stability Oversight Council, standing up the Consumer Financial Protection Bureau and creating a Federal Insurance Office and Office of Financial Research.

Wednesday, September 29, 2010

The Dirt's Coming Out

Ben Bernanke testimony today:

Under a framework established by the [Dodd-Frank]act, the Federal Reserve will, by December 1, provide detailed information regarding individual transactions conducted across a range of credit and liquidity programs over the period from December 1, 2007, to July 20, 2010. This information will include the names of counterparties, the date and dollar value of individual transactions, the terms of repayment, and other relevant information

Jim Cramer's Personal Crash

According to Nielsen Ratings, CNBC's  Mad Money viewership has plunged to multi year lows. (ViaZH)

E-micro Gold Contract to be Launched

They'll be plenty screaming this is the signal of a top:

The COMEX is launching an E-micro Gold futures contract.

It will offer incremental access to ownership of a 100-ounce bar of gold. The contract is based on ten ounces of gold, one-tenth the size of the world benchmark for gold prices, the COMEX Gold futures contract.

Other than its size, the E-micro Gold contract replicates the standard contract in most ways: same tick size, depository location, and last trading days.

One E-micro Gold contract, however, does not offer delivery of 10 ounces of gold. Ten contracts are required for that.

Each E-micro contract yields one Accumulated Certificate of Exchange (ACE), which provides ten percent ownership in a 100-ounce gold bar.

Ten ACEs can be converted into an official COMEX licensed gold warrant, representing an actual serial-numbered bar of gold.
This is far from a top in the gold market. The supply and demand fundamentals are simply too strong. That said, the best way to accumulate gold is via gold coins that you take delivery of.

This contract should only be used by traders who have risk money. Although gold should move much higher, there will be a correction to the current trend at some time that could wipe out a futures trader  who is operating on thin  margin.

David Rubenstein on China, Oligarchs and Gold

The final panel at the Dow Jones Private Equity Conference included Carlyle Group co-founder David Rubenstein.

Most of the questions by the moderator were directed at Rubenstien and he provided a long string of reasons why he thought China was the best place in the world to invest.

He likened the present state of China to the United States in 1910.

He said there were three types of Chinese companies to invest in:

Embryonic companies that are providing services for domestic Chinese consumers.

Larger companies that focus on the export market.

State owned companies that are in the process of privatizing.

He indicated that all three types made good investments.

His enthusiasm for China did not stop there. He said that China encouraged Private Equity investments more so than any other country, including the U.S.

"I feel more welcome there than in the halls of Congress," he said.

He said China will be the largest economy in the world by 2035.  India will be second, the U.S. third  and Brazil fourth.

Interestingly, he bitched about Russia and said that no one made money there except Russians. He said it was a natural resource economy controlled by the oligarchs. In the U.S., of course, many have labeled Rubenstein an oligarch, where Carlyle Group has close relationships with the government, and at various times George H.W. Bush, George W. Bush, James Baker and Frank Carlucci, among others have advised the firm.

Rubenstein closed the panel discussion, and the conference, by telling a Russian joke:

Former Russian President Mikahail Gorbachev spoke at the Kennedy Center in Washington D.C. After the speech, he was asked a question, "How would the world be different today, if Kruschev had been assassinated in 1963, instead of Kennedy. Gorbachev answered, "I couldn't tell what the differences would be except for one thing. Aristotle Onasis wouldn't have married Mrs. Kruschev."
After the conference, I caught up with Rubenstein to ask him about gold. He gave me the Jim Chanos answer: He is not an expert on it and doesn't have an opinion.

Holy S#&t!: The Elite are Briefed on the Coming Global Cooling

by James Delingpole

Bilderberg. Whether you believe it’s part of a sinister conspiracy which will lead inexorably to one world government or whether you think it’s just an innocent high-level talking shop, there’s one thing that can’t be denied: it knows which way the wind is blowing. (Hat tips: Will/NoIdea/Ozboy)

At its June meeting in Sitges, Spain (unreported and held in camera, as is Bilderberg’s way), some of the world’s most powerful CEOs rubbed shoulders with notable academics and leading politicians. They included: the chairman of Fiat, the Irish Attorney General Paul Gallagher, the US special representative for Afghanistan and Pakistan Richard Holbrooke, Henry Kissinger, Bill Gates, Dick Perle, the Queen of the Netherlands, the editor of the Economist…. Definitely not Z-list, in other words.

Which is what makes one particular item on the group’s discussion agenda so tremendously significant. See if you can spot the one I mean:

The 58th Bilderberg Meeting will be held in Sitges, Spain 3 – 6 June 2010. The Conference will deal mainly with Financial Reform, Security, Cyber Technology, Energy, Pakistan, Afghanistan, World Food Problem, Global Cooling, Social Networking, Medical Science, EU-US relations.
Yup, that’s right. Global Cooling.

Which means one of two things.

Either it was a printing error.

Or the global elite is perfectly well aware that global cooling represents a far more serious and imminent threat to the world than global warming, but is so far unwilling to admit it except behind closed doors.

Let me explain briefly why this is a bombshell waiting to explode.

Almost every government in the Western world from the USA to Britain to all the other EU states to Australia and New Zealand is currently committed to a policy of “decarbonisation.” This in turn is justified to (increasingly sceptical) electorates on the grounds that man-made CO2 is a prime driver of dangerous global warming and must therefore be reduced drastically, at no matter what social, economic and environmental cost. In the Eighties and Nineties, the global elite had a nice run of hot weather to support their (scientifically dubious) claims. But now they don’t. Winters are getting colder. Fuel bills are rising (in the name of combating climate change, natch). The wheels are starting to come off the AGW bandwagon. Ordinary people, resisting two decades of concerted brainwashing, are starting to notice.

Read the rest here.

Treasury Updates Geithner Schedule

At 12:35 pm, Secretary Geithner will join Secretary Clinton for an announcement on Iran, at the State Department.

UPDATE: The Treasury has released the following statement which appears to indicate the Obama Administration has decied to harass all of Iran's top officials:

Today, President Obama signed an Executive Order that imposes sanctions on Iranian officials determined to be responsible for or complicit in serious human rights abuses involving Iran. In signing today’s Order, the President identified eight individuals for sanctions who share responsibility for the sustained and severe violation of human rights in Iran since the June 2009 disputed presidential election by listing them in the Annex to the Order. 
The Iranian individuals identified today are: Mohammad Ali Jafari, Commander of the Islamic Revolutionary Guard Corp (IRGC); Sadeq Mahsouli, current Minister of Welfare and Security and former Minister of the Interior; Qolam-Hossein Mohseni-Ejei, current Prosecutor General of Iran and former Minister of Intelligence; Saeed Mortazavi, former Prosecutor-General of Tehran; Heydar Moslehi, Minister of Intelligence; Mostafa Mohammad Najjar, current Minister of the Interior and former Deputy Commander of the Armed Forces for Law Enforcement; Ahmad-Reza Radan, Deputy Chief of Iran’s National Police; and Hossein Taeb, current Deputy IRGC Commander for Intelligence and former Commander of the IRGC’s Basij Forces.
This Order provides the United States with new tools to target human rights abuses engaged in by officials of the Government of Iran. As a result of this action, any property in the United States or in the possession or control of U.S. persons in which the individuals listed in the Annex have an interest is blocked, and U.S. persons are prohibited from engaging in transactions with them.  The individuals listed in the Annex to the Executive Order are also subject to visa sanctions. 
President Obama identified the following individuals for sanctions by listing them in the Annex to the Order:
·         Mohammad Ali Jafari is the Commander of the IRGC.  As commander of the IRGC, Jafari controlled the Basij Forces during the June 2009 election.  Forces under his command participated in beatings, murder, and arbitrary arrests and detentions of peaceful protestors.
·         Sadeq Mahsouli is currently the Minister of Welfare and Social Security. He was Minister of the Interior at the time of the June 2009 election.  As Minister of the Interior, Mahsouli had authority over all police forces and Interior Ministry security agents.  His forces were responsible for attacks on the dormitories of Tehran University on June 15 2009, during which students were severely beaten and detained.  Detained students were tortured and ill-treated in the basement of the Interior Ministry building; other protestors were severely abused at the Kahrizak Detention Center, which was operated by police under Mahsouli’s control.
·         Qolam-Hossein Mohseni-Ejei is currently the Prosecutor General of Iran.  As the Minister of Intelligence at the time of the June 2009 election, Mohseni-Ejei has confirmed that he authorized confrontations with protesters and their arrests during his tenure as Minister of Intelligence.  As a result, protesters were detained without formal charges brought against them and during this detention detainees were subjected to beatings, solitary confinement, and a denial of due process rights at the hands of intelligence officers under the direction of Mohseni-Ejei.  In addition, political figures were coerced into making false confessions under unbearable interrogations, which included torture, abuse, blackmail, and the threatening of family members.
·         Saeed Mortazavi is the former Tehran Prosecutor General.  As Prosecutor-General, he issued a blanket order used for the detention of hundreds of activists, journalists, and students, and was responsible for sending detainees to the Kahrizak Detention Center, where they were tortured and abused, resulting in several deaths.  He was suspended from office in August 2010 after an investigation by the Iranian judiciary of his role in the death of three men detained on his orders following the election. 
·         Heydar Moslehi has been the Minister of Intelligence since August 2009.  Under his leadership, the Ministry of Intelligence has continued the practices of widespread arbitrary detention and persecution of protestors and dissidents.  The Ministry of Intelligence continues to run Ward 209 of Evin Prison, where many activists are being held for their peaceful activities in opposition to the ruling government; interrogators from the Ministry of Intelligence have subjected prisoners in Ward 209 to beatings, mental abuse, and sexual abuse.  In recent months, prisoners in Ward 209 have reported forced confessions and interference by the Ministry of Intelligence in the judicial process; one detainee from the ward was executed after a forced confession and another was executed when torture failed to yield a confession.  As the Minister of Intelligence, Moslehi bears responsibility for the ongoing abuses.
·         Mostafa Mohammad Najjar was appointed the Deputy Commander of Armed Forces in charge of Police Forces in order to “ensure order and security” in November 2009.  He was in charge of the government response to protests on Ashura, one of the holiest days in Shia Islam, which in 2009 coincided with December 27, 2009.  State media reported 37 dead and hundreds arrested.  He is currently the Minister of Interior and, as such, has authority over all police forces, Interior Ministry security agents, and plainsclothes agents.
·         Ahmad-Reza Radan has been the Deputy Chief of Iran’s National Police since 2008.  As Deputy Chief of National Police, Radan was responsible for beatings, murder, and arbitrary arrests and detentions against protestors that were committed by the police forces.  In addition, several detainees taken to Kahrizak Detention Center, the detention center where at least three protestors lost their lives after being subject to abuses, have alleged that Radan was present in Kahrizak and personally participated in the beatings and ill-treatment of detainees.
·         Hossein Taeb is currently the Deputy IRGC Commander for Intelligence. As Commander of the paramilitary Basij Forces at the time of the June 2009 election, forces under Taeb’s command participated in beatings, extrajudicial killings, and arbitrary arrests and detentions of peaceful protestors and other political activists.
Identifying information
Individual:                  Mohammad Ali Jafari
AKA:                          Ali Jafari
AKA:                          Mohammad Ali Ja’fari
AKA:                          Aziz
AKA:                          Aziz Ja’fari
POB:                           Yazd, Iran
DOB:                          1 September 1957
Individual:                  Sadeq Mahsouli
AKA:                           Sadeq Mahsuli
POB:                           Orumieh, Iran
DOB:                           1959
Individual:                  Qolam-Hossein Mohseni-Ejei
AKA:                          Gholam Hossein Mohseni Ejei
POB:                           Ejiyeh, Iran
DOB:                          c. 1956
Individual:                  Saeed Mortazavi
AKA:                          Sa’id Mortazavi
POB:                           Meibod, Yazd, Iran
DOB:                          1967
Individual:                  Heydar Moslehi
AKA:                          Heidar Moslehi
POB:                           Isfahan, Iran
DOB:                          1956
Individual:                  Mostafa Mohammad Najjar
POB:                           Tehran, Iran
DOB:                           1956
Individual:                  Ahmad-Reza Radan
POB:                           Isfahan, Iran
DOB:                          1963
Alt DOB:                    1964
Individual:                  Hossein Taeb
AKA:                          Hosein Taeb
AKA:                          Hussayn Taeb
AKA:                          Hassan Taeb
POB:                           Tehran, Iran
DOB:                          1963

The New York Fed is about to Blow Another Forecast

The last time I wrote in detail about the New York Fed was in 2004, I basically called them idiots for issuing a paper that said there was no housing bubble. I'm back. This time I am focused on their forecast that there is little chance of the economy going into a double dip recession in 2011.

The methodology they use to reach this conclusion is typical econometric confusion. They look at data but fail to understand the workings of the data outside of simple correlations.

Mark Perry writes:

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" yesterday with treasury yield data through August 2010, and the Fed's recession probability forecast through August 2011. The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (2.70% in August) and 3-month Treasury bills (0.16%) to calculate the probability of a U.S. recession up to twelve months ahead  using the spread between those two yields (2.54% in August).

The Fed's model shows that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then in almost every month. For August 2010, the recession probability is only 0.08% and by a year from now in August of next year the recession probability is slightly higher, but only 0.61% (about 6/10 of 1%). According to the NY Fed Treasury Spread model, the chances of a double-dip recession through the middle of next year are essentially zero.
The "yield spread" used to be one of my favorite indicators because when short-term rates were lower than long-term rates, banks used to borrow short-term and lend long-term with reckless abandon. Thus, you knew the economy was going to be in a Fed inspired manipulated boom phase. BUT, you really need to understand this causal relationship between low short-term rates and banks lending money out. That's what fueled this indicator.

Econometricians who simply look at the correlation between low short-term rates versus long-rates and a boom economy, without understanding the underlying dynamics, set themselves up for embarrassing forecasts that have little contact with reality.

The current environment is such an environment. Short-term rates are below long-term rates BUT the banks aren't lending the short-term money out. They are putting the funds on deposit at the Fed as excess reserves. There is a trillion plus in excess reserves. That money is not in the system bidding up prices. Thus, the NY Fed is way, way off on its forecast that there is zero chance of a 2011 recession. If the current situation holds, we will likely have a recession. It would take Bernanke to increase money growth, fairly soon, at a annualized double digit rate to halt a second down leg.

I am really not impressed at all with the work coming out of the NY Fed. The Fed economists are off on this very simple concept, just as they were off on their absurd argument that there was no housing bubble. These guys are somewhere between mental midgets and guys who are intimidated into using no balls faulty analysis that most others are using.

It's a damn good reason to close down the entire NY Fed research department (Along, of course, with the rest of the Fed).

Pricking the Real Estate Bubble in China

China halts lending on 3rd + home purchases, raises minimum down payment on all first-home buyers.


Rolling Bear Markets in Various Currencies

The current dollar weakness is the third period of dollar weakness since 2007. Because the dollar remains the global reserve currency, a serious flight from the dollar would mean huge structural changes in the global economy and enormous price inflation in the U.S.

Given the dollar weakness during a period of rather tight money supply growth, it boggles the mind to contemplate what type of downward movement in the dollar will occur once Bernanke attempts to support a collapsing Treasury securities market.

Right now, the dollar is depreciating against most major currencies including the yen, the Swiss franc, the euro and the yuan. The Aussie dollar climbed to the highest since July 2008 vs the dollar to $0.9693.


DHS Launches Cyber Attack Exercise

Big Brother poking around the internet:

For three or four days this week, the Internet will come under a virtual attack from an unknown adversary, and it will be up to the government and private sector's coordinated efforts to root out the cause and work together to keep systems up and running -- at least within the simulated confines of the Department of Homeland Security's Cyber Storm III exercise, which began Tuesday, according to Information Week.

This year's exercise will be the largest yet, including representatives from seven cabinet-level federal departments, intelligence agencies, 11 states, 12 international partners and 60 private sector companies in multiple critical infrastructure sectors like banking, defense, energy and transportation. High-level officials, including federal cybersecurity coordinator Howard Schmidt and deputy homeland security secretary Jane Holl Lute, will be among those taking part.

Government Sachs and Its Latest Propaganda Campaign

The latest attempt by Goldman Sachs to prove they are good people, and that their raping of America did not happen, is through a new print ad being run in WSJ that shows they are in bed with government on clean energy.

These guys are so intertwined with government that it appears that they don't even understand anymore what free markets and entrepreneurship are all about. Their new act signals that they will continue to rape Americans, but in politically correct ways.

CNBC's John Carney does the smackdown:

The message seems to be an attempt to show that Goldman's investment banking activities make positive contributions to businesses, communities, the environment and jobs growth. Goldman, in short, is trying to show how it is playing a role at improving the lives of Americans rather than simply increasing its bottom line.

Not everyone is likely to be convinced. Those who believe that clean or green energy is likely to be the location of the next financial bubble will find it ironic that Goldman is trying to burnish its image by touting investment in windmills. When T. Boone Pickens, for instance, began promoting energy independence many thought it was a cynical attempt to boost the fortunes of his Clean Energy Fuels Corp
The key here is that most of these windmill projects are not profitable. Both Pickens and Goldman want what I have called "bailouts in advance', i.e., they rape tax payers by taking government money and creating projects that would never develop in a free market, and, of course, they build in nice profit margins for themselves in what are ultimately losing businesses. Translation: A sophisticated scam.

China's Demographic Inflection Point

Roubini Global Economics analyst Adam Wolfe writes:

China's population will reach an inflection point in 2011: The increase in retirees will start to outpace that in the labor pool. When the “demographic dividend” of a declining dependency ratio stops paying out, the relative price of labor will rise, the household savings rate will begin to decline and Chinese investment will decelerate.
More here.

More Plotting by Geithner and Friends

On Wednesday afternoon, Treasury Secretary Geithner will meet with the Financial Stability Oversight Board at Treasury.

The FSOB was established by section 104 of the Emergency Economic Stabilization Act of 2008 to help oversee the Troubled Assets Relief Program (TARP) and other emergency authorities and facilities granted to the Secretary of the Treasury under the EESA .

Oversight Board members:

Secretary of the Treasury: Timothy Geithner

Chairman of the Board of Governors of the Federal Reserve System: Ben Bernanke

Secretary of the Department of Housing and Urban Development: Shaun Donovan

Chairman of the Securities and Exchange Commission: Mary Schapiro

Director of the Federal Housing Finance Agency: Edward DeMarco (Acting)

The Oversight Board meets monthly.

Tuesday, September 28, 2010

At Least 77 Democratic House Seats are Vulnerable

At the Dow Jones Private Equity Conference, WSJ Washington editor Jerry Seib provided information to the attendees from the Cook Political Report that showed as many as 77 Democratic seats are lost or a toss up come the November elections.

Seib said that he expected some tightening of races and that a WSJ/NBC News poll to be released tomorrow showed that tightening starting. He specifically mentioned California Senator Barbra Boxer closing her lead and said that Rand Paul's lead in the Kentucky Senate race was "evaporating".

Seib now believes that the Tea Party is the core of the Republican Party. When WSJ/NBC asked those who voted as Republican in previous elections if they were members of the Tea Party 50% said "yes".

According to Seib, Americans now believe that China will be the leading power in the next generation and that most believe that the next generation of Americans will be worse off.

Seib sees the potential for another party forming, not from the Tea Party (which he believes will control the Republican Party) but from a middle group that is not happy with either the Republicans or Democrats.

Glen Hutchins on Investment Opportunities

Glen Hutchins co-Founder of the private equity firm, Silver Lake, was interviewed at the Dow Jones Private Equity Conference by WSJ's Alan Murray.

Hutchins said investing must now be focused on "pockets of unusual growth." He then singled out technology and emerging markets. He said 40% of Silver Lake's portfolio was a play one way or another on emerging markets.

With regard to emerging markets, he said there were obvious differences with investing in the U.S. because of the "regulatory infrastructure" in different companies. He also noted that the old thinking was that you launched in the U.S. and then expanded globally. He said now the thinking is different countries have different cultures and that therefore it is important to test, think and adapt in the different cultures.

He also noted that a number of unions were opting out of making China-based investments because unions view China as "anti-labor" (Translation: Chinese labor markets are less hampered by government regulations).

Another play Hutchins discussed was the "debit card economy." He stated that because many in the economy don't want credit cards and others can't get them that there is tremendous opportunity with debit card type products.

Former Chairman of the President's Council of Economic Advisers: U.S. Economy "Close to a Destructive Tipping Point"

By Aaron Task

"America is very close to a destructive tipping point," co-authors Glenn Hubbard and Peter Navarro warn in their new book Seeds of Destruction. "We must change how we conduct our politics and economics...or we will inevitably go the way of all once-great nations and suffer an irreversible decline."

Hubbard, dean of Columbia Business School, joined Dan Gross and I to discuss the "major structural imbalances" facing America, chief among them being the government's profligate spending.

Hubbard, you may recall, was chairman of the President's Council of Economic Advisers during George W. Bush's first term. As you might expect, he is a strong advocate of smaller government and lower taxes. But Hubbard and Navarro, a business professor at UC Irvine, are also harshly critical of Bush's "gross mismanagement" of the fiscal stimulus bequeathed to his administration by President Clinton. Specifically, Hubbard chastises his former boss for the creation of a new unfunded federal mandate, Medicare Part D.

But if Bush was a big spender, President Obama is "taking it to a whole other level," Hubbard says, citing the familiar critiques of ObamaCare and Financial Reform and "excess government spending" in general.

Read the rest here.

Volcker the Gold Watcher

Lew Rockwell emails:

In 1979, Paul Volcker invited all the members of the Senate and House Banking Committees to breakfast, one by one--something one could never imagine the subsequent chairmen doing. In any event, Ron and I had arrived early, and were in the chairman's private dining room, talking to an aide, when the beautifully dressed and extremely impressive Volcker burst into the room, and as he hung up his coat, back to the room, asked in urgent tones, "What's the price of gold? What's the price of gold?" He also smoked his cigar after breakfast, in a freer America.

So interesting that with the firing of Miller and the appointment of Volcker, the banks, Wall Street, and enough of the other parts of the ruling class had decided on deflation. It makes me nostalgic for Rockefeller as versus Soros.

Obama Union Buddy Under Investigation

One of the top visitors to the White House to visit President Obama had been former-SEIU boss Andy Stern. Of late, he has not recorded any visits to the White House.

Now, LaTi reports that he is under investigation:

The FBI and the U.S. Labor Department are investigating prominent labor leader Andy Stern in their probe of corruption at the Service Employees International Union, according to two people who have been interviewed by federal agents.

The two organized labor officials met with federal agents this summer to answer questions about a six-figure book contract that Stern landed in 2006 and his role in approving money to pay the salary of an SEIU leader in California who allegedly performed no work.

Both officials spoke on condition of anonymity because of the sensitive nature of the investigation. The FBI and the Labor Department's office of inspector general declined to comment for the record...

 Stern...abruptly resigned as president of the 2.2-million member SEIU in April...

Stern left his post two years before the end of his term, saying he wanted to focus more on his personal life. He remains a member of President Barack Obama's deficit commission and a highly influential figure in the White House, where he was one of the most frequent visitors last year. He is also a research fellow at Georgetown University and a paid consultant for the SEIU.

What's with the Crash in the Price of Apple Stock?

WSJ tweets:

Apple shares are down about 5% today, but we're at a loss to explain why. Any theories?

Uh, EPJ Daily Alert readers know why. They were told to go short Apple last week. I'll have more details in the next Alert

Maybe it's time for WSJ to subscribe. WSJ, or you, can subscribe by clicking here.

(Subscribe anytime today and you will get today's alert with it's update on Apple)

The Conference Board Consumer Confidence Index® Retreats

The best numbers on the economy are coming out of Consumer Metrics, followed by ECRI. Everything else is a delayed confirmation. Here's the Conference Board:

The Conference Board Consumer Confidence Index®, which had improved in August, retreated in September. The Index now stands at 48.5 (1985=100), down from 53.2 in August. The Present Situation Index decreased to 23.1 from 24.9. The Expectations Index declined to 65.4 from 72.0 last month

Says Lynn Franco, Director of The Conference Board Consumer Research Center: “September’s pull-back in confidence was due to less favorable business and labor market conditions, coupled with a more pessimistic short-term outlook. Overall, consumers’ confidence in the state of the economy remains quite grim. And, with so few expecting conditions to improve in the near term, the pace of economic growth is not likely to pick up in the coming months.”

Bottom line: We are only a month or so away from confirmations that we are in a new recession down leg.

Private Equity Sees Slow Recovery

I'm at the Dow Jones Private Equity Conference in NYC. Some 700 PE players are in attendance.

Dow Jones asked them, "How do you see the economy?"

They were given four choices, here are their responses:

4% We are back in recession

19% Headed back into recession

76% Things are improving but slowly

1% Things are on an upswing

Despite the poll numbers which indicate a slow improvement, the first speakers all indicated they were acting very cautiously about the economy.

Jeffery Aronosn of Centerbridge Partners told the audience that "buying cheap" was the key in the current environment. Kevin Conway of Clayton, Dubilier & Rice said his firm was spending much more time in evaluations looking at the downside.

Former Chinese Central Banker: U.S. Dollar Is One Step Nearer to a Crisis

Former PBOC official Yu Yongding is speaking in Singapore today. He said China is getting nervous about its currency portfolio.

ForexLive reports:

He opined that the greenback is “one step nearer” to a crisis and that a devaluation in the currency may be inevitable.
Joe Weisenthal does point out that he has made other similar warnings over the last roughly 12 months, so there is no immediate alarm because of his comments, but you can be sure he is not the only person surrounding the PBOC that is thinking this way.

Bottom line: Timothy Geithner better start looking for someone else to buy the huge supply of Treasury securities about to be issued. It isn't going to be the Chinese.

Sino-Russian Resource Ties Deepen

Roubini Global Economics reports:

During the late September visit by Russian officials and Russian energy companies to China, the two countries hope to secure a long-delayed natural gas supply contract. Such an agreement has been stalled due to pricing issues, as well as the fact that China would like a dedicated pipeline rather than just part of Gazprom's grid. During the visit, Russian and Chinese officials will also inaugurate a China-Russia pipeline extension, which will deliver some of the 300,000 barrels of oil per day Russia has promised China.

Monday, September 27, 2010

Inflation Adjusted Gold Prices

Adjusted for inflation, the current price of gold ($1,296) is 36.41% below the peak price of more than $2,000 per ounce (2010 dollars) in January of 1980. 


A Roundtable for Geithner on Tuesday

On Tuesday afternoon, Treasury Secretary Geithner will participate in a roundtable discussion on the Administration’s new Global Development Policy at the annual conference of the U.S. Global Leadership Coalition at the Grand Hyatt Washington.

According to the Treasury,Secretary Geithner will discuss "the reorientation of our development policy on economic growth, how the U.S. can use this policy to promote economic growth in the world’s poorest countries and how the new policy advances U.S. economic interests."

 Secretary of State Hillary Rodham Clinton, Secretary of Defense Robert Gates, USAID Administrator Raj Shah and Millennium Challenge Corporation CEO Daniel Yohannes also will participate in the roundtable

An Egomaniac Brit Soros Suck Up Comes to America (With a PR Team)

Prior to last week, I had never heard of Lord George Mark Malloch Brown, despite the fact that he is putting in a major effort to get everyone in the world to know who he is. Then I received an email from Nicole Madison at  his PR firm, Financial Dynamics-Public Relations, which I produce, in part, below:

Good Morning Robert,

I hope you don’t mind the e-mail, but I wanted to find out if you might be free next Tuesday September 28th to sit down with former UN Deputy Secretary General Lord Mark Malloch Brown, who now serves as Chairman, Global Affairs with global business advisory firm FTI Consulting....

If you are free, I’d love to set up even a short introduction next Tuesday in New York, as you will be hearing a lot more from Lord Malloch Brown in the coming months
Along with the UN, Malloch-Brown is member of the UK House of Lords, a former Minister of State in the Foreign and Commonwealth Office of the British and has held senior roles in the World Bank...

Going on strictly this email, I set up a meeting time with Lord Brown, through the offices of his PR firm. Then later last week, I did a little research on  Malloch-Brown and found out he is a George Soros stooge, that he publicly defended the handling of the United Nations Oil-for-Food scam (see Backstabbing for Beginners: My Crash Course in International Diplomacy for details on the Oil for Food horror) and that he has the curious ability to live in apartments where the rent is more than his salary.

At one point he lived, according to the Times Online in London in an:

opulent London grace-and-favour apartment that he occupies with his wife Patricia and their four children in Admiralty House, where John Prescott used to live...The disparity between Malloch-Brown’s salary of £81,504 and the £173,000 subsidised rent paid for Prescott’s comparable flat was reminiscent of a similar arrangement with his friend George Soros, the US billionaire and philanthropist.

As Soros’s tenant in a five-bedroom property, Malloch-Brown was paying a UN subsidised rent of about $120,000 while his take-home pay was $125,000.
And he is an total egomaniac, the Times, again:

Malloch-Brown’s worst enemy is his own big mouth. He lost little time after his appointment[to the UK Cabinet] to brag of his reputation: “From Colin Powell to Condi Rice all the way through to Richard Holbrooke or Madeleine Albright, across that massive swathe of American foreign policy, I would bet you a drink that you would find that I am their favourite multi-nationalist Brit.”
He is also sniffing up George Soros' butt so deep that, well, Brown really is a good name for him. He was part of the Soros Advisory Committee on Bosnia in 1993-94. In May 2007, Soros' Quantum Fund announced his appointment as vice president. Also in May 2007, Malloch-Brown was named vice chairman of Soros Fund Management and the Open Society Institute, two other important Soros organizations.

OMG, I thought to myself as I read the kind of sleazeball pig this guy is.

Clearly, the PR agency he was using had not read EPJ, if I'm lucky and Malloch-Brown gets too busy to check out EPJ, then I will have the opportunity to interview one of the biggest suck ups to ever roam the planet. Why, I might even get the chance to see if he even sucks coffee through a straw.

But alas, the egomaniac must have wandered over to EPJ and realized that EPJ is not exactly the kind of coverage he would necessarily want to be reaching out for here in America, so on Friday last week the next email came from this buffoon's clueless PR firm:

Hi Robert –

I hate to be the bearer of bad news, but we have had some changes in Lord Malloch Brown’s schedule next week while he is in New York, and he unfortunately will not be able to meet on Tuesday as planned at 3:30pm. His schedule is pretty booked with clients, and I’m afraid I’m unable to find a new time that might work.

I do apologize, but it looks like we are going to have to cancel. I will keep you updated if anything else changes in his schedule, and will let you know the next time he is in NY.

Please accept my apologies.

Thanks and have a good weekend.



Nicole Madison
Assistant Vice President

Oh, I responded to Nicole and told her it was an insult for Malloch-Brown to cancel the appointment and argued I could be his first appointment in the morning or his last at night, but Nicole is no longer returning my emails, so I guess that plan is out.

Since that last email, I have learned that Financial Dynamics-Public Relations is actually a subsidiary of FTI Consulting, where Malloch-Brown is LOL, Chairman of Global Affairs.

So I guess alls well that ends well, Nicole and Financial Dynamics have been very successful in getting me to focus on their client/boss, and Malloch-Brown can rest assured that I will be following his career very closely to let as many Americans as possible know what he is up to.

And I want to thank Nicole for letting me know that:

you will be hearing a lot more from Lord Malloch Brown in the coming months.
I am really looking forward to it.

Morgan Stanley Freezes Hiring

The Federal Reserve has obviously stopped shoveling money to the Primary Dealers, through their Treasury trading activities. Otherwise, why would these "genius" traders who rarely had down days, suddenly be facing down days so severe that a hiring freeze is put in?

Update: Charles Gasparino is reporting that if things don't improve in 4Q, there will also be significant cuts in personnel in MS. Also, he's reporting that bonuses at Goldman Sachs will be down by at least 10%.

Oh Yeah!

New York Knicks new rookie center, from Russia, Timofey Mozgov tweets:

I hope rest of NBA is waring jaketz becuz Knicks is bringing cold war this seasin.

Central Bank Gold Sales Down 96%!

Europe’s central banks have all but halted sales of their gold reserves, ending a run of large disposals each year for more than a decade, reports FT.

The central banks of the euro zone plus Sweden and Switzerland are bound by the Central Bank Gold Agreement, which caps their collective sales.

In the CBGA’s year to September, which expired on Sunday, the signatories sold 6.2 tons, down 96 per cent, according to provisional data.

The sales are the lowest since the agreement was signed in 1999 and well below the peak of 497 tons in 2004-05.

European central banks are unlikely to sell much more gold in the new CBGA year, according to a survey by FT and the central banks of Sweden, Slovakia, Ireland and Slovenia said they had no plans to sell, while Switzerland reiterated a previous statement to the same effect.

The President: Job Growth is Accelerating; The Fed: Unemployment is Headed Higher

The Baltimore Sun reports:

President Barack Obama said Monday the United States must accelerate job growth, but he said the country was not experiencing a “jobless recovery” as it pulled out of a recession.

We've seen eight months in a row of private sector job growth. We're actually seeing more job growth so far in this recovery than we did in the last recovery that we had back in 2001,” Obama said during an interview on NBC television.

The problem is we just lost so many jobs because of the crisis that we've got a much bigger hole to fill, and that means we're going to have to accelerate job growth and we've got to do everything we can to focus on that.”
WSJ reports:

The strong likelihood of tepid economic growth through next year suggests unemployment may rise, rather than fall, as many forecasters currently predict.

In a paper published Monday, economists at the Federal Reserve Bank of San Francisco warn business cycle analysis generated within the central bank system is pointing to growth that will be “at or below potential” growth levels.

This modest rate of advancement won’t be enough to generate the needed level of job growth, which suggests “the unemployment rate could rise by as much a 0.5 percentage point during this period,” moving from the current level of 9.6% to 10.1%. The paper’s authors, economists David Lang and Kevin Lansing, observe “such a scenario would take the unemployment rate back to the peak recorded in October 2009.”

FDIC Board Proposes Rules on Temporary Unlimited Deposit Insurance Coverage for Noninterest- Bearing Accounts

This is interesting.

The Federal Deposit Insurance Corporation (FDIC) Board of Directors today approved the issuance of a proposed rule to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act to provide depositors at all FDIC-insured institutions unlimited deposit insurance coverage on noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012.

"In October 2008, the FDIC instituted a program providing unlimited protection for noninterest- bearing transaction accounts at participating banks and found it to be highly successful in providing stability at those institutions during one of the most severe economic downturns in our history," said FDIC Chairman Sheila C. Bair. "The Dodd-Frank provision is different from the FDIC's program but continues the purpose of that program as we emerge from the economic crisis."

Under the proposal, the FDIC will create a new, temporary deposit insurance category for noninterest-bearing transaction accounts. These accounts are primarily checking accounts used by businesses for payrolls, accounts payable and other purposes.

Unlike the FDIC's voluntary Transaction Account Guarantee ("TAG") Program, which will expire at the end of this year, the Dodd-Frank provision will apply at all FDIC-insured institutions and it will cover only traditional checking accounts that do not pay interest. The proposed rule emphasizes that, starting January 1, 2011, low-interest consumer checking accounts and Interest on Lawyer Trust Accounts (IOLTAs) (currently protected under the TAG Program) will no longer be eligible for an unlimited guarantee.
The FDIC will be accepting comments on the proposed rule through October 15, 2010. The shorter than usual comment period is, according to the FDIC, necessary to give insured institutions adequate time to implement the notice and disclosure requirements by December 31, 2010.
That this is expanded just for non-interest rate accounts means that Alan Blinder can continue to do an end-around FDIC regulations and continue to get insure FDIC insurance for the multi-millions of the super rich, while they earn interest.
Bottom line: The only people who will not be insured after this rule is implemented will be those of moderate wealth seeking to earn a little interest on their funds, but who don't know Alan Blinder and thus are exposed to risk of bank failure.

Bank of Israel Raises Rate

The Bank of Israel has  increased its core interest rate 25bps to 2.00%. The increase according to Israel's Central Bank Governor Stanley Fischer is due to rising house price inflation

Heading to the Mall to Pick Up a Gallon of Milk

By Sandra M. Jones

An afternoon at the mall once meant digging through a pile of sweaters at the Gap, trying on shoes at Nordstrom and slurping an Orange Julius at the food court.

Now, at a growing number of malls, shoppers can pick up a pound of sliced turkey and gallon of milk as well.

Food stores from upscale Whole Foods to discounter Aldi are starting to appear at regional shopping malls.

Read the rest here.

Chicago Fed Index Nears Double Dip Recession Signal

The Chicago Federal Reserve's National Activity Index weakened again.

Led by declines in production- and employment-related indicators, the Index decreased to –0.53 in August from –0.11 in July. It was downhill acroos the board. None of the four broad categories of indicators that make up the index made a positive contribution in August.

The index’s three-month moving average, CFNAI-MA3, declined to –0.42 in August from –0.27 in July.

The index is a weighted average of 85 indicators of national economic activity. The indicators are drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

According to the Chicago Fed, when the CFNAI-MA3 value moves below –0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun.

Tepper Comes Out of the Shadows

First we had a CNBC appearance from the former media-shy billionaire hedge fund manager David Tepper. Now he is profiled in New York Magazine.

A guy like Tepper doesn't step out of the shadows without a pretty damn good reason. He may be doing it simply to attract more money to manage. There could be other reasons. But he certainly is a trader to keep an eye on.

BTW: The NYM profile is must reading. I like Tepper's investing style a lot: Identify the macro-trend and find the micro-investment that will benefit from the macro-trend.

Now that he is going high profile, what's he going to do with all those that will start asking him for money?  “I’m gonna have somebody put together a form letter for that,” he says. “It’ll say something like, I’m going to give you a great gift. What I got: Nothing.”

When Fellatio is Close to Zero

Rachida Dati, France's former justice minister, has no concept of the entrepreneur as arbitrageur since she has attacked hedge funds for earning returns of 20% plus.

In actuality there is no pre-determined "rate" for entrepreneurial profit. It is simply the amount earned when prices in two markets are out of whack and entrepreneurs arb the two markets (possibly over time).

She is confusing profit with interest rates. But Dati's confusion didn't stop there. The UK Telegraph has the rest of the story:
Rachida Dati, France's former justice minister, is battling to rebuild her reputation after making an embarrassing sex gaffe in a television interview about the economy.

Miss Dati said she had made the slip, which has since become an internet hit, because she was trying to speak to fast.

"I just spoke too quickly but, well, if that lets everybody have a laugh, then that's fine," she said in a radio interview today...

The original gaffe was made in an interview with Canal Plus as she launched an attack on foreign investment funds.

"When I see some of them looking for returns of 20 or 25 per cent, at a time when fellatio is close to zero, and in particular in a slump, that means we are destroying businesses," she said.

French website posted the clip and said by early evening it had been viewed 120,000 times.

It was then posted on various other video-sharing sites such as YouTube and Daily Motion.

The French for fellatio is "fellation", which shares some syllables with inflation, which in French is the same as in English.

Dati was dropped from the French government last year after her penchant for designer dresses and appearing on the covers of celebrity magazines prompted criticism that a senior minister should not engage in such frivolity.

She is now a member of the European parliament and mayor of Paris's affluent 7th arrondissement.

More Indications Euro Zone Slowdown Ahead

From Roubini Global Economics:
The September flash PMI reading of the eurozone composite index declined significantly to 53.8 from 56.2 in August, led by slower output growth in the manufacturing and services sectors. Meanwhile, public sector net borrowing increased in the UK. In the Czech Republic, Hungary and Poland, central banks look set to keep interest rates unchanged until early 2011, while Poland’s state-owned energy utility has warned it might have to cut the gas supply unless a long-delayed import agreement with Russia is finalized. More here.

Central Bankers Go for the Gold

In recent posts on gold, I have been emphasising the shift in the demand curve as a result of new players entering the gold market. The buyers are major global players and the shift in the demand curve is likely huge. Put another way, this is not your grandfather's goldbug market anymore.

The new players don't buy quantities of gold coins and bury them in the backyard. They buy quantities of bars and store them in well protected vaults. Most forecasts on gold are likely to not be taking the buying from these sources in to account. Thus, the potential gold price climb is likely to be much higher than current forecasts.  Who are these new players? How about central banks.

FT has an important article out about central bank gold buying (I note that among the countries FT is reporting as gold buyers are countries, whose United Nations representatives spoke to me enthusiastically about gold last week.)

FT writes:

Evy Hambro, manager of BlackRock’s Gold & General fund, says the change in central banks’ behaviour is “one major factor supporting” prices. John Levin, head of precious metals sales at HSBC, simply calls the shift a “game changer”. It has propelled gold prices to an all-time high of $1,300 a troy ounce, touched last Friday. Adjusted for inflation, however, the yellow metal is a long way from its 1980 peak of more than $2,300.

The change – which today will be a main topic of discussion at the London Bullion Market Association annual conference in Berlin, the industry’s main gathering – is partly the result of a natural end to European sales after all the years of large disposals. But it also reflects the shifting global power map: as Asian economies’ might grows, their central banks and sovereign wealth funds are stocking up on bullion.

The clearest sign of the new trend is Beijing’s announcement last year that it had almost doubled its gold reserves: with 1,054 tonnes, it has become the world’s fifth-biggest holder of the metal. More recently, India, Saudi Arabia, Russia and the Philippines have announced big additions to their official gold reserves, while others, from Sri Lanka to Bangladesh, have made smaller purchases. Traders and bankers say further countries and their sovereign wealth funds are also quietly buying gold.

GFMS, a consultancy, estimates that central banks as a group will be buyers of gold this year for the first time since 1988... The proportion of bullion as a percentage of official reserves in the Bric countries – Brazil, Russia, India and China – averages just 5 per cent, compared with more than 50 per cent in the US and most European countries. That means developing nations are thought likely to buy gold to diversify the risk in their reserves. Recent buying by India and Russia, which is purchasing its entire domestic mine output, and suspected purchases by China in its domestic market indicate that the theory could be proved right.
Bottom line: You don't get buyers that are bigger than central banks. No one can move a demand curve like central banks can. The long term prospects for gold are very bullish. (However, gold buyers must be cautious of short-term pullbacks and be prepared to hold through such downdrafts.)

Sunday, September 26, 2010

Norway’s Central Bank sues Citigroup

Norway’s central bank has sued Citigroup for alleged misstatements over the company’s financial condition before the financial crisis, which it claims caused heavy losses to the Norwegian sovereign wealth fund.

In a lawsuit filed in New York, Norges Bank alleged that it lost $835m because Citigroup failed to fully reveal the financial risks it was facing – particularly from investments in subprime mortgages, reports FT.

The suit names Vikram Pandit, the group’s current chief executive, and Chuck Prince, his predecessor, among the defendants.

“Due to the defendants’ repeated material untrue statements and non-disclosure of material information to investors, plaintiff purchased Citi securities at inflated prices [between January 2007 and January 2009],” the lawsuit said.

“When the market slowly learned the truth of Citi’s financial condition, Citi came close to insolvency, and plaintiff lost a substantial amount of its investment.”

Citi denied the allegations. “We believe the suit has no merit and will defend ourselves vigorously,” said Danielle Romero-Apsilos, a Citigroup spokeswoman.

This should be quite a show. Norway will claim Citi is run by a bunch of crooks. Citi will claim they were simply clueless.

Geithner's Monday

In the morning, TreasurySecretary Geithner will meet with Korean Minister of Strategy and Finance Yoon Jeung-Hyun at Treasury. This meeting is closed press.

In the afternoon, the Secretary will attend the President’s signing of the Small Business Jobs Act at the White House.

In the evening, Secretary Geithner will host business leaders in the manufacturing industry for a discussion on the state of the economy, employment, industry trends and U.S. competitiveness.

Serious 2: Now CitiGroup

Last Thursday, I reported that the Treasury is cutting back significantly on the number of shares of GM it will sell in its planned offering because demand was weak.

Now comes word that the Treasury is missing targets on its sale of CitiGroup stock. FT reports:
The US government is in danger of missing its deadline of divesting all of its Citigroup shares by the year-end after a fall in stock market trading volumes prompted authorities to slow down sales in July and August...

The government only seeks to sell shares equivalent to a small percentage of the overall trading volume in Citi to avoid depressing the price.

By the end of August, less than half of the government’s 7.7bn shares in Citi had been sold, with the average number of shares sold per day falling sharply, the latest official data show.
FT continues:
The lull could prompt the US Treasury, which has a stake of about 17 per cent in Citi, to consider a share offering instead of selling the stock in small quantities in the market, according to bankers and analysts.
Good luck with that, if the volume isn't there, the price the Treasury will get for its shares through an offerring will likely be a major discount from the current price.

The lack of demand for both these deals is a major sign of how limited demand is for stocks right now and how vulnerable the market is.. Sometime between now and the end of the year, there is likely to be a major break downward in the market

The Father and Son Taxaholics

First they came out in favor of estate taxes, now they are aggressively promoting an income tax for the state of Washington. The Gates father and son act is the most taxaholic duo going.

Kim Murphy at Lati reports:
A TV spot for a proposed new income tax on the state's wealthiest citizens shows Microsoft founder Bill Gates' 84-year-old father, William Gates Sr., plunged by giggling kids into a dunk tank and left to drip in his wet khakis and Oxford shirt.

"Some people say Initiative 1098 is about soaking the rich. But it's really about doing something for the next generation," Gates says. "You see, state cutbacks have put our kids at risk, and we can't just sit here and do nothing about it."...
The fight over what would be Washington's first state income tax since 1933 is shaping up as a battle of the titans: Both the elder Gates, a prominent retired lawyer and philanthropist, and his son, the richest man in America, are backing I-1098. But three of the state's other biggest businessmen — current Microsoft Chief Executive Steve Ballmer, founder Jeff Bezos and John Nordstrom of the Seattle-based retail chain — are throwing big money into the campaign to defeat it.
Expect these characters to be on the frontlines advocating higher federal taxes, once MSM starts to promote the growing deficit crisis, after the mid-term elections.

I'm still not sure what's behind this Gates family madness. Are they just self-hating rich, or are they somehow playing a more complex game?

A Kochoctopus Tentacle Grows in California

Add California's Carly Fiorina to the list of the bought and paid for politicians owned by the Mises-hating billionaire Koch brothers. Fiorina is running as the Republican senatorial candidate in Cali, attempting to gain the seat now held by Democrat Barbara Boxer.

According to Tim Rutten:
After a good deal of back and forth, Fiorina — who also supports offshore oil drilling, another Koch favorite — recently endorsed Proposition 23, just as the Koch brothers' company pumped $1 million into its campaign.
When your choices are down to Boxer and a Koch tool, it may be time to give the state back to Mexico.

ObamaCare in Preview: Los Angeles County Public HealthCare

LaTi reports the ugly details:
Doramay Bailey got the bad news last year. Her annual mammogram at the county's Martin Luther King, Jr. Multi-Service Ambulatory Care Center in Willowbrook revealed a lump in her left breast. She needed a biopsy to determine whether she had cancer.

But when she called to schedule an appointment at Harbor-UCLA Medical Center, the disabled 58-year-old grandmother got more bad news. She was told the soonest she could be seen was February, five months later.

Bailey is one of many women who have encountered increasingly long waits for biopsies at Harbor-UCLA, while those seeking biopsies at other hospitals are treated within weeks, if not sooner..

A Harbor-UCLA doctor, who asked not to be identified for fear of retaliation, said the average wait time for breast biopsies was eight to nine weeks.

Vanessa Wright, 53, of Hawthorne, had a mammogram at MLK on Sept. 16, 2009, that showed a lump in her right breast. She could not get an appointment for a biopsy at Harbor until March 12.

The home health aide and mother of four said she spent the intervening months worrying about whether she had cancer and, if so, who would care for her aging aunt and disabled daughter...

When Bailey finally had a biopsy Feb. 18, the test showed she had stage four cancer. The doctor told her she probably had two to three years to live, she said.

Upset by the delay, Bailey sought treatment at the private City of Hope National Medical Center in Duarte, which is 45 minutes by bus from her South Los Angeles Home. But she said the trip was worth it because she has been treated promptly — she already has received four courses of chemotherapy.

"They just took too long at Harbor to do anything," Bailey said...county officials plan to hire a new contract radiologist at MLK this fall, but have had trouble finding one trained to perform the type of ultrasound-guided breast biopsies done at Harbor-UCLA.
Maybe L.A. County can find a good felon to help with the backlog. LaTi has reported that
...people convicted of such crimes as rape, murder and elder abuse are paid to provide services for some of the most vulnerable Californians in their residences.

Data provided by state officials show that at least 210 workers and applicants with felony convictions flagged by investigators as unsuitable for the In Home Supportive Services program are nonetheless scheduled to resume or begin employment. State and county investigators have not reported many others whose backgrounds include violent crimes because the rules of the program, as interpreted by a judge this year, permit felons to work in the program.

Taleb: Stimulus Program was a Downer

Nassim Nicholas Taleb, who has spotted more than one naked emperor, is not impressed by government attempts "to get the economy going."

In Montreal during a speech that was part of Canada’s Salon Speakers series, he said:
Obama did exactly the opposite of what should have been done. He surrounded himself with people who exacerbated the problem. You have a person who has cancer and instead of removing the cancer, you give him tranquilizers. When you give tranquilizers to a cancer patient, they feel better but the cancer gets debt is higher than it was in 2008 and unemployment is worse.
And then he really poured it on:
Today there is a dependency on people who have never been able to forecast anything.
Taleb, a native of Lebanon, gave his speech in French to an audience of Quebec business people, and also said Canada’s fiscal situation makes the country a safer investment than the U.S.

Top Ten

Below are the Top Ten most viewed EPJ posts for the week ending Saturday September 25, 2010.

#1 The New Soviet Union Is America

#2 The Establishment Is Now Concerned About the Deficit (Or is it a sneak attack?)

#3 NBER: The Recession Is Over

#4 U.S. About To Drop Off The List Of the Top Ten Safest Credit Ratings

#5 Charlie Munger: Bailouts Are Only for Oligarchs

#6 What's the Hot Topic at the United Nations General Assembly? Gold

#7 CFR Economist: Going Back to Gold Is Not Science Fiction Anymore

#8 Alan Greenspan: Hedge Against the Federal Reserve and Buy Gold  (3rd week on list)

#9 The Death Panel Is About to Rule: Death for Geraldine Satossky  (2nd week on list)

#10 Harry Schultz Retires With a Bang: Warns of Hyperinflation; Says World War 3 is Over

Saturday, September 25, 2010

The Fed is So Yesterday

I have had my say on the Kelly Evans' WSJ piece on Austrian economics here and here.

But just came across this interesting tweet from Kelly:

Amid the Jackson Hole confab, Austrian Economics steals the show, #1 most-emailed on

Wall Street 2: Money Never Sleeps (and beyond)

The Oliver Stone directed movie is a decent drama, broadly based on the events surrounding the financial crisis at roughly the time Bear Stearns was sold to JPMorgan Chase at a fire sale price.

Anyone watching the film will get a rough sense for the flavor of Wall Street, but don't expect any in depth explanation of the business cycle or the Federal Reserve manipulation of the money supply that caused the crisis. There is none.

The closest the movie gets to any manipulation is a secondary manipulation, the one that brought down Bear Stearns. There the film does a semi-decent job of showing how dark forces may have forced Bear Stearns into the waiting arms of Jamie Dimon and JPMorgan Chase.

Economist magazine, clueless as ever, identified the film's fictional firm, Churchill Schwartz as:

...the least disguised fictional name ever. Executives at Goldman Sachs are said to be unamused...the script is sprinkled with echoes of Goldman: Churchill Schwartz bets against markets that it makes, including subprime mortgages; its credit-default swaps are bailed out at par; and it has friends at the Treasury.
In fact, Churchill Scwartz appears to be a composite of Goldman Sachs and JPMorgan Chase. Both, of course, deserve the brutal treatment handed down by Stone.

The film is also filled with fun symbolism. Kids blowing bubbles---really huge bubbles, and in the first conference room scene, through the conference window outside you see a clear shot of the building next door, which happens to be the lipstick building, which all New Yorkers know is from where Bernie Madoff ran his Ponzi scheme.

The farthest from reality the movie goes is the suicide of the head of the firm that is supposed to represent Bear Stearns.

It should be noted that during the financial crisis there were no suicides among the top Wall Street operators. Some saw their firms collapse, but they all cashed out with at least many millions, most hundreds of millions.

The movie character that did commit suicide was the thinly disguised head of Bear Stearns, Ace Greenberg. If you would think anybody might want to commit suicide it was Greenberg. He did more to build Bear Stearns into the powerhouse that it was than any other person, and it was in shambles, sold dirt cheap to JPMorgan Chase. Yet, his demeanor at the time Bear Stearns was sold into the waiting arms of JPMorgan Chase was far from despondent.

I was in New York City on the weekend that Bear Stearns was sold at the fire sale price. I also happened to pass by the Bear Stearns building while the negotiations were coming to a close. A CNBC camera crew was outside the building and I stopped to talk to them.

While talking to the crew, Greenberg walked out. What struck me immediately was his demeanor. He didn't appear to be sad, despondent or angry. Angry might have been the most appropriate response, since at that point the shares of Bear Stearns were going to bought by JPMorgan Chase for $2.00 per share (Becasue of shareholder outrage the price was later raised to $10.00 per share--still very cheap). But the $2.00 price was an incredibly low price. Bear Stearns was illiquid not insolvent. If Bear Stearns would have gone into bankruptcy at the time of the $2.00 low ball offer, they most assuredly would have come out of bankruptcy at a multiple of the $2.00 price. It remains a mystery why Bear Stearns' top players agreed to the absurd $2.00 price. But Greenberg left the build appearing to not have a care in the world.

I never wrote about Greenberg's demeanor on that day. I chalked it up to his personality.

Then about a week later, I received an anonymous email. The emailer went through quite a bit to hide his/her identity. An anonymous type web site was used  that sends out anonymous emails, and covers all tracks. The emailer seemed to have inside information about the meetings that went on that weekend. They would explain Greenberg's comfortable demeanor. But I never ran the story then, and will not do so now, because there just isn't enough verifiable facts to the emailers story, though it has the feel of being true.

But the big story, and the great mystery, may be what went on in the Bear Stearns board room that weekend---and that might make for one helluva blockbuster movie.

Show Us the Gold!

Gary North reports that Ron Paul is going to introduce legislation in 2011 that would require an audit of the gold held by the Federal Reserve on behalf of the United States government.

Those not versed in the attitude of the United States government toward gold may shrug and say, "So what? Who cares?"

The answer is that everyone should care. The Federal Reserve and the United States government care. They don't want an audit. This in itself should raise suspicions.

Gold is important because unlike paper money, a government can't print gold at will. It is a safe haven for liquid wealth when a government gets out of control with the printing of its own money. During a hyper-inflation gold is a lubricant that can keep some semblance of exchange going. Governments hate this check on their power. No further proof of this is necessary than the actions of the United States government toward gold.

Executive Order 6102 was signed on April 5, 1933 by Franklin Roosevelt "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates" by U.S. citizens. That is it was made illegal for U.S. citizens to own gold.

Executive Order 6102 also required U.S. citizens to deliver on or before May 1, 1933 all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve, in exchange, per troy ounce, for $20.67 in Federal Reserve paper currency. Under the Trading With the Enemy Act of October 6, 1917, as amended on March 9, 1933, violation of the order was punishable by fine up to $10,000 ($167,700 if adjusted for inflation as of 2010) or up to ten years in prison, or both.

Tell me the government isn't spooked by gold, if they confiscate all the gold held by citizens and make it illegal to own gold. But the government's paranoia about gold didn't stop there.

The Gold Reserve Act of 1934 went further and made gold clauses in contracts unenforceable. The Act, itself, was introduced to correct technical deficiencies in FDR's original Executive Order.

The limitation on gold ownership in the U.S. was not repealed until President Gerald Ford signed a bill legalizing private ownership of gold coins, bars and certificates by an act of Congress, which went into effect December 31, 1974.

However, don't think Ford's repeal of the prohibition on owning gold ended the paranoia about gold at the Federal Reserve.

The Federal Reserve, in the 1970's, had a secret agreement with the German government whereby the German government agreed not to buy gold in the open market, or from other governments, at a price above the then-official U.S. government price of $42.22 per ounce, despite the fact that the open market price for gold was then trading between $160 to $175 per ounce.

This information about the secret agreement with Germany has come to light as a result of a recently declassified Memorandum sent by then-Federal Reserve Chairman Arthur Burns to President Gerald Ford. The document was originally classified as "Strictly Confidential".

I personally verified the authenticity of the document in a conversation with the Gerald R. Ford Library archivist Mark Fischer. Although the document appears to have a declassification date stamped on it of 6-28-05, Fischer tells me that the document was declassified just recently on 9-15-09.

The document is fascinating and shows the Federal Reserve's concern about gold gaining a role in global monetary transactions. The document is here.

Of course, for many, the 1970's are ancient history. Is there any indication that the government still harbors a paranoia surrounding gold? More recently, there have been rumors that the government was "leasing" its gold out, i.e. loaning out the gold. Thus, the Treasury or the Federal reserve can technically say it has not sold its gold, but by leasing it out, the party the gold is leased to can sell it in an attempt to keep the gold price down.

In late 2009, I asked Phillip Swagel, who was Assistant Secretary for Economic Policy under Henry Paulson at the Treasury Department from December 2006 to January 2009, about any gold leases or gold swaps that the Treasury or the Federal Reserve may have conducted. Swagel gave me the impression he did not know what a gold swap or gold lease could be, as though he had never heard the terms before. As far as I am concerned, it is a very big stretch for Swagel to not understand the terms. I chalked it up to more government obfuscation.

This year, the healthcare act, yes the healthcare act, mandates that beginning in 2012 that coin and bullion dealers will be required to report to the Internal Revenue Service all gold and silver coin purchases and sales greater than $600. Sure looks like there is a new eagerness to track gold coin holders.

In this context, it can be understood why the Federal Reserve doesn't want an audit of the gold it holds. The Federal Reserve paranoia about gold is as old as the Fed itself. The paranoia would be even more acute if the quantity held is less than what they say is there , or of a lesser quality. It would be a huge stake driven into the Fed's ongoing anti-gold propaganda and other anti-gold activities. As North writes:

On paper, Congress also has the right to make certain that the gold reserves of the United States government are still available to be used by the United States government, should the United States government ever decide to do something with the gold.

Any attempt by the Federal Reserve to argue that it must not allow the United States Congress to see if there is really any gold in its vaults is going to be a very difficult public relations exercise.

It is one thing for the FED to say that a full audit will interfere with the privacy necessary for the conduct of central bank operations. Some voters might actually believe this. But it is something completely different to say that the Federal Reserve should not be required to prove that it still has possession over the gold that it purchased with the money created by the FED in 1933 and 1934. Its reports have always said that it does. If it doesn't, then there will be a huge scandal. "Who got America's gold?" That would force Congress to conduct a full-scale audit.

The public really does believe that the gold belongs to the government. Legally, the gold does not belong to the government. The Federal Reserve bought it fair and square back in 1933 and 1934 with newly created money. The gold is on the books of the Federal Reserve System. But the public, which is na├»ve, has the illusion that the government did not turn over the gold to the bankers in exchange for bookkeeping entries created out of nothing by the Federal Reserve System. The public thinks that whatever is in the vault at Fort Knox is in the vault of the government entity. Voters do not know that deliverable gold – 99.9% pure – is stored in the vault of a private entity, the Federal Reserve Bank of New York. The gold in Fort Knox is probably coin melt: 90% pure.

So, the Federal Reserve is going to be facing a big problem in 2011. If the Democrats lose control of the House, and Dr. Paul introduces his legislation as announced, the FED will have to invent some kind of believable reason why the United States government does not have the right to find out if the gold that is supposedly owned by the United States government is really in the vaults of the Federal Reserve Bank of New York and the other vault in Fort Knox, Kentucky.

If it were to turn out most of the gold in Fort Knox and New York is not there, the price of gold will rise. The investing public will figure out that the price of gold has been kept low by means of secret government sales of their nations' gold reserves – what Gordon Brown a decade ago did publicly with half of Britain's gold. With a scandal brewing, there will be no more central bank "leasing" of gold. That will dry up the supply.

If it turns out that the gold in Fort Knox is melted coins, and not deliverable gold for international markets, international markets will respond accordingly. Gold will go up.
Got that? The results of an audit might result in the price of gold climbing higher. Sounds like fun. I say, pick up some gold now and get ready to demand, next year, that your congressman vote for an audit of the gold held by the Fed.