Perspectives on the global economic meltdown (Jan 26 2010)

Neshant · Post by **Neshant** » 24 Mar 2010 07:22

The pension problem in the US looks just about ready to blow up.

No way this thing is going another 5 years.

Part I : http://www.youtube.com/watch?v=l-CPBGQmQYo
Part II : http://www.youtube.com/watch?v=FAjdIMersv8
Part III : http://www.youtube.com/watch?v=DjaGixOzy34

Neshant · Post by **Neshant** » 24 Mar 2010 08:26

stocks will rally to end of 2010 and then collapse?

graph of Nikkei overlaid with S&P

Hari Seldon · Post by **Hari Seldon** » 24 Mar 2010 08:33

T N Ninan: The post-Lehman world

Good read. Says few new things but collects the persp together rather well, IMHO.

It has been customary in the year-and-a-half since then to talk of the global financial crisis. In truth, it was no such thing, because the crisis engulfed only a couple of dozen countries around the North Atlantic. Countries elsewhere were affected too, but not in the same way — and the speed with which China and India have regained their footing underlines the point. In comparison, many of the advanced industrial countries look forward to two decades of slow growth at best, and relative stagnation at worst. The “re-balancing” of the world economy has well and truly begun.

The bolded parts are important and should be hammered through whenever occasion arises.

OK, but maybe this is just a temp blip. Maybe the emerged powers will jump right back tomorrow, who knows?

It will take the rich countries all the way to 2030 before they get back to the pre-crisis fiscal situation, according to a paper presented at a seminar last month in Seoul, organised by the International Monetary Fund and the Korean Development Institute.

During this period, pressures to expand government spending will grow, as countries with ageing populations struggle with mounting health care and pension bills. And yet, budgets will have to be squeezed to deliver a surplus, so that the surge in debt-GDP ratios (a result of the stimulus packages of the last 18 months) can be rolled back. That could mean higher taxes, but how do you collect more taxes when the revenue base gets chipped away, as a consequence of the very re-balancing of the global economy?

OK. So the emerged world is in the dumps for a while at least. Doesn't mean the emerging world will do great, does it?

Bear in mind that the Brics scenario spelt out by Goldman Sachs in 2003 has already come to pass; in fact, Goldman has been compelled to repeatedly update its forecasts of the global shift of economic power as India and China have continuously done better than the original Brics report had predicted. This shift in the economic balance has now got accentuated in the post-Lehman world.

Read it all.

Neshant · Post by **Neshant** » 24 Mar 2010 09:06

Pensions For State Workers Will Cost Each Family £47,000

PAYING the pensions of Britain's army of public sector workers will cost the equivalent of £47,000 ($70000) for every family in the country, a report revealed yesterday!

And the figures could turn out to be even worse, as they do not include all state-employed staff, such as local government workers.

The shocking figures reveal the increasing pensions gap between public and private workers.

The majority of private sector workers do not have a pension and are likely to have to work into their 70s or even 80s because they cannot afford to retire.

Despite this, they face the prospect of funding the retirements of those employed by the state.

Dr Ros Altman, a former Treasury advisor, said: "We are heading for social strife when private sector workers rebel against paying other people's pensions.

http://www.express.co.uk/posts/view/164 ... ily-47-000

shyam · Post by **shyam** » 24 Mar 2010 10:09

Is this scamming of the scamsters?

The Biggest Greek CDS Speculator Has Been Uncovered - Culprit Is... Greek State-Controlled Hellenic Post Bank!

Hari Seldon · Post by **Hari Seldon** » 24 Mar 2010 10:30

How better to end this eventful day than with a wonderful TAE tweet roundup?
http://twitter.com/AutomaticEarth

UK: Public sector now 53.4% of economy as record 6.09 million Britons work for the state, http://bit.ly/aiZ5qZ (Was 40% of GDP in 1997)

UK: Cost of pension promises made to public sector workers has soared to nearly £1.2 TN, a shocking report warned y'day.http://bit.ly/bGpzm

UQ is toast. Period. Lies, cheating, subterfuge, subversion, loot, pillage, all 7 sins, every sort of haraami-pana in every book the crown and its redcoats practised. Karma calling, anyone?

Let's not kid ourselves at what we are looking at. 'Dizasta' it is.There's no chance those pension promises made in happier times can be kept. And those pensioners will be staring at rank poverty in their late yrs - late 70s and 80s. Welfare budgets will be under strain and will get cut, period. A rise of like 200 basis points in interest rates will be felt violently on the poorer districts of main street first and spread towards the former middle class. Time to raise questions like why for is UQ wasting 70 bn pounds on renewing its N-weapons program? Etc.

OK, its not like it'll happen tomorrow. The sordid saga will stretch over months and yrs now. And it won't be pretty. SDREs in UQ would do well to buy an insurance policy - a return to living, working, saving and investing in Des. Perhaps. In any case, its a hedge that one should consider regardless.

Meanwhile, across the pond, things continue to remain gloomy.

Gallup: Underemployment measure hit 20.0% on Mar 15 -- up from 19.7% 2 weeks earlier and 19.5% at the start of the year.http://bit.ly/aBWTYO

Deficits at the state level now total around $290-billion, http://bit.ly/aGVMwc (US states are going to topple over like dominoes)

JobLESS RecoveryLESS watch: 14800 teachers face loss of jobs in NY once budget cuts occur, http://bit.ly/d6sp1q

HMOs may hike premiums steeply, slash jobs under reform, http://bit.ly/ckh0bH ("California will be begging for only 39% rate increases."??)

I wish umrika well. But I just don't see a return to good times anytime soon. I applaud the passage of the health bill. Time to redirect spending to taking care of the weaker secgtions of society rather than waste it on arming the TSPA. In case you're wondering where's the connection, don't overthink it. Such arguments will soon need to be made continually till they become linked only.

TAE 3/22: On marginal productivity of debt, at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!!

TAE 3/22: Average healthcare costs for U.S. employers rose by 7.3 percent in 2009, on top of a 6.1% rise in 2008.

TAE 3/22: America will use about 7% of taxes for debt payments in 2010 and almost 11% in 2013. Only the UK is worse!

TAE 3/22: Last year’s $2.1 Tn in borrowing by the govt. exceeded the $1.08 Tn issued by investment-grade companies, the biggest gap ever!!

TAE is a good tweet to follow. Even if you're not a doomer. Or just a boomer. Provides an alternative persp that's all too missing from mainstream discourse. Let us hope TAE will get it wrong, but I wouldn't count on it.

shyam · Post by **shyam** » 24 Mar 2010 12:07

Don't remember if this was posted here before:

Bernanke wants to take banking to making money from thin air or unlimited money supply market.

Now Bernanke Wants To Eliminate Reserve Requirements Completely

Max Keiser has an interesting take on this, which goes somewhat like this. "Fractional reserve banking requires banks to keep $1 for every $9 they lent. Now people are no longer asking about $9, but are asking about $1 that public deposited which is still supposed to be there. Because of the asset collapse even that $1 may not there and Bernanke is helping banks to escape that questioning."

Suraj · Post by **Suraj** » 24 Mar 2010 12:37

After Bill Gross' 'Ring of Fire' statement a couple of months ago, another nudge from PIMCO, the mutual fund firm whose roster includes the PIMCO Total Return Fund, the biggest mutual fund in the world:
Pimco Bets on Asia as U.S., Europe Risk Policy Error

Investors should buy Asia-Pacific bonds rather than European and U.S. debt on the region’s faster economic growth and lower risk of policy changes that would damp the recovery, according to Pacific Investment Management Co.

“Politics are going to play a very important role in how an investor looks at asset classes over at least the next 12 months,” Brian Baker, Pimco Asia Ltd.’s chief executive officer, said in an interview in Hong Kong. “As policy makers withdraw from their fiscal stimulus, and as regulations are put in place in the financial system in the developed world, we run the risk of a policy mistake” that may weigh on markets, he said.

Withdrawing measures designed to stimulate the economy or raising interest rates too quickly, burdensome regulation and protectionism all threaten to choke off growth in developed markets, Baker said. The economic recovery in Asia, on the other hand, will be “sustainable” and investors should seek to benefit from the development of the region’s financial markets, he said yesterday.

Hari Seldon · Post by **Hari Seldon** » 24 Mar 2010 13:36

^^ There's good, no very good reason to short bets of policy stability in eurostan.

Smt Yves smith finds Sri AEP 'fittingly' apocalyptic today in this bold piece her:
The Beginning of the End of the Eurozone As We Know It?
Funny how that works.

Anyway, here is Sri AEP's magnificent verbosity (verbociti?) for your perusal:
link

The failure of EU leaders to cobble together a plausible bail-out – if that is what occurs at this week’s Brussels summit – is a ‘game-changer’ in market parlance…

There will be no inevitable move to fiscal federalism; no EU treasury or economic government; no debt union. It is Stalingrad for the federalist camp and the institutions of the permanent EU government.

I remember hearing Joschka Fischer, then German Vice-Chancellor, telling Euro-MPs a decade ago that EMU was “a quantum leap … creating an inexorable federal logic”. … Yet the moment of truth has come. There is no quantum leap. We have a Merkel pirouette…

EU leaders may yet rustle up a rescue package that keeps the IMF at bay, but alliances are shifting fast…

Besides, too much has been said over the last week that cannot be unsaid. Mrs Merkel’s speech to the Bundestag was epochal, a defiant warning that henceforth Germany would pursue the German national interest in EU affairs…

Days later, Thilo Sarrazin from the Bundesbank blurted out that if Greece cannot pay its bills “it should do what every debtor has to do and file for insolvency. This would be a suitably frightening example for every other potentially unsound state,” he said, pointedly excluding France from the list of sound countries.

Dr Sarrazin should be locked up in a Frankfurt Sanatorium. It was such flippancy that led to the Lehman disaster, requiring state rescues of half the world’s financial system. A Greek default would alone be twice the size of the combined defaults by Argentina and Russia. Contagion across Club Med would instantly set off a second banking crisis..

Core inflation in Euroland was 0.9pc in February, the lowest since the data series began. It is certain to fall further as the doubling of oil prices fades from the base effect. M3 money has been contracting for a year. Business credit is shrinking at a 2.7pc rate.

So, it is not enough for the EU to impose a fiscal squeeze of 10pc of GDP on Greece, 8pc on Spain, and 6pc on Portugal, and 5pc on France over three years, we need a dose of 1930s monetary policy as well to make sure life is Hell for everybody…

The deeper truth that few care to face is that under the current EMU structure Berlin will have to do for Greece and Club Med what it has done for East Germany, pay vast subsidies for decades. Events of the last week have made it clear that no such money will ever be forthcoming.

Let me be clear. I do not blame Greece, Ireland, Italy, or Spain for what has happened… Nor do I blame Germany…

I blame the EU elites that charged ahead with this project for the wrong reasons – some cynically, mostly out of Hegelian absolutism – ignoring the economic anthropology of Europe and the rules of basic common sense.
They must answer for a depression.

Read it all and wonder. All ijj well, of course. Odds are nothing need change in our daily lives. Only extensions and pretensions of some of these sanctimonious oiro-states will be shredded faster than Enron paper. And that can't be a bad thing, can it?

Singha · Post by **Singha** » 24 Mar 2010 18:20

here is pimco newsletter on the ring of fire. india appears well poised.

http://www.pimco.com/LeftNav/Featured+M ... f+Fire.htm

paramu · Post by **paramu** » 25 Mar 2010 00:10

Eh?
Bank of America Says Its Lehman-Style Bogus Balance Sheet Manipulation Is A-Okay

SwamyG · Post by **SwamyG** » 25 Mar 2010 00:29

Interesting impact on Unkil's culture because of the state of economy.
1. Birds are flying out of the nest little late, this impacts the formation of "empty-nests". In planspeak, the trend of youth staying with parents longer is growing. Some are returning after their college. The new Healthcare Bill further brings the families closer - adults till the year of 26 years are going to be covered under their parent's health insurance.
2. Another trend that is increaseing, is the one where individuals resign to the fact that they are not going to retire comfortably. No more lying on the beach. People are expecting to work past 65yrs.
3. A 3rd trend is older parents moving in with kids in their old age.

Similar to the societies that were shaped during/after depression and WWII; the 21st century society in Unkilland is being transformed. The personal savings rate to the disposable personal income is improving. The below graph is from Wolfram|Alpha. The society that was shaped in the 70s and 80s were based on less savings; if the economic turmoil continues, then the future society in Unkilland is going to be one shaped with more savings and resulting social trends.

putnanja · Post by **putnanja** » 25 Mar 2010 02:35

US may label China a currency manipulator

The US Treasury Department is likely to label China as a currency manipulator in a report due in mid-April, but the move would be "more symbolic than substantive", former US trade representative Susan Schwab said.

"There is a high possibility definitely (that China will be labelled as a manipulator), but it is very important to remember that the decision is largely symbolic and does not force any action, other than consultations," a media report quoted Schwab as saying on Wednesday.
...
...
"There is a little room and time to convince the US that China is not a currency manipulator," said Huo Jianguo, dean of the Trade Research Institute, affiliated to the commerce ministry, adding "Obama would probably give the nod to the move if only to win over voters."
...
...

SwamyG · Post by **SwamyG** » 25 Mar 2010 06:29

Jim Jubak shifts through the Financial Industry's carcass.

All we need are Will Smith and some zombies.

Tattered "for rent" signs hang in the windows of the building that once housed Bear Stearns. All that's left of Lehman Brothers is a digital crawl that endlessly cycles news. American International Group (AIG, news, msgs)keeps itself alive by selling body parts. HSBC (HBC, news, msgs) has retreated to its ancestral island fortress, far away from the fields where it went down in defeat before the pitiless hordes of the mortgage-backed securities market. The ghosts of Wachovia and Washington Mutual flit through quarterly financial statements. Citigroup's (C, news, msgs) Citibank branches offer promises to cynical customers.

Everywhere you look, you can see the ruins of the old financial order.

Tidbits:
1. AIG's lost Alico and AIA to Metlife and Prudential Plc.
2. The biggest initial public offerings in 2009 were Chinese and Brazilian and were done in the Chinese and Brazilian financial markets.
3. The developed world's share of global capital is falling. In 2004, U.S. capital markets accounted for 53% of all the shares of stock in the world that were free to trade. By 2007 the U.S. share was down to 44%.

SwamyG · Post by **SwamyG** » 25 Mar 2010 06:42

Jim Jubak sum's up the problems plaguing Unkil. Clicky

Huge government debt, highly leveraged consumers, underinvestment in infrastructure, a lagging education system, rising interest rates, a small and, in industries such as autos, uncompetitive manufacturing sector, out-of-control health care costs . . . do I need to go on?

He suggests..

I can think of a dozen reasons why, in the long term, U.S. stocks will do worse than stocks in China, Brazil, India and Canada -- and maybe even in Norway, South Africa, Germany and Turkey.

But he predicts the good old Unkil to be stable market for another 3-6 months. {Note to self: cash out man}

Hey, I still think there's plenty of bad news coming our way in the fourth quarter of 2010 or early in 2011, but in the short run, the U.S. stock market looks, comparatively, like the best bet in the world for equities. I'm not saying the U.S. market and economy are perfect or wonderful -- just that for this period they look better than the other guys'.

To my mind, if Brazil and China have smoking hot economies; and sooner or later they are going to get tired. Then won't it be ripe condition for Unkil, who has been sulking around the corner, to sprint and take the lead?

Hari Seldon · Post by **Hari Seldon** » 25 Mar 2010 07:21

SwamyG wrote:Similar to the societies that were shaped during/after depression and WWII; the 21st century society in Unkilland is being transformed. The personal savings rate to the disposable personal income is improving. The below graph is from Wolfram|Alpha. The society that was shaped in the 70s and 80s were based on less savings; if the economic turmoil continues, then the future society in Unkilland is going to be one shaped with more savings and resulting social trends.

What has certainly changed since the last great depression is that social and family structure. Its one thing to say parents are moving in with their kids but when the average divorce rate is high, which parent-spouse-kid combination to choose to move in with could be problematic to decide.

Its re-balancing only. After the excesses of dissavings and dissolution, let the era of savings, caution, personal responsibility and united family structure return. Peace!

Neshant · Post by **Neshant** » 25 Mar 2010 10:28

just 15%?

considering how stocks have just run up inspite of a load of job losses, i'd be surprised if the stock market has not been rigged by the government.

TCW's Sri-Kumar Says U.S. Stocks May Fall 15 Percent

http://www.bloomberg.com/avp/avp.htm?N= ... ibFnZg.asf

Singha · Post by **Singha** » 25 Mar 2010 10:40

in poorer countries of europe I think its still socially common and acceptable to support aged parents or parents to support kids who cannot live on their own. if we do not look
after each other, who will - the state or bank cannot be a father or mother.

in s.america/africa/asia it is still accepted without comment.

the world is settling back into a older and more stable mode where clan loyalties, family
ties, guangxi or whatever count and the rampant individualism and irresponsibility bankrolled by "productivity gains", easy credit and govt socialist payments of western EU/aus/n.america stand discredited as a deviance from the median/mode.

Hari Seldon · Post by **Hari Seldon** » 25 Mar 2010 14:19

Explain why you sold Britain's gold, Gordon Brown told

Gordon Brown has been ordered to release information before the general election about his controversial decision to sell Britain's gold reserves.

The decision to sell the gold – taken by Mr Brown when he was Chancellor – is regarded as one of the Treasury's worst financial mistakes and has cost taxpayers almost £7 billion.

Mr Brown and the Treasury have repeatedly refused to disclose information about the gold sale amid allegations that warnings were ignored.

Following a series of freedom of information requests from The Daily Telegraph over the past four years, the Information Commissioner has ordered the Treasury to release some details. The Treasury must publish the information demanded within 35 calendar days – by the end of April.

The sale is expected to be become a major election issue, casting light on Mr Brown's decisions while at the Treasury.

Fun read.

SwamyG · Post by **SwamyG** » 25 Mar 2010 14:53

^^^
How would Brown known the prices will quadruple? How would he have known the economic mess the World will land after 2002 and cause gold price to shoot up? I am not discounting that the daal could be kaala, but like the paper says this seems to be just a opportunistic election posturing.

Hari Seldon · Post by **Hari Seldon** » 25 Mar 2010 15:24

SwamyG wrote:^^^
How would Brown known the prices will quHow would he have known the economic mess the World will land after 2002 and cause gold price to shoot up? I am not discounting that the daal could be kaala, but like the paper says this seems to be just a opportunistic election posturing.

To quote Jesse:

The sticky issue is not so much the actual sale itself, but the method under which the sale was taken and who benefited.
...
There is also a credible speculation that the sale was designed to benefit a few of the London based bullion banks which were heavily short the precious metals, and were looking for a push down in price and a boost in supply to cover their positions and avoid a default. The unlikely names mentioned were AIG, which was trading heavily in precious metals, and the House of Rothschild. The terms of the bailout was that once their positions were covered, they were to leave the LBMA, the largest physical bullion market in the world.

I know, I know...moi too rolled eyes only when I heard the name Rothschild. CT visions flooded in. Still, read all about it on Jesse's site.

SwamyG · Post by **SwamyG** » 25 Mar 2010 18:19

^^^^
These days CTs are as good as gold

So NY Fed is involved, eh?

Meanwhile, Portugal is taking a hit for good of .............. {fill in the blanks with your famous CT}. One Anal-yeast says UK is next. The more I think about all this, it looks Unkil might be sitting better than these countries. For some reason, I am keen to see the 2010 Census numbers. I am interested in the Hispanic population to the Total population ratio.

Hari Seldon · Post by **Hari Seldon** » 25 Mar 2010 19:41

Spengler speak on the fin crisis

Excellent read, IMHO. Crisp, clear, simple and insightful. Ensoi.

Shankas · Post by **Shankas** » 25 Mar 2010 21:55

UK and Cayman (UK Territory) combined have purchased over $100B of the US Securities. Where are they getting the funds? Is there a quid pro quo between US and UK?

Is there a way to find out if US is buying UK securities (through proxies) to keep the game going?

Neshant · Post by **Neshant** » 25 Mar 2010 22:04

My guess is US is buying UK paper and vice-versa to make it appear that each other's debt issuances are in demand.

Suraj · Post by **Suraj** » 25 Mar 2010 22:22

Here's the current US monthly T-bill purchasing data:
Major Foreign Holders of US Treasury Securities

Bheem · Post by **Bheem** » 25 Mar 2010 22:27

I dont forsee collapse of stock market, i think western markets will just inflate & stagnate for next 10 years

Hari Seldon · Post by **Hari Seldon** » 26 Mar 2010 05:45

x-post

Research shows a third of Londoners are jobless

Almost a third of the working age population in London are jobless, costing billions of pounds a year, research showed today. Worklessness in the capital costs more than £5 billion a year, including welfare benefit and employment programmes, a study by London Councils found. The group, which represents 33 councils in the capital, said national employment programmes are "under-performing" in London, adding that boroughs are better placed to deliver job-related services.
Here's an idea - the jobless could be gainfully employed as security detail for the ever burgeoning numbers of criminals, mafiosos and insurgent leaders wanted the emerging world, sheltering openly in Londonistan. Why not, eh?

Another equally smooth idea - trade these turds with emerging world gubmints for gilt purchases. Surely, a few dollahs can be spared for our law to get its hands on the despicables? BTW, this is a classic case of creating a pressure point out of thin air and then using it in trade.

Either way, ordinary britons have my earnest sympathies only. And regardless of who wins the next polls in May, they will need more such sympathy from all over the globe in the days to come.

Hari Seldon · Post by **Hari Seldon** » 26 Mar 2010 05:57

omg, this is a bombshell but not one this dhaga hasn't covered already. Still, bears a re-look.

Public Pension Deficits Are Worse Than You Think (WSJ)

Pension plans for state government employees today report they are underfunded by $450 billion, according to a recent report from the Pew Charitable Trusts. But this vastly underestimates the true shortfall, because public pension accounting wrongly assumes that plans can earn high investment returns without risk. My research indicates that overall underfunding tops $3 trillion.

The problem is fundamental: According to accounting rules adopted by the states, a public sector pension plan may call itself "fully funded" even if there is a better-than-even chance it will be unable to meet its obligations. When that happens, the taxpayer is on the hook. Yet public pension plans ignore market risk even as they shift into risky foreign investments, hedge funds and private equity.

In case you're wondering how the definitions for well-funded etc work, read on...

A simple example illustrates the flaw. Imagine that you borrowed $100, which you absolutely, positively must repay in 20 years. How much money would you need today to consider that debt "fully funded?" Here are two correct answers, followed by an incorrect one. All three rely on "discounting," a method of calculating the sum of money needed today to fund a given liability in the future.
First, discount $100 at the 4.5% yield on safe, 20-year Treasury notes. This produces a present value of $41.46, which you invest in Treasury securities. Barring federal government bankruptcy, you can repay your debt with certainty.

Second, discount $100 at the expected return on stocks—say 8%. This produces a present value of $21.45, which you invest in equities. Next, purchase a "put option" giving you the right to sell your portfolio 20 years hence for no less than $100. This option would cost $20.08, for a total cost today of $41.53. Barring the collapse of the options exchange, you also can be certain of repaying your debt.

But here is a third answer: discount $100 at an 8% interest rate. Invest $21.45 in stocks. Declare yourself "fully funded." This doesn't work because there's a very good chance your risky assets won't appreciate in value enough to cover the debt. Yet this is how public sector pension accounting operates.

wow. the more i learn about accounting tricks emanating like the radiant morning sun, the more wonderstruck i am. No wonder accounting was among the most boring of yumbeeyay subjects, since it had the most exciting of implications. Much like bank offices look like staid businesses but the business in truth has been as nerve-racking as bungee-jumping operations only (for investors and depositors mostly, the mgmt took its bonuses and left only).

There's also an interesting profile of the hugely insightful and entertaining Hugh Hendry.

Ensoi.

Neshant · Post by **Neshant** » 26 Mar 2010 07:40

A large number of Americans have saved nothing for retirement. They are all depending on Social Security (i.e. someone else) to pay for their retirement for decades on end. Combined with public sector unions milking the govt's coffers, govt running up bigger and bigger deficits and goldman sachs types gaming the system, the cow is running dry.

Any non-govt worker in America who's is a producer, who has worked hard, been frugal, saved their fiat, not taken vacations and lived within their means is in grave danger of being cheated out of the fruits of his labor.

Listen to the mp3 :

The 2010 survey on retirement confidence from the Employee Benefit Research Institute indicates many working Americans have less than $1,000 set aside for retirement. And fewer than half of workers have tried to calculate how much they'll need to retire comfortably.

http://public.npr.org/anon.npr-mp3/npr/ ... 3.mp3?dl=1

Neshant · Post by **Neshant** » 26 Mar 2010 09:59

There is a economic cold war between Japan and US. Japan products are not really welcome inside US as freely as before

Anything to do with Japan's reluctance to continue buying US bonds or worse yet dumping bonds?

I recall the (quickly buried) story of 2 Japanese guys found with 135 billion dollar worth of US govt bonds in Italy trying to cross into Switzerland. Supposedly they were on a mission to quietly dump the bonds on the market 'pearl harbour' style on behalf of the Japanese govt and much to the annoyance of the US.

Something is up. US is firing a warning shot over their head. The message is, keep buying the sh&t or else...

Hari Seldon · Post by **Hari Seldon** » 26 Mar 2010 17:27

Must be hard to come up with news that shakes or shocks thread regulars anymore, must admit. Put this one too in another ho-hum category then.

JP Morgan, Lehman, UBS Alleged as Conspring to Cheat Municipalities on Investments

JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and UBS AG were among more than a dozen Wall Street firms involved in a conspiracy to pay below-market interest rates to U.S. state and local governments on investment…

A government list of previously unidentified “co- conspirators” contains more than two dozen bankers at firms also including Bank of America Corp., Bear Stearns Cos., Societe Generale, two of General Electric Co.’s financial businesses and Salomon Smith Barney, the former unit of Citigroup Inc., according to documents filed in U.S. District Court in Manhattan on March 24. The papers were filed by attorneys for a former employee of CDR Financial Products Inc., an advisory firm indicted in October. The attorneys, as part of their legal filing, identified the roster as being provided by the government. The document is labeled “list of co-conspirators.”

None of the firms or individuals named on the list has been charged with wrongdoing. The court records mark the first time these companies have been identified as co-conspirators. They provide the broadest look yet at alleged collusion in the $2.8 trillion municipal securities market that the government says delivered profits to Wall Street at taxpayers’ expense.

Yves says it straight here:

Now it is getting closer to being official. This Bloomberg story reports that not only do Wall Street firms screw their clients (hardly a novel revelation these days) but a large group of firms allegedly conspired to price-fix on guarantee investment contracts, a product used by government issuers to park cash raised via bond issues before they deploy it.

Neshant · Post by **Neshant** » 27 Mar 2010 07:12

Richard Duncan author of The Dollar Crisis (written in 2004)

http://www.youtube.com/watch?v=TcAK4zXUzCc&NR=1

he says its better to run larger budget deficits than to cut it and have mass unemployment.

says UK economy is too dependant on banking & finance as an industry and its economy is deindustralized. when the derivative ponzi scheme blows up, it will take the UK down with it.

Neshant · Post by **Neshant** » 27 Mar 2010 09:05

Check it out.

1) Whistle blower gives the CFTC (government regulator that's supposed to prevent any rigging of the commodities market) advanced notice of an upcoming price rigging event in the silver market by JPMorgan. He tells them exactly when a price dump in the silver & gold market is about to take place 2 days before it happens.

2) Right on schedule, that price dump takes place by JPMorgan and JPMorgan covers its shorts. The whistle blowing trader even admits he made a profit off the rigging of the market that he predicted! He even emails the CFTC to get their response (not forthcoming) while the dumping is taking place !!

3) The CFTC meanwhile just sits by doing nothing while the crime occurs.

Anyone else doing such a thing would be arrested for manipulation but not in this case.

I do think US/Federal Reserve is actively surpressing the price of gold to hide ongoing efforts to inflate away its debt. It authorizes JPMorgan, Goldman sachs and other croney banks to rig the market and profit from it at honest investor's expense. The justification might be to maintain the pre-eminance of the dollar over gold. The CFTC meanwhile is one of those fake instutions claiming to be a government watchdog but is really just complicit in the crime.

India risked the ire of the US by buying up the IMF's 200 tons of gold. That 400 tons was supposed to sit there to make speculators weary of investing in the gold market as a huge supply overhang.

http://www.zerohedge.com/article/whistl ... ion-scheme

Hari Seldon · Post by **Hari Seldon** » 27 Mar 2010 21:30

A self styled 'mad hedge fund trader' writes:

I am constantly asked where to find safe places to park cash by investors understandably unhappy with the risk/reward currently offered by the markets. Any reach for yield now carries substantial principal risk, the kind we saw, oh say, in the summer of 2007.

I have had great luck steering people into the Invesco PowerShares Emerging Market Sovereign Debt ETF (PCY) for the last nine months, which is invested primarily in the debt of Asian and Latin American government entities, and sports a generous 6.44% yield. This beats the daylights out of the one basis point you currently earn for cash, the 3.76% yield on 10 year Treasuries, and still exceeds the 4.70% yield on the iShares Investment Grade Bond ETN (LQD), which buys predominantly single “BBB”, or better, US corporates.

IOW, risks are rewards are likely mismatched. No? Higher returns from the former turd world jabki risks (in terms of debt overhang leading to unsustainable debt service burdens leading to popular unrest leading to default) is also low?

But we also know that like water, investment eventually finds its own level on the risk-return arena.

T

he big difference here is that PCY has a much rosier future of credit upgrades to look forward to than other alternatives. It turns out that many emerging markets have little or no debt, because until recently, investors thought their credit quality was too poor. No doubt a history of defaults in the region going back to 1820 is in the backs of their minds.

The law of unintended consequences or what? Recall also that asian nations that suffered ruthless imf excesses in the late 90s contagion then doubled up on currency pegs, forex reserve amassing etc that led directly to the 'great savings surplus' that greenspam and bernake cribbed about so much?

You would think that a sovereign debt fund would be the last place to safely park your money in the middle of a debt crisis, but you’d be wrong.
...
In fact, the crisis has accelerated the differentiation of credit qualities, separating the wheat from the chaff, and sending bonds issues by financially responsible countries to decent premiums, while punishing the bad boys with huge discounts.
....
With US government bond issuance going through the roof, the shoe is now on the other foot.

Hey global Capital, come home to your ancestral home - Asia!

Read it all. Ensoi.

Hari Seldon · Post by **Hari Seldon** » 27 Mar 2010 21:43

We all know the vitriol directed (justifiably?) at the hedge fund vultures, speculators and so on by oirostan. Well, turns out the little mentioned pvt equity play is thick in the center of predatory action that by all accounts is malicious and fraudulent. Check this out from the Columbia Journalism review:

This from The Wall Street Journal’s Heard on the Street is the stat of the day (okay, it ran yesterday):

Nearly half the 163 U.S. nonfinancial companies that defaulted last year were backed by private equity.

Now I don’t have a number for how many U.S. nonfinancial companies overall are backed by private equity, but you can bet it’s nowhere near half. This disproportionate failure isn’t because private-equity companies are really bad at picking investments. It’s because they levered up their acquisitions with cheap debt to goose their returns, and now these companies, who employ (or employed) lots of people, can’t meet their debt service, much less invest in the business. That’s helping choke the economy.

This raises a critical point about private equity: Why isn’t that industry being included in financial reform? What about Blackstone?
If these firms destroy or hobble companies by loading them up with debt, sometimes to pay themselves massive dividends that recover all their equity with no earnings, where’s the legislative scrutiny?

How many jobs have been lost because of the excess debt loaded onto otherwise healthy companies? It can’t be insignificant.

Re the bolded parts, pattern established of clear, malicious fraudulent intent and implementation.

Neshant · Post by **Neshant** » 27 Mar 2010 22:33

The law of unintended consequences or what? Recall also that asian nations that suffered ruthless imf excesses in the late 90s contagion then doubled up on currency pegs, forex reserve amassing etc that led directly to the 'great savings surplus' that greenspam and bernake cribbed about so much?

I believe the reason for the currency speculation attack on Asian nations by western countries back in the 90s was to force these Asian nations to accumulate/save foreign currency (US dollars). That way the US could continue to spend into deficit & inflate while Asia would be forced to finance US consumption.

India avoided being entrapped by that by having strong control over its currency causing western speculators to be wary of messing around. Secondly India did not get into the paper collecting game where foreign exchange was just accumulated to excess. Instead India was spending it on its own development and only keeping modest reserves. US even tried to 'educate' India on the need to accumulate more dollars like China but that foretunately went nowhere.

Hari Seldon · Post by **Hari Seldon** » 28 Mar 2010 12:07

^^^ Fact remains that Desh did rapidly ramp-up forex reserves in the past decade. Understandable reaction after having to pawn our gold to UQ banks circa 1991 thx to a forex crisis. I remember the elation I felt when we crossed the $100 bin fig but barely noticed when we zoomed past the $200bn one, so rapid and steady and for-granted was the rise.

Denninger on a roll here. Makes some good points. More and more, mango public in the khanate is getting aware of the idea that the US Treasury has a constitutionally ordained power to directly issue currency rather than have to intermediate via the Fed and create debt rather than money. Tricky thing I know, visions of Weimar and Zimbabwe beckon when one thinks in terms of printing away to glory but the argument below merits a read through anyhow.

On Deficits And Debt-Financed Government

Neshant · Post by **Neshant** » 28 Mar 2010 12:53

^^
Its a damn shame that India needs to accumulate paper printed up by a foreign govt that can be turned into toilet paper via inflation/default overnight at their choosing.

If I were GOI, i'd spend a good 7 to 10 billion every year accumulating physical gold on the quiet like China. I'd also ban so called 'paper' ETF gold from the market unless the gold itself was stored in vaults in India and not some scamming place like London or Switzerland where the vaults would surely be empty.

China has developed its mining industry and is now the LARGEST producer of gold in the world. Its government (quietly) consumes its entire domestic production. They can increase their gold reserves without buying on the open market and causing a major drop in value of their dollar t-bills - something they are eager to prevent while they build their domestic market with dollars earned from exports.

India's development of gold mines has been practically ZERO. The only major mines still in operation were founded by the British. Its very sad that hardly any new discoveries have been made since then. I suspect its more due to the lazyness/ineptitude of the govt mining department and red tape at preventing exploration than anything else. The country ends up paying for this big time.

shyam · Post by **shyam** » 28 Mar 2010 13:04

Neshant wrote:China has developed its mining industry and is now the LARGEST producer of gold in the world. Its government (quietly) consumes its entire domestic production.

This begs a serious question. Does China really produce as much as gold as they claim to? Is there any way to verify this? Or is this another Shanghai Statistics used to fool the world to believe that Yuan is worth something?