http://www.bullionvault.com/</h1> <article> <h1>Top Social Media Websites Caught Censoring Controversial Content</h1> <p>George Washington — Thu, 23 Feb 2012 07:07:27 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/0M1ObVb7a_MWgJjFbXWiqF9xgyM/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/0M1ObVb7a_MWgJjFbXWiqF9xgyM/1/da"></img></a></p><p>Facebook <a href="http://www.rawstory.com/rs/2012/02/22/low-wage-facebook-contractor-leaks-secret-censorship-list/" target="_blank" title="pays low-wage foreign workers to delete certain content based upon a censorship list">pays low-wage foreign workers to delete certain content based upon a censorship list</a>. For example, Facebook deletes accounts created by Palestinian resistance groups.</p> <p>Digg was caught censoring stories which were controversial or too critical of the government. See <a href="http://www.wired.com/techbiz/people/news/2007/03/72835" target="_blank" title="this">this</a> and <a href="http://web.archive.org/web/20070311084954/http://www.informationliberation.com/?id=20587" target="_blank" title="this">this</a>.</p> <p>Now, even social media site Reddit – which helped launch the anti-Sopa Internet blackout and publicize GoDaddy’s slimy Sopa support – is doing the same thing.</p> <p>As just one example, posts from this website are being censored by Reddit. Specifically, a friend of this site who has submitted stories to Reddit has received the following messages of rejection from a Reddit moderator named davidreiss666:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span>from <strong><a data-mce-="" href="http://www.reddit.com/user/davidreiss666" target="_blank">davidreiss666</a> via /r/worldnews/</strong></span></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>WashingtonBlog is not something we consider a good source for r/Worldnews.</p> </blockquote> </blockquote> <p> </p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>from <strong><a data-mce-="" href="http://www.reddit.com/user/davidreiss666" target="_blank">davidreiss666</a> via /r/worldnews/</strong></p> <p>Please submit that story from an alternate domain. Thank you.</p> </blockquote> <p> </p> <p>And another moderator named Maxion:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>from <strong><a data-mce-="" href="http://www.reddit.com/user/Maxion" target="_blank">Maxion</a> via /r/worldnews/</strong></p> <p>I am sorry but this submission is not appropriate for this subreddit.</p> </blockquote> <p> </p> <p>There are certainly also more open-minded moderators at Reddit. But a couple of censors can squash discussion on entire topics.</p> <p> </p> <p>WHY ARE THEY CENSORING?</p> <p> </p> <p>Why are they censoring?</p> <p>Well, <a href="http://www.washingtonsblog.com/2011/07/mainstream-media-presstitutes-for-the-rich-and-powerful.html" title="censorship is rampant">censorship is rampant</a> in America … and social media has grown so big that it has become a target as well.</p> <p>In addition, as I <a href="http://www.washingtonsblog.com/2011/07/pentagon-seeks-to-manipulate-social-media-for-propaganda-purposes.html" title="pointed out">pointed out</a> last year [for ease of reading, we'll skip indentation]:</p> <p>Wired <a href="http://www.wired.com/dangerroom/2011/07/darpa-wants-social-media-sensor-for-propaganda-ops/" target="_blank" title="reported">reported</a> on Friday:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The Pentagon is looking to build a tool to sniff out social media propaganda campaigns and spit some counter-spin right back at it.</p> <p> </p> <p>On Thursday, Defense Department extreme technology arm Darpa unveiled its <a href="https://www.fbo.gov/index?s=opportunity&mode=form&id=6ef12558b44258382452fcf02942396a&tab=core&_cview=0" target="_blank" title="Social Media in Strategic Communication">Social Media in Strategic Communication</a> (SMISC) program. It’s an attempt to get better at both detecting and <span style="font-weight:bold;">conducting propaganda campaigns on social media</span>. SMISC has two goals. First, the program needs to help the military better understand what’s going on in social media in real time — particularly in areas where troops are deployed. Second, Darpa wants SMISC to <span style="font-weight:bold;">help the military play the social media propaganda game itself</span>.</p> <p> </p> <p>This is more than just checking the trending topics on Twitter. The Defense Department wants to deeply grok social media dynamics. So SMISC algorithms will be aimed at discovering and tracking the “formation, development and spread of ideas and concepts (memes)” on social media, according to Darpa’s announcement.</p> <p> </p> <p>***</p> <p> </p> <p>SMISC needs to be able to seek out “persuasion campaign structures and influence operations” developing across the social sphere. SMISC is supposed to quickly flag rumors and emerging themes on social media, figure out who’s behind it and what. Moreover, Darpa wants SMISC to be able to actually figure out whether this is a random product of the hivemind or a propaganda operation by an adversary nation or group.</p> <p> </p> <p>Of course, SMISC won’t be content to just to hang back and monitor social media trends in strategic locations. <span style="font-weight:bold;">It’s about building a better spin machine for Uncle Sam</span>, too. Once SMISC’s latches on to an influence operation being launched, it’s supposed to help out in “countermessaging.”</p> <p> </p> <p>***</p> <p> </p> <p>SMISC is yet another example of how the military is becoming very interested in what’s going on in the social media sphere.</p> </blockquote> <p>Indeed, as I <a href="http://www.washingtonsblog.com/2011/02/you-know-those-obnoxious-posters-who-almost-seem-like-alter-egos-of-the-same-person-they-actually-might-be.html" title="wrote">wrote</a> in February:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>I <a href="http://www.washingtonsblog.com/2009/01/does-the-government-manipulate-social-media.html" title="noted">noted</a> in 2009, in an article entitled “Does The Government Manipulate Social Media?”:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The U.S. government long ago announced its intention to <a href="http://news.bbc.co.uk/2/hi/americas/4655196.stm" target="_blank" title="“fight the net”">“fight the net”</a>.</p> <p>As revealed by an official Pentagon report signed by Rumsfeld called “Information Operations Roadmap”:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The roadmap [contains an] acknowledgement that information put out as part of the military’s psychological operations, or Psyops, is finding its way onto the computer and television screens of ordinary Americans.</p> <p> </p> <p>“Information intended for foreign audiences, including public diplomacy and Psyops, is increasingly consumed by our domestic audience,” it reads.</p> <p> </p> <p>“Psyops messages will often be replayed by the news media for much larger audiences, including the American public,” it goes on.</p> <p> </p> <p><span style="font-size:78%;">***</span></p> <p> </p> <p>“Strategy should be based on the premise that the Department [of Defense] will ‘fight the net’ as it would an enemy weapons system”.</p> </blockquote> <p>Indeed, the Pentagon publicly <a href="http://news.bbc.co.uk/2/hi/americas/1830500.stm" target="_blank" title="announced">announced</a> years ago that it was considering using “black propaganda” – in other words, knowing lies.</p> <p> </p> <p>CENTCOM announced in 2008 that a team of employees would be <a href="http://www.rawstory.com/news/2006/Raw_obtains_CENTCOM_email_to_bloggers_1016.html" target="_blank" title="“[engaging] bloggers who are posting inaccurate or untrue information, as well as bloggers who are posting incomplete information.”">“[engaging] bloggers who are posting inaccurate or untrue information, as well as bloggers who are posting incomplete information.”</a></p> <p> </p> <p>The <a href="http://blog.wired.com/defense/2009/01/usaf-blog-respo.html" target="_blank" title="Air Force">Air Force</a> is now also engaging bloggers. Indeed, an Air Force spokesman said:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>“We obviously have many more concerns regarding cyberspace than a typical Social Media user,” Capt. Faggard says. “I am concerned with how insurgents or potential enemies can use Social Media to their advantage. It’s our role to provide a clear and accurate, completely truthful and transparent picture for any audience.”</p> </blockquote> <p>In other words, the government is targeting “social media”, including popular user-ranked news sites.</p> <p> </p> <p>In addition, when you look at what the Israeli lobby has done with Megaphone software to automatically vote stories questioning Israel down and to send pro-Israel letters to politicians and media (see <a href="http://www.guardian.co.uk/commentisfree/2009/jan/09/israel-foreign-ministry-media" target="_blank" title="this">this</a>, <a href="http://www.guardian.co.uk/media/2006/nov/20/mondaymediasection.israel" target="_blank" title="this">this</a> and <a href="http://www.washingtonpost.com/wp-dyn/content/article/2009/01/03/AR2009010301993.html" target="_blank" title="this">this</a>), you can start to see how the U.S. military – an even larger and better-funded organization – could substantially influence voting on social news sites with very little effort.</p> <p> </p> <p>Moreover,the military has outsourced many projects to private contractors. For example, in Iraq, much of the fighting has been outsourced to Blackwater. And <a href="http://www.washingtonpost.com/wp-dyn/content/article/2007/07/06/AR2007070601993.html" target="_blank" title="governmental intelligence functions have largely been outsourced to private companies.">governmental intelligence functions have largely been outsourced to private companies.</a></p> <p> </p> <p>It is therefore not impossible that the government is hiring cheap labor to downvote stories on the social media sites which question the government, and to post pro-government comments.</p> </blockquote> <p>(other governments and large companies “astroturf” online as well. See <a href="http://news.bbc.co.uk/2/hi/7783640.stm" target="_blank" title="this">this</a>, <a href="http://news.slashdot.org/story/09/07/15/1351204/Internet-Astroturfer-Fined-300000?from=rss" target="_blank" title="this">this</a> and <a href="http://www.guardian.co.uk/commentisfree/libertycentral/2010/dec/13/astroturf-libertarians-internet-democracy" target="_blank" title="this">this</a><span style="font-style:italic;">.</span>)</p> <p> </p> <p>I pointed out the same month:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Government propagandists, their hired private contractors and useful idiots are creating “downvote bots” or scripts to bury stories which question the government.</p> <p> </p> <p>***</p> <p> </p> <p>One free, simple scripting program to create automatic downvotes of certain topics or news posters is called “Greasemonkey”, which is commonly used on large social news sites such as Reddit.</p> <p> </p> <p>For example, there are some 2,480 hits … for the google search <a href="http://www.google.com/search?hl=en&client=firefox-a&rls=org.mozilla%3Aen-US%3Aofficial&hs=Hsj&q=site%3Areddit.com+greasemonkey+downvote&btnG=Search" target="_blank" title="site:reddit.com greasemonkey downvote">site:reddit.com greasemonkey downvote</a>. This is some 2,480 times that Reddit users are <span style="font-style:italic;">publicly admitting</span> to using greasemonkey (see also <a href="http://www.google.com/search?q=site%3Areddit.com+%22downvote+bots%22&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a" target="_blank" title="this">this</a>).</p> <p> </p> <p>Propaganda agents obviously aren’t going to publicly brag about what they are doing, and you can bet that their use of downvote bots is much greater. Moreover, they probably have more sophisticated software than Greasemonkey.</p> </blockquote> <p>Today, Raw Story <a href="http://www.rawstory.com/rs/2011/02/18/revealed-air-force-ordered-software-to-manage-army-of-fake-virtual-people/" target="_blank" title="reports">reports</a> that the Air Force ordered software to manage army of fake virtual people:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Internet users would be well advised to ask another question entirely: Are my “friends” even real people?</p> <p> </p> <p>In the continuing saga of data security firm HBGary, a new caveat has come to light: not only did they plot to help destroy secrets outlet WikiLeaks and discredit progressive bloggers, they also <span style="font-weight:bold;">crafted detailed proposals for software that manages online “personas,” allowing a single human to assume the identities of as many fake people as they’d like.</span></p> <p> </p> <p>The revelation was among those contained in the company’s emails, which were dumped onto bittorrent networks after hackers with cyber protest group “Anonymous” broke into their systems.</p> <p> </p> <p>In another document unearthed by “Anonymous,” one of HBGary’s employees also mentioned <span style="font-weight:bold;">gaming geolocation services to make it appear as though selected fake persons were at actual events. </span></p> <p style="font-weight: bold;"> </p> <p style="font-weight:bold;">“There are a variety of social media tricks we can use to add a level of realness to all fictitious personas,” it said.</p> <p> </p> <p><b>Government involvement</b></p> <div id="inside-page-ad"> </div> <p>Eerie as that may be, more perplexing, however, is <a href="https://www.fbo.gov/index?s=opportunity&mode=form&id=d88e9d660336be91552fe8c1a51bacb2&tab=core&_cview=1" target="_blank" title="a federal contract">a federal contract</a> from the 6th Contracting Squadron at MacDill Air Force Base, located south of Tampa, Florida, that solicits providers of “persona management software.”</p> <p> </p> <p>While there are certainly legitimate applications for such software, such as managing multiple “official” social media accounts from a single input, the more nefarious potential is clear.</p> <p> </p> <p>Unfortunately, the Air Force’s contract description doesn’t help dispel their suspicions either. As the text explains, <span style="font-weight:bold;">the software would require licenses for 50 users with 10 personas each, for a total of 500. These personas would have to be “replete with background , history, supporting details, and cyber presences that are technically, culturally and geographacilly consistent.” </span></p> <p> </p> <p>It continues, noting the need for secure virtual private networks that <span style="font-weight:bold;">randomize the operator’s Internet protocol (IP) address, making it impossible to detect that it’s a single person orchestrating all these posts</span>. Another entry calls for static IP address management for each persona, making it appear as though each fake person was consistently accessing from the same computer each time.</p> <p> </p> <p>The contract also sought methods to anonymously establish virtual private servers with private hosting firms in specific geographic locations. This would allow that server’s “geosite” to be integrated with their social media profiles, effectively gaming geolocation services.</p> <p> </p> <p>The Air Force added that the “place of performance” for the contract would be at MacDill Air Force Base, along with Kabul, Afghanistan and Baghdad. The contract was offered on June 22, 2010.</p> <p> </p> <p>It was not clear exactly what the Air Force was doing with this software, or even if it had been procured.</p> <p> </p> <p><b>Manufacturing consent</b></p> <p> </p> <p>Though many questions remain about how the military would apply such technology, the reasonable fear should be perfectly clear. “Persona management software” can be used to manipulate public opinion on key information, such as news reports. An unlimited number of virtual “people” could be marshaled by only a few real individuals, empowering them to create the illusion of consensus.</p> <p> </p> <p>***</p> <p> </p> <p>That’s precisely <a href="http://www.dailykos.com/story/2011/02/16/945768/-The-HB-Gary-Email-That-Should-Concern-Us-All" target="_blank" title="what got DailyKos blogger Happy Rockefeller in a snit">what got DailyKos blogger Happy Rockefeller in a snit</a>: the potential for military-run armies of fake people manipulating and, in some cases, even manufacturing the appearance of public opinion.</p> <p> </p> <p>“I don’t know about you, but it matters to me what fellow progressives think,” the blogger wrote. “I consider all views. And if there appears to be a consensus that some reporter isn’t credible, for example, or some candidate for congress in another state can’t be trusted, I won’t base my entire judgment on it, but it carries some weight.</p> <p> </p> <p>“That’s me. I believe there are many people though who will base their judgment on rumors and mob attacks. And for those people, a fake mob can be really effective.”</p> <p> </p> <p>***</p> <p> </p> <p>“Team Themis” [<a href="http://www.rawstory.com/rs/2011/02/14/us-chamber-hired-firm-to-investigate-families-and-children-of-critics/" target="_blank" title="tasked by the Chamber">tasked by the Chamber</a> of Commerce to come up with strategies for responding to progressive bloggers and others] also included <a href="http://www.alternet.org/newsandviews/article/479144/plan_solicited_by_chamber_lawyers_included_malware_hacking_to_discredit_progressive_organizations/" target="_blank" title="a proposal">a proposal</a> to use malware hacks against progressive organizations, and the submission of fake documents in an effort to discredit established groups.</p> <p> </p> <p>HBGary was also behind a plot by Bank of America to destroy WikiLeaks’ technology platform, other emails revealed. The company was <a href="http://www.rawstory.com/rs/2011/02/07/anonymous-hacks-security-firm-probed-membership/" target="_blank" title="humiliated by members of “Anonymous”">humiliated by members of “Anonymous”</a> after CEO Aaron Barr bragged that he’d “infiltrated” the group.</p> </blockquote> <p>And see <a href="http://www.npr.org/blogs/thetwo-way/2011/03/17/134631649/report-u-s-creates-fake-online-identities-to-counter-enemy-propaganda" target="_blank" title="this">this</a>, <a href="http://www.guardian.co.uk/technology/2011/mar/17/us-spy-operation-social-networks" target="_blank" title="this">this</a>, <a href="http://www.centcom.mil/en/about-centcom/posture-statement/" target="_blank" title="this">this</a>, <a href="http://www.guardian.co.uk/environment/georgemonbiot/2011/feb/23/need-to-protect-internet-from-astroturfing" target="_blank" title="this">this</a>.</p> </blockquote> <p style="font-style:italic;">Postscript: Gaming social media is only one propaganda technique employed by the government:</p> <ul style="font-style:italic;"> <li>Famed Watergate reporter Carl Bernstein says <a href="http://carlbernstein.com/magazine_cia_and_media.php" target="_blank" title="the CIA has already bought and paid for many successful journalists">the CIA has already bought and paid for many successful journalists</a></li> </ul> <ul style="font-style:italic;"> <li>The New York Times <a href="http://papercuts.blogs.nytimes.com/2008/01/23/the-cia-and-the-culture-war/index.html?hp" target="_blank" title="discusses">discusses</a> in a matter-of-fact way the use of mainstream writers by the CIA to spread messages</li> </ul> <ul style="font-style:italic;"> <li>A <a href="http://video.google.com/videosearch?q=%22the%20century%20of%20the%20self%22&oe=utf-8&rls=org.mozilla:en-US:official&client=firefox-a&um=1&ie=UTF-8&sa=N&hl=en&tab=wv#" target="_blank" title="4-part BBC documentary">4-part BBC documentary</a> called the “Century of the Self” shows that an American – Freud’s nephew, Edward Bernays – created the modern field of manipulation of public perceptions, and the U.S. government has extensively used his techniques</li> </ul> <ul style="font-style:italic;"> <li>The Independent <a href="http://www.independent.co.uk/news/media/how-the-spooks-took-over-the-news-780672.html" target="_blank" title="discusses">discusses</a> allegations of American propaganda</li> </ul> <ul style="font-style:italic;"> <li>And one of the premier writers on journalism <a href="http://www.dissidentvoice.org/2007/07/the-invisible-government/" target="_blank" title="says">says</a> the U.S. has used widespread propaganda</li> </ul> <p><a href="http://feedads.g.doubleclick.net/~a/GMs5GToYPXlH6QJK5WuaqmC0eNk/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/GMs5GToYPXlH6QJK5WuaqmC0eNk/1/da"></img></a></p> </article> <article> <h1>Guest Post: The Straw That Potentially Breaks The Camels Back</h1> <p>Tyler Durden — Thu, 23 Feb 2012 04:13:09 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/fGU84QnHxHQVDXhwIy7RRoFU1rI/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/fGU84QnHxHQVDXhwIy7RRoFU1rI/1/da"></img></a></p><p><em>Submitted by Lance Roberts of <a href="http://www.streettalklive.com/daily-x-change/708.html">StreetTalk Advisors</a></em></p> <p><strong>The Straw That Potentially Breaks The Camels Back</strong></p> <p style="text-align: justify;"><a class="highslide ageent-ru" title="oil-price-gasoline-022212" href="http://www.streettalklive.com/images/stories/1dailyxchange/oil-price-gasoline-022212.png" target="_blank"></a>Back in December I penned an article about the <a href="http://www.streettalklive.com/daily-x-change/539-could-gasoline-prices-trigger-a-recession.html">potential for gasoline prices</a> to rise quickly to catch up with surging oil prices. We said then <em>"If we look at just the nominal price data going back to 1990 we can see that there is indeed a very high correlation between oil prices and gasoline prices. While divergences from each other do occur on occassion those divergences tend not to last for very long with gasoline usually correcting towards the price of oil."</em> That is precisely what has happened since the near $3 per gallon of gasoline this summer, which was an effective $60 billion tax break for consumers during the much anticipated retail shopping season, to near $3.50 a gallon today. That 16% rise in gasoline has now effectively wiped out the entire payroll tax cut being extended into 2012.</p> <p style="text-align: justify;">There has been a lot of media commentary as of late about the recovery in the economy. The dangerous assumption being made here is that the recent upticks in the economic data have come primarily at the expense of inventory restocking and end of year buying of capital goods by businesses to lock in tax credits. Extrapolating those bounces in the data well into the future can prove to be disappointing. Yet this is exactly what the the President's current budget, which has been presented to Congress, has done. That budget plans for 3% or stronger economic growth over the next 6 years. This is a pretty lofty goal which considering last years growth was a paltry 1.7%. However, in order to acheive a 3% plus growth rate the consumer is going to have to should 2.1% of that load through consumption. </p> <p style="text-align: justify;"><a class="highslide ageent-ru" title="pce-foodandgas-wages-022212" href="http://www.streettalklive.com/images/stories/1dailyxchange/pce-foodandgas-wages-022212.png" target="_blank"></a>As we showed in our <a href="http://www.streettalklive.com/daily-x-change/675-consumer-credit-and-the-american-conundrum.html">recent report on consumer spending and credit</a> increases <em>"...[The] recent increases in consumer debt are disturbing. The rise in NOT about increasing consumption by <strong>buying more</strong> 'stuff' it is about just about being able to purchase the <strong>same amount</strong> of 'stuff' to maintain the current standard of living.</em>" The rise in consumer credit is a function of the increases in the cost of food and energy on the consumer. While the core consumer price index <em>(ex food and energy)</em> is tame at just over 2% the real impact to the American consumer is a combination of weakening incomes and rising food and energy costs as a percent of those incomes. The chart shows the recent declines in wages and salaries versus the steady uptrend in food and energy costs as a percentage of wages and salaries. The problem is the math - declining incomes + rising costs - lack of credit = weaker consumption and slower economic growth.</p> <p style="text-align: justify;"><a class="highslide ageent-ru" title="oil-price-contracts-022212" href="http://www.streettalklive.com/images/stories/1dailyxchange/oil-price-contracts-022212.png" target="_blank"></a>There have been quite a few theories as of late about rising oil prices whether it is a potential war with Iran or seasonal demand. While part of the issue is the supply and demand equation - that does not account for the recent price surge. As the world central banks have turned on the liquidity pumps to support the Eurozone and the U.S. economy; the most logical place for that excess liquidty to go is into highly liquid, highly leveraged, commodity contracts. The rising number, the second highest peak on record, of oil contracts outstanding continues to push prices higher. In turn those higher prices draw more speculation into the market - so forth and so on. That is - until it pops. </p> <p style="text-align: justify;">This is good if you are investing in oil and gas related stocks - it is bad everywhere else. As oil prices rise so do the input costs to businesses. Those costs have to be passed onto the consumer. Currently, the consumer can do little to offset those increases other than by decreasing consumption. The decrease in consumption leads to lower profits for businesses who in turn become defensive. Since businesses have already cut permanent labor to the bone - the impact to profitability will be immediate. The longer that oil prices remain elevated while incomes decline the more likely it is that the economy, which is already extraordinarily weak, will slow more than expected.</p> <p style="text-align: justify;">With Europe slipping into a deeper recession, which in turn will effect domestic corporate profitability, combined with rising input costs it is only a function of time until something has to give. While the world, and the markets, are currently focused on the daily soap opera of <em>"As The Greeks Turn"</em> it cold be something as innocuous as food and energy prices that becomes the final straw for this camel.</p> <p><a href="http://feedads.g.doubleclick.net/~a/UENqVuTfawMyxU5dbg1zp4PqpVQ/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/UENqVuTfawMyxU5dbg1zp4PqpVQ/1/da"></img></a></p> </article> <article> <h1>The Corporate Tax-Dodge Code</h1> <p>testosteronepit — Thu, 23 Feb 2012 02:19:26 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/dg-cXAqZ74Sv_cxOLxPXfzS2e2w/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/dg-cXAqZ74Sv_cxOLxPXfzS2e2w/1/da"></img></a></p><p>Wolf Richter <a href="http://www.testosteronepit.com" title="www.testosteronepit.com">www.testosteronepit.com</a></p> <p>Between 2002 and 2011, Boeing reported to its investors that it earned $31.8 billion. But it reported something entirely different to the IRS and didn’t pay income taxes. Instead, it received tax benefits of $2.06 billion, an effective tax rate of -6.5% (<a href="http://www.ctj.org/pdf/boeing2012.pdf">CTJ fact sheet</a>). Other companies were similarly agile. Bailed-out GE earned $10.5 billion, paid zero taxes, and received $4.7 billion in tax benefits. Of 280 companies that the CTJ researched (<a href="http://ctj.org/ctjreports/2011/11/corporate_taxpayers_corporate_tax_dodgers_2008-2010.php">report</a>), 30 paid no federal income taxes from 2008-2010. They were all using loopholes, subsidies, and offshore strategies to do what the tax code encouraged them to do: dodge taxes.</p> <p>So now, Treasury Secretary Timothy Geithner is ballyhooing President Obama's latest election-year ploy of putting some fresh lipstick on the tax code: lower the top rate from 35% to 28%, close loopholes, cut subsidies, and make offshore profit-shifting strategies more difficult. Then, in the same breath, he proposed new loopholes and subsidies—but for different constituencies, such as manufacturers.... Oh wait. Aren’t Boeing and GE manufacturers? But they’re already not paying taxes. So hand them even more tax benefits?</p> <p>Why yes. GE CEO Jeffrey Immelt heads President Obama's Council on Jobs and Competitiveness. And taxpayer subsidies make GE more competitive. Same with Boeing. In that respect, the White House released a paper,<em> Investing in America: Building an Economy That Lasts</em>, intended for Immelt’s CEO colleagues not the Democratic rank and file. It outlines policies to make America competitive with low-wage countries like China and points at an accomplishment: dropping real wages in the US. For that whole debacle, read.... <a href="http://www.testosteronepit.com/home/2012/1/11/when-the-white-house-touts-falling-wages.html">When The White House Touts Falling Wages</a>.</p> <p>On the Republican side, there has been a garden variety of tax-cut proposals, the latest from Mitt Romney. They also address some of the symptoms of what’s wrong with the tax code. But none address its most fundamental flaw. A flaw that produces the absurdity where some highly profitable companies pay no taxes while others pay them out their nose: diametrically opposed accounting systems for reporting to investors and to the IRS.</p> <p>GAAP, our glorious body of accounting principles, allows companies in a myriad ways to inflate profits and incentivizes them to engage in economically unproductive activities to make their numbers look better. Goal: maximize reported income.</p> <p>The corporate tax code does the opposite. It encourages the very same companies that reported inflated incomes to their investors to report little or no income to the IRS. It incentivizes companies to invest in economically unproductive activities, such as lobbying or shifting income offshore. Goal: minimize taxable income.</p> <p>Rather than dinking with percentages and loopholes in the corporate tax code, Congress needs to throw it out and replace it with GAAP. Tax accounting and financial accounting would become the same. This would have highly beneficial consequences. Among them:</p> <p>- Tax rates could be <em>much</em> lower because the income they’re applied to is the same inflated income that investors get dished up on a quarterly basis. Rates could be low enough to incentivize companies to keep profits onshore.</p> <p>- Companies could choose: inflate profits to look good to investors but pay more in taxes; or report conservative numbers and pay less in taxes. Unintended consequence: financial reporting might become more reliable.</p> <p>- Companies would have some certainty about income taxes and could commit to long-term investments with less risk.</p> <p>- IRS auditors would do tax audits based on GAAP.</p> <p>So if Boeing reported $5.1 billion in profit to its investors, as it did for 2011, it wouldn’t get a tax benefit of $635 million, as it did, but would instead pay income taxes at a low rate on the $5.1 billion. And companies that are now paying taxes at extravagant rates would pay less. It would bring a measure of fairness to corporate taxes.</p> <p>Alas, that ugly corporate tax code is the congressional bread and butter—a tool with which lawmakers extract campaign contributions and other goodies from their corporate sponsors. And that will never change. For the astonishing debacle of their approval ratings, which are trending toward, well, zero, read.... <a href="http://www.testosteronepit.com/home/2012/2/13/the-white-house-the-most-disparaged-profession-again.html">The Most Disparaged Profession</a>.</p> <p>Profitable tax dodgers would dig in their heels. Companies that would see their tax bills fall might jump into the fray in support. Lobbyists on both sides would raise a ruckus. The noise level would blow out our national eardrums. Even President Obama, the populist yes-we-can campaigner, is financially dependent on the corporate elite and has to please them. With that in mind, he came to San Francisco for some epic fundraisers. For that astounding display of whom he is beholden to, read.... <a href="http://www.testosteronepit.com/home/2012/2/17/that-giant-sucking-sound-in-california.html">That Giant Sucking Sound in California</a>.</p> <p><a href="http://feedads.g.doubleclick.net/~a/waXFi5pRmIvFZ1XZucdMuoZuk6U/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/waXFi5pRmIvFZ1XZucdMuoZuk6U/1/da"></img></a></p> </article> <article> <h1>Goldman Goes Long WTI</h1> <p>Tyler Durden — Thu, 23 Feb 2012 01:04:04 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/zbZb65X4QhKde3ouwns-NmZzCdo/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/zbZb65X4QhKde3ouwns-NmZzCdo/1/da"></img></a></p><p>Goldman's David Greely is no Tom Stolper. In fact his recommendations have been correct more often than not. Which is why we believe that when the market learns that the Goldman commodities strategist just opened a <strong>long September WTI position at $107.55</strong>, it will merely provide that extra oomph to send WTI up, up and away. Or maybe not: this could be another one of the "fade Goldman" calls. Alas, with the real impact of the recent $2 trillion balance sheet expansion becomes truly felt we have a distinct feeling Goldman is quite right on this one. Evil, evil speculators.</p> <p><em>From Goldman's David Greely:</em></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Repositioning our trade recommendation as Brent crosses $120/bbl </strong></p> <p> </p> <p><em>Brent crude oil prices have rallied $11.92/bbl this month, crossing our 3-month target of $120/bbl and reaching their highest levels since last spring. While we continue to see an upward trajectory for crude oil prices, we believe that with Brent prices having crossed our 3-month price target it is an opportune time to reassess our trading recommendation and we believe that the better trading opportunity may currently lie in WTI futures for the contract months following the scheduled June reversal of the Seaway pipeline to flow crude oil from Cushing to the US Gulf Coast. Brent prices have risen above our 3-month target, but we expect them to continue to rise to $127.50/bbl over the next 12 months </em></p> <p> </p> <p>We continue to expect Brent crude oil prices to rise further this year in order to restrain demand growth, keeping it in line with available supplies. Further, we see the risks to our forecasts as skewed to the upside as world oil inventories have not been building despite Saudi Arabia pumping at its highest levels in 30 years and Libyan supplies returning to the market. This suggests that the increased supplies have been absorbed by the market and leaves the world in the unprecedented situation in which OPEC spare capacity is at a trough rather than at a peak just as the world economic recovery is getting on a more solid footing.</p> <p> </p> <p><strong>Taking profit on our long July 2012 Brent trading recommendation with a potential gain of $13.19/bbl, and opening a long September 2012 WTI crude oil futures trading recommendation</strong></p> <p> </p> <p>The Seaway pipeline is scheduled to be reversed in June to flow up to 150 thousand b/d of crude oil from Cushing to the US Gulf Coast, increasing to 400 thousand b/d by early next year. With the Seaway flowing crude from Cushing to the US Gulf Coast, <strong>we expect WTI prices will be closely tied to Brent prices, with WTI likely trading at a $3-$5/bbl discount, reflecting the pipeline tariff economics. Consequently, we expect that WTI prices for the contract months following the reversal of the Seaway will move upward with Brent prices over the next 12 months</strong>. However, because these WTI contracts continue to trade at a substantial discount to Brent, we believe they have additional upside from the narrowing of the WTI-Brent spread that we expect following the reversal. For example, the September 2012 WTI-Brent spread is trading at $11.28/bbl, whereas on a 6-month horizon we expect the WTI-Brent spread will narrow to $5.00/bbl.</p> <p> </p> <p><a href="/sites/default/files/images/user5/imageroot/2012/01/GS%20Brent.jpg"></a></p> </blockquote> <p><a href="http://feedads.g.doubleclick.net/~a/qz2sAqOPCrKop-AaTUy15p1bS5A/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/qz2sAqOPCrKop-AaTUy15p1bS5A/1/da"></img></a></p> </article> <article> <h1>Guest Post: Ben Graham’s Curse On Gold</h1> <p>Tyler Durden — Thu, 23 Feb 2012 00:35:28 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/L3UQdsfNuXyuEfi1zAJCwB-VBUY/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/L3UQdsfNuXyuEfi1zAJCwB-VBUY/1/da"></img></a></p><p><em>Submitted by David Galland of <a href="http://www.caseyresearch.com/articles/ben-graham-s-curse-gold?ppref=ZHB433ED0212A">Casey Research</a></em></p> <p><strong>Ben Graham’s Curse On Gold</strong></p> <p>It seems that the mainstream investment community only takes a break from ignoring gold to berate it: one of gold’s most outspoken critics, uber-investor Warren Buffett, did so recently in his <a href="http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-shareholder-letter/" target="_blank">latest shareholder letter</a>. The indictments were familiar; gold is an inanimate object “incapable of producing anything,” so any investor holding it instead of stocks is acting out of irrational fear.</p> <p>How can it be that Buffett, perhaps the most successful (and definitely the most well-known) investor of our time, believes that gold has no place in an intelligently allocated investment portfolio?</p> <p>Perhaps it has something to do with his mentor, Benjamin Graham.</p> <p>Graham, author of <em>Security Analysis </em>(1934) and <em>The Intelligent Investor </em>(1949)<em>, </em>is correctly respected as one of history's most knowledgeable investors. Over a career spanning 1915 to 1956, he refined his investment theories, in time becoming known as the father of value investing. Much of modern portfolio theory is based upon Graham’s work.</p> <p>According to Graham, while no one can tell the future, there are periods when the valuations of stocks and bonds would deviate from fair value by becoming excessively over- or undervalued. To enhance returns and reduce risk, investors should alter their portfolio allocations accordingly. A quick look at a long-term chart supports Graham's theory clearly shows periods when one asset class offered a better value than the other:</p> <p style="text-align: center;"><a class="lightbox-processed" rel="lightbox" href="http://www.caseyresearch.com/sites/default/files/BondsvsStocksAdjustedforInflation_2_2012.png"></a></p> <p style="text-align: center;">(Click on image to enlarge)</p> <p>But what of the periods when both stocks and bonds stagnated or fell together? For much of the 1970s and again from 2001 through today, any portfolio allocated solely between stocks and bonds would have at best treaded water and at worst drowned in a sea of stagflation. To earn any real return, an investor would have needed to seek alternatives. </p> <p>It’s clear from this next chart that gold was exactly that alternative, a powerful counter-trend investment for periods when both stocks and bonds were overvalued. Yet gold is conspicuously absent from Graham's allocation model.</p> <p style="text-align: center;"><a class="lightbox-processed" rel="lightbox" href="http://www.caseyresearch.com/sites/default/files/GoldvsStocksvsBondsAdjustedforInflation_2_2012.png"></a></p> <p style="text-align: center;">(Click on image to enlarge)</p> <p>But this missing asset class is entirely understandable: for most of Graham's adult life and the most important years of his career, ownership of more than a small amount of gold was outlawed. Banned for private ownership by FDR in 1933, it wasn't re-legalized until late 1974. Graham passed away in 1976; he thus never lived through a period in which gold was unmistakably a better investment than either stocks or bonds.</p> <p>All of which makes us wonder: if Graham had lived to witness the two great bull markets in precious metals during the last 40 years, would he have updated his allocation models to include gold?</p> <p>We can never know.</p> <p>We can know, however, that given Graham's outsized influence on investment theory, there is little question that his lack of experience with gold, and therefore its absence from his observations, has had a profound effect on how most investment professionals view the yellow metal. This, in our opinion, goes a long way toward explaining the persistently low esteem in which gold is held by the mainstream investment community. And, as a consequence, its widespread failure to even be considered as an asset class.</p> <p>A couple of takeaways: first, perhaps now you can stop wondering why your broker, the talking heads in the financial media, and Warren Buffett continue to misunderstand gold as a portfolio holding. More importantly, however, is that in order to have sustained, long-term investment success, one must accept that an intelligent portfolio allocation needs to include not two but <em>three</em> broad categories of investment – stocks, bonds <em>and</em> gold, with the amounts allocated to each guided by relative valuation.</p> <p>Investors who understand this tenet have an almost unfair advantage over other investors as it allows them to get positioned in gold ahead of the crowd and enjoy the bulk of the ride, while others sit on their hands.</p> <p>So when you hear commentators ridiculing gold as a barbarous relic, lamenting that they cannot eat it or smugly asserting that it produces nothing, rest contently in knowing that they’re operating with a severe handicap in their own portfolio. Meanwhile, we’ll prosper, armed with the understanding that gold fulfills a very important and specific purpose in a portfolio, namely as real money that protects net worth during periods marked by excessive government debt and currency debasement such as we are currently experiencing.</p> <p>Given the powerful influence of Ben Graham and his disciples, his curse on gold will not go quietly into the night. But it should.</p> <p><a href="http://feedads.g.doubleclick.net/~a/A8xuDOxEwQO1jLkvH9dfenHYXBM/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/A8xuDOxEwQO1jLkvH9dfenHYXBM/1/da"></img></a></p> </article> <article> <h1>Chuckles</h1> <p>Bruce Krasting — Thu, 23 Feb 2012 00:26:00 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/ClUphmqW4P9HAUfA_mPAfi1rnEA/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/ClUphmqW4P9HAUfA_mPAfi1rnEA/1/da"></img></a></p><p>I got a laugh out of this headline:</p> <p> </p> <div class="separator" style="clear: both; text-align: center;"> <a href="http://1.bp.blogspot.com/-dAuSPj2Ct4c/T0VwIEyZBlI/AAAAAAAADT4/knv8kSN8bus/s1600/airindia.png" style="margin-left: 1em; margin-right: 1em;"></a></div> <p> </p> <p>Delta Airlines and the Pilots Association are suing the Exim bank for financing Air India. I think they have a great case. I hope they win. </p> <p>Exim gives cheap money to India so it can buy Boeing planes. This story “sounds” good as exports mean jobs and business is booming at Boeing. You can count on Obama showing up in Seattle sometime, and crowing about all the jobs he has created thanks to the cheap money deals. </p> <p> I wonder what he will be saying to the folks who work for the airlines. They don’t get cheap money, so they can’t buy the new aircraft they need to compete with the likes of Air India on the profitable transatlantic routes. (The basis for the suit.)</p> <p>The only winners in this story will be the lawyers. The losers will be “us”. We will pay for it in the form of higher airfares, more debt and deficits. </p> <p>Is this an example of an unintended consequences, or just stupidity?</p> <p> <span style="font-size: xx-small;"> .</span></p> <div class="separator" style="clear: both; text-align: center;"> <a href="http://4.bp.blogspot.com/-_lbk-bFk0XE/T0WC0DHgKNI/AAAAAAAADUY/90r51ctMPOc/s1600/shoot_self_in_foot.jpg" style="margin-left: 1em; margin-right: 1em;"></a></div> <div style="text-align: center;"> </div> <div style="text-align: center;"><strong>********************************* </strong></div> <p> <span style="font-size: xx-small;">.</span> </p> <p><span style="font-size: xx-small;">.</span> </p> <p>A Greek, a Portuguese and a Spaniard are talking to god:</p> <p>The Spaniard and the Portuguese ask, <em><strong>“When will our countries be free of debt?”</strong></em> </p> <p> God answers, <em><strong>“In 100 years for Portugal and 150 years for Spain.”</strong></em> </p> <p>The Iberians respond in dismay, <strong>“But, our children's children will be dead by then.”</strong> </p> <p>When the Greek asks God the same question for his country, God answers<em><strong>, “I don't know — I'll be dead by then.”</strong></em></p> <p><em><strong>.<br /></strong></em></p> <div class="separator" style="clear: both; text-align: center;"><a href="http://2.bp.blogspot.com/-uP6C-GEsLMI/T0V28euujvI/AAAAAAAADUI/SPf8iK19LiQ/s1600/22.02.12-Steve-Bell-on-th-005.jpg" style="margin-left: 1em; margin-right: 1em;"></a></div> <div style="text-align: center;"> </div> <div style="text-align: center;">.</div> <div style="text-align: center;">********************************* </div> <p> <span style="font-size: xx-small;"> .</span></p> <div style="font-family: Verdana,sans-serif; text-align: center;"> <strong><span style="font-size: xx-small;"> .</span></strong></div> <div style="font-family: Verdana,sans-serif; text-align: center;"> <strong>Paper Money</strong></div> <p>Lee Adler at <a href="http://wallstreetexaminer.com/2012/02/22/wtf-did-all-that-printed-money-go/">Wall Street Examiner </a>has some interesting data on the amount of printed money outstanding:</p> <p> </p> <div class="separator" style="clear: both; text-align: center;"> <a href="http://2.bp.blogspot.com/-C1skQr9hQ8o/T0VxTpvtBBI/AAAAAAAADUA/HAHHejimWfk/s1600/adler.png" style="margin-left: 1em; margin-right: 1em;"></a></div> <p> </p> <p>Two things caught my eye. The recent percentage rate of increase has not been seen since the crisis days of 2008. The second thing is just the sheer amount of paper money “out there”.</p> <p>I have only questions regarding the rate of increase. Are these 100-dollar bills ending up in the USA? Or are they going out of the country? Are they being used to transact business? Or are they being used as a store of wealth? I believe it is all of the above. </p> <p>The $1.05 Trillion of outstanding currency comes to 7% of GDP. That is up from 5% in 2007. The increase of $300 Billion represents a 40% increase while the economy was basically flat. If this was all in 100-dollar bills it would stack up 700 miles high. Didn't Bernanke say the Fed wasn’t printing money? </p> <p>He's increased that pile by 250 miles. He's printed enough to carpet all of D.C.</p> <p>Gold has had a nice goose of late. There are many reasons for it to reprice higher. Deep in the corner of the demand is all this paper sloshing around. Sooner or later, it will seek to hide somewhere safer than in paper under a mattress. I suspect some of it did today. </p> <p> . </p> <div class="separator" style="clear: both; text-align: center;"> <a href="http://1.bp.blogspot.com/-V-FBBOUEDQY/T0WAM6U3ViI/AAAAAAAADUQ/fu5kDbFvYZo/s1600/4913490009_b094110b8d.jpg" style="margin-left: 1em; margin-right: 1em;"></a></div> <p><a href="http://feedads.g.doubleclick.net/~a/xzAdEAPKC9jvqkZJHxBN1-4MLR8/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/xzAdEAPKC9jvqkZJHxBN1-4MLR8/1/da"></img></a></p> </article> <article> <h1>Europe Is Now China's Sweatshop As Great Wall Starts Building Cars In Bulgaria</h1> <p>Tyler Durden — Wed, 22 Feb 2012 23:43:39 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/DtrC6r7dJlA1kYe0iEH6HB8OUT8/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/DtrC6r7dJlA1kYe0iEH6HB8OUT8/1/da"></img></a></p><p>When it comes to labor-wage parity, nowhere has this topic been more debated than in the context of China and the US. Specifically, with US wages declining consistently for the past 3 years despite commodity price inflation spiking with a 2-3 month lag following every coordinated central bank printing episode (such as the one we are experiencing now), many have proffered their predictions as to when Chinese secular inflation would make wage pay equivalent on both sides of the Pacific, and stop the exporting of jobs from the US to China (a good discussion on the topic can be found in "<a href="http://www.zerohedge.com/article/china-forecast-reach-wage-parity-us-five-years-new-manufacturing-golden-age-coming-us">With China Forecast To Reach Wage Parity With The US In Five Years, Is A New Manufacturing Golden Age Coming To The US?")</a>. And while labor equivalency between China and the US likely still has a ways to go, we have now crossed a critical Rubicon, as Chinese and European wages, at least in one part of European Union, have caught up. Net result, <a href="http://www.spiegel.de/international/business/0,1518,816851,00.html">as Spiegel reports</a>, carmaker "Great Wall this week became <strong>the first Chinese automobile manufacturer to open an automobile assembly plant inside the European Union </strong>in the latest move suggesting the country's carmakers are seeking to establish a beachhead into the European market." <strong>Yes, that's right: it is now cheaper for China to make cars in the European Union:</strong> "It used to be that European carmakers opened plants to assemble their cars in China. <strong>Now the Chinese have turned the tables with the opening of their first factory in Bulgaria</strong>, an EU country with low labor costs and taxes. Increasingly, Chinese carmakers are setting their sights on the European and American automobile markets." The ramifications of this landmark development are massive for virtually every aspect of the economy: for domestic labor migration, for inflation, for the trade balance, and certainly for US workers. </p> <p><a href="/sites/default/files/images/user5/imageroot/2012/01/image-319388-galleryV9-pivi.jpg"></a></p> <p>From Spiegel:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Bulgarian Prime Minister Boyko Borisov on Tuesday attended the opening of Great Wall's new factory in the northern Bulgarian village of Bahovitsa. The plant is to be operated jointly by Great Wall and the Bulgarian firm Litex Motors.</p> <p> </p> <p><strong>For years, European carmakers like Volkswagen have established large joint ventures in order to gain footholds in the Chinese market, but now the tables appear to be turning.</strong></p> <p> </p> <p>"Stepping on the European market is our strategy," Great Wall CEO Wang Fengying said at the opening festivities.</p> <p> </p> <p>Within three to five years, the company plans to produce an entire line of models in Bahovitsa to be sold in Europe, she said. Test assembly of the Voleex C10 and the Steed 5 pick-up truck, which sell for 16,000 to 25,000 leva (€8,200 to €12,800), began already in November.</p> <p> </p> <p>In the midterm, Great Wall plans to assemble around 50,000 automobiles per year at the 500,000 square meter plant. The number of workers is expected to grow from the current total of 120 to 2,000. Initially, the company plans to sell its vehicles primarily in Bulgaria and neighboring Eastern European countries like Serbia and Macedonia, but it later plans to expand into other EU countries.</p> <p>...</p> <p>Great Wall is China's largest manufacturer of sports-utility vehicles and operates plants in around a dozen countries, including Russia, Indonesia, Egypt and Ukraine.</p> </blockquote> <p>Yesterday Bulgaria, a poor EU member, but an EU member nonetheless...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Bulgaria, the EU's poorest country, <strong>is attractive as a labor market because it is an oasis of cheap wages and low taxes</strong>. Workers are considered well educated and the country is ideal as the site for a company like Great Wall to launch. <span style="text-decoration: underline;"><strong>Given that wages for factory workers have risen considerably in China in recent years, assembly sites abroad have become increasingly attractive for some manufacturers</strong></span>.</p> </blockquote> <p>...today Greece</p> <p>...And tomorrow all of Europe, and then America? </p> <p>So the real question is if Chinese wages can no longer compete with those in a poor EU member, just how high are they? And how long before China, for so many years a happy mercantilist importer of Bernanke's monetary inflation courtesy of its currency peg, is no longer competitive with ever growing parts of the EU, and then America? Does this mean that China's cheap labor force has pleateaued and the labor migration of peasants moving from the periphery to the cities no longer provides cheap labor? This was the topic of an extended analysis by SocGen from early January (<a href="http://www.zerohedge.com/news/china-enters-danger-zone-socgen-presents-four-critical-themes">posted here</a>), of which the salient chart is presented below. Today's news will certainly force everyone to have a second long, hard look at the chart in the top left as it means that the Chinese labor force may indeed have topped out.</p> <p><a href="/sites/default/files/images/user5/imageroot/2012/01/20120111_socgen8%20%281%29.png"></a></p> <p>Aside from demographics, the macroeconomic implications on foreign trade and capital flows are monumental: most immediately for the US, it puts today's Wal Mart miss in a very different perspective, as it means that China is no longer the source of cheap commoditized produce, which in turn means that the entire discount retail vertical may have entered the secular sunsetting phase. It also means that Chinese producer margins are about to turn negative, and China is about to replay all the same EPS boosting gimmicks that America has gone through in the past 3 years, only in China, where there is no safety net, no jobless insurance claims, no EUCs, and no extended benefits (not to mention anything else), a wave of terminations will lead to far more unpleasant consequences than a bunch of unemployed people sitting on their coaches playing Xbox and watching GOP presidential debates. Most importantly, it means that going forward China will have zero tolerance for Fed monetary expansion as any hot money will immediately set off an inflationary forest fire as China suddenly finds itself with absolutely no output gap slack (unlike America which allegedly has more than enough, even though it is really just a secular regression to the mean shift). </p> <p>In short, the implications, both good and bad, are huge. </p> <p>And while this may be merely the proverbial canary in the Bulgarian coalmine for now, it will soon be followed by a murder of crows and then a kettle of vultures. Because the Pandora's box has just been opened. </p> <p><a href="http://feedads.g.doubleclick.net/~a/QldBKSDTv6o9u9994YEdDdu6Zbo/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/QldBKSDTv6o9u9994YEdDdu6Zbo/1/da"></img></a></p> </article> <article> <h1>Nancy Pelosi Issues Statement On Soaring Gas Prices</h1> <p>Tyler Durden — Wed, 22 Feb 2012 22:17:14 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/anYWX8Fn1_vpf49zQRWq4a4p6ls/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/anYWX8Fn1_vpf49zQRWq4a4p6ls/1/da"></img></a></p><p>Warning: <strong>Not for the faint of heart.</strong></p> <blockquote><p><em>Washington, D.C. – Democratic Leader Nancy Pelosi released the following statement today on the rising gas prices across the country: </em></p> <p> </p> <p><a href="/sites/default/files/images/user5/imageroot/2012/01/nanpelosi.jpg"></a>“Independent reports confirm that speculators are driving up the cost of oil, hurting consumers and potentially damaging the economic recovery. Wall Street profiteering, not oil shortages, is the cause of the price spike. In fact, U.S. oil production is at its highest level since 2003, and millions of acres have been cleared for additional development.</p> <p> </p> <p>“We need to take strong action to protect consumers from this speculation. Unfortunately, Republicans have chosen to protect the interests of Wall Street speculators and oil companies instead of the interests of working Americans by obstructing the agencies with the responsibility of enforcing consumer protection laws. They have also repeatedly opposed our efforts to end billions of dollars in outdated taxpayer subsidies for oil companies enjoying record profits.</p> <p> </p> <p>“We support efforts by the Obama Administration to expand domestic energy resources, including natural gas and renewable sources like wind and solar that create jobs in America and will end our dangerous dependence on foreign energy supplies. This can be achieved because today, the United States currently has more oil and gas rigs at work than the rest of the world combined, and imports of foreign oil have decreased.</p> <p> </p> <p>“We call on the Republican leadership to act on behalf of American consumers and join our efforts to crack down on speculators who care more about their profits than the price at the pump even if these spikes harm the American consumer and our economy.”</p> </blockquote> <p>Speculators? Such as the Federal Reserve and other central banks <strong>who have pumped $2 trillion of "liquidity" into the capital markets in the past 3 months</strong> just so Italian BTPs don't implode to fair value and so Europeans can continue living in a socialist "paradise" even as the bankers steal their gold?</p> <p>Or is it the same congressional speculators who until recently had every right to front run the public on advance knowledge that the SPR would be tapped due to <a href="http://www.bloomberg.com/news/2012-02-22/democrats-urge-obama-to-tap-oil-reserve-as-industry-promotes-conservation.html">Democrat insistence to sacrifice </a>America's last energy backstop only to win the election?</p> <p>Or is Nancy simply pissed off that she can no longer trade ahead of any market moving news?</p> <p>Whatever the reason for the gas surge, with these idiots in charge one thing is certain - the situation is about to get far, far worse.</p> <p><strong>Solyndra4eva!</strong></p> <p><a href="http://feedads.g.doubleclick.net/~a/NO0eAC61pnqwUM7gguZbCjsmbus/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/NO0eAC61pnqwUM7gguZbCjsmbus/1/da"></img></a></p> </article> <article> <h1>Would You Support an Iran War If …</h1> <p>George Washington — Wed, 22 Feb 2012 22:10:48 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/oa2ngU_krzY1pguF8lIweE0PY9c/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/oa2ngU_krzY1pguF8lIweE0PY9c/1/da"></img></a></p><p>Would you support a war against Iran if you knew that:</p> <ul> <li>Iran has <a href="http://en.wikipedia.org/wiki/Jewish_population#Largest_Jewish_populations_by_country">one of the largest Jewish populations in the world</a>, and the second-largest in the Middle East behind Israel</li> </ul> <ul> <li>Jews are <a href="http://en.wikipedia.org/wiki/Persian_Jews#Conditions">protected by the Iranian constitution, and are guaranteed seats</a> in the Iranian parliament</li> </ul> <ul> <li>The CIA <a title="admits" href="http://www.nytimes.com/library/world/mideast/041600iran-cia-index.html" target="_blank">admits</a> that the U.S. overthrew the moderate, suit-and-tie-wearing, Democratically-elected prime minister of Iran in 1953. He was overthrown because he had <a href="http://en.wikipedia.org/wiki/Mohammad_Mosaddegh">nationalized Iran's oil</a>, which had previously been controlled by BP and other Western oil companies. As part of that action, the CIA <a href="http://www.nytimes.com/library/world/mideast/041600iran-cia-index.html">admits</a> that it hired Iranians to pose as Communists and stage bombings in Iran in order to turn the country against its prime minister</li> </ul> <ul> <li>If the U.S. hadn't overthrown the moderate Iranian government, the fundamentalist Mullahs would have never taken over. (Moreover, the U.S. has had a large hand in strengthening radical Islam in the Middle East by supporting radicals to <a href="http://www.washingtonsblog.com/2010/09/the-founding-fathers-werent-anti-islam.html">fight the Soviets</a> and <a title="repeatedly noted" href="http://www.washingtonsblog.com/2012/02/even-after-admitting-that-the-syrian-opposition-has-engaged-in-terrorism-against-the-government-and-is-really-run-by-al-qaeda-u-s-still-backs-opposition-and-regime-change.html">others</a>)</li> </ul> <ul> <li>The U.S. <a href="http://en.wikipedia.org/wiki/United_States_support_for_Iraq_during_the_Iran%E2%80%93Iraq_war">armed and supported Iraq after it invaded Iran</a> and engaged in a long, bloody war which included the use of chemical weapons. Here is former Secretary of Defense Donald Rumsfeld meeting with Saddam Hussein in the 1980's, several months after Saddam had used chemical weapons in a massacre:</li> </ul> <p><center></center></p> <ul> <li>The U.S. has been claiming <a title="for more than 30 years" href="http://www.csmonitor.com/World/Middle-East/2011/1108/Imminent-Iran-nuclear-threat-A-timeline-of-warnings-since-1979/Earliest-warnings-1979-84" target="_blank">for more than 30 years</a> that Iran was on the verge of nuclear capability</li> </ul> <ul> <li>The U.S. helped fund Iran's nuclear program</li> </ul> <p><center></center></p> <ul> <li>The U.S. has been actively planning regime change in Iran - and throughout the oil-rich Middle East and North Africa - for <a title="20 years ago" href="http://www.washingtonsblog.com/2011/11/neoconservatives-planned-regime-change-throughout-the-middle-east-and-northern-africa-20-years-ago.html">20 years</a></li> </ul> <ul> <li>The decision to threaten to bomb Iran was made <a title="before 9/11" href="http://www.rawstory.com/news/2007/Iran_The_Road_to_Confrontation_0123.html" target="_blank">before 9/11</a></li> </ul> <ul> <li>America and Israel both <a href="http://www.washingtonsblog.com/2012/02/report-the-u-s-and-israel-support-terrorists.html">support a group designated by the U.S. as a terrorist organization which is trying to overthrow the Iranian government</a></li> </ul> <ul> <li>Top American and Israeli military and intelligence officials say that <a href="http://www.washingtonsblog.com/2012/01/even-israel-admits-that-iran-has-not-decided-to-build-a-nuclear-bomb.html">Iran has not decided to build a nuclear bomb</a></li> </ul> <ul> <li>Top American and Israeli military and intelligence officials say that - even if Iran did build a nuclear bomb - <a href="http://www.washingtonsblog.com/2012/02/depsite-the-hysteria-experts-say-that-iran-poses-very-little-threat-to-the-west-or-israel.html">it would not be that dangerous</a>, because Israel and America have so many more nukes. And <a href="http://www.thedailybeast.com/articles/2012/02/21/experts-say-iraq-attack-is-irrational-yet-hawks-are-winning-the-debate.html">see this</a></li> </ul> <ul> <li>American military and intelligence chiefs say that attacking Iran would only <a title="speed up its development of nuclear weapons" href="http://www.washingtonsblog.com/2012/01/american-defense-and-intelligence-chiefs-attacking-iran-will-increase-odds-that-iran-will-build-a-nuclear-bomb.html">speed up its development of nuclear weapons</a>, empower its hardliners, and undermine the chance for democratic reform</li> </ul> <ul> <li>The people pushing for war against Iran are the <span style="font-style: italic;">same people </span>who pushed for war against Iraq, and said it would be a "cakewalk". See <a title="this" href="http://www.ipsnews.net/news.asp?idnews=105499" target="_blank">this</a> and <a title="this" href="http://www.aljazeera.com/indepth/opinion/2011/11/2011111113135678844.html" target="_blank">this</a></li> </ul> <ul> <li>Well-known economist Nouriel Roubini says that <a href="http://www.moneynews.com/StreetTalk/Roubini-Iran-Global-Recession/2012/01/30/id/426006">attacking Iran would lead to global recession</a>. The IMF says that Iran cutting off oil supplies could <a href="http://www.reuters.com/article/2012/01/25/us-imf-oil-iran-idUSTRE80O1LH20120125">raise crude prices 30%</a>. War with Iran would <a href="../2010/11/washington-post-idiocy-calls-for-war-with-iran-to-save-americas-economy.html">kill the American economy</a>. And see <a href="../2011/12/fed-chairman-war-is-bad-for-the-economy.html">this</a> and <a href="../2011/11/nobel-prize-winning-economist-war-is-widely-thought-to-be-linked-to-economic-good-times-nonsense.html">this</a></li> </ul> <ul> <li>China and Russia have warned that attacking Iran <a title="could lead to World War III" href="https://www.google.com/search?q=china+russia+warn+war+iran&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a" target="_blank">could lead to World War III</a></li> </ul> <p><a href="http://feedads.g.doubleclick.net/~a/R2MpwRvahFFTsViivZB79vwuTkU/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/R2MpwRvahFFTsViivZB79vwuTkU/1/da"></img></a></p> </article> <article> <h1>Negative Salaries, Negative Bailout And Now Negative Gold - Greece Just Became The Bankster's Paradise</h1> <p>Tyler Durden — Wed, 22 Feb 2012 21:58:49 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/uyOT4Khy7VDFiIfZc-XbKAC_1xI/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/uyOT4Khy7VDFiIfZc-XbKAC_1xI/1/da"></img></a></p><p>While Iceland is now known as the country that is the closest earthly approximation to <a href="http://www.bloomberg.com/news/2012-02-20/icelandic-anger-brings-record-debt-relief-in-best-crisis-recovery-story.html">banker hell</a>, it is safe to say that Greece is the terrestrial equivalent of banker heaven. Because as explained earlier today, the country's population is about to get a worse deal than your average run of the mill slave - they may get whipped, but at least never have to pay for the privilege, unlike the Greeks. Hence <a href="http://www.zerohedge.com/news/its-official-greece-unveils-negative-salary"><strong>negative salaries</strong></a>. As also explained, the European bailout of Greece, is now formally a Greek bailout of Europe, funded by the country's already negative primary surplus, or better said - deficit (don't try to make mathematical sense of that - a <a href="http://www.youtube.com/watch?v=HY-03vYYAjA">scene out of Scanners </a>is guaranteed). Hence, <a href="http://www.zerohedge.com/news/scandal-greece-receive-negative-cash-second-bailout-it-funds-insolvent-european-banks"><strong>negative bailout</strong></a>. But the <em>piece de resistance, </em>and the reason why Greece is the <em>in situ version </em>of bankster heaven is the news from the <a href="http://www.nytimes.com/2012/02/22/world/europe/euro-zone-leaders-agree-on-new-greek-bailout.html">NYT that </a>Greece is also about to have <strong>negative gold.</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Ms. Katseli, an economist who was labor minister in the government of George Papandreou until she left in a cabinet reshuffle last June, was also upset that <strong>Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal.</strong></p> </blockquote> <p>Well, they may be broke, and they may be bailing out Europe, but at least they'll have no gold: sounds like a sweet deal - it makes perfect sense that Greeks are taking every incremental humiliation from a syndicate of few fat, bald types who have access to a digital money printer, with the supine determination of an Oliver Twist. </p> <p><a href="http://feedads.g.doubleclick.net/~a/RZVyuVeTZKMQlePmQZMd6gafgPI/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/RZVyuVeTZKMQlePmQZMd6gafgPI/1/da"></img></a></p> </article> <article> <h1>Gold Explodes As NYSE Volume Re-Implodes</h1> <p>Tyler Durden — Wed, 22 Feb 2012 21:51:59 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/dwdv9_MFLVng3T4WGxTlkhSa3Jo/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/dwdv9_MFLVng3T4WGxTlkhSa3Jo/1/da"></img></a></p><p><strong>NYSE volume was the 3rd lowest of the year</strong> so far (while ES was just below average) as stocks leaked lower all day to small net losses by the close. <strong>Financials led the drop</strong> in stocks as they start to catch up the credit market weakness we have been pointing to for over a week but while HY (the high yield credit spread index) continues to underperform (and stocks following at a lower beta), IG (investment grade credit spread index) modestly outperforms (the up-in-quality rotation) but <strong>HYG (the high-yield bond ETF) surged</strong> today into a world of its own once again. We suspect this is driven by 'arbitrage' flows between HY's recent richness and HYG's cheapness (as well as potential HY new issue impacts). <strong>Gold </strong>(and to a lesser extent Silver) was the story of the day as it exploded (perhaps on the <a href="http://www.zerohedge.com/news/negative-salaries-negative-bailout-and-now-negative-gold-greece-just-became-banksters-paradise">Greek gold-collateral news</a>) over $1780 intraday (now up over $55 in the last 3 days) although the USD did nothing (<strong>FX </strong>was quiet with JPY inching lower and EUR small higher as DXY leaked higher on the day to -0.25% on the week). The rest of the commodity complex jumped also (with <strong>WTI losing ground into the close even as Brent kept going</strong> - suggesting the spread decompression was in play). <strong>Treasuries </strong>rallied from early in the European day with yields dropping 6-8bps from the peaks and shifting the entire curve into the green for the week now (10y and 30Y around 1bps lower in yield). ES couldn't get significantly above VWAP today and <strong>CSFB's fear index (which tracks equity option skews) is at record highs</strong> which both suggest a preference to sell/cover is appearing (even as VIX diverged modestly from stocks today with implied correlation rising).</p> <p><a href="/sites/default/files/images/user3303/imageroot/2012/02/20120222_ESIGHY.png"></a></p> <p><strong>HY credit spreads (red) continued to widen</strong> from the snap back recovery last Thursday and stocks (blue) are leaking back to that same reality. IG credit spreads (dark red) are staying with stocks for now and modestly outperforming as we see HY-IG decompression (or up-in-quality rotation) showing up. <strong>HYG (green) opened exuberantly</strong>, tried to get back to reality and failed as it closed at its highs. While flows have been very big drivers in this ETF, we note there was some HY issuance today that may have been soaked up by the ETF and that rotation from old to new could have impacted the underlying portfolio (as comparing HY to HYG over the last week or two shows a notable divergence of real credit spreads decompressing and illiquid bonds underlying a beta-chasing ETF rising). </p> <p><a href="/sites/default/files/images/user3303/imageroot/2012/02/20120222_HYvHYG.png"></a></p> <p>We suspect however, that <strong>this HY-HYG 'arbitrage'</strong> as the chart above highlights as the credit derivative market had got a little ahead of itself in the exuberance settings (remember we pointed out how rich the index had become relative to its underlying portfolio of names a week or two back). <strong>Therefore, we would not be getting too excited about HYG's performance today as a trend, as we appear to be very close once again to fair value.</strong></p> <p><a href="/sites/default/files/images/user3303/imageroot/2012/02/20120222_Gold.png"></a></p> <p><strong>Gold </strong>snapped higher today (following Oil and Silver's snap yesterday) as Copper, Silver , and Gold are all now over 3% higher this week (from Friday). WTI managed to get over $106 but the rise in Brent from the middle of the European market day (on rising rhetoric and tensions with Iran) as it made it over $123 and the spread broke $17 on the day kept a modest lid on WTI for now.</p> <p><a href="/sites/default/files/images/user3303/imageroot/2012/02/20120222_COCL.png"></a></p> <p> </p> <p><strong>Treauries </strong>rallied handsomely from early this morning...</p> <p><a href="/sites/default/files/images/user3303/imageroot/2012/02/20120222_TSY.png"></a></p> <p>and while <strong>FX </strong>remained relatiovely calm (as in DXY did not move much broadly), the dispersion among the majors is becoming large - and notably EURUSD is having less impact as GBP and JPY drop away rapidly.</p> <p><a href="/sites/default/files/images/user3303/imageroot/2012/02/20120222_FX.png"></a></p> <p>Finally, the CSFB Fear Index (which tracks how far out of the money a call option must be relative to an equivalent put option - <strong>i.e. a proxy for how skewed the option prices in the S&P 500 are becoming towards negative sentiment</strong>) reached record highs today. As is clear, it is somewhat coincident but certainly seems like a trend change is overdue and the vol, credit, and even stock moves of the last few days suggest momentum is slowing (as are the analogs to 1997 and last year). </p> <p><a href="/sites/default/files/images/user3303/imageroot/2012/02/20120222_CSFB1.png"></a></p> <p>Of course so many are pinning hopes on <strong>next week's LTRO</strong> but we are afraid that this will not achieve the goldilocks feeling everyone hopes for - too large a draw is very worrisome (more subordination for example) and too small is very worrisome (not enough money printing) leaving a small window for 'just right' that unfortunately will not satisfy the monetary expansion hoarding equity market.</p> <p> </p> <p><em>Charts: Bloomberg</em></p> <p><a href="http://feedads.g.doubleclick.net/~a/Y_wMaVzRpK830Bwjgona1AGq3T4/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/Y_wMaVzRpK830Bwjgona1AGq3T4/1/da"></img></a></p> </article> <article> <h1>WTF Did All That Printed Money Go?</h1> <p>ilene — Wed, 22 Feb 2012 21:48:45 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/fPe-9MoUQ1eBfYxwVaW95s5wShs/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/fPe-9MoUQ1eBfYxwVaW95s5wShs/1/da"></img></a></p><h3><span style="font-size: 16px;"><a href="http://affiliate.plugnpay.com/affiliate.cgi?url=http://wallstreetexaminer.com&affiliate=ilene&merchant=capitalsto" target="_blank" title="Permalink to WTF Did All That Printed Money Go?" rel="bookmark">WTF Did All That Printed Money Go?</a></span></h3> <p>Courtesy of <a href="http://affiliate.plugnpay.com/affiliate.cgi?url=http://wallstreetexaminer.com&affiliate=ilene&merchant=capitalsto" target="_blank">Lee Adler of the Wall Street Examiner</a></p> <div> <p>Normally when we think of printing money, we are talking about the Fed buying Treasuries, or some other securities from the Primary Dealers. The PDs then take the cash and buy Treasuries from the government. The Fed's asset base is thereby increased, and an offsetting liability, bank reserves on the Fed's balance sheet, also increases. As long as those reserves lie dormant at the Fed and banks don't use them to increase lending, there's not much problem with consumer price inflation, which the Fed pretends is the only thing that matters.</p> <p>The Fed's been getting away with this kind of printing for a long time now, but there's been some seepage of money into financial assets, driving prices of bonds to the stratosphere and triggering "beneficial" rallies in stocks, and more malevolent rallies in commodities, particularly crude oil, but "core" consumer prices have lain more or less dormant. That lets Bernanke and Co. off the hook because that's what they use to measure inflation, and that's what the mainstream media reports. There's "no inflation." That's more or less in a nutshell what has been happening the past few years.</p> <p>But there's another, different, type of "printing", and this one is literal, honest-to-god printing! Dr. Bernankenstein wasn't joking when he said the Fed had a printing press in the basement (<a href="http://clicks.aweber.com/y/ct/?l=HspVV&m=3bWxkqiZRCLpac.&b=zHgBLEItAr_j77Zp7OiTsA" target="_blank">cue evil laughter</a>). In fact all 12 Fed district banks have printing presses in the basement, and they use them every week. The kind of "printing" I'm talking about is the actual printing of currency-cash, Benjamins et. al. Each week the district Fed banks usually print a total of a billion to several billion in cash, load it in armored trucks, and ship it out to the hinterlands, places like Staten Island, Cleveland, and Afghanistan. The cash shows up as a liability-Federal Reserve Notes- on the Fed's balance sheet because cash, Federal Reserve Notes, are a promise to pay... what? In other words if somebody shows up at 33 Liberty Street, NY with a wheelbarrow full of cash and demanded that the Fed pay up, well then... never mind. Just take my word for it. It's a liability.</p> <p>Also on the Liability side of the Fed's balance sheet as reported weekly in the <a href="http://clicks.aweber.com/y/ct/?l=HspVV&m=3bWxkqiZRCLpac.&b=7QFKV4Zn8I.bB_GMky8xtw" target="_blank">Fed's H.4.1 statement</a> are Treasury deposits, deposits by banks, also known as reserve deposits, reverse repos, Term Deposits of banks when the Fed offers them, and a mysterious category called Other deposits, which are vaguely identified as belonging to the GSEs, other government agencies (the CIA perhaps, hmm...?) and foreign official organizations, as well as the PPT (Plunge Protection Team)- the Exchange Stabilization Fund. But that's a whole 'nother story <a href="http://clicks.aweber.com/y/ct/?l=HspVV&m=3bWxkqiZRCLpac.&b=8iGJKZj1gKUf3_oZyq5DXw" target="_blank">that we've covered before</a>.</p> <p> </p> <div><a href="http://clicks.aweber.com/y/ct/?l=HspVV&m=3bWxkqiZRCLpac.&b=jbFmauXdAQO2cxDOShldIQ" target="_blank"></a> <p>Fed Liabilities 2/15/12 - Click to enlarge</p> <p> </p> </div> <p>For those unfamiliar with the basics of Accounting 101, which is, oh, say 100% of us, the idea is something like physics where for every action there's an equal but opposite reaction. The actual equation looks like this Assets = Liabilities + Capital.</p> <p>In other words, when there's an increase or decrease in a liability, there must be an equal offsetting increase or decrease in an asset, or a different liability, or some combination of the above. Forget about Capital for the time being-it's essentially irrelevant for central bank purposes and I don't want to confuse the issue any more than I already have.</p> <p>Therefore, by the laws of nature, physics, religion, Robert's Rules of Order, and double entry bookkeeping, normally bank reserves on the Fed's balance sheet fall when Treasury balances rise, and vice versa. Think about it. The Treasury spends and where does it go? Into the payee's bank account and therefore up go the banks' accounts at the Fed. Last week the Treasury deposited a net of $0.9 billion to its checking account at the Fed as proceeds from debt sales more than offset the government's normal weekly outlays. This change was minuscule and normally wouldn't have any impact on the Fed's other liabilities.</p> <p>But in spite of the small inflow into the Treasury's account last week, bank reserve deposits at the Fed rose by $37 billion. If it wasn't from Treasury spending, where did all that money come from? Here's your answer, the mysterious "Other" deposits fell by $36 billion. Some "Other" paid entities with bank accounts $36 billion. That's a big number for one week, but the Fed gives absolutely no information on the inflows and outflows from these accounts. I there's there's a lot of 'splainin to do for moving around $36 billion in a week. So much for "transparency." The Fed only wants "transparency" if it will push the market up. Otherwise it's STFU.</p> <p>Just the week before (ended February 8) the Treasury made an enormous withdrawal of about $71 billion to pay turn of the month bills. That's no mystery. It happens every month. About $59 billion of that showed up as reserve deposits as the government payments flowed into bank accounts and the banks instantly deposited the cash at the Fed since they don't have anything better to do with it. That too is as it should be. But wait a minute! What about the other $12 billion? The Fed certainly wasn't going to sell $12 billion in assets as the offsetting transaction to fund the rest of the Treasury withdrawal. The Fed's stated goal is to keep its balance sheet stable at least through June. So where did that $12 billion come from?</p> <p>The Fed seemed to need to jump through hoops to fund that Treasury withdrawal since not not all of it made it back to the Fed's balance sheet in the form of bank reserves. Since the Fed didn't liquidate any assets to fill the gap, it needed to increase a different liability. In addition to increasing reverse repos which is a way of borrowing cash, one of the things the Fed did was to debit currency outstanding by a whopping $8 billion. Up went the basement garage doors and out went those trucks loaded with pallets of bundled Benjamins. We don't know whether the Fed initiated the currency transfer on its own or whether the Treasury or somebody else requested it. It's just another of those things that's hidden behind the Fed's wall of obscurity and obfuscation that the Fed calls "transparency." Good news= Transparent. Bad news= Black Ops News Blackout.</p> <p>Much to my surprise, the Fed did the same thing last week, dispatching truckloads of cash totaling $7.2 billion. While something similar occurred last February, this 2 week printing spree was a new record. Again, we don't know who initiated the "job", but we do know that last week's "request" did not come through the NY Fed. The biggest chunk of it was issued from the basements of the Cleveland and Richmond Feds, of all places, followed by Atlanta and San Francisco. OK conspiracy theorists, Richmond is just down I-95 from DC (and CIA HQ in Langley), but Cleveland? Were the ATMs at the Rock and Roll Hall of Fame having a busy week?</p> <p>Rather than a decrease in a liability being behind last week's printing, this time the asset side of the balance sheet looked like the culprit, as the Fed increased its securities holdings by a net of $18 billion while only liquidating $7.7 billion in undefined "Other" assets and around a billion of other "stuff." That left a $9.6 billion increase in assets that had to show up in liabilities. Only a little over $2 billion of it appeared as reserve deposits. The Fed had to make up the difference by loading up the trucks with pallets of cold, hard cash-$8 billion worth.</p> <div><a href="http://clicks.aweber.com/y/ct/?l=HspVV&m=3bWxkqiZRCLpac.&b=aSXD2waj1jyN36S4tHdDxA" target="_blank"></a> <p>Currency Outstanding Chart- Click to enlarge</p> <p> </p> </div> <p>That 2 week, $15 billion increase in currency outstanding is a record. Furthermore, currency outstanding has now increased by 10% in the past 12 months. Here's a question. How and why does that happen in an economy that has only grown by 2.5%?</p> <p>In fact, from 2003 until 2008, currency outstanding grew at a compound rate of 2.75%. Then from September to December of 2008, the Fed added 6% to the amount of currency outstanding. There was a similar surge from September 2010 and January 2011 and it's been pretty much pedal to the metal ever since. The last 2 weeks looks like an even greater acceleration. I don't know what to think of all this, but maybe it relates to confidence issues in some quarters. Perhaps it is related to the European financial crisis, as some players seek the "safety" of US dollars in safe deposit boxes rather than bank accounts, stocks, bonds, or gold. It certainly isn't due to a rapidly growing economy with a high demand for cash. And why Cleveland and Richmond? If that's not a WTF, what is? I'll leave the answers to your conspiratorial minds.</p> <p>In spite of the curiousness of all this, the overall level of combined reserves on the Fed's balance sheet remains flat and is currently a neutral influence on market liquidity. As for the mountain of cash the Fed just put out on the street, consistent with the Fed's "transparency" policy it's a riddle, wrapped in a mystery, inside an enema.</p> <p><em>Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. <a href="http://affiliate.plugnpay.com/affiliate.cgi?url=http://wallstreetexaminer.com/?page_id=19&affiliate=ilene&merchant=capitalsto" target="_blank">Click this link to try WSE’s Professional Edition risk free for 30 days!</a></em></p> </div> <p><a href="http://feedads.g.doubleclick.net/~a/uw99fjS22f9HW9iU6a_O0Mk7k2U/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/uw99fjS22f9HW9iU6a_O0Mk7k2U/1/da"></img></a></p> </article> <article> <h1>Deja Vu 2011...Or 1997</h1> <p>Tyler Durden — Wed, 22 Feb 2012 21:21:43 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/c5d6hiVtQLLL5V0vyJY9M5lzBxg/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/c5d6hiVtQLLL5V0vyJY9M5lzBxg/1/da"></img></a></p><p>The S&P 500 has had the best start to the year since 1997, and Gas Prices are accelerating rapidly. Two interesting analogs may be useful to think about the next moves in these markets and whether we see divergence. </p> <p><a href="/sites/default/files/images/user3303/imageroot/2012/02/20120222_SPX%201997%20vs%202011%20vs%202012.png"></a></p> <p>S&P 500 2012 performance (green) compared to 2011 (orange) and 1997 (blue) signals perhaps a roll-over is due?</p> <p><a href="/sites/default/files/images/user3303/imageroot/2012/02/20120222_Gas%202011%20vs%202012_1.png"></a></p> <p>and while gas prices have risen rapidly, they are on the same pace (in percentage terms) as they were last year (incredibly). The difference obviously is the much higher base price.</p> <p>What triggered last year's rollover? High energy prices acting as a drag? European dysphoria re-emerging? US growth hope fading?</p> <p><em>Charts: Bloomberg</em></p> <p><a href="http://feedads.g.doubleclick.net/~a/-DuyUgMtALo9btJnIeSRa2wGt14/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/-DuyUgMtALo9btJnIeSRa2wGt14/1/da"></img></a></p> </article> <article> <h1>Number Of European Money Losing Companies Rises For First Time In 2 Years, Doubles</h1> <p>Tyler Durden — Wed, 22 Feb 2012 20:32:16 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/uADYMV3HSp5XrPSFmjktLCF_Vfg/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/uADYMV3HSp5XrPSFmjktLCF_Vfg/1/da"></img></a></p><p>While the record corporate profit bonanza (if <a href="http://www.zerohedge.com/news/cutting-muscle-record-corporate-margin-juggernaut-has-just-rolled-over">now declining</a>) is still the fallback argument for any bearish allegation that the only reason why the market is up 20% in 3 months is due to $2 trillion in liquidity dumped into markets by central banks, this may be about to end quite abruptly, especially if Europe is a harbinger of things to come. As the following chart from Credit Suisse shows, the number of large companies (>500bn market cap) that lose money on an LTM basis (so not just in the quarter, and thus with a much longer lasting effect) has risen in Q4 for the first time since Q3 2009. And while in nominal terms the change is still relatively modest, the actual change in "losing companies" is a doubling from under 5% to 10%, as for the first time in years the percentage of European money losing companies matches that of the US. </p> <p>Since economic decoupling, while completely flawed, can last as long as recently printed money makes its way to the "hottest" markets on the margin, in this case the US, corporate decoupling as a theory is just to naive to even propose. At best the US will be hit with precisely the same lag that David Rosenberg mentioned in early January. The reason for the corporate profitability deterioration: surging input costs courtesy of the recent commodity spike. In other words, the only upside case for stocks, as their earnings are about to turn far more negative is multiple expansion. The same "multiple expansion" that will likely prove to be the same mirage as decoupling once the market digests what David Rosenberg <a href="http://www.zerohedge.com/news/david-rosenberg-taxation-shock-syndrome">discussed just yesterday </a>in the context of the tax shock already unleashed by the administration.</p> <p><a href="/sites/default/files/images/user5/imageroot/2012/01/Company%20Profits%20Negative.jpg"></a></p> <p><a href="http://feedads.g.doubleclick.net/~a/_oscGDzU2xiZybxjQWnE6aPRbXY/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/_oscGDzU2xiZybxjQWnE6aPRbXY/1/da"></img></a></p> </article> <article> <h1>'Til Debt Did Europe Part</h1> <p>Tyler Durden — Wed, 22 Feb 2012 19:36:59 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/4NvCVASqVAXnQxkhyij6SM-qp7o/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/4NvCVASqVAXnQxkhyij6SM-qp7o/1/da"></img></a></p><p>'<strong>All is not resolved</strong>' is how Morgan Stanley's Arnaud Mares begins his latest diatribe on the debacle that is occurring in Europe. While a disorderly default seems to have been avoided (for now), the Greek problem (as we have discussed extensively) remains in play as debt sustainability seems questionable at best, economic recovery a remote hope, and the growing political tensions across Europe (and its people) grow wider. Critically, Mares addresses the seeming complacency towards a Greek exit from the euro area noting that it is no small matter and has dramatic consequences (specifically <strong>a la Lehman, the unintended consequences could be catastrophic</strong>). Greece (or another nation) leaving the Euro invites concerns over the fungibility of bank deposits across weak and strong nations and with doubt over the Euro, the EU could collapse as free-trade broke down. The key is that, just as in the US downgrade case last year, <strong>a Euro-exit implies the impossible is possible and the impact of such an event is much, <em>much </em>higher than most seem to realize</strong>. While the likelihood of a Greek euro-exit may remain low (for now), the scale of the impact makes this highly material and suggests the EU will do whatever it takes (print?) to hold the status quo.</p> <p> </p> <p>Morgan Stanley: Til Debt Us Do Part</p> <p><strong>Of the importance of unintended consequences</strong>.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Our colleague Joachim Fels once described the current stage of the crisis in Europe with the acronym <strong>CCC, standing for a crisis of <span style="text-decoration: underline;">confidence, competency and credibility</span>. One could add a fourth ‘C’ to this list, for <span style="text-decoration: underline;">consequences</span></strong>. A recurrent feature of the global crisis is the unintended consequences of policy actions. Perhaps the two most important milestones of the past four years were policy decisions, whose unanticipated consequences caused in each case a considerable degradation of the situation and extended the crisis both in scope and length. <strong> </strong></p> <p> </p> <p><strong>The first of these events was the decision by US authorities to let Lehman Brothers fail in September 2008</strong>, now widely acknowledged to have been a major policy error. </p> <p> </p> <p>The <strong>second was the decision by European governments to initiate restructuring of public debt in Greece</strong> without having first put in place a robust safety net for solvent governments. This is also now widely regarded as a <strong>policy error</strong>. In each case, we note that many in the market initially applauded these decisions (when not actively calling for them beforehand) without seemingly fully appreciating the consequences.</p> </blockquote> <p> </p> <p><span style="text-decoration: underline;"><strong>Why would a Greek exit from the euro area be so damaging?</strong></span></p> <p><strong>The euro is irreversible. Is it?</strong> The starting point of the analysis is the simple yet immensely important observation that if Greece were to leave the euro, this would imply that the euro is reversible.</p> <p><strong>Breaking down the fungibility of money.</strong> If the euro is reversible, it is not reversible in only one country. It is reversible in all. If Greece can leave the euro, then other countries may also leave the euro at a subsequent date. The implication is what we describe as a breakdown in the fungibility of money.</p> <p>To explain this point, one must consider that in a fiat money system, money is the liability of a bank. It is the liability of the central bank in the case of central money, i.e., banknotes and bank reserves held at the central bank. It is the liability of commercial banks for commercial money, i.e., deposits.</p> <p>As long as the euro and the Eurosystem exist in an irreversible form, these different forms of money are effectively fungible. <span style="text-decoration: underline;"><strong>Should the euro be reversible, however, these different forms of money are no longer completely fungible.</strong></span></p> <p><strong>Federal money versus national money. Which is which?</strong> The euro may be a federal currency, but a deposit in a bank is effectively national money. If a country were to leave the euro, it would most likely be redenominated in that country’s new currency.</p> <p>...</p> <p><strong>Strong money versus weak money. Which is which?</strong> As long as the euro is irrevocable, the distinction made above between federal and national money is irrelevant. By contrast, if the euro were to become reversible, this distinction matters. A euro held in a country more likely to abandon the euro becomes a weaker form of money than a euro held in a country more likely to keep it, with banknotes the strongest form of money.</p> <p>...</p> <p><strong>How a run on money would unfold.</strong> In a situation where different forms of money are no longer entirely fungible, what one ought to expect is a run away from the weaker forms of money towards the stronger forms.</p> <p> </p> <p><a href="/sites/default/files/images/user3303/imageroot/2012/02/20120222_MS1.png"></a></p> <p><strong>The erosion of deposits in Greece and Ireland provides but a glimpse of what would happen elsewhere if Greece exited the euro.</strong></p> <p><strong>Contagion ought to be a familiar pattern by now</strong>. To illustrate this point, it suffices to recall that the failure of Lehman Brothers closed access to capital market and interbank funding to all banks, regardless of whether they were solvent or not. Similarly, the initiation of PSI for euro area sovereigns caused contagion not just to Ireland and Portugal but also to Spain, Italy, Cyprus, etc., and eventually France and Austria, regardless of whether the governments of these countries were objectively solvent or not.</p> <p>...</p> <p><strong>No line of defence?</strong> The precedent of deposit haemorrhage in Greece and Ireland is nonetheless relevant in that it highlights the tools necessary to counter a bank run.</p> <p><strong>In a situation of a bank run, what prevents catastrophic outcomes (widespread bank failure) is the ability and willingness of the central bank to replace deposits and fund banks directly itself</strong>. This is what happened in Greece and Ireland, where the Eurosystem increased its lending to domestic banks.</p> <p><span style="text-decoration: underline;"><strong>Limits to the ability of the Eurosystem to intervene</strong></span>... The Eurosystem is however <strong>constitutionally constrained to only lending to banks against ‘adequate’ collateral</strong>.</p> <p>…<strong>and perhaps limits to its willingness</strong>. More fundamentally, if the euro were to become reversible, the nature of the risk taken by the central bank by replacing deposits would change substantially.</p> <p> </p> <p><a href="/sites/default/files/images/user3303/imageroot/2012/02/20120222_MS2.png"></a></p> <p> </p> <p><strong>And the credit crunch would likely come back</strong>. Arguably, the points we have listed here are of secondary importance. More important is the fact that <strong>if banks lost their deposits, they are very unlikely to extend credit to the economy.</strong></p> <p>...</p> <p><strong>Conclusion: if one country goes, it is monetary union that goes.</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Our conclusion at this stage is that <strong>Greece leaving the euro would not be a local event</strong>. It would change the nature of money everywhere across the euro area by making the euro reversible. It would turn most of money supply (commercial money) back into national money. It would hinder the ability (and possibly willingness) of the Eurosystem to act as a lender of last resort for the entire euro area banking system. <strong>For all practical purposes, it would be the end of the euro as a genuine single currency</strong>. It would also likely trigger an unstoppable run on banks, which would push large parts of the continent onto a depressionary and politically painful path.</p> </blockquote> <p><strong>To preserve the euro if Greece left would require total federalism in the rest of the area.</strong></p> <p><a href="http://feedads.g.doubleclick.net/~a/0_jlpk6cXbhQrwAUNx34uxu6BzE/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/0_jlpk6cXbhQrwAUNx34uxu6BzE/1/da"></img></a></p> </article> <article> <h1>Gold = 1776</h1> <p>Tyler Durden — Wed, 22 Feb 2012 19:16:15 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/iiWR3wS0Egr3DP_m4Wx8iZ6KsnU/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/iiWR3wS0Egr3DP_m4Wx8iZ6KsnU/1/da"></img></a></p><p>Just because it is a nice, round, and <strong>very </strong>symbolic number...</p> <p><a href="/sites/default/files/images/user5/imageroot/2012/01/20120222_gold1776.png"></a></p> <p><a href="http://feedads.g.doubleclick.net/~a/3XMSSTYXnhPFVVrh3nZruyvmOgg/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/3XMSSTYXnhPFVVrh3nZruyvmOgg/1/da"></img></a></p> </article> <article> <h1>Paleokostas/Kodos 2012</h1> <p>Tyler Durden — Wed, 22 Feb 2012 18:54:25 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/wY2xhaIKW6TblwEftEyfGZKO5zE/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/wY2xhaIKW6TblwEftEyfGZKO5zE/1/da"></img></a></p><p>Somehow out of the blue, the strangely morbid yet delightfully Hollywood-esque story of Greek modern day Robin Hood Vassilis Paleokostas re-emerged today. Which, considering the latest developments out of Greece is probably <a href="http://www.zerohedge.com/news/scandal-greece-receive-negative-cash-second-bailout-it-funds-insolvent-european-banks">oddly appropriate</a>: if there is anything the Greek population needs now to finally free itself of its usurping, unelected and banker-appointed technocratic oligarchy, which does nothing but keep selling the nation ever further down the river just so it can use Greece as a passthru funding vehicle to keep Europe's banks solvent, it is many more like Paleokostas. And incidentally, so does the US, when considering the farce the country's "democratic process" has become, where both parties are merely representative agents of the Wall Street banking class (recall who the <a href="http://www.zerohedge.com/news/guess-politician-and-follow-money">main funders are</a> of the last three presidential campaigns). It is thus our belief that in keeping with the endless global Onion-esque farce that has gripped the world, Kodos (of Simpsons fame) is a perfect running mate for Paleokostas' presidential campaign - a campaign that is suitable not just for the US, but for any country which is controlled not by democratic checks-and-balances, but by bank issued checks (backed by nothing but electronic "money"). Because the farce will truly be strong with those two. And that, unfortunately, is all that makes any sense in this centrally planned world.</p> <p>Courtesy of our own William Banzai, the campaign art work is already prepared.</p> <p><a href="/sites/default/files/images/user5/imageroot/2012/01/PALEOCOSTAS.jpg"></a></p> <p> </p> <p>Why Paleokostas? A brief primer on Paleokostas courtesy of <a href="http://www.badassoftheweek.com/paleokostas.html">badassoftheweek.com</a></p> <p style="text-align: center;"><strong>Vassilis Paleokostas</strong></p> <p>What do you get when you cross Jesse James, Robin Hood, and Jack Bauer in the body of a giant, bearded, bald Greek man?<br />Meet Vassilis Paleokostas:</p> <p></p> <p>This crazy, utterly fearless dude is public enemy number one in Greece, and probably one of the most badass motherfuckers to come from the country since the days of our friend <a href="http://www.badassoftheweek.com/spartans.html">Leonidas</a>.</p> <p>Vassilis' story starts back in the early 90s, when he went on an insane crime spree of delicious armed robbery, blackmail, extortion, and kidnapping. Basically, his <em>modus operandi</em> was to kidnap a super-rich bastard, hold him for a ridiculous ransom, and then sell him back to his stupid family in exchange for giant piles of cold, hard cash. Then, he'd take that bling, keep a small percentage of it for himself, and distribute the rest of his newly-acquired wealth to impoverished farmers of the tiny rural province in which he grew up. The dude quickly made a name for himself as the Robin Hood of Greece, and was beloved by fans of badassery, the people of the lower classes, and pretty much anybody else he wasn't in the process of robbing or extorting for money. Shit, even the fucking people he kidnapped came out later and said that he was very polite and respectful to them while they were in captivity, and that it was pretty much the most pleasant kidnapping they'd ever experienced. That should give you some indication of what this dude was all about – steal from the rich, give to the poor, make a profit in the process, and be completely awesome all of the goddamned time. He also made a vow never to harm a member of the public in his criminal escapades. He's been true to his word.</p> <p>In true badass fashion, Vassilis Paleokostas also has a trusty sidekick – a lunatic Albanian named Alket Rizai. Rizai is like the Friar Tuck in this story, only if instead of being a benevolent, staff-swinging priest, the clergyman was a crazy gunman with a hair-trigger and a penchant for firing automatic weapons at heavily-armed tactical police officers. Rizai is currently up on charges for murder, though I haven't really been able to track down any details about any of that (that's the problem with trying to research current events, I suppose). My assumption is that he was being attacked by some evil corrupt officers sent by the Sherriff of Nottingham and responded by burning a full clip of Uzi ammunition into them, jumping through a plate glass window, rescuing a damsel in distress, and swinging off on a chandelier with a hot babe clinging to his rippling biceps. According to a Greek friend of mine, this guy once blew up a known Mafia hangout by shooting it with a fucking rocket launcher.</p> <p>Of course, the downside to being a career criminal – even a happy-go-lucky one who commits non-violent crimes in the name of the oppressed populace – is that eventually the long arm of the law is going to bitch-slap you in the fucking face really really hard. In 1995, Vassilis Paleokostas was caught by the fuzz, convicted of kidnapping, robbery, and weapons charges, and hauled off to a federal pound-me-in-the-ass penitentiary known as Korydallos Prison.</p> <p> </p> <p></p> <p> </p> <p>Now over the years, Korydallos Prison has gained a reputation as being one of the harshest and most brutal prisons in Greece. This place is like a mix between Andersonville, Oz, and that stupid plastic box they keep Magneto inside in the X-Men movies. The warden is a hardass son-of-a-bitch, the guards don't give a shit, and people that go inside the facility never come out.</p> <p>Except Vassilis Paleokostas.</p> <p>In June 2006, Paleokostas' older brother (another pathological criminal who is now serving jail time on 16 counts of armed robbery) commandeered a helicopter, and landed it right in the middle of the fucking exercise yard of the prison in broad daylight. The armed guards at Korydallos, not expecting to be subjected to such an unbelievable display of gigantic steel-plated testicles, assumed that this chopper belonged to the warden or the Chief of Prisons or something, and instead of investigating it they all decided to make sure their shoes were appropriately spit-shined so as not to incur a citation from their wrathful bosses. Vassilis (who had orchestrated the entire operation from the beginning) and his Albanian buddy simply walked up to the helicopter, hopped inside, and lifted off. By the time the guards got their heads out of their asses and started firing their guns at the bird, it was already too late. Paleokostas had escaped.</p> <p>So the Greek police put out an all-points bulletin, and a nation-wide manhunt began for the Greek Robin Hood. Officers, dogs, and federal agents scoured the countryside for this fugitive day and night, relentlessly following leads and doing everything in their power to bring this wanted criminal to justice.</p> <p>Paleokostas evaded them for two and a half years. He lived in the mountains outside Athens, evaded all attempts to recapture him, and even orchestrated another high-profile kidnapping in the process – snatching a powerful jackass CEO industrialist, ransoming him for a huge wad of cash, and once again distributing the loot to local farmers and families. There are also rumors that he planned and executed another kidnapping while he was still incarcerated, which is bonus points no matter how you look at it.</p> <p>In August 2008, Paleokostas was tracked down and re-captured by the Greek police. He was placed in a different maximum security facility, where he was held for another six months, awaiting trial for his brazen escape in 2006. On 21 February 2009, Vassilis Paleokostas was transferred back to his old home – Korydallos Prison. His trial was to begin on the 23rd, and he was to stay in his former holding area while he stood trial for this crime.</p> <p>But he never made it to trial. The very next day, 22 February, ANOTHER FUCKING HELICOPTER showed up in the skies above Korydallos Prison. It flew over a large tower of the prison, lowered a long rope ladder, and Vassilis Paleokostas and Alket Rizai climbed up into the chopper. As the helicopter flew off into the sunset, the prisoners of Korydallos cheered.</p> <p> </p> <p></p> <p> </p> <p>Greek police opened fire on the chopper as it flew off, but a woman returned fire with an AK-47 assault rifle. Now having hot Greek babes with automatic weapons come save your ass from prison isn't the sort of thing that happens to normal people every day, but that's just how things work out for you when you're a badass like Vassilis Paleokostas.</p> <p>The police eventually tracked down the helicopter, and found that it had ditched on the side of the road outside Athens with a bullet hole in the gas tank. According to the pilot, Paleokostas and his associates left the chopper and drove off on totally sweet motorcycles to an undisclosed location. They also popped some totally bitchin' wheelies while doing so.</p> <p>Vassilis not only earned his freedom for the second time, and once again showed the world that his ballsack is roughly the size of a small continent, but he also got some sweet delicious revenge on the motherfuckers in charge of the Greek prison system at the same time. For allowing the same guy to escape the same prison in the same manner twice in a row, the Greek government fired the country's Chief of Prisons, the Inspector-General of Prisons, the warden of Korydallos, and three guards at the facility. They all learned what it means to step to somebody as awesome as the Greek Robin Hood.</p> <p>Vassilis Paleokostas is fully rad because he kicked ass, won the respect of the people, said "fuck you" to the police, and managed to single-handedly place the country's three top-ranking prison officials in the back of the unemployment line.</p> <p>He is still at large.</p> <p> </p> <p> </p> <p><em>And why Kodos? </em>Simple</p> <p><param name="movie" value="http://www.youtube.com/v/qk12ALX9fz8?version=3&hl=en_US" /><param name="allowFullScreen" value="true" /><param name="allowscriptaccess" value="always" /></object></p> <p><a href="http://feedads.g.doubleclick.net/~a/0yHZKBDPE0C-QuRqiaNhCtA_C44/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/0yHZKBDPE0C-QuRqiaNhCtA_C44/1/da"></img></a></p> </article> <article> <h1>In Eerie Replay Of 2011, Gold Spikes Abruptly To Over $1770, Silver Follows</h1> <p>Tyler Durden — Wed, 22 Feb 2012 18:33:18 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/U0PTKs7NNF4bl2lD8hDlW0Uuq9c/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/U0PTKs7NNF4bl2lD8hDlW0Uuq9c/1/da"></img></a></p><p>Day after day, the long overdue correction of gold to fair value which as we have discussed previously, is now at about $2000 based on the recent <em>multi-trillion Central Bank balance sheet expansion, </em>keeps getting delayed, providing cheap entry points to all real money adherents. And then we get moments like the past 10 minutes, when gold goes on the same kinds of buying sprees that we remember best from the summer of 2011. With no news at all, in a span of minutes, both gold and silver have soared, with gold touching on $1772, and now about $150 away from its all time highs. The return of gold now is 13% YTD, compared to the far lower 8.4% return for the general market. Why the move? A big buyer obviously. But besides that, why the hell not - when one considers that the last time gold was over $1900, <strong>total central bank assets <a href="http://www.zerohedge.com/news/gold-surges-market-remembers-definition-dilution">were $2 trillion less</a></strong>, it is a miracle gold is not far, far higher. The catalyst this time according to some is the "sudden realization" that in one week the <a href="http://www.ecb.int/press/pr/wfs/2012/html/fs120221.en.html">ECB's balance sheet </a>is about to increase by at least 20% courtesy of the latest and greatest LTRO. According to others, it is "more buyers than sellers." Both are right. As a reminder: we have warned <em>repeatedly </em>that the <a href="http://www.zerohedge.com/news/here-why-dow-just-passed-13000">massive balance sheet expansion </a>is spilling over out from equities and into everything else, including gas and now, gold. We pointed out that the biggest trade off of a soaring market could well be the one thing that derails Obama's presidential campaign. Now the only other thing that could stop central bankers from their CTRL+P frenzy - the surge in real money - is starting, and unlike 2011, it is starting quite early this time around. As we said <a href="http://www.zerohedge.com/news/presenting-goldman-wall-worry-and-one-key-item-missing">over the weekend</a>: inflation is a-coming back.</p> <p><a href="/sites/default/files/images/user5/imageroot/2012/01/Gold%202.22.jpg"></a></p> <p><a href="http://feedads.g.doubleclick.net/~a/kdPaKic6DZpgWQwrGweGPJtRBeI/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/kdPaKic6DZpgWQwrGweGPJtRBeI/1/da"></img></a></p> </article> <article> <h1>Treasury Prices $35 Billion In Forgettable 5 Year Auction</h1> <p>Tyler Durden — Wed, 22 Feb 2012 18:21:16 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/BZzescPMA6JomoaeOpS5jsudR-0/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/BZzescPMA6JomoaeOpS5jsudR-0/1/da"></img></a></p><p>Little to note about today's unremarkable bond auction of $35 billion in <a href="http://www.treasurydirect.gov/instit/annceresult/press/preanre/2012/R_20120222_2.pdf">5 Year bonds</a>. Hot on the heels of yesterday's just as unremarkable 2 year bond auction, which saw total US debt/GDP surpass 101% two weeks after total debt/GDP rose over 100% for the first time, the details surrounding today's issuance were more or less as expected: the closing yield of 0.90% was inside the When Issued of 0.905%. The Bid To Cover was 2.89, weaker than January's 3.17, but right inline with the TMM BTC of 2.89. The Indirects took down 41.8%, Directs 12.9%, and the Dealers held at 45.3%, all in line with TTM average, so nothing to write home about. Overall an auction that just added a few pips to the total US debt/GDP, with the proceeds, especially by the Dealers, promptly to be pledged back into the repo market with the blessings of BoNY and State Street, where it is never heard from again. </p> <p><a href="/sites/default/files/images/user5/imageroot/2012/01/5%20Year%20Auction.jpg"></a></p> <p><a href="http://feedads.g.doubleclick.net/~a/0cd-b3O-5o0bmKxmVfyJezUmaZM/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/0cd-b3O-5o0bmKxmVfyJezUmaZM/1/da"></img></a></p> </article> <article> <h1>Guest Post: When Risk Is Disconnected From Consequence, The System Itself Is At Risk</h1> <p>Tyler Durden — Wed, 22 Feb 2012 17:23:36 +0000</p> <p><a href="http://feedads.g.doubleclick.net/~a/ylVqKYEAMoiI82LoOMnrzX-0X98/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/ylVqKYEAMoiI82LoOMnrzX-0X98/1/da"></img></a></p><p><em>Submitted by Charles Hugh Smith from <a href="http://www.oftwominds.com/blogfeb12/risk-consequence2-12.html">Of Two Minds</a></em></p> <p><strong>When Risk Is Disconnected From Consequence, the System Itself Is at Risk</strong></p> <p><em>If we understand risk cannot be eliminated, it can only be transferred, then we will understand why the current financial trickery in Europe and elsewhere is doomed to fail.</em></p> <p><strong>The entire global economy's fundamental financial instability can be traced back to one simple rule of Nature: risk cannot be eliminated, it can only be transferred to others or masked</strong>. And when it is transferred to others or masked, then the causal feedback between risk and consequence is severed.</p> <p><strong>Once risk has been disconnected from consequence, then it is impossible to discover the price of capital and risk</strong>. Once capital and risk have been mispriced, then the inevitable result is misallocation of capital and a positive feedback loop of self-referential, self-reinforcing risk.</p> <p>Once the causal negative feedback of the real world--consequence--is no longer available to those taking on risk, then only positive feedback remains. Positive feedback inevitably leads to runaway reactions that self-destruct.</p> <p><strong>This can be illustrated by imagining yourself in a casino where a consortium will guarantee your losses up to $1 million</strong>. We call the disconnect of risk from the resulting gain/loss "moral hazard," and to understand the ramifications of moral hazard, we need only compare the actions of two gamblers in the casino: one is using his own money, the other has none of his own capital at risk, and his losses will be covered up to $1 million.</p> <p><strong>How much risk will you take on in gaming if you can lose $1 million without any loss to yourself</strong>? Obviously, we will accept enormous risks because if we win the high-risk bet, the gain will be ours to keep. Low-risk bets yield low returns but high-risk bets yield high returns.</p> <p>If our losses will be transferred to others, then why waste time betting on low-risk, low-return "red" at the roulette wheel? Let's bet on single numbers because the payoff will be astronomical.</p> <p><strong>If we actually score a few high-risk "wins," this success feeds our risk appetite</strong>. This is a positive feedback loop: our wins reinforce our risk appetite, while negative feedback (the losses from losing bets) no longer register--they have been eliminated from our calculations of risk and gain.</p> <p><strong>This positive feedback eventually leads us to make stupendously large bets</strong>. Eventually, we bet $1 million on a high-risk play and lose. We are wiped out, but oh well, it was fun while it lasted. If we were especially disciplined and clever, we squirreled away some of our winnings in our own account: we kept the gain and the consortium took all the losses.</p> <p><strong>The risk didn't vanish, it was simply transferred to others who now bear the cost of the unfettered risk being played with abandon</strong>. The consortium who financed the no-risk gambling spree now has to absorb the $1 million in loss. If the consortium masked its own risk by presenting a phantom financial security to the casino, then the casino will have to absorb the loss.</p> <p><strong>In effect, the risk was transferred to the entire system</strong>. Since the consortium is made up of many investors, and the casino has many investors, then the risk and loss was effectively spread over many participants. The $1 million loss, catastrophic to any one player, is effectively distributed to everyone in the system.</p> <p>When losses are trivial compared to the size of the system, then this distribution of transferred risk results in a modest loss to all participants.</p> <p>But let's suppose the player with the $1 million backstop was extraordinarily successful with insanely high-risk bets, and he built the $1 million stake into $100 million, which he then rolled into several stupendous bets.</p> <p>He loses, because the risk of gambling hasn't been elminated, it has only been masked and transferred to others. Now the consortium faces a loss 100 times its guaranteed backstop, and since its capital is only $10 million, it is also wiped out and leaves the casino with $90 million in uncollectible debt.</p> <p>If the casino needs that $90 million to pay its own speculative debts, then it too will be wiped out.</p> <p><strong>This is how one player who manages to mask or transfer risk to others can bring down entire systems</strong>. The risk only appears trivial and manageable at the start, but since the negative feedback of consequence (reality) has been eliminated from the players' perspective, then risk piles up in a self-reinforcing positive feedback.</p> <p>Since the system itself has disconnected risk from consequence with backstops, guarantees and illusory claims of financial security, then it is has lost the essential feedback required to adapt to changing circumstances. As the risk being transferred to the system rises geometrically, the system is incapable of recognizing, measuring or assessing the risk being transferred until it is so large it overwhelms the system in a massive collapse/default.</p> <p><strong>The consortium has only two ways to create the illusion of solvency when the punter's $100 million bet goes bad: </strong>borrow $100 million from credulous possessors of capital or counterfeit it on a printing press. These are precisely the strategies being pursued by central banks and states around the globe. BUt since risk remains disconnected from gain/loss, then capital and risk both remain completely mispriced.</p> <p>Risk is being transferred to the entire global financial system at a fantastic rate, because counterfeiting money or borrowing it on this scale to cover losses creates new self-reinforcing feedbacks of risk.</p> <p>As long as risk is being masked or transferred to others who don't reap the gain, they only reap the losses, then the system is doomed to self-reinforcing instability and eventual collapse.</p> <p>The only solution is to enforce the causal connection between risk and consequence: those who took the risk have to absorb all the loss. Since risk cannot be eliminated, it can only be masked or transferred, then all the tricks that are being played out in Europe, China, Japan and the U.S. are only enabling risk to pile ever higher in the system itself.</p> <p>At some unpredictable stick/slip point, the accumulated risk will cause the system to implode like a supernova star. </p> <p></p> <p><a href="http://feedads.g.doubleclick.net/~a/-X5tpM5OKZDUj9PH_UKyX61SkBY/0/da"></img></a><br/> <a href="http://feedads.g.doubleclick.net/~a/-X5tpM5OKZDUj9PH_UKyX61SkBY/1/da"></img></a></p> </article> </main></body></html>