In this article, Peter Schiff discusses the practical problems with a government’s abrogation of contract and property rights for some "contrived greater good." That is deeply disturbing enough but it goes further. Our Constitution gave specific powers to different branches of government to hold the powers of government in check. The loss of these checks and balances goes beyond the financial world "twilight zone" horrors unfolding before us now, it undermines the entire structure of our governance. – Ilene
“Crony capitalism” is a term often applied to foreign nations where government interference circumvents market forces. The practice is widely associated with tin-pot dictators and second-rate economies. In such a system, support for the ruling regime is the best and only path to economic success. Who you know supersedes what you know, and favoritism trumps the rule of law. Unfortunately, this week’s events demonstrate that the phrase now more aptly describes our own country.
On Monday, the Supreme Court refused to hear an appeal from Chrysler’s secured creditors based on the government’s argument that the needs of other stakeholders outweighed those of a few creditors. In this case, the Administration concluded the interests of the United Auto Workers outweighed the interests of the Indiana teachers and firemen whose pension fund sued to block the restructuring. Given the enormous financial support that the UAW poured into the Obama campaign, such partiality is hardly surprising.
When making their investment in Chrysler just a few months ago, the Indiana pension fund agreed to commit capital because of the specific assurances received from the company. In allowing this sham bankruptcy to be crammed through the courts, we have shredded the vital principal of the rule of law, and have become a nation of men, rather than one of laws.
The risk that legal contracts can now be arbitrarily set aside will make investors think twice before committing capital to distressed corporations. Oftentimes enforcing contracts imposes hardships. That’s precisely why we have contracts.
Without absolute faith that deals will be honored, it will be extremely difficult for U.S. companies to borrow money. This will be particularly true for those companies already struggling with too much debt. Without the ability to issue secured debt,…
The latest casualty in the synthetic CDO/subprime implosion is the State of Wisconsin’s Kenosha Unified School District. Although seeing how the school district has launched an all out lawsuit against StifelNicolaus, and more specifically its then-SVP David Noack, as well as RBC, for selling them synthetic CDOs as “riskless,” in which the school districts ended up investing $200 million, this one could be tricky – is it the schools’ fault for not doing any homework before investing essentially all their OPEB offsets into some credit-bubble-peak zany scheme, or Stifel’s for taking advantage of gullible investors and misrepresenting associated risks.
Some of the main highlights from the lawsuit:
When questioned by the Plaintiffs about the make-up of the underlying collateral, and the potential existence of any sub-prime debt, Noack contacted Deb Pederson of RBC Global with that inquiry. Ms. Pederson assured Noack that the CDO had no direct exposure to sub-prime debt in the portfolio. Noack then represented to Plaintiffs that there was no sub-prime debt in the portfolio. This representation on the part of Ms. Pederson was materially false and known by her to be false at the time it was made, in circumstances where she well knew the information would be communicated to Plaintiffs, and that Plaintiffs would rely on it.
Regarding the nature of the CDO investments and their attendant risks, Defendants and their agents, including Pederson, Noack and Brewer, made numerous false representations to each of the School Districts, including but not limited to, misrepresentations that used the following words or words to that effect:
• “On the investment side, we’re sticking to AA/AAA.” • “These are safe AA/AAA type investments.” • “It’s a AA rated investment [and . . .] meets statute prior to new rules that allow you to invest in anything, so we’re staying on the conservative side.” • “It takes 20 out of these 100 companies to default
What happened to the global economy and what we can do about it
1. Financial markets have stabilized – largely because people believe that the government will not allow Citigroup to fail. We have effectively nationalized any banking system losses, but we’ll let bank executives enjoy the full benefits of the upside. How much shareholders participate remains to be seen; there will be no effective reining in of insider compensation (my version; Joe Nocera’s view). For more on how we got here, see the Frontline documentary that airs on Tuesday and Paul Solman’s explainer wrap up.
2. The real economy begins to bottom out, although unemployment will not peak for a while and could stay high for several years. Longer term growth prospects remain uncertain – has consumer behavior really changed; if finance doesn’t drive growth, what will; is the budget deficit under control or not (note: most of the guarantees extended to banks and other financial institutions are not scored in the budget)?
3. More broadly, there is sophisticated window dressing in the pipeline but no real reform on any issue central to (a) how the banking system operates, or (b) more broadly, how hubris in finance led us into this crisis. The financial sector lobbies appear stronger than ever. The administration ducked the early fights that set the tone (credit cards, bankruptcy, even cap and trade); it’s hard to see them making much progress on anything – with the possible exception of healthcare.
4. The consensus from conventional macroeconomics is that there can’t be significant inflation with unemployment so high, and the Fed will not tighten before late 2010. The financial markets beg to differ – presumably worrying, in part, about easy credit leading to dollar depreciation, higher import prices, and potential commodity price inflation worldwide. In all recent showdowns with standard macro models recently, the markets’ view of reality has prevailed. My advice: pay close attention to oil prices.
5. Emerging markets are increasingly viewed as having “decoupled” from the US/European malaise. This idea was wrong in early 2008, when it gained consensus status; this time around, it is probably setting
Here in the United States, four decades of drug war have had three consequences:
1. We have vastly increased the proportion of our population in prisons. The United States now incarcerates people at a rate nearly five times the world average. In part, that’s because the number of people in prison for drug offenses rose roughly from 41,000 in 1980 to 500,000 today. Until the war on drugs, our incarceration rate was roughly the same as that of other countries.
2. We have empowered criminals at home and terrorists abroad. One reason many prominent economists have favored easing drug laws is that interdiction raises prices, which increases profit margins for everyone, from the Latin drug cartels to the Taliban. Former presidents of Mexico, Brazil and Colombia this year jointly implored the United States to adopt a new approach to narcotics, based on the public health campaign against tobacco.
3. We have squandered resources. Jeffrey Miron, a Harvard economist, found that federal, state and local governments spend $44.1 billion annually enforcing drug prohibitions. We spend seven times as much on drug interdiction, policing and imprisonment as on treatment.
It’s now broadly acknowledged that the drug war approach has failed.
MP: Note the "War on Drugs" is actually a war against generally peaceful American citizens who decide to buy, sell or ingest drugs that are somewhat arbitrarily considered to be illegal by government officials, e.g. cannabis sativa, an annual, dioecious flowering herb that grows naturally all over the world.
The leveraged loan market got accustomed to big numbers over the past decade. There’s $3.6 trillion, the amount of leveraged loans made since 2000, according to Thomson Reuters’ Loan Pricing Corp. There’s 735-fold, the amount of growth between 2003 and 2007 in the volume of collateralized loan obligations — the funds that helped fuel the loan market’s surge after the tech and telecom bust of 2001. And there’s $375 billion, the amount of bank debt used to fund leveraged buyouts completed between 2005 and 2007.
But right now, the leveraged loan market is fixated on one number: $430 billion, the amount in leveraged loans due to mature between 2012 and 2014. Despite the big numbers of the past, this might be simply too big. Indeed, the $430 billion figure is already worrying lenders, borrowers and loan-market investors alike as they struggle with the possibility that a large portion of those loans will neither be repaid nor refinanced, raising the specter of a wave of defaults among the debt-fueled LBO borrowers of 2005 through 2007.
As one executive at a private equity firm describes it, the availability of so much cheap debt profoundly affected how sponsors did business because it encouraged them to change their focus. "The PE firms were not investing in specific industries," he says. "They were investing in the capital markets."
This strategy was predicated on faith that loans could be continually refinanced, that exit options in the form of the equity markets or mergers and acquisitions fueled by more financing would be easily available and lead to profits that justified the outsized risk the sponsors were taking. There was also the belief that an ever-expanding economy would allow companies to keep increasing their Ebitda and pay down debt. The strategy had more than a few similarities with the one used by people who borrowed in increasing amounts to finance home purchases and hoped for either a quick flip or continually rising prices that would make debt more manageable.
The article discusses various ways that this debt can be paid back, but I am inclined
Except for bankruptcy attorneys, most want the massive spike in foreclosures to end. However, it is impossible to wish foreclosures away or for that matter legislate them away. Unfortunately, economic illiterates do not understand the dynamics.
California is imposing a 90-day moratorium on housing foreclosures under a new law that takes effect Monday.
The law is expected to make lenders try harder to keep borrowers in their homes. Loan companies must prove they tried to modify the delinquent loans before they can begin foreclosing.
But supporters acknowledge the California Foreclosure Prevention Act won’t stop thousands of foreclosures from eventually happening. There have been more than 365,000 foreclosures in California since early 2007, with many more already scheduled.
This bill is no more likely to work than a bill declaring poverty to be illegal or the sky to be green.
Home prices will bottom when they bottom, unemployment will bottom when it bottoms, and foreclosures will stop when they stop. Those are simple economic facts.
The 90 day extension gives anyone sitting on the edge of walking away as well as those wanting a reduction in principle an incentive to stop paying their mortgage, safe and secure in the fact they cannot be thrown out of their house for another 90 days.
This bill is pure idiocy and will not stop a single foreclosure. Instead, the bill will increase late pays and foreclosures. It’s an exercise of sheer stupidity.
There’s interesting chatter in the “Dow Theory” community as to whether we’re experiencing a non-confirmation in the Industrials and Transports currently – namely, the Industrials are at a new high for 2009 and are above the 200 day SMA while the Transports are not. Let’s take a look at both.
Dow Jones Industrial Index:
One may also ask the question “Is there a ‘Three Push’ Reversal pattern forming in the Dow Jones?” It would appear so, with three consolidating ‘pushes’ or impulses up that have formed on three lower highs in the 3/10 Momentum Oscillator. That alone is a serious non-confirmation of higher prices.
We also see a volume divergence setting in underneath price, with volume in the Dow Jones Index (1.1 Billion today) reaching a level that is clearly below the recent average – more importantly is the “trailing off.”
One can also see the multitude of ‘dojis’ (often known for their ‘reversal’ signal) that have formed over the last two weeks – that is showing signs of serious indecision.
In terms of Dow Theory, the Industrials have made a new high and have risen above their 200 day Simple Moving Average which is classically bullish… but the Transports Index has not.
Dow Jones Transportation Index:
Again, while the Dow recently formed new highs for 2009, the Transports could neither break above their May highs nor its 200 day simple moving average.
A negative momentum divergence has also formed as well as a negative volume divergence.
I could have easily titled this post “Major Sell Signal in the Dow Jones Index” but I dare not be so bold, given the ability of the market to rise against a negative fundamental and technical backdrop.
From a chart (technical) standpoint, the chart is literally screaming “sell signal,” but still we operate in a world of probabilities and stranger things have happened, so do continue to guard your risk and do your own analysis for additional insights.
"No one realized how bad the economy was. The projections, in fact, turned out to be worse. But we took the mainstream model as to what we thought — and everyone else thought — the unemployment rate would be."
"Everyone guessed wrong at the time the estimate was made about what the state of the economy was at the moment this was passed."
"The bottom line is that jobs are being created that would not have been there before."
"Can I claim credit that all of that’s due to the recovery package? No. But it clearly has had an impact."
Please review a collection of WWW browsing results.Date Found: Friday, 16 January 2015, 09:55:47 PM
Click for popup. Clear your browser cache if image is not showing. Comment: Volatility Is back across all asset classes. Price discovery reverting to the mean.
Date Found: Saturday, 17 January 2015, 04:18:13 PM
Click for popup. Clear your browser cache if image is not showing. Comment: US Velocity of money, historic lows. $4.8 trillion on Fed balance. None of it getting to the masses. Deflation is at the door.
Date Found: Sunday, 18 January 2015, 10:44:09 PM
Click for popup. Clear your browser cache if image is not showing. Comment: Gold teasing...
"In the minds of the statists, "Government Works Better" and 'things' work at the surface; but at the core, it's a disaster... The Americans that look to the government to 'save' them - and even gleefully thank the government for helping bail them out - fail to realize that it was the government that f##ked them in the first place..."
Simply put, "debt-financed socialism and corporatism isn't working" and a day of reckoning is coming...
(ETFTrends.com by Todd Shriber): "Betting on insider buying is again proving to be an efficacious strategy as the Direxion All Cap Insider Sentiment Shares (NYSEArca: KNOW) has been noticeably less bad than the S&P 500 to start 2015. Add to that, investors are warming to the merits of KNOW's insider sentiment strategy." [Editor's note: KNOW tracks the Sabrient Multi-cap Insider/Analyst Quant-Weighted Index (SBRQAM)]. Read article
Suppose you had the technical ability and raw materials to print up counterfeit dollars, euros or yen that were identical to the real things. Assume you could spend them as fast as you could create them with no fear of any repercussions.
Would you prudently print up only as much fresh currency as you needed for your current lifestyle? Would you create just a bit more than that to help relatives or those in need?
It is most likely you’d have your printing press running 24 hours a day, seven days a week. Becoming the richest person in the world would confer great power upon you.
You could rationalize this action because you plan to use the money for good purposes. Imagine the warm feeling you’d get by giving every person in America one million do...
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So as I was saying yesterday (Bitcoin: The Biggest Clown Show In History?), Bitcoin has several obstacles on the path to potential success as an alternative currency. But I forgot to mention hacking and theft at Bitcoin exchanges and other technical problems. This is related to the lack of government backing and the fact that the value of Bitcoins is based entirely on confidence.
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PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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