THe CRoSSiNG
by Zero Hedge - February 28th, 2011 4:43 pm
Courtesy of williambanzai7
These are the times that try men’s souls; the summer soldier and the sunshine patriot will, in this crisis, shrink from the service of his country; but he that stands it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph.
Thomas Paine
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DiggThe Federal ‘Debt Bomb’ Set to Explode in our Near Future
by ilene - February 28th, 2011 4:42 pm
Courtesy of Dr. Paul Price, Beating Buffett
The official national debt figure is widely trumpted as a bit over $14 trillion. If that were not bad enough the currenty historically-low effective interest rate on the debt service has come as a result of shifting more and more of the total debt to short-term maturities.
Noted economist David Malpass noted in a recent Forbes article that the average maturity on U.S. debt has dropped from 70 months in the 1980’s to less than 60 months today. More ominously, the Federal Reserve’s large buyback of longer-dated bonds has turned the effective maturity to under 40 months!
America now must roll over the entire national debt every three and quarter years making taxpayers the holders of what is essentially the largest ‘adjustable rate mortgage’ in the history of the world.
Any number of events could cause interest rates to surge sending our debt service costs quickly spiraling to unsustainable levels 5 – 15x what we are currently paying. This could crowd out virtually all other federal spending making today’s budget talk look like a joke compared to the problems we’ll face when this occurs. See the chart below for a preview of what a rise to only 30-year average rates would do to our debt service costs.
The percentage of our debt held by foreigners skyrocketed from 18% in 1989 to about 46% in 2010. Should China or Japan decide to stop, or simply cut back on their purchases of our debt, there will likely be a much larger spike in our interest rates and debt service costs than projected above.
Unfunded mandates for Social Security, Medicare and Medicaid dwarf the substantial debt that our leaders fess up to having incurred already. Immediate and substantial changes are needed if we are to avoid looking like Iceland, Greece or Ireland yet our president actually proposed a budget that would increase our deficits dramatically rather than doing what is hard and necessary.
Every dollar of illusory deficit reduction is scheduled to occur after the next presidential election- when the pain of the necessary austerity measures can’t hurt Obama’s chances for another four years of financial mismanagement.
Dr. Paul Price
www.BeatingBuffett.com www.OptionsProfits.com
Clinton Tells Qaddafi “Surrender Now”; More Protests in Yemen, Bahrain, Oman
by ilene - February 28th, 2011 4:39 pm
Courtesy of Mish
Libyan rebels now hold about 80% of the country. France is sending an airlift of medical supplies, including doctors and nurses to aid the rebels. Think anything else might be in those planes?
Regardless, Qaddafi is holed up in Tripoli with options growing smaller by the day. The only country that might take him is Venezuela. Why anyone would take him is beyond me.
US Secretary of State Hillary Clinton has stepped up the rhetoric as International Pressure on Qaddafi Intensifies.
An international campaign to force Col. Muammar el-Qaddafi out of office gathered pace on Monday as the European Union adopted an arms embargo and other sanctions, as Secretary of State Hillary Rodham Clinton bluntly told the Libyan leader to surrender power “now, without further violence or delay.”
Germany proposed a 60-day ban on financial transactions, and a spokeswoman for Catherine Ashton, the European Union’s foreign policy chief, said that contacts were being established with the opposition.
Italy’s foreign minister on Sunday suspended a nonaggression treaty with Libya on the grounds that the Libyan state “no longer exists,” while Mrs. Clinton said the United States was reaching out to the rebels to “offer any kind of assistance.”
France said it was sending medical aid. Prime Minister François Fillon said planes loaded with doctors, nurses and supplies were heading to the rebel-controlled eastern city of Benghazi, calling the airlift “the beginning of a massive operation of humanitarian support for the populations of liberated territories.”
Across the region, the tumult that has been threatening one autocratic government after another since the turn of the year continued unabated. In Yemen, protests drove President Ali Abdullah Saleh to make a bid for a unity government, but the political opposition rapidly refused. An opposition leader, Mohamed al-Sabry, said in a statement that the president’s proposal was a “desperate attempt” to counter major protests planned for Tuesday.
In Bahrain, protesters blocked access to Parliament, according to news agencies. In Oman, whose first major protests were reported over the weekend, demonstrations turned violent in the port city of Sohar, and spread for the first time to the capital, Muscat.
Third Night of Protests in Oman
Bloomberg reports Youth Protests Enter Third Night as Sultan Promises to Create Jobs
Hundreds of Omani protesters gathered in the city of Sohar for a third night, demanding that the government open talks on their demands
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Chinese Treasury Holdings Revised $268 Billion Higher To $1.12 Trillion, Fed Still Top Holder Of US Debt
by Zero Hedge - February 28th, 2011 4:36 pm
Courtesy of Tyler Durden
Earlier, the Treasury International Capital website released its periodic update/refinement of Treasury holdings. Not surprisingly, the most impacted holders were China and the “UK” which as we had previously speculated was nothing but a custodian front for Chinese institutional accumulation. China, which according to the most recent TIC data, owned $891.6 billion in Treasurys as of December 31, is now said to hold $1,160 billion, an adjustment of $268 billion. This upward revision came almost exclusively at the expense of the UK, which saw its holdings decline by $269 billion, in other words a nearly dollar for dollar shift between the UK and China. Japan, the third largest holder, was virtually unchanged at $882.3 billion compared to $883.6 billion pre revision. Oil exporters also saw a modest drop to $212 billion from $218 billion previously (all numbers as of December 31). Still, even with this adjustment, the Fed continues to be, and likely will never be surpassed, at the top position in terms of Treasury Holdings.
Full release:
Preliminary data from the latest annual survey of foreign portfolio holdings of U.S. securities are now available. The survey measured foreign holdings of U.S. securities as of June 30, 2010, to be $10,701 billion, with $2,813 billion held in U.S. equities, $6,930 billion in U.S. long-term debt securities (of which $1,167 billion are holdings of asset-backed securities (ABS) and $5,763 billion are holdings of non-ABS securities), and $959 billion held in U.S. short-term debt securities. The previous survey, conducted as of June 30, 2009, measured total foreign holdings of U.S. securities at $9,641 billion, with holdings of $2,252 billion in U.S. equities, $6,240 billion in U.S. long-term debt securities, and $1,149 billion in U.S. short-term debt securities. Long-term debt securities have an original term-to-maturity of over one year. Asset-backed securities are backed by pools of assets, such as pools of residential home mortgages or credit card receivables, which give the security owners claims against the cash flows generated by the underlying assets. Unlike most other debt securities, these securities generally repay both principal and interest on a regular basis, reducing the principal outstanding with each payment cycle. A detailed survey report, which will include final data as well as additional data detail, is expected to be available at end-April 2011. The survey was a joint effort of the Department of the Treasury, the Federal…
Guest Post: Corporate Profits Soaring Thanks To Record Unemployment
by Zero Hedge - February 28th, 2011 4:27 pm
Courtesy of Tyler Durden
Submitted by Mark Provost of The Economic Populist
Corporate Profits Soaring Thanks to Record Unemployment
In a January 2009 ABC interview with George Stephanopoulos, then President-elect Barack Obama said fixing the economy required shared sacrifice, “Everybody’s going to have to give. Everybody’s going to have to have some skin in the game.” (1)
For the past two years, American workers submitted to the President’s appeal—taking steep pay cuts despite hectic productivity growth. By contrast, corporate executives have extracted record profits by sabotaging the recovery on every front—eliminating employees, repressing wages, withholding investment, and shirking federal taxes.
The global recession increased unemployment in every country, but the American experience is unparalleled. According to a July OECD report, the U.S. accounted for half of all job losses among the 31 richest countries from 2007 to mid-2010. (2) The rise of U.S. unemployment greatly exceeded the fall in economic output. Aside from Canada, U.S. GDP actually declined less than any other rich country, from mid-2008 to mid 2010. (3)
Washington’s embrace of labor market flexibility ensured companies encountered little resistance when they launched their brutal recovery plans. Leading into the recession, the US had the weakest worker protections against individual and collective dismissals in the world, according to a 2008 OECD study. (4) Blackrock’s Robert Doll explains, “When the markets faltered in 2008 and revenue growth stalled, U.S. companies moved decisively to cut costs—unlike their European and Japanese counterparts.” (5) The U.S. now has the highest unemployment rate among the ten major developed countries. (6).
The private sector has not only been the chief source of massive dislocation in the labor market, but it is also a beneficiary. Over the past two years, productivity has soared while unit labor costs have plummeted. By imposing layoffs and wage concessions, U.S. companies are supplying their own demand for a tractable labor market. Private sector union membership is the lowest on record. (7) Deutsche Bank Chief Economist Joseph LaVorgna notes that profits-per-employee are the highest on record, adding, “I think what investors are missing – and even the Federal Reserve – is the phenomenal health of the corporate sector.” (8)
Due to falling tax revenues, state and local government layoffs are accelerating. By contrast, U.S. companies increased their headcount in November at the fastest pace in three years, marking the tenth consecutive month of private
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RANsquawk Market Wrap Up – Stocks, Bonds, FX etc. – 28/02/11
by Zero Hedge - February 28th, 2011 4:17 pm
Courtesy of RANSquawk Video
How Ireland Can Leave The Euro: One Expert’s View
by Zero Hedge - February 28th, 2011 4:15 pm
Courtesy of Tyler Durden
Via adamsmith.org
The following memo, which has fallen into our hands, is a draft of advice to the new Irish Minister for Finance from a British colleague who has a wealth of expertise on how to handle economic crises. He prefers to remain anonymous for professional reasons.
Dear Minister,
Congratulations on your new appointment. As you read the civil service briefings on the present crisis, you will come to appreciate that Ireland’s problems would be much easier to manage if your administration could choose the country’s own exchange rate and interest rate. However, your officials and your colleagues may believe that there is no practical way to leave the present European monetary union and so achieve this flexibility.
In fact, there is. Leaving the euro is politically tricky and economically costly in the short-term. But it is far from impossible. The long-term advantages clearly outweigh the short-term costs, and the politics can be managed. The following outlines how it can be done:
1. Announce on a Sunday morning that Ireland is “temporarily suspending” its euro area membership.
It is obviously vital that this announcement come as a surprise to markets. So you cannot discuss it with many people in advance. The Taoiseach and the Governor of the Banc Ceannais na hÉireann must obviously be informed and agree. However, even discussing the idea in a wider circle is likely to lead to leaks; in turn, this will cause a run on Irish banks and a complete collapse of deposits, destroying what is left of the economy.
2. As of L Day (Leaving Day), all Irish assets and liabilities are denominated in the ‘Irish euro’, initially at the exchange rate 1:1.
This means that there is limited disruption of cash. People will continue to use euro coins with the Irish national side and euro banknotes with the letter ‘T’ (for Ireland) in the serial number. You thus avoid having to change ATMs or any other machines that take cash. For the initial period of a fixed exchange rate (see below), Gresham’s Law will operate and ‘non-Irish euros’ will disappear from circulation in Ireland. You may later wish to take a leaf from the successor states of the Austro-Hungarian Empire and stamp ‘Irish euros’ to highlight their national character further.
3. Announce that there will be temporary exchange controls pending a resolution of outstanding issues such…
Bullish Players Pick Up Calls at Staples Ahead of Earnings
by Option Review - February 28th, 2011 4:09 pm
Today’s tickers: SPLS, MRVL, FRX & ERIC
SPLS - Staples, Inc. – Call options on the office supplies retailer are flying off the shelves ahead of the firm’s fourth-quarter earnings report, which is slated for release before the opening bell tolls on Wednesday. Shares in the name are up 1.35% to stand at $21.22 as of 12:00pm in New York. Bullish players are out in numbers, buying up call options in the March and April contracts, to position for shares to extend gains in the near term. Meanwhile, there is a bit of put buying in the front month this morning, with some 1,200 March $21 puts picked up by pessimistic traders for an average premium of $0.55 each. The largest bullish bet on Staples was the purchase of 9,000 calls at the March $22 strike at a premium of $0.40 each. The transaction appears to be tied to the sale of 270,000 shares of the underlying at $21.11 each. The strategy is likely a delta neutral play, with a delta of 0.30 indicated by the size of the stock and option combination employed. The trader could make out on the short stock leg of the trade if shares in SPLS drop post-earnings, however, the parameters of the transaction indicate substantially higher potential gains if shares fly higher in the time remaining to March expiration. A total of 11,395 calls changed hands at the March $22 strike in early-afternoon trade versus previously existing open interest of just 1,520 contracts. Like-minded optimists looked to the April $22 strike to buy roughly 2,000 calls for an average premium of $0.55 per contract. Call buyers at the April $22 strike start making money in the event that Staples’ shares surge 6.3% to surpass the average breakeven price of $22.55 by April expiration. Options implied volatility on the office supplies firm is up 4.8% at 30.82% as of 12:15pm.…
The Market is a Whole Rigged Job
by ilene - February 28th, 2011 4:02 pm
Yes, we know, and Bernie Madoff agrees; Timothy Naegele has thought so all along. Who’s Timothy Naegele? Read my interview with him to learn more. – Ilene
Bernie Madoff: The Market Is A Whole Rigged Job, And There’s No Chance That Investors Have In This Market
Courtesy of Timothy Naegele
Convicted swindler and consummate narcissist Bernard Madoff is serving a 150-year sentence at the Federal Correctional Institution in Butner, North Carolina for his $65 billion Ponzi scheme. He was interviewed by New York Magazine, and its terrific article states in pertinent part:
From the beginning, Madoff . . . had a chip on his shoulder, along with a certain contempt for the industry he’d chosen. “It was always a business where you had to have an edge, and the little guy never got a break. The institutions controlled everything,” he said in a voice surprisingly thick with emotion. “I realized from a very early stage that the market is a whole rigged job. There’s no chance that investors have in this market.”
. . .
At first, Madoff ground out a modest but steady income on the scraps of business tossed his way by Goldman Sachs and Bear Stearns, action that was too much trouble and too little profit for them. “I was perfectly happy to take the crumbs,” he said. Madoff was a market-maker, a middleman between those who wanted to buy and sell small quantities of mostly bonds—odd lots. “It was a riskless business,” he said. “You made the spread,” buying at one price and selling at a higher one, and in those days the spreads could be substantial, 50 or 75 cents or even a dollar a share. Madoff increased his profits by trading on the side.
. . .
Madoff wanted to grow his trading business, and a good way to do that was to expand his market-making business. But that meant going up against the New York Stock Exchange, the heart of the club. At the NYSE, a few firms controlled market-making, executing most large trades while getting rich on the spread. Madoff was one of the first to see that technology could match buyers and sellers more efficiently and cheaply than a human trader shouting orders amid a blizzard of paper on the floor of the exchange. By 1970, Madoff had hired his brother, Peter,
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US Freezes $30 Billion In Libyan Assets (The Bulk Of Which Originated In The US And Europe)
by Zero Hedge - February 28th, 2011 4:00 pm
Courtesy of Tyler Durden
The US crackdown on its former business partner continues, with the US Treasury announcing it has “located and frozen” at least $30 billion in Libyan assets ” as it seeks to deprive embattled leader Moammar Gadhafi of access to government and personal accounts, a department official said.” Unclear is what the source of the funds was, where they were held, and whether any US banks would be impacted as a result. Also unclear is whether the US Treasury, which has to rely on a Ponzi check kiting game with the Primary Dealers to fund itself, and, of course, on the Fed to monetize its debt issuance, would confiscate any of this amount. “This is the largest blocking under any sanctions program ever,” said David Cohen, acting undersecretary of Treasury for terrorism and financial intelligence, during a conference call. “These blocking actions … are depriving Col. Gadhafi access to these assets and safeguarding them for the Libyan people.” Since the bulk of the money came from the US and its European allies in the first place, it was supposedly not that difficult to track down.
From the WSJ:
On Friday evening, the White House announced it froze all assets under U.S. jurisdiction linked to Gadhafi, five of his children, Libya’s central bank and its sovereign wealth fund.
Cohen declined to name the institutions where the $30 billion was being frozen, nor did he break down the sources of the funds when pressed by reporters.
He said the U.S. believes that Gadhafi has significant assets in Europe that will be affected by sanctions originating in Europe, the United Nations and elsewhere, but did not estimate how much there was parked outside U.S. jurisdiction.
Over the weekend, the United Nations unanimously approved a resolution sanctioning Libya, and the U.K. announced its own measures following the U.N. guidelines. Monday morning, the European Union announced its own measures that extended the U.N. sanctions to 20 additional individuals.
The justification of the action, and accompanying sanctions enforced over the weekend by the world’s most worthless organization, the UN: reverse Mutual Assured Destruction (bear with us):
Reacting to the executive order, Larry E. Christensen, a sanctions expert at Washington, D.C.-based law firm of Miller & Chevalier, said in an interview that the objectives of
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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