Category Archives: Finance

Thieving Theocrats: The Righteous Left-Wing Press Steals From Its Own

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“The April 21, 2005 issue of the LONDON REVIEW OF BOOKS carried a lead article titled ‘Blood for Oil?’

The paper is attributed to a group of writers and activists – Iain Boal, T.J. Clark, Joseph Matthews and Michael Watts – who identify themselves by the collective name ‘Retort.’ In their article, the authors advance a supposedly new explanation for the wars in the Middle East.

Much of their explanation – including both theory and fact – is plagiarized. It is cut and pasted, almost ‘as is,’ from our own work. The primary source is ‘The Weapondollar-Petrodollar Coalition,’ a 71 page chapter in our book THE GLOBAL POLITICAL ECONOMY OF ISRAEL (Pluto 2002). The authors also seem inspired, incognito, by our more recent papers, including ‘It’s All About Oil’ (2003), ‘Clash of Civilization or Capital Accumulation?’ (2004), ‘Beyond Neoliberalism’ (2004) and ‘Dominant Capital and the New Wars’ (2004).

In their paper, the Retort group credits us for having coined the term ‘Weapondollar-Petrodollar Coalition’ – but dismiss our ‘precise calibration of the oil/war nexus’ as ‘perfunctory.’ This dismissal does not prevent them from freely appropriating, wholesale fashion, our concepts, ideas and theories – including, among others, the ‘era of free flow,’ the ‘era of limited flow,’ ‘energy conflicts,’ the ‘commercialization of arms exports,’ the ‘politicization of oil’ and the critique of the ‘scarcity thesis.’ Nowhere in their article do the authors mention the source of these concepts, ideas and theories…..”

More at the website of Nitzan and Bichler.

The theocrats I refer to in my post title are the leftist ideologues (state socialists) who never met a fact they couldn’t twist into a socialist pretzel.

 

Capital Flowing Out

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Here’s the Treasury’s January report on international credit flows that was released this past Monday (3/16):

“Net foreign purchases of long-term securities were negative $43.0 billion.

  • Net foreign purchases of long-term U.S. securities were negative $18.8 billion. Of this, net purchases by private foreign investors were negative $10.2 billion, and net purchases by foreign official institutions were negative $8.5 billion.
  • U.S. residents purchased a net $24.2 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been negative $60.9 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $30.9 billion. Foreign holdings of Treasury bills decreased $15.4 billion.

Banks’ own net dollar-denominated liabilities to foreign residents decreased $118.9 billion.

Monthly net TIC flows were negative $148.9 billion. Of this, net foreign private flows were negative $158.1 billion, and net foreign official flows were $9.2 billion. .”

The whole report can be found at the Treasury website.

 Comments

The only US securities foreigners are purchasing are short-term, and it looks like only foreign governments are doing that.

For comparison, here’s the TIC report for  January 2008, (release 3/17/08)

Monthly net TIC flows were positive $37.4 billion (compared to negative $148.9 billion this year). Of this, net foreign private flows were negative $38.2 billion, and net foreign official flows were positive $75.5 billion. That means on a net flow basis, only foreigners were really buying last year as well.

Avinash Persaud – The Currency Expert

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34 year old Avinash Persaud,  Managing Director and Global Head of Research for the Global Markets Group of State Street Bank and Trust Company. in England, one of the world’s leading financial services for institutional investors ( nearly 12% of the world’s securities under custody), is a top ranked analyst in  global surveys of currency research. Persaud has won the major awards in international finance including the Jacques de Larosiere Award from the Institute of International Finance and an Amex Bank Award.

Some career highlights:

During 2000/2001, the first private-sector, Visiting Scholar, of the IMF.

Non-Executive Director of the Overseas Development Institute.

In 1999,  Head of Currency Research at JP Morgan.

Mr Persaud and his Morgan team developed an indicator for currency crashes in emerging markets which predicted a Russian devaluation four months before it occurred and a “regime machine,” which gauged which macro-economic factors and behavioral sentiments were most influencing currency movements at a given point in time.

Graduate of the London School of Economics

Former governor of the LSE as well (19988-1989).

Comment:

(Check back later)

Dollar Index Imponderables

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“The nightmare scenario that is staring us in the face, right here, right now isn’t hyperinflation. It is in fact a collapse of monetary systems driving demand for dollars through the roof in a crescendo of attempted redemptions into collapsed (“no bid”) asset prices – a demand that Ben will not be able to meet, as the collateral backing those dollars will have all been exchanged for toilet paper. Whether Bernanke holds all this trash on his balance sheet or manages to scam Treasury into exchanging it for T-bills, the result is the same – there is no collateral behind Bucky and as employment collapses no production to replace it with either.

The mad scramble will be on, and as it happens trade will be choked off by not a collapsing dollar but other currencies collapsing around the world.

Paradoxically, the DX, or dollar index, will skyrocket – not go through the floor – as this plays out….”

–  Karl Denninger

Comment:

Glad to know there’s one person who worries on the same lines as I do…but on different grounds.

Mine is from purely technical instinct. I still feel GLD is not performing the way it should given the economic  scenario. I still think if hyperinflation is bad here, it will be worse in countries  that will also be compelled by central bank policies to suffer inflation. I still think the Euro is a mighty strange animal. I still think gold prices are manipulated  and economics statistics are massaged. I think the stock market indices are sometimes manipulated to create panic reactions. We’ve proof from l’affaire Madoff that paper can be printed up that is meaningless as far as revealing actual trades, or buy or sell orders.

And if everyone is telling you to sell dollars, hey, someone out there is buying, right? So, diversify by all means, and ditch the dollar if its prospects don’t look sound – and they don’t. But remember we’re living in a world of managed perceptions, rigged markets, phony alerts,  white ops and black ops.  Ours not to figure out each of the details – that’s a pure waste of time.

Ours is to defend ourselves, observe,  keep our money in our shoes, our heads down and our powder dry. And wait.

And on that note, I observe that gold is trading right where it began before the whole AIG bail- out stuff started cluttering up the papers (just above 950) and the dollar index is above 84 (which means it got knocked down 3-4 points)

above 83 (which means it got knocked down 4-5 points).

I’ll leave you to figure out whether that is good, bad, or ugly, in the circumstances.

Supporting my view also here’s another of my favorite analysts, Puru Saxena, recommending that you don’t add to gold right now, at least not quite. And he’s also recommending oil/energy/pm stocks in emerging markets. Well, I’ve just nibbled at a few of those last week. [I don’t give out too many details on this because I’m not a professional financial adviser and don’t want my errors to become yours. My beat here is different. This is a commentary on the media and the markets].

UN Panel Recommends Ditching Dollar

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From Reuters:

“Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.”

[my emphasis]

Comment:

OK, that’s why we’ve seen such a slide. Yesterday’s bombshell followed by this…and, you have to admit, the dollar has had a long run up.

Notice how Persaud phrases the request (it’s later in the piece).  It goes something like – the US is sick of all this foreign savings that’s making us run deficits…or to quote him:  “Today the Americans complain that when the world wants to save, it means a deficit.”

Meanwhile, I am berating myself for again trying to squeeze the last drop out of a trade. I did move a bit into Aussie and NZ last week but I really didn’t see that FOMC announcement coming.

I can’t believe that Bernanke would be so gung-ho. I thought he’d at least make some nod to prudence. But I guess that announcement on Sunday was his preparation of the public. Also, an important item missed me. Which was declining Chinese exports, to the US and in general.

But in my defense, I still think that was an incredible, historic  move on Bernanke’s part.

Which just shows you that in trading you shouldn’t be predicting, you should be preparing.

Sigh.

Meanwhile, I still think we’ve been subjected to a propaganda drama the past few weeks (aren’t we always?) – mainly to take our eye off the ball. And having that suspicion, I’ll hunt around to figure out what this was all about

Here’s Kathy Lien on some advantages of a weak dollar

  “McDonald’s is not the only company to warn about weaker earnings due to foreign currency fluctuations. This morning, United Technologies announced plans to lay off 11,600 workers as a rising dollar and deteriorating economic conditions force the company to cut back. Last week, Burger King Corp and Estee Lauder also announced that their profits dropped as international sales translated into fewer dollars.$3.60….. A strong dollar also negatively impacts U.S. companies selling products abroad because it reduces their competitiveness…..

As for merger and acquisitions, a strong dollar reduces the cost for U.S. companies to takeover foreign companies but increases the cost of foreign companies buying U.S. companies. The reason why we consider it a disadvantage at this time is because M&A flow could go a long way in supporting the U.S. stock market, which even with today’s rally is down almost 25 percent year to date.”

OK, Lila here again.

What if this dollar take-down was intended? Why do I say this?

1. The report about declining bond purchases from China came out on Monday only this past week. But I think they must have had it for some time. There’ s been incessant posturing and tough talk toward China in a rather coordinated way.

2. Unemployment is rising rapidly and businesses are shrinking.

Here’s the Bureau of Labor Statistics  report of March 19

“Unemployment rates were higher in January than a year earlier in 371 of 371 metro areas and unchanged in 1 area. 14 areas recorded jobless rates of at least 15.0 percent today. Fourteen areas recorded jobless rates of at least 15.0 percent, while 23 areas registered rates below 5.0 percent. The national unemployment rate in January was 8.5 percent, not seasonally adjusted, up from 5.4 percent a year earlier.”

3. The only way to get foreigners to pump money into the economy is to encourage them to buy US assets and businesses (that’s what this is for).

4. It offsets all the criminal rot in the financial sector which turns off foreign investors..

So – was this another shot fired in the currency wars? I suspect something like that.

Given all that, the dollar really didn’t do that badly.  (I told you I’m a contrarian)

Ever since that slide to 71 or so, I’ve gotten a stomach of cast iron. So what if  this was the dollar index’s biggest one-day drop in 20 years? It’s been around twice as long.  What the Benny-Bama team has been sticking to the markets is the worst in our history.

Market Meltdown Books and St. Timothy

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Chris Droker has a list of bust books:

 

Panic

 

Meltdown

 

Mr. Market Miscalculates

 

Financial Shock: A 360 Degree Look at the Subprime Market Implosion

 

Empire of Debt: the Rise of an Epic Financial Crisis

 

The New Economic Disorder

 

Plunder and Blunder

 

Bailout

 

The Origins of Financial Crises

 

The Gods that Failed: How Blind Faith in Markets Has Cost Us Our Future

 

The Coming Economic Collapse

 

The Coming Generational Storm

 

The Return of Depression Economics

 

Agenda for a New Economy: Why Wall Street Can’t Be Fixed and How to Replace It

 

Guide to the End of Wall Street As We Know It

Comment

Interesting.

“Mobs, Messiahs and Markets” – (Bonner & Rajiva, 2007) –  which actually gets it right about empire, debt, the housing and credit bubble, the war/propaganda, and was spot on in timing, and won a major business award, is not around.

I wonder why that is.

“For the time will come when they will not endure sound doctrine…”  (2 Timothy 4:3)

Maybe that line from the Gospel has some sense to it.

But it’s how state propaganda works. Propaganda is not simply what government does to us. In fact, that’s the most obvious part of it. The really interesting part of propaganda is what people do to themselves.

“They will not endure…”

You have to know how to endure what you hear…not run away from what’s emotionally disturbing..or cognitively dissonant.

Growth is not a linear and time-bound development. You don’t grow just because the minutes pass.

Pasternak said something similar: To live your life is not as simple as to cross the street (I may not have got that quite right. It’s in one of Yuri Zhivago’s poems).

When I read this in school I thought it was trivial. It took me a couple of decades to figure out how profound it was. In fact it ought to replace e pluribus unum – a motto we don’t need nearly as much.

Gold Above 940

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Wow. Bernanke opens his mouth and the dollar sinks to 84.5.

Can’t he read a RED STOP sign?

And this weird thing here: I saw a  piece on bond yields and when I looked it up on yahoo, it’d been removed.

/cnnm/090318/031809_credit_market.html http://news.yahoo.com/s/ynews/ynews_bs262‘

Here’s  the URL for the original site:

CMWire – The Capital Markets Newswire

But when I looked through Capital Markets wire just now I couldn’t find it.

Here’s a copy of  the google search result for the piece:

Mar 18, 2009 … Yields plummeted by the widest margin since 1987. … 14:41 AIG chief asks execs to return bonuses» CNN.com. AIG chief Edward Liddy told lawmakers ….. (

Corrects the headline to reflect that Treasury yields plunged). …
cmwire.com/ – 39 minutes ago – Similar pages –

(http://www.google.com/search?hl=en&q=yields+plunge+1987+cnn&btnG=Google+Search&aq=f&oq=)

Update:

OK – I found the piece. It’s by Deborah Levine and I found it at Market Watch.

I think the original wire report on CMWire and Yahoo might have been taken off to make the headline look less alarming, so that the reference to 1987 didn’t spook stock investors – the media’s target patsies.

You can see that the article now reads – “Treasury prices soared Wednesday, sending yields plummeting….”

The powers that be want to keep the poor Dow’s chin up at least for today before the big bad short sellers come out in droves…

“Treasury prices soared Wednesday, sending yields plummeting by the largest amount since 1987 after the Federal Reserve surprised bond investors by saying it would buy $300 billion in longer-term Treasury securities over the next six months.”

http://www.marketwatch.com/news/story/treasurys-soar-after-fed-says/story.aspx?guid={7DB91E8A-FD87-4BD4-9296-3C6EA402C920}&tool=1&dist=bigcharts&

Meanwhile here are the details at Bloomberg  on the FOMC decision:

” This Wednesday, the Federal Open Market Committee of the United States’ Federal Reserve made a unanimous decision to keep the Fed Funds rate unchanged at the 0.25% to 0% range. The rate decision was not a surprise for a good number of investors since the Federal Reserve stated clearly on its last FOMC statement that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time”. Even so, today’s FOMC statement sounded a bit more dovish than expected, not reflecting the positive performance of the U.S. stock, bond and credit markets over the last two weeks. The Federal Reserve said “it sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term”. In addition,  “to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.” So once gain, the Fed said it will employ all available tools to promote the resumption of sustainable economic growth and this makes us believe that the Fed will continue to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets. In other words, the Fed will use quantitative easing. Currency traders reacted very negatively to the FOMC statement driving the U.S. dollar lower against the world’s most heavily traded currencies.”

 Comment:

What are they doing? Blowing smoke in everyone’s eyes pretending they see deflation in store in order to throw everyone off the inflationary scent?  Hoping meanwhile that gold doesn’t pop up too much and give the game away before they finish the next mighty round of mortgage hot potato? (Most plausible scenario).

Or, are they really terrified of having so destroyed the capital base of the economy that they think something, anything (maybe another financial instrument’s been discovered we haven’t heard about)  has to be done. And since all they have is a printing press., well why not use it? Off with the heads of the middle class, the thrifty, the savers, those who have no debt, the creditors!  (Also plausible, though probably only if combined with the theory above).

There’s a third option, but I’ll explore that in another post.

And why is Bill Gross pumping this whole business to the public?

“You want to continue to buy what the government will buy,” Pimco’s Bill Gross told CNBC.

From now on, it will be Pimpco to me. Sorry.

Global Super-Currency To Flood the World

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Edmund Conway

The Telegraph, London

Monday, March 16, 2009

The International Monetary Fund is poised to embark on what analysts have described as “global quantitative easing” by printing billions of dollars worth of a global “super-currency” in an unprecedented new effort to address the economic crisis.

Alistair Darling and senior figures in the US Treasury have been encouraging the fund to issue hundreds of billions of dollars worth of so-called Special Drawing Rights in the coming months as part of its campaign to prevent the recession from turning into a global depression.

Should the move, which is up for discussion by the summit of G20 finance ministers this weekend, be adopted, it will represent a global equivalent of the Bank of England’s plan to pump extra cash into the UK economy.

However, economists warned that the scheme could cause a major swell of inflation around the world as the newly-created money filters through the system. The idea has been suggested by a number of key figures, including billionaire investor George Soros and US Treasury adviser Ted Truman.

Simon Johnson, former chief economist at the IMF, said: “The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them.

“The objective is to create a windfall of cash. However, if everybody goes out and spends the money it could be very inflationary.”

Comment:

The Gold Anti Trust Action Committee (GATA) (which has this article on their website) has been one of the first groups to allege manipulation of the gold price. They’ve launched a Freedom of Information Act (FOIA) inquiry into the actual quantity of gold reserves held by the US, and they allege that it’s likely to be half the official amount because of secret sales, leases, and other arrangements promising it out.  Rising gold prices indicate an erosion in savings, so a stifled gold price is part of government “propaganda” to keep people from figuring out that they’re losing their savings.

I also found an excellent piece by Antal Fekete on their site. Fekete, a renowned Hungarian mathematician, critiques a recent article by NY Times columnist and rock-star Keynesian, Paul Krugman, in which Krugman blames Asians for the financial crisis. The article,   “Revenge of the Glut,” claims that Asian savings caused excess spending and debt. Fekete correctly calls this a piece of nonsense.

Instead, he points out something I haven’t seen any other writer talk about – the fact that while low interest rates are a good thing for business, falling interest rates aren’t. What falling rates do is make the cost of old loans more burdensome. A falling interest rate environment raises the cost of debt liquidation and thus erodes  capital. Eventually it eats up the entire capital base of firms and banks, which is why we are seeing an across the board collapse of banks and auto companies.

Low interest rates thus feed the derivative bubble which in turn drives the interest rate lower and lower.  Ultimately the savings and capital of the whole economy are destroyed. That’s what we are living through.

I’m actually working on a piece myself on Krugman’s article and how it ties in with the propaganda of the last two weeks.

I hope to have it ready tomorrow. Meanwhile, here’s a great line from the Fekete article for you to think about:

That’s the nature of the so-called Keynesian revolution. It is not a branch of economic  science; it is a branch of Leninism, a blend of collectivist ideology reinforced with unmatched expertise on conspiracy, street fighting and barricades.

Don’t Nationalize, Says Only Pundit Who Has Nationalized a Bank…

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“People who should know better have been speculating publicly that the government might need to nationalize our largest banks. This irresponsible chatter is causing tremendous turmoil in financial markets. The Obama administration needs to make clear immediately that nationalization — government seizing control of ownership and operations of a company — is not a viable option.

Unlike the talking heads, I have actually nationalized a large bank. When I headed the Federal Deposit Insurance Corporation (FDIC) during the banking crisis of the 1980s, the FDIC recapitalized and took control of Continental Illinois Bank, which was then the country’s seventh largest bank…..”

William Isaac , who actually did nationalize a bank, says don’t do it, at the Wall Street Journal.

Comment:

Glad to see confirmation for my argument (I’m always a little nervous  – who wouldn’t be? – criticizing highly credentialed people like Paul Krugman).  But sometimes pundits, like emperors, really don’t have clothes and you have to call them on it.

Any one can see that Sweden is too different from the US to make a valid comparison.

Anyone can also see that nationalization doesn’t automatically get rid of the pain. It might (or might not) postpone it.  In fact, it’s likely to make it worse, in the opinion of many people with real world experience in banking and investment, not just theoretical expertise (which is all most economists have).

It’s also interesting to me that all those austerity measures which IMF experts thought were just fine for Asian and African countries are off the table in the US. That tells you how bogus these debates are. No one is even considering letting any of the banks go bust. The only possibilities on the table are how to give government money to them. The three options being debated are:

1.  Infuse capital on an ad hoc basis by applying certain tests to decide which and when (Obama administration), assuming the system to be fairly sound.

2. Infuse capital without  taking the banks over, by buying their bad assets at higher than market value or by insuring them, so they get cheap capital

3.  Infuse capital by taking the banks over, firing managers, transfering off the bad assets (where? to whom? how?),  recapitalizing them and then selling them back to the private sector.

Now, 3 is supposed to be so much better for tax payers than the other 2, but without access to details and transparency, there is no guarantee whatsoever that it will be. It would depend on what happened to those bad assets. In fact, the additional bureaucratic measures involved look to add their own additional burden.

The main issue, as I see it is, is monopoly and corruption. In the recent past, we’ve seen that taking-over or infusing capital into selected banks has taken place via other favored banks. There’s evidence (I’ve posted on this on Wachovia and others) that the rescues were actually used to funnel government money to the rescuer bank. I think the Lloyd’s-HBOS deal was something of that kind.

Not on the table at all is the simple free-market solution: let the banks go under.  Let them liquidate. If necessary, adjust laws and regulations to make the process as quick as possible so it doesn’t clog up the courts. Perhaps also adjust insurance requirements for a temporary period so that the impact on businesses is reduced.

There will be pain. But there’s going to be pain regardless of what proposal goes through. The bottom line is there was a party and now there’s a bill –  and no one wants to pay. But that’s not how the real world operates. Someone will pay.The only question is will it be the people who incurred the bill or the general public? The rest of the talk about “too big to fail” “the economy will collapse” etc. are all obfuscations, projections and self-serving hypotheticals….

Stocks Up, Dollar Down as Market Expects Investor Friendly Changes (Expanded)

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“The stock market has rallied the past three days for any number of reasons, chief among them it was due for at least a technical, “dead-cat” bounce after hitting 12-year lows on Monday. One fundamental factor in the rise is Wall Street’s increased expectation for at least some help from Washington D.C. on two issues: mark to market accounting and the uptick rule.On Thursday, the House Financial Services Committee held a , during which Robert Herz, the chairman of the Financial Accounting Standards Board (FASB), agreed provide more detailed guidelines on the controversial accounting practice within three weeks.”

More by Aaron Trask at Yahoo Finance

Comment:

Never make a public pronouncement. You’re sure to eat it. Having affirmed my short-term faith in the dollar (at least until its hits 90 or there abouts on the index),  I’ve had to second-guess myself.

The dollar’s taken a hit since yesterday and gold’s popped up a bit, part of that just the usual bounce after a leg down, but also because of several things:

1. The perception that the stock market may be due for a bit of a rebound (or, at least, a dead-cat bounce). That makes cash less attractive.

2. Signs of the revival of the uptick rule, which would require short-sellers to sell only on ticks up of the price and would probably prevent cascading short-selling…at least to an extent…

Signs also that mark-to-market may be in for some reexamination. Mark-to-market is seen by many banks as unfair, since it requires the mark down of perfectly sound assets to current (fire-sale) prices.  One alternative that’s been proposed is to go to a 3-month rolling average.  Again, that makes equities look more attractive than cash and is dollar-unfriendly.

3. The sale of the Swiss franc by the Swiss National Bank (SNB)to bring it down against the euro. That’s sparked fears of currency wars and simultaneous depreciation of all currencies, which in turns, reduces the dollar’s attractiveness as a safe-haven.

4. Increased flows into the gold ETF (GLD) to a record  1,041.53 tonnes, making it the 6th largest gold holding outfit in the world, overtaking the SNB. (I have to look up the flows and will add a link and a note here later)

5. Unexpected rise in consumer confidence from the preliminary March data.

6. Announcement by Citi (as well as JP Morgan Chase and Wells Fargo) that it’s showing profitability in 2009. (Why don’t they start paying us back then?)

But until gold shows conviction in going through resistance in the 930-940 band, I’ll stick bull-headedly to my belief that the dollar will chug on or at least bounce around 87-89 for a bit more before coming down.

Mind you, I’m not wedded to that opinion, and if I see signs of change I’ll start stock-loading food, buying up gold coins and foraging for wild roots in the backyard…I’ll let you know..