Daily Archives: January 15, 2012

The U.S. Government Funded the Iranian Terrorist Group Which “Found” The Documents Upon Which the Warmongers Are Relying

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Submitted by George Washington on 01/15/2012 15:33 –0500

The people pushing for war against Iran are the same neocons who pushed for war against Iraq. See this and this. (They planned both wars at least 20 years ago.)

The IAEA report being trumpted as a casus belli contains no new information, but is based on a re-hashing of old, debunked claims stemming from “laptop documents”.

Wikileaks documents reveal that the new IAEA head was heavily backed by the U.S., based upon his promises of fealty to the U.S.  Indeed, as we’ve seen in the nuclear energy arena, the IAEA is not a neutral, fact-based organization, but a wholly-captured, political agency.

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But where did the documents come from originally?

As Gareth Porter noted in 2008:

The George W. Bush administration has long pushed the “laptop documents” – 1,000 pages of technical documents supposedly from a stolen Iranian laptop – as hard evidence of Iranian intentions to build a nuclear weapon. Now charges based on those documents pose the only remaining obstacles to the International Atomic Energy Agency (IAEA) declaring that Iran has resolved all unanswered questions about its nuclear programme.

But those documents have long been regarded with great suspicion by U.S. and foreign analysts. German officials have identified the source of the laptop documents in November 2004 as the Mujahideen e Khalq (MEK), which along with its political arm, the National Council of Resistance in Iran (NCRI), is listed by the U.S. State Department as a terrorist organisation.

Interestingly, the Bush Administration – and especially Dick Cheney – helped to fund the MEK (see confirming articles here and here).

And the New York Times, Washington Post and others are reporting that Rudy Giuliani, former Homeland Security Secretary Tom Ridge, former national security adviser Fran Townsend and former Attorney General Michael Mukasey are supporting the MEK as well.

So the terrorist group which “found” the documents is funded by neoconservatives who want to overthrow Iran. What a coincidence!

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And as Gareth Porter notes in the above-linked article, the Mossad may have created the documents in the first place:

There are some indications, moreover, that the MEK obtained the documents not from an Iranian source but from Israel’s Mossad.

One thing is clear: the U.S. and its allies have a long history of using forged documents as an excuse for war.

Source

Norway: Technip Participates in Statoil’s Vilje and Visund Developments

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Technip was awarded two contracts by the international energy company Statoil, worth a total of around €55 million, for the Vilje South field and Visund North developments located in the North Sea at water depths of 120 and 385 meters respectively.

These contracts cover welding and installation of a 10 kilometer production flowline,  subsea equipment installation and tie-ins, umbilical installation and tie-ins.

Technip’s operating center in Oslo, Norway will execute the contracts. Flowline welding will take place in the Group’s spoolbase in Orkanger, Norway, while installation will be performed with the Apache II, a pipelay vessel from Technip’s fleet, in mid-2013.

Articles

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Obama warned Israel against Iran strike

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With growing concern over Israeli strike, US administration working to receive assurances from Jerusalem it won’t attack nuclear sites, boosting presence in Gulf region

Orly Azoulay

Published:
01.15.12, 09:59 / Israel News

The US administration has spent the last few days working frantically to prevent an Israeli strike on Iran and reinforcing presence in the region in preparation for Iranian counter attacks, Yedioth Ahronoth reported Sunday.

Israeli state officials suggested Saturday that the sanctions against Tehran were not sufficient, which works to enhance US concern over an Israeli strike.

Related stories:

US President Barack Obama is operating several secret channels to deliver messages to all sides. On Thursday, Obama spoke to Prime Minister Benjamin Netanyahu and warned him of the serious consequences of a military strike on Iran’s nuclear facilities.

The Wall Street Journal reported that US Defense Secretary Leon Panetta and other top officials have privately sought assurances from Israeli leaders in recent weeks that they won’t take military action against Iran and will allow further sanctions to be imposed on the Islamic Republic. It was also reported that US Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, will meet with Israeli military officials in Tel Aviv next week.

US defense officials claim that the Israeli response has been noncommittal. Some American intelligence officials complain that Israel represents a blind spot in US intelligence, which devotes little resources to Israel, the WSJ said.

The officials accused the Israeli security establishment of playing a “good cop, bad cop” routine and increasing uncertainty in Washington.

This ambiguity has led the US administration to believe that Netanyahu has plans to attack and the US is therefore preparing for the outcomes of such a strike.

The US military is preparing for a number of possible responses to an Israeli strike, including assaults by pro-Iranian Shiite militias in Iraq against the US Embassy in Baghdad, the WSJ said.

According to the report, the US has 15,000 troops in Kuwait and has moved a second aircraft carrier strike group to the Persian Gulf area.

It has also been pre-positioning aircraft and other military equipment, officials say. Arms transfers to key allies in the Gulf, including the United Arab Emirates and Saudi Arabia, have been fast-tracked as a further deterrent, officials say.

Disappointment with sanctions

According to messages by Israeli state officials over the weekend, the US is right to be concerned. Israeli officials did not deny reports of growing American concern and sent a clear message that Israel was disappointed with the sanctions against Iran.

One source said that without an immediate toughening of sanctions which will include action against Iran’s central bank and its ability to export oil, Tehran will never consider halting its nuclear program. They also criticized the fact that the White House failed to adopt a Congress decision to act firmly against Iran’s central bank.

Netanyahu addressed the matter in an interview with The Australian. “For the first time, I see Iran wobble under the sanctions that have been adopted and especially under the threat of strong sanctions on their central bank,” he said. “If these sanctions are coupled with a clear statement by the international community, led by the US, to act militarily to stop Iran if sanctions fail, Iran may consider not going through the pain. There’s no point gritting your teeth if you’re going to be stopped anyway.”

US President Obama also sent a firm message to Iran’s spiritual leader Ali Khamenei and stressed that closing the Strait of Hormuz would be crossing a red line which would lead to counter action by the US.

Yedioth Ahronoth also reported that IDF Chief of Staff Benny Gantz is slated to attend a line of high-profile international events this week. He is scheduled to attend a military chiefs conference in Brussels, hold a meeting with NATO’s chief of staff and host US Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff in Israel.

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The White House Has Been Bragging About Falling Wages In The US

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Wolf Richter, Testosterone Pit | Jan. 15, 2012, 7:07 AM

150 factory workers in China threatened to jump off the roof of an iPhone factory unless they received a raise.

Similar stories are accumulating. Inflation, especially in food and other essentials, has been rampant over the last few years—and to make ends meet, desperate workers sometimes take drastic measures. These anecdotes underscore a major trend in China: skyrocketing cost of labor.

In the US, it’s the opposite. Since 2000, real wages (adjusted for inflation) have declined. The White House even touts this horrid statistic in its paper, Investing in America: Building an Economy That Lasts.

Clearly, the paper is not intended for the rank and file. It outlines how current policies are making America competitive with low-wage countries like China. And one of the principal strategies is … lowering wages. Graph from the White House paper: Above

The paper also touts the administration’s claim of having created 3.2 million jobs over the last 22 months. But these numbers are based on surveys, formulas, and statistical adjustments. The BLS’s Employment Population ratio, which the paper wisely leaves unmentioned, measures the percentage of people age 16 and older who have jobs. It’s the least corruptible employment number available—and at 58.5%, it’s only a fraction above the August level, which, at 58.1%, was the lowest reading since 1983. And it’s far below its peak of 64.7% in April 2000. From the Bureau of Labor Statistics:

Read more: Source

The Rise Of Dark Inventory In Housing And Oil

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The Automatic Earth | Jan. 14, 2012, 10:14 PM

I’d like to try a little intellectual exercise. There were two pieces in my mailbox this week that concerned posts at Naked Capitalism. Though their topics have at first glance little to do with one another, there is a term that is pivotal to both. Inventory.

When it comes to real estate, it’s popularly called “shadow inventory”. With regards to commodities, the term “dark inventory” has been coined. While there are plenty of differences in the way the terms are applied, I’m for now intrigued more by – potential – similarities between them.

Not that I have the illusion that I can treat this in a way that could even border on comprehensive, don’t get me wrong. I want to lift only part of the veil that hides from view what underlies how and why the financial system that rules our economies is going to the dogs: market manipulation.

In particular, I’m interested in how both shadow and dark inventory phenomena pervert their respective markets, as well as the entire free market system as a whole, where everyone is supposed to have “full access to information”. Something both dark and shadow inventories make impossible. Something the 99% general public are not aware of. At all.

And it’s not like they’re alone. Try your average pension fund manager, banker, politician. Not a clue.

Let’ start with a trip back to June 2011, when Izabella Kaminska for FT Alphaville perhaps first used the term “dark inventory”:

The power of the dark inventory

Dark inventory: Inventory that’s out there, but which no-one else can see.

It comes in many shapes and forms. Equity inventory, which has been internalised by banks and parked off-balance sheet (appropriately via private dark pools). Copper inventory, which has been stashed off-market and encumbered via finance deals. It’s also yet-to-be-produced commodities which have been pre-sold, but which nobody else knows have been encumbered.

But if you have the power to see or command the darkside inventory, you have the power to stay ahead of the game. Especially if you can move quickly. Indeed, almost every befuddling market move of late can, if you think about it, be explained by the concept of dark inventory. For example, consider the impact of dark inventory accumulation (the possible consequence of cheap liquidity).

In oversupplied markets this can mislead fellow investors. They see buying interest coming from somewhere, though they can’t quite understand from where. The fundamentals don’t explain it, but prices are rising regardless, led usually by the cheapest securities, and in tandem. With no ability to see the dark inventory, the market finally falls for the trend. They believe the demand is real.

If you are the accumulator of dark inventory, or privy to the flow, you are able to foresee the market rallies and position yourself accordingly. This is a profitable time.

Of course, in continually oversupplied markets you will begin to suffer the costs of hedging inventory, if you are bothering to hedge, (since forward curves may eventually flatten out) as well as the burden of balance sheet expansion. Eventually it will make sense to park that inventory off-balance sheet.

Thanks to matching, aggregation and netting you can use the inventory (in a sliced up, mixed up manner) to back equitised structured products, exchange traded notes, exchange traded products as well as synthetic funds. Lots of launches follow. This especially makes sense if by then everyone is a believer in the rally, a fact which  has translated into genuine buying interest which can now be captured to back your dark inventory.

The game is afoot.

Ilargi: I certainly recommend reading Izabella’s entire piece (like all other pieces I quote from). But even from the quote above alone, you can, even if you’re not familiar with the topic, still get a genuinely queasy feeling. We’re talking market manipulation here, a way to influence investment decisions without anyone ever knowing they’re being manipulated. And fully legal.

Chris Cook, former compliance and market supervision director of the International Petroleum Exchange, writes this about “dark oil inventory” at Naked Capitalism:

Naked Oil

All is not as it appears in the global oil markets, which in my view have become entirely dysfunctional and no longer fit for its purpose. I believe that the market price is about to collapse as it did in 2008 and that this will mark the end of an era in which the market has been run by and on behalf of trading and financial intermediaries.

In this post I forecast the imminent death of the crude oil market [..]

Global Oil Pricing
The “Brent Complex” is aptly named, being an increasingly baroque collection of contracts relating to North Sea crude oil, originally based upon the Shell “Brent” quality crude oil contract which originated in the 1980s.

It now consists of physical and forward BFOE (the Brent, Forties, Oseberg and Ekofisk fields) contracts in North Sea crude oil; and the key ICE Europe BFOE futures contract which is not a deliverable contract and is purely a financial bet based upon the price in the BFOE forward market.

There is also a whole plethora of other ‘over the counter’ (OTC) contracts involving not only BFOE, but also a huge transatlantic “arbitrage” market between the BFOE contract and the US West Texas Intermediate (WTI) [..]

North Sea crude oil production has been in secular decline for many years, and even though the North Sea crude oil benchmark contract was extended from the Brent quality to become BFOE, there are now only about 60 cargoes of BFOE quality crude oil (and as low as 50 when maintenance is under way), each of 600,000 barrels, delivered out of the North Sea each month, worth at current prices about $4 billion.

It is the ‘Dated’ or spot price of these cargoes – as reported by the oil price reporting service Platts in the ‘Platts Window’– which is the benchmark for global oil prices either directly (about 60%) or indirectly, through BFOE/WTI arbitrage for most of the rest.

[..] traders of the scale of the oil majors and sovereign oil companies do not really have to put much money at risk by their standards in order to acquire enough cargoes to move or support the global market price via the BFOE market.

[..] the evolution of the BFOE market has been a response to declining production and the fact that traders could not resist manipulating the market by buying up contracts and “squeezing” those who had sold forward oil they did not have [..] The fewer cargoes produced; the easier the underlying market is to manipulate.

[..] The Platts window is the most abused market mechanism in the world.[..]

In the early 1990s Goldman Sachs created a new way of investing in commodities. The Goldman Sachs Commodity Index (GSCI) enabled investment in a basket of commodities – of which oil and oil products was the greatest component – and the new GSCI fund invested by buying futures contracts in the relevant commodity markets which were ‘rolled over’ from month to month. The genius dash of marketing fairy dust which was sprinkled on this concept was to call investment in the fund a ‘hedge against inflation’. Investors in the fund were able to offload the perceived risk of holding dollars and instead take on the risk of holding commodities.

The smartest kids on the block were not slow to realise that the GSCI – which was structurally ‘long’ of commodity markets – was taking a long term position which was precisely the opposite of a commodity producer who is structurally ‘short’ of commodities because they routinely sell futures contracts in order to insure themselves against a fall in the dollar price. ie commodity producers are offloading the risk of owning commodities, and taking on the risk of holding dollars.

So in 1995 a marriage was arranged.

BP and Goldman Sachs get Married

From 1995 to 2007 BP and Goldman Sachs were joined at the head, having the same chairman – the Irish former head of the World Trade Organisation, Peter Sutherland. From 1999, until he fell from grace in 2007 through revelations about his private life, BP’s CEO Lord Browne was also on the Goldman Sachs board.

The outcome of the relationship was that BP were in a position, if they were so minded, to obtain interest-free funding via Goldman Sachs, from GSCI investors through the simple expedient of a sale and repurchase agreement: ie BP could sell title to oil with an agreement to buy back the oil later at an agreed price.

The outcome would be a financial ‘lease’ of oil by BP to GSCI investors and the monetisation of part of BP’s oil inventory. Such agreements in relation to bilateral physical oil transactions are typically concluded privately, and are invisible to the organised markets.

Due to the invisibility of the change of ownership of inventory, ‘information asymmetry’ is created where some market participants are in possession of key market information which others do not have. This ownership by investors of inventory in the custody of a producer has been termed ‘Dark Inventory’

I must make quite clear at this point that only BP and Goldman Sachs know whether they actually did create Dark Inventory by leasing oil in this way, and readers must make up their own minds on that.

Planet Hype

The ‘inflation hedging’ meme gradually gained traction and a new breed of Exchange Traded Funds (ETFs) and structured investment products were created to invest in commodities. In 2005 Shell entered quite transparently into a relationship with ETF Securities which enabled them to cut out as middlemen both investment banks and the futures market casinos, and with them the substantial rent both collect.

Other investment banks also started to offer similar products and a bandwagon began to roll. From 2005 to 2008 we therefore saw an increasing flood of dollars into the oil market, and this was accompanied by the most shameless, and often completely misleading hype, and led to a bubble in the price.

There was (and still is) no piece of news which cannot be interpreted as a reason to buy crude oil. The classic case was US environmental restrictions on oil products, which led to restricted supply, and to price increases in oil products. Now, anyone would think that reduced refinery throughput will reduce the demand for crude oil and should logically lead to a fall in crude oil prices.

But on Planet Hype faulty economic logic – the view that higher product prices are necessarily associated with higher crude oil prices – was instead used as justification for the higher crude oil prices which resulted from the financial buying of crude oil attracted by the hype.

You couldn’t make it up: but unfortunately, they could, and they did.

More worrying than mere hype was that a very significant amount of oil inventory had actually changed hands from producers to investors. Only those directly involved were aware that below the visible part of the oil market iceberg lurked massive unseen ‘Dark Inventory’.

Ilargi: In a nutshell: Cook argues that QE measures from the Fed and BOE have caused large investors to flee from dollars into commodities.

This in turn has led to a price bubble through contango (forward prices are higher than spot prices), for which they are all positioned, but this will down the line inevitably lead to the opposite – backwardation -, and the bubble must burst. Severely, says Cook: to as low as $45 a barrel. Given how conservative Cook is in the numbers he uses, even that may be a high estimate.

In yet another article at Naked Capitalism, Irish journalist Philip Pilkington summarizes Cook’s point so well it seems pointless to try and improve on it:

Fear and Loathing in the Financial Markets – What Happens to the Economy When the Oil Bubble Bursts?

Looking at recent market trends Cook raises concerns that we could be seeing the beginnings of the end of a bubble that began to inflate in the oil market after the crash of the previous bubble in 2008. This bubble, Cook argues, was inflated due to inflation fears after the QE programs undertaken by the Federal Reserve and the Bank of England. With the markets awash with dollar and sterling liquidity, banks and investors piled into commodities to escape what they saw to be a looming inflation.

In recent months Cook focuses on the move of the market from a position of ‘contango’ to a position of ‘backwardation’ – which he sees as evidence of a bubble deflating. While some investors read in this that the short-run demand for oil has risen, Cook points out that with the global recession grinding along there is no fundamental reason that this should be occurring. Instead Cook sees in this move a sign that the long-run demand for oil is falling as the current bubble begins to burst.

Cook thinks that the price collapse is going to be very painful – falling possibly as low as $45-$55 a barrel. In response to this OPEC will try to ramp up prices by cutting production and, most importantly for our purposes, a financial crisis of sorts will occur as inflation hedged investors see their net worth cut to pieces.

If this is as Cook says – if this is a bubble of fear and it bursts – the financial sector is going to see a huge wiping out of the profits they have been reaping from it. We have no way of knowing how much profitability is tied up in these dodgy markets – but my thinking is: a lot.

Ilargi: So far, so good. We must realize, however, that while lower oil prices seem very beneficial to many sectors of our economies, a wiping out of everyone who’s betting the wrong side of this wager is not.

And if Cook is right, a large segment of the financial world, that is: those who are not privy to the magnitude of the dark inventory, have been, and are being, manipulated to be on that wrong side. And without a new bubble to flee into to boot. Indeed, there’s a real risk the entire global oil market will cease to – properly – function.

Come to think of it, again, if Cook is right, it probably already has. Since to the extent that it still seems to function, it does so only to service the interests of those that control the dark inventory, and who squeeze those investors not “in the know”. Oil prices are thus set, in essence, by derivative contracts, not by supply and demand, which is a mere illusion. Thing is, who would know?

Needless to say, there’s another party that stands to lose big if oil prices collapse: producers. The Arab Spring may well return more powerful than ever.

Still, while I think it’s important for everyone to see and understand that, and how, manipulation sets market prices for commodities (and stocks, but that’s another story) on a daily basis, and not some free market principle, I started out trying to figure out what connects dark oil inventory and shadow housing inventory.

Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, has – extensively- looked at the latter:

9.8 Million Shadow Inventory Says Housing Market is a Long Way From the Bottom

“Shadow inventory,” the number of homes that are either in foreclosure or are likely to end up in foreclosure, creates substantial but hidden pressure on housing prices and potential losses to banks and investors.

This is a critical figure for policymakers and financial services industry executives, since if the number is manageable, that means waiting for the market to digest the overhang might not be such a terrible option. But if shadow inventory is large, housing prices have a good bit further to go before they hit bottom, which has dire consequences for communities, homeowners, and the broader economy.

Yet estimates of shadow inventory, and even the definition of what constitutes shadow inventory property, vary widely. For example, the Wall Street Journal published a Nov. 11, 2011 article, “How Many Homes Are In Trouble?” where values varied from 1.6 million (CoreLogic), [..] to between 8.2 million and 10.3 million (Laurie Goodman, Amherst Securities). [..]

…. things are actually worse than any of the prevailing estimates indicate, although Goodman is very close to the mark. Current loss experience suggests that this figure is staggering, easily in the $1 trillion range.

Why aren’t those losses more visible yet? Well, evidence suggests that servicers are stalling the foreclosure process, not taking title to and selling these houses. For the lenders, such delay likely allows them avoid the write-offs of both the negative equity as well as the worthless second liens. More generally, it keeps the trillion dollar losses hidden.

Lenders aren’t acknowledging their stall tactics, however. When people notice how slowly foreclosures are progressing from initial steps to resale, lenders point at their foreclosure fraud related dysfunction. Lenders conveniently don’t mention that such dysfunction was self-induced, instead blaming borrowers and courts. [..]

…. there are 9,800,000 houses in shadow inventory.

If these loans were taken out for the median value of a state-by-state home price, using data from the FHFA, for Q2, 2006, there is $2.3 trillion of home values at near the market peak. The mortgage balances are going to be lower than that, but given how widespread equity extraction came to be (and it is probably that the most levered homes are hitting the wall), it is not unreasonable to assume LTV ratios relative to peak values of 80%.

Loss severities on prime mortgages are running at roughly 50% and are 70% on subprime (note that with more borrowers fighting foreclosures, and given that loss severities on a contested foreclosure can come in at 200% or even higher, so using these assumption is certain to understate actual results). $2.3 trillion x 80% x 50% = $900 billion.

These losses will be distributed across the GSEs (meaning taxpayers), banks that have second liens (with the biggest losers being Bank of America, Citibank, JP Morgan, and Wells Fargo), investors in private label (non GSE) mortgage securities, and other US and foreign banks.

Balanced against this liability is some amount figure for the underlying asset, the house. Given that servicer advances, foreclosure costs and servicer fees come close to and even exceed the value of the property, comparatively little of this $2.3 trillion will be recovered in property liquidations. [..]

In support of the conclusion that banks cannot afford to recognize this shadow liability is the sharp decrease of foreclosure filings in 2011 and the seeming unwillingness of banks to move foreclosures through the system.

They file foreclosures, then let them linger, not taking homes even when every possible borrower defense is exhausted. Some of this slowdown may be due to more scrutiny of foreclosure documentation, particularly in judicial foreclosure states, but there is clearly more at work. [..]

There is other anecdotal evidence suggesting banks do not want these houses or, more accurately, do not want the write-offs that actually taking the houses would force:

• Foreclosure defense lawyers have clients who have not paid their mortgage in years, but face neither a foreclosure nor even a negative mark on their credit report. I recently received a call from a man who said he had not paid his $1.6 million mortgage in two years but his servicer has not foreclosed, and he faces no derogatory information on his credit report; he was frustrated because he is retired and just wants to move to a cottage.

This phenomenon, which apparently isn’t rare, might explain why shadow inventory reports that rely on credit reports to extrapolate shadow inventory are often dramatically lower than these calculations. [..]

• It is common for foreclosure mill lawyers to argue for delays in selling a home when nobody is representing a borrower. Judges, who want to clear their dockets, will rail at bank lawyers about the age of the case even while bank lawyers argue for yet another delay, while the other table — where the borrower, the defendant, is supposed to sit — is empty. [..]

Yes, servicers continue to prey upon ordinary Americans. But evidence suggests that they’re also preying on investors. Individual American families do not deserve to suffer these behaviors, that increase the losses while delaying the uncertainty, and neither do pension funds, European villages, municipalities, or other unsuspecting entities who actually funded these loans.

Few people are going to complain when they’re not paying their mortgage that there is no mark on their credit-report nor a foreclosure; a few of the more perplexed ones — or those that want to bring a bad mortgage to resolution — may speak out, but most remain silent.

Similarly, many investors, and surely the banks themselves, know about these figures. But as both sides spin their wheels, the problem continues to spiral out of control.

Ilargi: I think perhaps the best way to make the connection between dark inventory in commodities and shadow inventory in real estate is to look at, no surprise, what pays for it. And that leads me to what I have long since coined “zombie money”.

Zombie money is the money that seems, but only seems, to exist because of unrecognized losses. QE measures, for instance, basically serve to keep those losses unrecognized. That’s what they’re for. To make markets, and ordinary people, believe that banks are still solvent when in reality they’re not.

Funny thing is, even with all the accounting tricks that hide those losses, the entire system is still, and already, on the verge of collapse. And when it goes, the loser will be you, not the gamblers that lost fair and square. If dark inventory shows you anything, it’s that fair and square is a thing of some mythical fairy tale past. The reality for you and me is, and this is not the first time I put it like this: heads you lose, tails you die.

Zombie money pays for dark oil inventory; this is for instance why tar sands can look profitable, even as their EROEI is very low. If there’s sufficient difference between spot prices and forward prices for natural gas and oil, it makes sense to turn the former into the latter (which is all that tar sands are about). Nothing to do with energy efficiency, everything to do with market manipulation. The same goes for shale gas, and for oil shale. It will all soon give a whole new meaning to the term “unsustainable”. Promise.

Zombie money also allows, and causes, lenders, aided and abetted by governments all over, who want no part of a crashing real estate market, to keep millions of homes off the market, which in turn allows them to keep billions, if not trillions of dollars, in losses off their books. This results in hundreds of millions of people, throughout the western world, who think their homes are worth much more than they are. And then they wake up.

Dark inventory and shadow inventory keep us all from having a realistic picture of what is actually out there, what anything at all is worth. Prices are not set in any sort of “free” market; they are set in “shadow markets”, “dark markets”, in which – derivative – financial instruments rule, not the actual assets they are based on. Until they don’t.

Today’s prices are set by bets on expectations of tomorrow’s prices, and these expectations in turn are manipulated by parties that have a vested interest in making investors – and the general public – think a certain expectation is realistic; all it takes is to make that expectation sufficiently opaque, to make sure investors have access to far less information than the parties that deal and/or hold the derivative instruments.

That’s all it takes to create, out of thin air, a whole new generation of suckers and greater fools.

This creates a tremendous cognitive dissonance, a picture of the world that is entirely delusional. And that, of course, can and will not last. Even if a majority of people still wishes to think that it can. What do they know about what’s going on behind the curtain? Hardly anything at all.

And then they wake up.

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Felix Zulauf On The Key To 2012 And The Coming Banking Bust

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Cullen Roche, Pragmatic Capitalism | Jan. 14, 2012, 10:24 PM

The 2012 Barrons Roundtable came out this morning and the discussion is always interesting.

I have tended to veer towards the comments of Felix Zulauf since he’s the global macro master at the table. That said, here are some of his macro thoughts.

I think he’s a bit dramatic, but given that he’s one of the few roundtable members who has been able to connect the dots (for the most part) his comments are always worth considering (see past performance from Roundtable members here):

Zulauf: Europe is going to be key this year for the markets and the economy. China is slowing; the emerging world is slowing, and the U.S. is barely above water, constrained by its structural problems. I have called the euro a misconstruction since its birth. The problem is a difference in competitiveness among European countries, and you can’t solve it by lending money to the less competitive countries. You have to deflate wages and prices in the south, and inflate the north. But given Germany’s history, it will never inflate.

The members of the euro zone agreed in December that each country could have a structural deficit of no more than half a percent of GDP. If a deficit goes above 3% of GDP, the country will be sanctioned. This agreement now has to be ratified in all countries. But when you agree to such a prescription and you are uncompetitive, your currency is overvalued by 30%, you can’t devalue, and your nominal interest rates are too high, that is a recipe for a depression. It is a death sentence. Several countries won’t ratify the contract, and the next day their markets will be repriced accordingly. They will exit the euro, and the turmoil will go to the next level. Greece is bust in either case. If you can devalue your currency by 40% or 50% in that situation, at least you will have the chance to see the sun again and recover.

Zulauf: The banking system goes bust. Assume Greece won’t repay anything, or at most 10% of its total debt. It is not just the government but the private sector that is bust. That means banks in other countries will be in trouble, which means they will be nationalized. Governments won’t have the money to pay for this, so they will assume even more debt. That is the chain of events I expect in 2012, and if you believe it won’t affect the U.S. you are dreaming. The estimated notional value of the over-the-counter fixed-income-derivatives market in Europe is estimated to be about 60 trillion euros. There are many links to the U.S. banking system, although we don’t yet know who is positioned how. If one country exits the euro, all hell will break loose.

Zulauf: Every European country will be in recession in 2012, and probably in 2013.

Source: Barrons

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Nigeria Labor Talks Collapse, Could Disrupt One Of The Largest Oil Exporters To The US

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AP | Jan. 15, 2012, 12:24 AM

ABUJA, Nigeria (AP) — Nigeria’s government and labor unions failed Saturday night to end a paralyzing nationwide strike over high gasoline costs, potentially sparking an oil production shutdown in a nation vital to U.S. oil supplies.

It was not immediately clear early Sunday whether a major oil workers’ union had gone ahead with its threat to have its members walk off their jobs starting at midnight in an effort to halt oil production.

Nigeria, which produces 2.4 mi lion barrels of oil a day, is the fifth-largest oil exporter to the United States. Any disruption to oil production could roil the oil futures market at a time traders remain concerned about world supply.

President Goodluck Jonathan did not show up for a meeting with union representatives held Saturday night at the presidential villa in Nigeria’s capital Abuja, nor did Vice President Namadi Sambo. Instead, the nation’s Senate president and its House speaker represented the government along with other officials.

After the meeting, Nigeria Labor Congress President Abdulwaheed Omar told waiting journalists: “We have not reached a compromise.”

Asked whether oil production would immediately halt, Omar said: “We are taking these things gradually.”

Nigeria has been gripped by a paralyzing strike since Monday when labor unions called the nationwide work stoppage in response to a government decision to remove subsidies, causing fuel prices to more than double in Africa’s most populous nation. However, oil workers mostly remained on the job.

On Thursday, the Petroleum and Natural Gas Senior Staff Association of Nigeria threatened to stop all oil production in Nigeria at midnight Saturday. President Babatunde Ogun and other union officials were not immediately available to confirm whether its members had left their posts.

The union’s ability to enforce a shutdown across the swamps of Nigeria’s southern delta to its massive offshore oil fields remains in question. But the threat of a strike caused jitters on global oil markets Friday.

The strike began Monday, paralyzing the nation of more than 160 million people. The root cause remains gasoline prices: President Goodluck Jonathan’s government abandoned subsidies that kept gasoline prices low on Jan. 1, causing prices to spike from $1.70 per gallon (45 cents per liter) to at least $3.50 per gallon (94 cents per liter). The costs of food and transportation also largely doubled in a nation where most people live on less than $2 a day.

Anger over losing one of the few benefits average Nigerians see from being an oil-rich country, as well as disgust over government corruption, have led to demonstrations across this nation and violence that has killed at least 10 people. Red Cross volunteers have treated more than 600 people injured in protests since the strike began, the International Committee of the Red Cross said Friday.

Even if strikers are only partially successful, fears of tightened global supplies could raise oil prices by $5-$10 per barrel on futures markets next week. Gasoline prices would follow, rising by as much as 10 cents per gallon and forcing U.S. drivers to spend an additional $36 million a day at the pump.

Experts predict the national average in the U.S. could rise as high as $4.25 per gallon ($1.12 a liter) in 2012.

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Newt and the Last Conservative Revolution

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Kevin Tharp

In her book Slander, conservative commentator and pundit Ann Coulter called Newt Gingrich one of the most consequential politicians in the last century.  Why would she make such a claim?  What did he do that had such consequence?

In 1993, the Republican Party was the minority party.  It had been in the minority since 1955. Even President Reagan had to deal with a Democrat Congress in the 80s and was limited in his ability to change Washington as a result.  Newt Gingrich had seen this up close and personal.  He had tried to help Reagan with the Conservative Opportunity Society.  By 1993 he had become the Republican whip in the house.  With his leadership the Republicans crafted a proposal called the Contract With America (CWA).  It was designed so that Republican candidates could campaign on conservative principles in order to win their congressional seats and then govern in a conservative manner.  The electorate responded.  It handed the House and Senate over to the Republicans.  This was a revolution unheard of in the times they occurred.  Gingrich became the Speaker of the House as a result.

The CWA was a conservative proposition.  It held that the electorate could hold their representatives responsible and could remove them if they didn’t perform.  The representatives would be responsible to their constituents.  But it also implied that they should perform like they would under a business contract.

Did Gingrich write the contract himself?  No.  But he led the effort for congressional candidates to sign up.  And most did.  He led educational efforts for those potential conservative congressmen to help them campaign.  Since then Gingrich has lead other congressional education efforts.  He has been a constant source of education for congressional representatives.

What did the Contract propose to do?  There were two parts to the CWA.  The first part was a series of reforms to Congressional activity itself.  These were proposed changes to the way it would operate.  The proposals were: require that Congress be held to all laws that apply to the rest of the country; audit Congress for fraud and waste; reduce the number of House committees and committee staff; set term limits for committee chairmen; disallow proxy votes; require public committee meetings; require a three-fifths majority for  tax increases; and implement zero base-line budgeting.

These are all conservative proposals.  Did Pelosi enforce these types of rules?  No way.  Should they be implemented again?  You betcha.  Let’s audit Congress again.  Let’s reduce their budgets, staff, and terms etc.  But we need to change the presidency too.

The second part of the Contract contained legislation that Republicans would introduce within the first 100 days.  The legislation consisted of the following:

THE FISCAL RESPONSIBILITY ACT: A Constitutional amendment to balance the budget and give the president a line-item veto.

THE TAKING BACK OUR STREETS ACT: An act designed to enhance law enforcement, judicial branch sentencing and prison construction for safer neighborhoods.

THE PERSONAL RESPONSIBILITY ACT: An act with work provisions for welfare recipients and provisions discouraging women to have additional welfare babies.

THE FAMILY REINFORCEMENT ACT: An act with various provisions in tax laws and other legislation to help reinforce the family.

THE AMERICAN DREAM RESTORATION ACT: An act designed to begin repeal of the marriage tax penalty, to create tax savings accounts and child tax credits.

THE NATIONAL SECURITY RESTORATION ACT: An act designed to increase funds for national security.

THE SENIOR CITIZENS FAIRNESS ACT:  An act that raised the Social Security earnings limit for seniors and repealed the 1993 tax hikes on Social Security benefits.

THE JOB CREATION AND WAGE ENHANCEMENT ACT: An act with various tax reforms for businesses to create jobs and raise worker wages.

THE COMMON SENSE LEGAL REFORM ACT: An act to allow for loser pay laws and place reasonable limits on liability penalties to discourage endless lawsuits.

THE CITIZEN LEGISLATURE ACT: An act to create term limits to discourage career politicians.

This was all legislation based on conservative principles.  Was it perfect?  Maybe not.  But it was a revolution in the right direction.  The CWA led to the Republicans gaining a majority in both the House and the Senate.

But the CWA only had so much of an effect.  The Senate, where Republicans held only a simple majority, and the presidency, were controlled by Democrats (A simple majority does not control the senate because of filibusters).  Today we need a president to lead a revolution in the executive branch.  Gingrich has a 21st Century Contract just for that purpose.  He is also calling for input from you and me.  Send him your ideas.

Gingrich has run against the tide of liberalism for his whole career.  He ran as a Republican when Georgia was still dominated by Democrats.  He ran and lost two times but didn’t give up.  He finally succeeded on his third try.  He is a fighter for conservative government.

We are in the middle of another conservative revolution.  The Tea Party started it in 2010.  But it needs to continue on and change the executive branch.  Of course it needs to change the Senate as well.  But a groundswell in the presidential vote would contribute to a Senate victory.  And Gingrich is ready to lead a revolution again for the presidency.  A leader with revolutionary experience is what we need.

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