Archives for January 2013

Chevron Whacked By Record Fine, But Might Not Notice

Chevron Whacked By Record Fine, But Might Not Notice

Wolf Richter

The California Division of Occupational Safety & Health just slammed Chevron with massive, record-breaking penalties related to the refinery in Richmond, California—the one that ended up in a fireball last August.

It started when a severely corroded pipe began leaking. Rather than shutting down the unit to fix it properly—and forgoing some revenues—managers decided to rig it. So they told workers to remove the insulation. It might have sounded like a good idea at the time. But it didn’t help. Not at all. The pipe ruptured, and mayhem broke out.  The people in Richmond were told to stay indoors and keep their doors and windows closed. A reported 15,000 people sought treatment after inhaling the toxic airborne gunk. And gas prices jumped.

Cal/OSHA investigated, and now it broadsided Chevron with 23 citations for “serious” violations—serious “due to the realistic possibility of worker injuries and deaths in the fire.” Of these violations, 11 were also classified “willful” because “Chevron did not take reasonable actions to eliminate refinery conditions that it knew posed hazards to employees, and because it intentionally and knowingly failed to comply with state safety standards.”

One of the “willful serious” violations: “Investigators identified leaks in pipes that Chevron had clamped as a temporary fix. In some cases the clamps remained in place for years,” and the pipes were never replaced. More generally, Cal/OSHA determined that Chevron:

  • Did not follow the recommendations of its own inspectors and metallurgical scientists to replace the corroded pipe that ultimately ruptured and caused the fire. Those recommendations dated back to 2002.
  • Did not follow its own emergency shutdown procedures when the leak was identified, and did not protect its employees and employees of Brand Scaffolding who were working at the leak site.

To punish Chevron and teach the mega-company an excruciatingly painful lesson, Cal/OSHA whacked it forcefully with the largest penalty it had ever imposed, and “the highest allowed under state law”: 963,200 dollars and no cents.

Chevron isn’t ready just yet to throw in the towel. That would be against its corporate warrior spirit. It would appeal. “Although we acknowledge that we failed to live up to our own expectations in this incident,” Chevron said soothingly in a statement, “we do not agree with several of the Cal/OSHA findings and its characterization of some of the alleged violations as ‘willful.’“

Chevron will get over it. The fine, if it is ever paid, won’t even be a rounding error on the income statement. It certainly won’t impact executive compensation. The refinery, which used to process 245,000 barrels of crude oil a day, will be all fixed up and ready to go again by the end of March. Eventually, Chevron will be able to brush off its remaining legal issues related to the fire. And the other two Cal/OSHA investigations—one into Chevron’s El Segundo refinery near LA and the other into its Lost Hills oilfield near Bakersfield? The company will handle them—and whatever deterrent value they should have—with its usual aplomb.

But in other places, Chevron wasn’t so lucky. The same day, an appeals court in Buenos Aires, Argentina, upheld a freeze on up to $19 billion in Chevron assets. Targeted are two of its subsidiaries there, Chevron Argentina and Ing. Norberto Priu—which are worth only about $2 billion. The aftermath of a 20-year legal battle in Ecuador where Texaco, which Chevron later acquired, was accused of contaminating the rainforest in the Amazon watershed for nearly 30 years, sickening tribal people and farmers. Chevron has been fighting back with all its might, refusing to make payments, and counter-accusing the Ecuadorian court of “judicial fraud.” Allegations and admissions of bribes are swirling wildly. It’s a mess.

Chevron pulled up its stakes in Ecuador long ago, so plaintiffs are chasing down whatever they can find within reach elsewhere. The company, after years of fighting it, isn’t going to kneel down suddenly. Instead, it would “pursue all available legal remedies to reverse the interim measure.” But if that judgment does eventually trickle down to the income statement—as an analyst-ignored non-cash adjustment, of course—it might be more than just a rounding error.

Oil and gas is a risky business, just about anywhere. Particularly in Libya. Awash with roving militias and undergoing a near-total evacuation of Westerners from oil-producing Benghazi, it is doing its best to make cosmetic security changes in an atmosphere of growing uncertainty. But much of the country’s south and half of its border regions are not even under government control. Read… Libya, An Energy Asset Security Nightmare.

The Expected Housing Recovery Faces a Brick Wall

The Expected Housing Recovery Faces a Brick Wall

Re-emergent house flippers are set to flop.

By Elliott Wave International

In 2005, a mania for residential real estate reached such a fever pitch that a series of cable television shows became entirely devoted to house "flipping."

Flipping involves buying a worse-for-wear house, making the minimum repairs necessary, then turning right around and selling it – ideally for a fast and handsome profit.

Two years before the housing bust became painfully obvious to U.S. homeowners, EWI's publications warned subscribers that the housing market had reached extremes and was about to bust.

There's no mistaking it now: Extreme psychology … has taken up residence in real estate. …

A significant percentage of the population does not know that a return to earth is implicit in [real estate's] pole-vault to record heights.

The Elliott Wave Financial Forecast, July 2005

That issue published around the time the S&P Supercomposite Homebuilding Index peaked.

The index bottomed in late 2008. Since then, the index moved sideways into late 2011 and in 2012 staged a modest rebound. Take a look at this chart from the November Financial Forecast (wave labels removed):



The outburst of over-the-top enthusiasm for home buying turned out to be a great sell signal. The Homebuilding Index lost more than 85% over the next 40 months. The rise from its November 2008 low appears to be a … countertrend rally. … Near-term excitement has definitely risen.

Financial Forecast, November 2012

As you might expect, the rebound is accompanied by a rise in expectations for a real estate recovery.

The head of the world's largest asset management firm sees more than just higher home prices ahead; he sees a return to 2005 levels.

As the inventory of unsold U.S. homes drops to a more manageable level, the U.S. housing industry is inching closer to a complete rebound, [said] BlackRock CEO.

CNBC, Oct. 4

By looking at the chart, you can see how much farther prices have to climb before achieving a "complete rebound."

What's more, home flippers have returned.

Property Flippers Are Back as Housing's Middle Men

Yahoo Finance, Oct. 15

Is it safe again to speculate in U.S. real estate? How should you handle loans and other debt? Should you rely on the government agencies to protect your finances? You can get answers to these and many more questions in Robert Prechter's Conquer the Crash. And you can get 8 chapters of this landmark book — free. 

Get valuable lessons on what to do with your pension plan, what to do if you run a business, how to handle calling in loans and paying off debt and so much more.

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This article was syndicated by Elliott Wave International and was originally published under the headline The Expected Housing Recovery Faces a Brick Wall. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Funding for Naples Bus Service Cut 40% With Predictable Results: Buses Run Out of Gas

Courtesy of Mish.

A 40% funding cut to bus services in Naples, Italy had predictable results: Bus Service Grinds to Halt as Tanks Run Dry

Bus service in the southern Italian city of Naples has ground to a halt after the city transport company ran out of money for fuel.

Valeria Peti, of the ANM transport company, says only 30 of the usual 300 buses left the depot Wednesday morning, and they all had to return before their tanks ran dry.

Naples’ municipal services have been in the news before, most notably when mountains of garbage have piled up. Peti says in this case, the company that provides gas for city buses refused to replenish them without payment guarantees.

ANM says government funding for Naples’ bus service has been cut by 40 percent.

“Services Not Guaranteed”

Here is the public service announcement as described in Bus Operator Runs Out of Fuel.

Due to a lack of fuel our services are not guaranteed,” transport operator ANM announced on its website and at bus stops around the city, enraging commuters.

Mike “Mish” Shedlock

Continue Here

Is Germany preparing for future capital controls?


Source: via Jonathan on Pinterest

Is Germany preparing for future capital controls?

By Jeff Clark, Senior Precious Metals Analyst, Casey Research

The best indicator of a chess player's form is his ability to sense the climax of the game.

–Boris Spassky, World Chess Champion, 1969-1972

You've likely heard that the German central bank announced it will begin withdrawing part of its massive gold holdings from the United States as well as all its holdings from France. By 2020, Bundesbank says it wants half its gold reserves stored in its own vault in Germany. 

Why would it want to physically move the metal from New York? It's not as if US vaults are not secure, and since Germany already owns the gold, does it really matter where it sits?

You may recall that Hugo Chávez did the same thing in late 2011, repatriating much of his country's gold reserves from London. However, this isn't a third-world dictatorship; Germany is a major ally of the US. So what's going on?

Pawn to A3

On the surface, it may seem innocuous for Germany to move some pallets of gold closer to home. Some observers note that since Russia isn't likely to be invading Germany anytime soon – one of the original reasons Germany had for storing its gold outside the country – the move is only natural and no big deal. But Germany's gold stash represents roughly 10% of the world's gold reserves, and the cost of moving it is not trivial, so we see greater import in the move.

The Bundesbank said the purpose of the move was to "build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold-trading centers abroad within a short space of time." It's just satisfying the worries of the commoners, in the mainstream view, as well as giving themselves the ability to complete transactions faster. As evidence that it's nothing more than this, Bundesbank points out that half of Germany's gold will remain in New York and London (the US portion of reserves will only be reduced from 45% to 37%).

Sounds reasonable. But these economists remind me of the analysts who every year claim the price of gold will fall – they can't see the bigger implications and frequently miss the forest for the trees.


What your friendly government economist doesn't reveal and the mainstream journalist doesn't report (or doesn't understand) is that in the event of a US bankruptcy, euro implosion, or similar financial catastrophe, access to gold would almost certainly be limited. If Germany were to actually need its gold, regardless of the reason, any request for transfer or sale would be… difficult. There would be, at the very least, delays. At worst such requests could be denied, depending on the circumstances at the time. That's not just bad – it defeats the purpose of owning gold.

But this still doesn't capture the greater significance of this action. First, it reinforces the growing recognition that gold is money. Physical bullion isn't just a commodity, a day-trading vehicle, or even an investment. It's a store of value, a physical hedge against monetary dislocations. In the ultimate extreme, it's something you can use to pay for goods or services when all other means fail. It is precisely those who don't recognize this historical fact who stand to lose the most in an adverse monetary event. (Hello, government economist.)

Second, here's the quote that reveals the ultimate, backstop reason for the move: Bundesbank stated it is a "pre-emptive" measure "in case of a currency crisis."

Germany's central bank thinks a currency crisis is really possible. That's a very sobering fact.

We agree, of course: history is very clear on this. No fiat currency has lasted forever. Eventually they all fail. Whether the dollar goes to zero or merely becomes a second-class currency in the global arena, the root cause for failure is universal and inevitable: continual and perpetual dilution of the currency.

Some level of currency crisis is inescapable at this point because absolutely nothing has changed with worldwide debt levels, deficit spending, and currency printing, except that they all continue to increase. While many economists and politicians claim these actions are necessary and are leading us to recovery, it's clear we have yet to experience the fallout from spending more than we have and printing the difference. There will be serious and painful consequences, sooner or later of an inflationary nature, and the average person's standard of living will be greatly reduced.

And now there are rumblings that the Netherlands and Azerbaijan may move their gold back home. If this trend gathers steam, we could easily see a "gold run" in the same manner history has seen bank runs. Add in high inflation or a major currency event and a very ugly vicious cycle could ignite.


If other countries follow Germany's path or the mistrust between central bankers grows, the next logical step would be to clamp down on gold exports. It would be the beginning of the kind of stringent capital controls Doug Casey and a few others have warned about for years. Think about it: is it really so far-fetched to think politicians wouldn't somehow restrict the movement of gold if their currencies and/or economies were failing?

Remember, India keeps tinkering with ideas like this already.

What this means for you and me is that moving gold outside your country – especially if you're a US citizen – could be banned. Fuel would be added to the fire by blaming gold for the dollar's ongoing weakness. Don't think you need to store gold outside your country? The metal you attempt to buy, sell, or trade within your borders could be severely regulated, taxed, tracked, or even frozen in such a crisis environment. You'd have easier access to foreign-held bullion, depending on the country and the specific events.

None of this would take place in a vacuum. Transferring dollars internationally would certainly be tightly restricted as well. Moving almost any asset across borders could be declared illegal. Even your movement outside your country could come under increased scrutiny and restriction.

The hint that all this is about to take place would be when politicians publicly declare they would do no such a thing. You could quite literally have 24 hours to make a move. If your resources were not already in place, even the most nimble of us would have a very hard time making arrangements.

Once the door is closed, attempting to move restricted assets across international borders would come with serious penalties, almost certainly including jail time. In such a tense atmosphere, you could easily be labeled an enemy of the state just for trying to remove yourself from harm's way.

The message is clear: storing some gold outside your country of residence is critical at this point, and the window of time for doing so is getting smaller. Don't just hope for the best; do something about it while you still can. The minor effort made now could pay major dividends in the future. Besides, you won't be any worse off for having some precious metals stored elsewhere.

The best chess players in the world aren't that way because they can see the next move. They're champions because they can see the next 14 moves.

You only have to see the government's next two moves to "win" this game. I suggest learning what countermoves you can take now are, before your government declares checkmate.

Santelli to Forecasting ‘Fail’ Fed: “Let Market Forces Reign”

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

While cogitating on yesterday's weak GDP print, CNBC's Rick Santelli confirmed his view that forecasting is complex (at best) and impossible (most likely). The 2010 view of the Fed was that 2012 growth would be 3.5-4% – quite a destructive miss as it turned out; and while Santelli is not attacking the Fed for its ridiculously bad forecasts, he makes a critical point. Forecasting such a massively complex and dynamic system as the global economy is foolhardy but attempting to control a few of the pieces (and not all of the pieces – which is akin to herding cats) is insane. His suggestion, "maybe [the Fed] should look at what has worked in the past; that is market forces." Indeed, two minutes of sanity…

Shorting the Market on These POMO Days May be Hazardous to Your Health

Keep in mind, correlation is not causation, but it has been our operating theory that as long as the Fed is printing, printing, printing, the stock market will be trending higher, higher, higher….

POMO = Permanent Open Market Operations

Federal Reserve Bank of New York: POMO – The purchase or sale of Treasury securities on an outright basis adds or drains reserves available in the banking system. Such transactions are arranged on a routine basis to offset other changes in the Federal Reserve’s balance sheet in conjunction with efforts to maintain conditions in the market for reserves consistent with the federal funds target rate set by the Federal Open Market Committee (FOMC).

Urban Dictionary: POMO – The mechanism by which the Federal Reserve manipulates the stock market. It is no secret that the Federal Reserve, and its now semi-daily interventions in market liquidity via POMO, is rather hell bent on creating the illusion that the economy is alive and well courtesy of a ramping stock market.


Shorting the Market on These POMO Days May be Hazardous to Your Health

Courtesy of ZeroHedge

The central planner's policy tool formerly known as "the stock market" has experienced unprecedented levitation in the past two months on the heels of what, as shown previously, is some 38 countries concurrently pursuing negative interest rates and monetizing their debt, while flooding the market with record liquidity.

Furthermore, as we said back on January 9, now that the Fed is back to full scale unsterilized market injections in the form of good old POMO, anyone who wishes to challenge the Fed directly may want to reconsider doing so via stocks (buying precious metals on FRBNY, BOE and BIS-facilitated 8:00 am crashes is always encouraged). Recall what we said on January 9: "it may not be a good idea to be short stocks on any of the [POMO] days listed below." Below is a chart of what happened next: it shows the stock market's performance and whether or not there was POMO on that day.

In brief: of the 15 POMO days since January 9, the market was up 13 of them, or an 87% hit rate. Those who did not short January POMO at least did not lose money.

And since Goldman's Bill Dudley was kind enough to release the February POMO schedule, during which the Fed will add another $44 billion to Primary Dealer dry powder, not to mention some $40 billion in MBS, and since there is no stock market and hasn't been since 2008, we urge everyone to study the POMO table below and to not short the S&P on the highlighted POMO days unless they absolutely must. Of course, regular readers will know that since the summer of 2009 our active advice to everyone but the most habituated gamblers, has been to stay out of the central planner's policy tool formerly known as "the stock market" entirely.

February POMO schedule (via Fed):

Why We Took Cocaine Out of Soda

You may be thinking, logically, as I was, why would anyone want to do this? A little cocaine would certainly help work off the sugar infusion. But even before that, there were issues. First, there was Vin Mariani – a undoubtably very addictive combination of alcohol and cocaine. The objectionable ingredient eventually banned was the alcohol. And that's how cocaine became a feature of a legal alternative, Coca-Cola. But the story doesn't end there. ~ Ilene 

Why We Took Cocaine Out of Soda

By  (James Hamblin, MD, is The Atlantic's Health editor)

Social injustice and "a most wonderful invigorator of sexual organs"

Screen Shot 2013-01-30 at 7.04.03 PM.png

1894 ad for Vin Mariani,  art by Jules Cheret

When cocaine and alcohol meet inside a person, they create a third unique drug called cocaethylene. Cocaethylene works like cocaine, but with more euphoria.


So in 1863, when Parisian chemist Angelo Mariani combined coca and wine and started selling it, a butterfly did flap its wings. His Vin Marian became extremely popular. Jules Verne, Alexander Dumas, and Arthur Conan Doyle were among literary figures said to have used it, and the chief rabbi of France said, "Praise be to Mariani's wine!" 

Pope Leo XIII reportedly carried a flask of it regularly and gave Mariani a medal. 

Seeing this commercial success, Dr. John Stith Pemberton in Atlanta — himself a morphine addict following an injury in the Civil War — set out to make his own version. He called it Pemberton's French Wine Coca and marketed it as a panacea. Among many fantastic claims, he called it "a most wonderful invigorator of sexual organs."


But as Pemberton's business started to take off, a prohibition was passed in his county in Georgia (a local one that predated the 18th Amendment by 34 years). Soon French Wine Coca was illegal — because of the alcohol, not the cocaine. 

Pemberton remained a step ahead, though. He replaced the wine in the formula with (healthier?) sugar syrup. His new product debuted in 1886: "Coca-Cola: The temperance drink."

After that, as Grace Elizabeth Hale recounted recently in the The New York Times, Coca-Cola "quickly caught on as an 'intellectual beverage' among well-off whites." But when the company started selling it in bottles in 1899, minorities who couldn't get into the segregated soda fountains suddenly had access to it. 

Keep reading >

“The Politics of Removal”: Dressing Up The French Unemployment Fiasco

“The Politics of Removal”: Dressing Up The French Unemployment Fiasco

Wolf Richter

Ugly unemployment numbers are politically inconvenient in democracies. Red-faced politicians have to come up with excuses, and entire elections can be lost over them. So, every country has implemented inscrutable statistical systems to make unemployment look better, or less disastrous, regardless of what realities on the ground may be.

France, which has one of the most generous (and expensive) unemployment compensation systems in Europe, does that too. But it also has an administrative tool at its disposal: removing tens of thousands of people every month from the unemployment compensation rolls for spurious reasons. There is even a term for it: the “politics of removal.”

Like every country, France has a slew of reports that attempt to shed light on, or obfuscate its unemployment fiasco. The two most mediatized: the survey-based report by Insee, which includes the headline unemployment rate; and the report by the unemployment office, Pôle Emplois, which is based on the number of people receiving unemployment compensation. And that raw number is a huge deal in France.

So, when Pôle Emplois released the December numbers on Friday, Labor Minister Michel Sapin—he who let it slip during a radio interview that France was “totally bankrupt“—stepped into the limelight. And patted the government on the back: after 20 consecutive months of sharp deterioration, unemployment had deteriorated again, but only a little bit.

“I can see the sign of an economic activity that isn’t as degraded as some say,” he mollified his jittery compatriots. And with regards to the economy: “We’re not in a collapse,” he said confidence-inspiringly. The “cumulative employment policies” undertaken by the government might even lead to a rebound in the second half, he ventured.

Why his morose optimism? Pôle emploi reported that at the end of December, there were 3,132,900 people receiving unemployment compensation in continental France—not counting the overseas departments. A mere 300 more than in November. Not bad, in a year when 284,600 unemployed had been added to the rolls—a 10% jump.

Including the underemployed, the number rose by 10,200 in December to 4,627,000 people. An all-time record. Those unemployed for over three years exceeded the half-million mark. Another all-time record. “This stability is significant,” Sapin explained.

Alas, it would have been even worse: the number of people removed from the rolls for administrative reasons had jumped by 25%. It had the effect of beautifying the unemployment situation. The “politics of removal,” critics call that practice.

On average, 41,300 people per month were yanked off the list in 2012, and 8,000 were added back to the list the following month. But it wasn’t just another new thing that François Hollande’s government finagled to put lipstick on a dire situation. In 2007, 50,000 people were removed every month, according to a report that Jean-Louis Walter, the mediator of Pôle Emploi, will present to Sapin on January 31.

It’s not just a statistical game: unemployment compensation to these people is also cut. So Walter advocates limiting the abuses of these removals. And he wants to eliminate one category that made up 15% of the removals: failure to show up for an appointment at the unemployment office. “To systematically consider the failure to appear as a refusal to fulfill one’s obligations,” he said, is exaggerated, in particular for such sporadic and involuntary reasons as someone being “ten minutes late for a meeting.”

Part of the problem is that it’s difficult to reverse that decision. Once the perpetrator who was “ten minutes late for a meeting” is pulled off the list, he’d have to explain by registered mail why he was late. There are “legitimate“ reasons for missing a meeting at the unemployment office, such as a court appearance. But it’s the employment office that decides, and the Kafkaesque appeals process is stacked against the applicant. Complaints of abuses have been endless—such as a guy having been pulled off the list though he made it to the meeting, but the counselor didn’t!

Walter wants a fairer scale of penalties and a better process. The system should be reformed for pragmatic and human reasons, and people should be removed “only for just cause,” he said. But reform would also “address the ‘politics of removal’ that are used to limit the explosive rise of the unemployed.”

If implemented, the reform may lead to higher unemployment numbers that surely will inspire Sapin to come up with even more elegant verbal gyrations to explain them. Meanwhile, the French expressed their disdain for their political class by calling for authoritarian leadership, a “real leader” who would “reestablish order.” Read…. Could 87% of the French Really Want A Strongman To Reestablish Order?

Picture: Fists of CGT unionists are seen during a demonstration on October 9, 2012 in Rennes against unemployment in the French industry. AFP PHOTO / DAMIEN MEYER

Labor Unions Finally Read Obamacare Fine Print, Realize Costs Set To Spike, “Turn Sour” On Obama

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

It is a well-known fact that nobody in Congress ever reads, or even skims, any law, and especially not the fine print, it passes until long after it has been enacted into law. It appears the same is just as true for the biggest pillar of support for the Obama administration: America's labor unions, whose liberal vote every election is instrumental to preserving the outflow side of America's welfare state. As it turns out, it was the same labor unions who enthusiastically supported the primary accomplishment of the Obama administration in the past 4 years, Obamacare, only to realize, long after it has become reality that, surprise, their healthcare plan costs are about to go up. And, as the WSJ colorfully summarizes, they are now "turning sour."

From WSJ:

Union leaders say many of the law's requirements will drive up the costs for their health-care plans and make unionized workers less competitive. Among other things, the law eliminates the caps on medical benefits and prescription drugs used as cost-containment measures in many health-care plans. It also allows children to stay on their parents' plans until they turn 26.

So what are the Unions' demands to offset what they only now realize will push their overall costs higher? What else: Moar!

To offset that, the nation's largest labor groups want their lower-paid members to be able to get federal insurance subsidies while remaining on their plans. In the law, these subsidies were designed only for low-income workers without employer coverage as a way to help them buy private insurance.

Top officers at the International Brotherhood of Teamsters, the AFL-CIO and other large labor groups plan to keep pressing the Obama administration to expand the federal subsidies to these jointly run plans, warning that unionized employers may otherwise drop coverage.

But, but, they can't – that's the whole point, or didn't they read that part too? Doesn't matter – to them it is now unfair, nay "unacceptable":

"We are going back to the administration to say that this is not acceptable," said Ken Hall, general secretary-treasurer for the Teamsters, which has 1.6 million members and dependents in health-care plans. Other unions involved in the push include the United Food and Commercial Workers International Union and Unite Here, which represents service and other workers.

So now that even the unions have understood that Obamacare is one big tax, maybe it is time to reevaluate its arrival at a time when the already strapped US consumer sees taxes rising, and has their savings extinguished.

Employers and consumers across the country will see big changes under the health law, which goes into full effect next year. Insurers will no longer be able to deny coverage to people with pre-existing conditions. Most individuals will be taxed if they don't carry insurance, and employers with at least 50 workers will face a fine if they don't provide it. About 30 million Americans are expected to gain insurance under the law.

John Wilhelm, chairman of Unite Here Health, the insurance plan for 260,000 union workers at places including hotels, casinos and airports, recalls standing next to Barack Obama at a rally in Nevada when he was a 2008 presidential candidate.

"I heard him say, 'If you like your health plan, you can keep it,' " Mr. Wilhelm recalled. Mr. Wilhelm said he expects the administration will craft a solution so that employer health-care plans won't be hurt. "If I'm wrong, and the president does not intend to keep his word, I would have severe second thoughts about the law."

Wait, no, you mean that in order to get your vote a career politician… lied? Say it isn't true.

So what is an administration that has pandered to every demand for welfare increases ever, to do?

For the Obama administration, holding firm against union demands for subsidies risks alienating a key ally. Giving unions a break, however, would not only increase the cost of the law but likely open the door to nonunion employers in a similar situation who would demand the same perk.

Obama administration officials declined to answer questions about whether union-employer plans could qualify for subsidies under the law. A spokesman for the Treasury Department, which will administer the subsidies as tax credits, said: "These matters are the subject of pending regulations. We will continue to work with employers, workers, consumers and businesses to implement the health-care law."

Under the health law, households earning up to 400% of the poverty level—$92,200 for a family of four last year—will be eligible for tax credits to offset the cost of private insurance. The less a household earns the more generous the subsidy.

And while the political wranging is about to get heated, Unions suddenly find themselves facing a very existential problem:

The Sheet Metal Workers International Association helped push for passage of the health law. Mr. Beall said he still believes everyone should have health insurance, but worries the law is undermining the union's ability to offer coverage.

"If we're not offering our members insurance and pension, why would you want to be union?" he asked.

The International Union of Operating Engineers Local 150 of Countryside, Ill., which represents construction workers and insures about 65,000 people, is also examining whether some lower-earning workers would eventually be better off leaving the union-sponsored plan and instead getting federally subsidized insurance.

"I've told my members, as this evolves, your health care will not look like it does today," said James Sweeney, president and business manager of the local. "I have to cut it back."

What is most disturbing is that even the unions are starting to understand that there is really no such thing as a free lunch:

Central Blacktop Co., a Hodgkins, Ill., road builder that employs members of operating engineers Local 150, provides health benefits by paying $13.45 per hour that each member works, said Joseph Benson, the company's chief financial officer. That averages nearly $19,000 a year per worker.

"Ultimately any increase in expense to the fund is going to come from us down the line," he said.

It will, but not today. Today, the agenda is to just get more.

“How Washington Hurts Small Community Banks”

Courtesy of Larry Doyle.

The other day I addressed the current David vs Goliath situation in the banking industry and presented The Case for Community Banks. There is no doubt that the crisis that emanated on Wall Street required some real regulatory attention. Regrettably the “one size fits all” regulatory changes embedded in Dodd-Frank is not the answer. Not that people in Washington with little background in markets and the economy might understand that.

Let’s listen to former Inspector General for the TARP, Neil Barofsky, who provides a brief 2-minute dose of ‘sense on cents’ on how Washington has hurt the small community banks in our country. Props to American Banker for this clip.

Larry Doyle

Isn’t  it time or overtime to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

“Everybody in the Industry Knows the US Doesn’t Have the Gold”

Courtesy of John Rubino.

In this week’s talk with National Numismatics’ Tom Cloud, he explains why Germany’s gold repatriation is just the beginning, the US Mint’s silver shortage will continue, and the big money is right about precious metals.

DollarCollapse: Hi Tom. It’s been an eventful few weeks in precious metals, though you wouldn’t know from the price action alone. Hit the high points for us.

Tom Cloud: Germany’s gold repatriation is obviously a game changer. They got all their gold back from France right away. But the US government put them off for 7 years, probably by offering them some kind of premium to take their gold back slowly. More gold, Treasuries, no one knows what exactly but clearly it was a big inducement. It’s also clear that Germany won’t be the last country to bring its gold home. The Netherlands is next and then probably Switzerland. It’s become a game of musical chairs. No one wants to be caught when the music stops. And make no mistake, it will stop. Everybody in the industry knows the US doesn’t have the gold and can’t deliver it. They’ve leased it all out.

It’s important to understand that there are two big stashes of gold in the US. Fort Knox supposedly holds the gold that belongs to us. And the New York Fed holds gold that has been deposited by other countries for safe keeping. That’s where Germany’s gold would be if the US hadn’t leased it out.

DC: Then there’s the US Mint running out of silver eagles.

TC: They sold out in the first three weeks of the year and had to stop taking orders. They’ve since started back up but demand is immense [editor’s note: silver eagle sales are now running at roughly 5 times the December rate – see US Mint silver coin sales in January climb to a record ]. Premiums are way up on silver eagles since a lot of customers are willing to pay up for the most recognizable coin. Others are either waiting for the premiums to go down or are buying maple leafs or silver buffalo or philharmonics, which have lower premiums.

DC: I thought buffalos were US government coins. Why aren’t they selling out too?

TC: The gold buffalo is made by the US Mint but the silver buffalo is not. It’s made by a private mint, which we shouldn’t name because we they don’t need people calling them and bothering them. They’re doing great though.

DC: So who’s doing the buying now?

TC: Right now the big money is moving and the little money is not. The little guy is gonna wait till gold jumps over 1700 to start buying. We’ve been in this channel between 1600 and 1700 for a long time, but we’ll break out pretty soon. Then you’ll see everybody pile in.

DC: And what do your clients want to talk about?

TC: It seems almost funny for a gold guy to spend a third of his time answering questions about interest rates. But big gold buyers have a lot of bonds too. Everybody knows the top [in bonds] will be soon if we haven’t already seen it. Just like people get the gold stashes confused, people also get confused on interest rates because they read about “no interest rate increases till 2014”. But can you borrow money from the fed at zero percent? Not if you’re not a bank. Interest rates aren’t stable in the real world and have actually been edging up for a while. The rate on ten-year Treasuries is up from 1.6% to 2% lately. Very soon everyone will discover that the Fed can’t control this.

For more information or to place an order, call 800-247-2812 or email Tom Cloud at Mention for free shipping and insurance.

Visit John’s Dollar Collapse blog here >

Big, Rich, and Wobbly: Wall Street Banks Are Still Sicker Than You Think

By Mohamed A. El-Erian – The Atlantic

– Mohamed A. El-Erian is CEO and co-chief investment officer of Pimco, the world's largest bond investor, and author of When Markets Collide.

Banks are out of the ICU and have been released from the Rehab Center. But they are not yet in a position to fully resume a redefined role in society.

600 wall street layoff REUTERS ERIC THAYER.jpg

As analysts pour over the details of the recent earnings announcements by U.S banks, one thing is clear: The banking system has largely overcome a complex set of self-inflicted injuries. What is less clear is how banks will navigate what lies ahead.

Banks fueled the worst of the 2008 global financial crisis with a combination of three crippling, self-created problems: too little capital, too many doubtful assets and a risk-taking culture gone mad. Many were on the verge of bankruptcy, and the global economy was staring at a depression.

With exceptional public sector support from the Federal Reserve and other government agencies averting the immediate threat of large sequential failures, banks set on the road of balance sheet rehabilitation. They were pushed along the way by markets and regulators, both of which forced the banking system to de-risk, to change harmful incentives and to correct misalignments. And they responded while increasing sector concentration risks, with some large banks getting even larger.

It was far from a smooth process. In the process of bank recapitalization, some sectors of the economy faced harmful credit rationing that undermined investment in productive activities and contributed to persistently high unemployment. Meanwhile, popular anger remained high, fueled by what many considered as an overly lenient treatment by the U.S. Treasury and the Federal Reserve. 

And it sure did not help that some banks were inclined to quickly resume some highly controversial practices.

The recent set of earning announcements by banks point to significant progress in overcoming the three big problems. Capital cushions are now big and deep, asset quality has improved significantly, and internal incentives are being re-aligned. In addition, banks seem to have placed part, though not all, of their litigation risk behind them.

Of course, individual institutions vary in the extent of improvement. Some (like Goldman Sachs, JP Morgan Chase, and Wells Fargo) have made very significant progress. Others (such as Bank of America and Citibank) are lagging. In aggregate, however, the sector is now well past the critical stage. 

Yet, it is still too early for them to declare victory. 


Three major issues need to be addressed for banks to resume a normal life and regain a stable place in society; and their resolution is both consequential and still uncertain…

Keep reading: Big, Rich, and Wobbly: Wall Street Banks Are Still Sicker Than You Think – Mohamed A. El-Erian – The Atlantic.

Big Brother in Action: EU Wants Power to Sack Journalists; Prime Minister Rajoy Threatens Newspapers Following Corruption Articles

Courtesy of Mish.

“Big Brother” in Action

In case you have not already realized it, 1984 has come and gone politically. All that remains is how fast we march down the path of “thought suppression”. Here are a couple of articles that will make my point.

The Telegraph reports EU wants power to sack journalists

A European Union report has urged tight press regulation and demanded that Brussels officials are given control of national media supervisors with new powers to enforce fines or the sacking of journalists.

The “high level” recommendations that will be used to draft future EU legislation also attack David Cameron for failing to automatically implement proposals by the Lord Justice Leveson inquiry for a state regulation of British press.

A “high level” EU panel, that includes Latvia’s former president and a former German justice minister, was ordered by Neelie Kroes, European Commission vice-president, last year to report on “media freedom and pluralism”. It has concluded that it is time to introduce new rules to rein in the press.

“All EU countries should have independent media councils,” the report concluded.

“Media councils should have real enforcement powers, such as the imposition of fines, orders for printed or broadcast apologies, or removal of journalistic status.”

“The national media councils should follow a set of European-wide standards and be monitored by the Commission to ensure that they comply with European values,” the report said. 

Nigel Farage, the leader of Ukip, compared the proposals to “Orwell’s 1984”. “This is a flagrant attack on press freedom. To hear that unelected bureaucrats in Brussels want the power to fine and suspend journalists is just outrageous,” he said.

Reflections on “European Values” and a UK Referendum

Financial transactions taxes and agricultural crop subsidies are bad enough. This proposal for “thought police” should scare everyone.

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Covered Calls Vs. Naked Puts?

Shares plus (Covered) Calls Vs. Naked Puts?

Is there any difference between a covered call (buying a stock, selling call against the shares) and selling a naked put?


A “put” is an option contract giving the owner (buyer) the right, but not the obligation, to SELL the underlying stock at a set price within a specified time. The BUYER of a put bets that the underlying stock will drop below the exercise price before the expiration date. BUYING a put is similar to taking a short position because it is betting the stock goes down, and paying for the right to sell it at a higher price. 

SELLING a put is similar to taking a long position because the SELLER is promising to buy the stock at a lower price if the stock drops below that price. The put seller is betting on higher prices, and agreeing to buy the stock at a lower price if it drops. 

By a “naked put,” we mean there is no offsetting short position in the stock. A securities position that is not hedged from market risk is “naked.” A covered position is hedged from market risk. Potential gain and potential risk are greater when a position is naked vs. covered. (Investopedia)

Shares plus Covered Calls or Naked Puts?

Courtesy of Paul Price

One of life’s beautiful equations is the way certain seemingly unrelated transactions can effectively be balanced in terms of risk/reward. Most investors are entirely comfortable selling covered calls on shares they own. Many of these same traders would never consider selling (writing) naked puts on the same underlying company.

A covered call is a call written (sold) against an underlying long position in a stock. For example, if we own 100 shares of ESRX, we can write one covered call against it. Each call represents 100 shares of stock. A put is a contract to sell 100 shares of stock at a certain price, the strike price. 

These option strategies are largely equivalent. 

Let’s analyze these two situations separately. I’m going to use one of our Virtual Value Portfolio components, Express Scripts (ESRX), in my example. The same theory would apply to any underlying shares and the associated options.

We could buy 100 ESRX @ $53.82 while selling a Jan. 2014 $55 call for $4.80 /share. Our net out-of-pocket expense would be $53.82 – $4.80 = $49.02/share. 

Maximum upside: If ESRX closes at $55 or above on Jan. 17, 2014. The call would be exercised. We would sell our 100 shares for $5,500 total. Writing (selling the call) limited our upside to $55/share by obligating us to sell at $55 even if ESRX is trading higher. 

If ESRX reaches $55 or higher, we sell it at $55 and make $1.18 on the stock; we keep the $4.80 for selling the now worthless call. That’s a profit of $5.98/share on a $49.02/share outlay – a 12.2% gain.  

Investors could liquidate at expiration with a $4.80 per share gain even if ESRX stays at $53.82. That represents a 9.8% cash-on-cash profit on a stock that went nowhere. We keep the $4.80 for selling the call, and we keep the stock if the price is less than $55 at expiration. 

Break-even: If ESRX remains below $55 on expiration date, we would break-even with ESRX at $49.02 (our initial outlay). That would be 8.9% below the price of ESRX when we initiated the trade. If ESRX is above $49.02, we make a profit. 

Worst-case scenario: If ESRX goes to zero, we would lose $49.02 per share.

ESRX option prices

In summary:  Buying 100 shares and selling one call leaves traders with limited upside (+ 12.2%) and moderate downside protection – up to an 8.9% drop in share price from the trade’s inception would cause no loss. Maximum risk was reduced from $53.82 (the original purchase price) to $49.02 per share.


Instead of buying 100 shares of ESRX and selling one call, let’s simply SELL one Jan. 2014 $55 put for $5.85. Selling a put has the following risk/reward profile:

Maximum profit: If ESRX closes at $55 or higher on Jan. 17, 2014. Express Scripts needs to rise by 2.2% or more for the short put to expire worthless. We would then keep the entire $5.85 premium per share ($585 per contract) with no further obligation.

Break-even, or better, is possible on a drop to no lower than $49.15. Break-even is at $49.15. ESRX could fall 8.6% below its price at the trade’s inception, $53.82, without turning into a loss. 

If ESRX remains unchanged from the original price on option expiration day, the put sellers could keep almost 80% of the original premium received by simply closing out the put just prior to expiration.

Maximum risk: $49.15 /share. That would mean ESRX became totally worthless.

ESRX buy-write versus simple put sale (1) 

Prem = premium (the amount collected from selling the put)

Both techniques offer very similar trade profiles. 

Screen Shot 2013-01-31 at 1.52.59 AM

Margin, and cash requirements and tax treatments would vary more than the actual risk/return ratios. I use both ways to structure option trades on a regular basis.

Disclosure:  Long ESRX shares

Special Offer from Phil’s Stock World:
Click on this link to try Phil’s Stock World FREE!  PSW focuses on stock market commentary and options trading. 

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France Is Dead Broke, But At Least Its GDP Came In Positive

Courtesy of The Automatic Earth.




US GDP came out today and it was a stinker: -0.1%. Enter a choir of 10,000 pundits who all figured out that all that bad smell was the result of one thing only: cuts in military spending. That's the sort of thing that tells me – or more correctly: confirms – that the optimism bias has become so strong and infectious it's no longer worth even discussing. And that's before I notice – caveat: I haven't read all the eerily similar comments – that nobody I read bothers to explain by how much military spending has raised US GDP lately. Or to what degree they hope it'll go up again. Soon.

So, I then think – I have a hard time focusing when confronted with blinders -, by how much would US GDP have been raised with more military spending? Would it perhaps have reached the same lofty level as French GDP? Here's a graph:


Yes, French GDP rose by 0.3%. Ergo: France is doing better than the US, and quite a bit. Well, you know, assuming that the nouveaux Français theatre de warfare in Mali is not yet included here. Here's a safe prediction all 10,000 can pen in right now: French GDP will rise significantly next quarter; ain't nothing like guns and ammo and military funerals to raise the outlook of an economy.

There is just one problem with this seemingly watertight argumentation. That graph comes from a series of articles by the Daily Mail on French…. drumroll….. bankruptcy. Which is translated as "Banqueroute"; they even invented the word, and imported it into Britain right after 1066, we may assume. Now if France is bankrupt with a 0.3% GDP growth, what is the US with 0.1% shrinkage? Could the answer be: looking for a theater?

Back to France, which, despite those far better GDP numbers, gives the US a run for its money when it comes to make-believe. This week, French labour minister Michel Sapin provided a glimpse behind the Elysee curtain, which of course was promptly denied as soon he spoke out, in these hilariously priceless words by finance minister Pierre Moscovici, as per The Telegraph:

Pierre Moscovici, the finance minister, said the comments by Mr Sapin were "inappropriate".

He added: "France is a really solvent country. France is a really credible country, France is a country that is starting to recover."

Brilliant. Who said the French have no sense of humor? Nonetheless, be that as it may, French news daily Le Figaro did a poll that showed 80.5% of French think their country is indeed broke. And I don't think all 80.5% were joking. What Sapin said comes down to something like: "There's a state captain, but not as we know it, not as we know it". Here's Tim Shipman's Daily Mail piece on the issue:

France is 'totally bankrupt', jobs minister admits as concerns grow over Hollande's tax-and-spend policies

France's government was plunged into an embarrassing row yesterday after a minister said the country was ‘totally bankrupt’. Employment secretary Michel Sapin said cuts were needed to put the damaged economy back on track. ‘There is a state but it is a totally bankrupt state,’ he said. ‘That is why we had to put a deficit reduction plan in place, and nothing should make us turn away from that objective.’

In a frantic damage limitation exercise yesterday, colleagues in the Socialist administration said he was only highlighting faults of the previous government of Nicolas Sarkozy. Finance minister Pierre Moscovici said: ‘What he meant was that the fiscal situation was worrying.’ But a poll yesterday by Le Figaro newspaper showed eight out of ten readers agreed that France was indeed bankrupt.

Data from the Bank of France shows capital investment is leaving the country every day. Rating agencies Moody’s and Standard & Poor’s have both already removed France’s once-coveted AAA credit.

[UK] Tory MP Peter Bone said: ‘This is clearly a case of at least one Frenchman speaking the truth. ‘We need to hear more of this kind of honesty from the French. This man deserves promotion.’

While Mr Sapin's admission was unlikely to have been intentional, it highlighted huge concern at President Francois Hollande's handling of the economy. Despite all this, Mr Moscovici insisted: ‘France is a truly solvent country, France is truly credible country, France is a country which is starting its recovery.’ Mr Moscovici also insisted that France is in a position to ‘meet its financial obligations, including the payment of its employees, thankfully.’

Yes, Mr Moscovici, I'm sure we can all agree that that France is in a position to ‘meet its financial obligations, including the payment of its employees. However, there may be some disagreement on how long it can do that for. The statement itself is true even if it's only good for just two weeks or so, though we all know that's not what you intend people to take home from it. But it doesn't deny that either.

Me, personally, I find it astonishing how little attention Mr. Sapin's comments have attracted. I'm one of those rare people who are all for having these discussions out in the open. All of them, those about today's US GDP embarrassment as well as France's financial perils. Don't tell me that you're "in a position to ‘meet your financial obligations'", show me how and why. We can't all go through life shying away from what really should be obvious questions, only to find out later we've been had by another bunch of lying and cheating politicians, just like generation upon generation of our ancestors before us. We need to have learned at least something from what they went through.

More from that Daily Mail piece:

Since Mr Hollande came to power, unemployment and the cost of living have continued to spiral, while 'anti-rich' measures have provoked entrepreneurs to leave the country. The President is currently trying to revive France's economic fortunes by cutting spending by the equivalent of more than £51 billion.

The Bank of France has already produced data showing that capital investment is leaving the country every day, along with the business people who helped to build it.

[..] There have even been reports that Nicolas Sarkozy, the last President of France, is preparing to move to London with his third wife, Carla Bruni, to set up an equity fund. Prime Minister David Cameron has already said that Britain will 'roll out the red carpet' to attract wealthy French people.

My impression, but that's just me, is the French are still suckers for authority figures – Charles the Gaulle and Napoleon engraved that into their very foreheads -, but they'll have to wake up at some point. From the economical fairy tale that says they're doing fine, and from the grandeur idea they've been fed forever now.

As far as President Hollande is concerned, I'm mostly neutral, but if I were to single out on thing he's done for the biggest fool award, it's his decision to reverse pension reforms, enabling his voters to retire at 60 or even earlier. While at the same time he's part of the Troika cabal pressuring Greeks to work longer, and while all his Eurozone neighbors are pushing up retirement age to 67-68 and onwards. That one thing makes me doubt Hollande will sit out his term. You can fool some of the people all of the time and all that, and all of them some of the time.

The Daily Mail ran a little update by Daniel Miller today:

Bankrupt France's latest efforts to save money… turn off all the lights

The French government has ordered shops and offices to turn off their lights at night in a desperate bid to save vital resources as the country struggles to prevent a looming financial crisis. From July 1, all non-residential buildings will have to switch off interior lights one hour after the last worker leaves the premises while all exterior and shop window lighting must be turned off by 1 am. The announcement follows an embarrassing incident for President Francois Hollande yesterday when employment secretary Michel Sapin admitted the country was ‘totally bankrupt’.

The French environment ministry hopes the move will both save energy and reduce light pollution. Local authorities will be able to allow exceptions for Christmas lighting and other local events. The new law will save about two terawatt/hours of electricity a year – the equivalent of the annual consumption of 750,000 households, the ministry said. Environment Minister Delphine Batho said it would also make France a pioneer in Europe in preventing light pollution, which disrupts ecosystems and people's sleep patterns.

Oh boy, what's not to love? Save face and change tack with "preventing light pollution". And to make it better, don't do it right now, no, wait till July 1. The gift that keeps on giving if ever I saw one. Isn't Paris known as the City of Lights? Well, those days are gone.

What this tells you is that France has not one, but two problems: finance and energy. And that prior to July 1, we can expect a bunch of real nasty announcements on both. Plus also, that François Hollande is not so sure he’ll last that long. That's why he's pushing it forward, hoping for a miracle.

Are things that bad in the US? Who knows, really, given the ever rising extent of opaqueness? Anybody want to bet their children's lives one way or the other? GDP comes in negative and people fall over themselves to declare that it's only because military spending fell. So what does that mean? Does it mean the US has to go back to war to raise its GDP? Look for a new off Broadway theater?

Why is it so hard to call a spade a spade? Because incumbent politicians and wealthy moguls fear that the truth will set them free in a way they don't like. As in "The Truth Will Set You Free, But Not When You Dunnit." And so we make do with the few scrappy shrapnels of truth that fall off their tables. Is that really the best we can do?

Something tells me the French will lead the way, farming equipment and all, in front of the crumbling presidential palaces, come July 1 or so. And when the fires rage in Paris, Americans will still be talking recovery. And if there's anything "positive" to be said about it, it will be that somehow it has something to do with somebody getting hurt in some new theater somewhere in the world.


Government Expenditures Plus Transfer Payments Equals 40% of GDP; GDP Shocking Downward Surprise; Don’t Worry It’s Transitory

Courtesy of Mish.

Inquiring minds are digging into the 4th Quarter and 2012 Annual GDP Advance Estimate.

Heading into the report, the WSJ Economists’ GDP Forecasts were
+1.6% for Q4 2012 and +1.7% in Q1 2013

“Shocking” Contraction

The GDP report was a shocker, coming in at an annual rate of negative 0.1%.

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 0.1 percent in the fourth quarter of 2012 (that is, from the third quarter to the fourth quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent.

Choice Comments From Consumer Metrics

Rick Davis at Consumer Metrics had some choice comments via email (also in the preceding link).

We have mentioned before that the BEA is notoriously poor at recording turning points in the economy in “real time.” The first quarter of 2008 was a classic example, initially being reported in “real time” as yet another quarter of sustained growth before being revised downward several times over some 40 months to become the first quarter of contraction leading into what we now call the “Great Recession.” We fully expect that ultimately the surprising economic upturn seen in the 3Q-2012 data will largely vanish in future revisions.

It is hard to look at these new numbers without at least some cynical thoughts about the reported numbers for the prior quarter. We were frankly astonished when the final numbers for the third quarter came in at a 3.09% “full recovery” growth rate, driven largely by unexplained increases in Federal spending, particularly in the Department of Defense (DOD) — the timing of which was completely controlled by an Administration in serious need of positive pre-election economic headlines. The annualized rates of growth for defense spending rose to over 15% in 3Q-2012, only to magically reverse to a -15% annualized contraction rate in 4Q-2012 — after the polls had closed.

To that last point: arguably the DOD was simply moving materiel acquisitions forward in anticipation/avoidance of “fiscal cliff” sequesters, with the economic impact of the contracting binge a mere side effect of bureaucratic hoarding. We should all hope that the context of any such timing shenanigans were more budgetary than political in nature.

Real GDP

Inquiring minds may want to further investigate the above comments, with a look at actual BEA data from the top link.

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Stocks and Capital Flight – Old and New

Courtesy of Bruce Krasting.


In my time I’ve watched a bunch of countries go south. In the 80’s it was all of South America. Poland, Yugoslavia and South Africa also hit the skids during those years.


There was an observable pattern as events unfolded. The early stages of a crisis were always marked with capital outflow by the financial elite in the country.  The wealthy families bought real estate properties outside of the country; they increased their ownership of foreign (mostly US) financial assets. They used whatever local currency they had (or could borrow) to buy hard assets in the country. In this case, hard assets meant  companies (or farms) that produced stuff that could be exported, and thus be a source of hard currency earnings. Two minor examples:


– In Ecuador there was an explosion of shrimp farming. The expenses of production were all in Sucres (the local currency). The shrimp were sent to the US and sold for dollars. (This was a great business – ecological disaster however.)

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Obama Administration’s Failure

Obama Administration's Failure to Reform Wall Street and Investigate Fraud

Courtesy of Jesse's Cafe Americain

No matter what progressive words he wishes to say, this is 'the tell.'

The Non Zero-Sum Society

The Non Zero-Sum Society

Courtesy of Robert Reich

As President Obama said in his inaugural address last week, America “cannot succeed when a shrinking few do very well and a growing many barely make it.”

Yet that continues to be the direction we’re heading in.

 A newly-released analysis by the Economic Policy Institute shows that the super-rich have done well in the economic recovery while almost everyone else has done badly. The top 1 percent of earners’ real wages grew 8.2 percent from 2009 to 2011, yet the real annual wages of Americans in the bottom 90 percent have continued to decline in the recovery, eroding by 1.2 percent between 2009 and 2011.

In other words, we’re back to the widening inequality we had before the debt bubble burst in 2008 and the economy crashed. 

But the President is exactly right. Not even the very wealthy can continue to succeed without a broader-based prosperity. That’s because 70 percent of economic activity in America is consumer spending. If the bottom 90 percent of Americans are becoming poorer, they’re less able to spend. Without their spending, the economy can’t get out of first gear. 

That’s a big reason why the recovery continues to be anemic, and why the International Monetary Fund just lowered its estimate for U.S. growth in 2013 to just 2 percent. 

Almost a quarter of all jobs in America now pay wages below the poverty line for a family of four. The Bureau of Labor Statistics estimates 7 out of 10 growth occupations over the next decade will be low-wage — like serving customers at big-box retailers and fast-food chains.

At this rate, who’s going to buy all the goods and services America is capable of producing? We can’t return to the kind of debt-financed consumption that caused the bubble in the first place.

Get it? It’s not a zero-sum game. Wealthy Americans would do better with smaller shares of a rapidly-growing economy than with the large shares they now possess of an economy that’s barely moving.

If they were rational, the wealthy would support public investments in education and job-training, a world-class infrastructure (transportation, water and sewage, energy, internet), and basic research – all of which would make the American workforce more productive.

If they were rational they’d even support labor unions – which have proven the best means of giving working people a fair share in the nation’s prosperity.

But labor unions are almost extinct.

The decline of labor unions in America tracks exactly the decline in the bottom 90 percent’s share of total earnings, and shrinkage of the middle class.

In the 1950s, when the U.S. economy was growing faster than 3 percent a year, more than a third of all working people belonged to a union. That gave them enough bargaining clout to get wages that allowed them to buy what the economy was capable of producing.

Since the late 1970s, unions have eroded – as has the purchasing power of most Americans, and not coincidentally, the average annual growth of the economy.

Last week the Bureau of Labor Statistics  reported that as of 2012 only 6.6 percent of workers in the private sector were unionized. (That’s down from 6.9 percent in 2011.) That’s the lowest rate of unionization in almost a century.

What’s to blame? Partly globalization and technological change. Globalization sent many unionized manufacturing plants abroad.

Manufacturing is starting to return to America but it’s returning without many jobs. The old assembly line has been replaced by robotics and numerically-controlled machine tools.

Technologies have also replaced many formerly unionized workers in telecommunications (remember telephone operators?) and clerical jobs.

But wait. Other nations subject to the same forces have far higher levels of unionization than America. 28 percent of Canada’s workforce is unionized, as is more than 25 percent of Britain’s, and almost 20 percent of Germany’s. 

Unions are almost extinct in America because we’ve chosen to make them extinct.

Unlike other rich nations, our labor laws allow employers to replace striking workers. We’ve also made it exceedingly difficult for workers to organize, and we barely penalized companies that violate labor laws. (A worker who’s illegally fired for trying to organize a union may, if lucky, get the job back along with back pay – after years of legal haggling.)

Republicans, in particular, have set out to kill off unions. Union membership dropped 13 percent last year in Wisconsin, which in 2011 curbed the collective bargaining rights of many public employees. And it fell 18 percent last year in Indiana, which last February enacted a right-to-work law (allowing employees at unionized workplaces to get all the benefits of unionization without paying for them). Last month Michigan enacted a similar law.

Don’t blame globalization and technological change for why employees at Walmart , America’s largest employer, still don’t have a union. They’re not in global competition and their jobs aren’t directly threatened by technology.

The average pay of a Walmart worker is $8.81 an hour. A third of Walmart’s employees work less than 28 hours per week and don’t qualify for benefits. 

Walmart is a microcosm of the American economy. It has brazenly fought off unions. But it could easily afford to pay its workers more. It earned $16 billion last year. Much of that sum went to Walmart’s shareholders, including the family of its founder, Sam Walton.

The wealth of the Walton family now exceeds the wealth of the bottom 40 percent of American families combined, according to an analysis by the Economic Policy Institute. 

But how can Walmart expect to continue to show fat profits when most of its customers are on a downward economic escalator?

Walmart should be unionized. So should McDonalds. So should every major big-box retailer and fast-food outlet in the nation. So should every hospital in America.

That way, more Americans would have enough money in their pockets to get the economy moving. And everyone – even the very rich – would benefit.

As Obama said, America cannot succeed when a shrinking few do very well and a growing many barely make it.

Moving Averages Can Identify a Trade

Moving Averages Can Identify a Trade – FREE Lesson 

These 3 charts help you understand how moving averages work

By Elliott Wave International

Moving averages are a popular tool for technical traders because they can "smooth" price fluctuations in any chart. EWI Senior Analyst Jeffrey Kennedy gives a clear definition:

"A moving average is simply the average value of data over a specified time period, and it is used to figure out whether the price of a stock or commodity is trending up or down… one way to think of a moving average is that it's an automated trend line."

Moving averages are both easy to create and extraordinarily dynamic. You can choose which time frame to study as well as which data points to use (open, high, low, close or midpoint of a trading range).

Jeffrey Kennedy shares three of the most popular moving averages in this excerpt from the ebook How to Trade the Highest Probability Opportunities: Moving Averages. Download the entire eBook here >>

Let's begin with the most commonly-used moving averages among market technicians: the 50- and 200-day simple moving averages. These two trend lines often serve as areas of resistance or support.

For example, the chart below shows the circled areas where the 200-period SMA provided resistance in an April-to-May upward move in the DJIA (top circle on the heavy black line), and the 50-period SMA provided support (lower circle on the blue line).

The 13-period SMA is a widely used simple moving average that works equally well in commodities, currencies, and stocks. In the sugar chart below, prices crossed the line (marked by the short, red vertical line), and that cross led to a substantial rally. This chart also shows a whipsaw in the market, which is circled:

Another popular moving average setting that many people work with is the 13- and the 26-period moving averages in tandem. The figure below shows a crossover system, using a 13-week and a 26-week simple moving average of the close on a 2004 stock chart of Johnson & Johnson. Obviously, the number 26 is two times 13:

During this four-year period, the range in this stock was a little over $20.00, which is not much price appreciation. This dual moving average system worked well in a relatively bad market by identifying a number of buyside and sellside trading opportunities.


How to Trade the Highest Probability Opportunities: Moving Averages

Moving averages are one of the most widely-used methods of technical analysis because they are simple to use, and they work. Now you can learn how to apply them to your trading and investing in this free 10-page eBook. Learn step-by-step how moving averages can help you find high-probability trading opportunities.

Improve your trading and investing with Moving Averages! Download Your Free eBook Now >>

This article was syndicated by Elliott Wave International and was originally published under the headline Moving Averages Can Identify a Trade – FREE Lesson. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Blatant Price Manipulation Takes Place Every Day in Oil Markets

EconMatters calls on the CFTC and the government to stop the manipulation of oil prices. 

Source: via Juan Sebastian on Pinterest

Blatant Price Manipulation Takes Place Every Day in Oil Markets

Courtesy of EconMatters

License to steal

Every single day the oil market is manipulated, it is easy to see, right out in the open, and nobody does anything about it. It literally is like having a license to rob banks right in front of everybody, including the armed security guards.

Large Fake Order Strategy

Here is a technique that is used by large players to manipulate price in either direction, and it needs to be banned, it is outright cheating. So a trading Dom is an order entry price ladder which shows a collection of bids on one side, a typical default setting would be ten levels deep. On the other side of the price ladder are ten levels of asks, going from nearest to farthest away from the current, or last traded price in oil.

For example, if oil is trading at $96.00, there will be asks (offers to sell) going from 96.01, 96.02…96.10 and conversely there will be bids (offers to buy) going from 95.99, 95.98…95.90. The cheating technique is as follows: Let`s say oil is trading at $96.00, and the bids and asks size on both sides of the ladder are relatively all the same size, let`s say 30 contracts. 

Large institutions, Hedge Funds, and anybody with a large capital base can play this game. At strategic points, when they want to move price in a certain direction, the large funds will flash a 115 contract size order right beneath the current price in the direction they want to move price. Say 115 contracts now bid at the $95.98 price level. 
Of course, these large flashing orders relative to other orders stand out, and that is the purpose, to stand out in the market! Which in and of itself would not be a problem if these were “legitimate” orders with the actual intent to buy 115 oil contracts at $95.98 per contract in this example. However, even a casual observer can see that these are fake orders!
The Large Fake Orders will disappear before touched
They have no intent on buying with these 115 contracts, as they could just hit the bid or ask with their order. And if they really wanted to buy at a good price they would do so with a hidden order or break up their order so as not to move the market. 
The sole purpose of these flashing large sized orders in relation to all the other price bids and asks at the various levels is to influence price, i.e., scare anybody from selling into their order, and invite others to front run their fake order. In short, to move the market!
Needless to say the same firm that flashes the oversized 115 contracts is already positioned in the direction that they want to influence price to go with these “fake orders”, these are not real orders, and will be pulled the instant someone hits their order. 
Move Price in Firm`s previously positioned Direction
So the intention was never there to buy or sell these 115 contracts, it is merely for show to “help” move price in a given direction. This is the reason for the huge size relative to all other orders on the price ladder, to scare the market in the direction that the firm is already positioned.  In the above example, the fund with the 115 contracts to buy at $95.98 is positioned long and really intends to sell – it wants the price level to rise and is pretending there is more interest than there is in buying, helping to drive the price up so it can sell at higher prices. 
Strategy Works: That`s why it is consistently used to move markets!
Moreover, it does work or else the firms wouldn`t continue to use this type of flashing large fake orders strategy. It can also be interpreted by other traders; this serves as a form of open collusion, signaling to the entire market to go this way.  
Maybe the CFTC needs a new leader!
This is blatant cheating, and it happens right out in the open every single trading day. Where is the CFTC or the government for that matter? All they have to do is monitor the oil markets for a week and they can find hundreds of examples of this cheating technique used to move the markets through artificial means.
It is about time some of these blatant cheating, and pure market manipulation techniques used in the oil market are identified and cleaned up by the regulatory bodies that have been asleep at the wheel. The abuses that go on every day in the oil markets are a real failure on behalf of the CFTC and the government to properly regulate these markets from price manipulation. It is about time for Washington to investigate why the CFTC fails to properly regulate the oil market.

© EconMatters

75-Year Trendline Holding Stocks Back (For Now)

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Over 75 years ago a trendline was born. From the highs in 1937, the Dow Industrials have logarithmically oscillated around an inexorable drift. The current rally, as all asunder await the 14,000 level amid every boat being lifted non-stop, is testing this trendline for the fourth time in the last three years – and each time prior we have fallen back (unable to break above)… Yesterday saw us get close and this remains the longest trend to watch for more sustained strength.

75 years…


and Close-Up…


Source: Brad Wishak at NewEdge


Stocks and Capital Flight – Old and New

Courtesy of ZeroHedge. View original post here.

Submitted by Bruce Krasting

In my time I’ve watched a bunch of countries go south. In the 80’s it was all of South America. Poland, Yugoslavia; South Africa also hit the skids during those years.

There was an observable pattern as events unfolded. The early stages of a crisis were always marked with capital outflow by the financial elite in the country. The wealthy families bought real estate properties outside of the country; they increased their ownership of foreign (mostly US) financial assets. They used whatever local currency they had (or could borrow) to buy hard assets in the country. In this case, hard assets meant companies (or farms) that produced goods that could be exported, and thus be a source of hard currency earnings. Two minor examples:

– In Ecuador there was an explosion of shrimp farming. The expenses of production were all in Sucres (the local currency). The shrimp were sent to the US and sold for dollars. (This was a great business – ecological disaster however.)

In South Africa, it got so bad that people ended up buying luxury boats with their SA Rands, and just sailing away. A lot of the boats ended in the Caribbean. Many were sold for cash dollars.

I see definitive evidence (on a daily basis), that this is happening in China today. You name the City outside of China; I’ll show you the real estate transactions where it is Chinese money that is doing the buying.

Another observable phenomenon back then was in the local stock markets. When the local currency was rapidly devaluing, the only safe-haven trade was to move money into stocks. The stocks in favor during these times of crisis were the shares of companies that were exporters (source of hard currency). In Brazil it was the steel companies, in Argentina/Chile it was the food exporters, in Mexico the money went to the oil exporters.

We are witnessing precisely the same thing happening today in Japan. Japanese stocks are going up lock step with the falling Yen. So far, Japanese stocks have outperformed the currency devaluation. That is true for the citizens of Japan. It has is also been true for most foreign investors.






China, today, is much different than Argentina was in the 80s. But the level of capital flight by the wealthy from China should not go unnoticed. There is a big red flag being waved.

Japan is certainly no Mexico, which devalued its currency again and again. But the stock markets of the two countries, then and now, are also raising those Red Flags.

I’m wary of looking at the past and using history as a guide for what will happen in the future. To the extent that the past is a guide, then we may be in for a rough spell, one that is not “homegrown.”

By my read of history, the “tipping point” occurs at about the time when the local stock market returns fall below the currency depreciation. When that balance is broken, chaos usually follows. In the case of Japan, this could come as a result of a sudden down correction in the Nikkei, coupled with another big move down in the Yen versus the Euro and the dollar.

As far as China is concerned, the cracks are there. The growth in domestic debt is fueling the capital outflow. The “off balance sheet” financing for the capital outflow is coming from the sale of Wealth Management Products. This powder keg now totals $2 Trillion, and it’s growing fast. I think these investments are not unlike a ponzi scheme.

ponzi graffiti

Super Mario Noose Tightens as Another Monte Paschi Derivative Emerges; Investigation into Bank of Italy Opened

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

As we have been reporting over the past ten days (most extensively here and here), the one European scandal that gets virtually no coverage on this side of the Atlantic, remains the escalating fiasco involving Italy's third largest bank, Banca dei Monte Paschi (BMPS). It gets worse by the day due to its extensive political implications. The bank is seen domestically as the domain of the frontrunning centre-left candidate, something Berlusconi reminds his followers at every opportunity, but also will likely ensnare the head of the ECB as we predicted a week ago when we noted the aggressive attempts by the Bank of Italy, which was headed by the former Goldmanite at the time, to wash its hands of having had anything to do with the BMPS fiasco (and thus by implication indemnify that other Goldmanite, Mario Monti).

As it turns out, and as Bloomberg reports today, the Bank of Italy did know of Monte Paschi's dirty laundry as long ago as 2010, but more importantly, and hence the title, the Italian law (using the term loosely) is now in play: "Prosecutors in Trani, Italy, opened an investigation into the Bank of Italy and market watchdog Consob’s supervisory activity on Monte Paschi, consumer group Adusbef said in an e-mailed statement today."

Adding fuel to the fire is the just blasted headline from Reuters that Monte Paschi is now under investigation in Siena under law on company responsibility for crimes committed by staff, and suddenly life for the ECB head, not to mention the "stabeeleetee" of the banking sector looks quite problematic.

From Bloomberg:

The Bank of Italy under former Governor Mario Draghi spotted accounting irregularities that allowed Banca Monte dei Paschi di Siena (BMPS) SpA to mask losses more than two years before the lender was forced to say it will have to restate profit.

In 2010, “a problem came to light” on Monte Paschi’s booking of a structured deal called Santorini, Italy’s Rome- based central bank said in a report dated Jan. 28. The Bank of Italy alerted “other authorities” a year later and talks with those regulators, which it didn’t identify, haven’t concluded. It didn’t explain the delay in forcing the bank to disclose the information.

“I would have expected the Bank of Italy to have requested transparency from Monte Paschi back in 2010 after reviewing the transactions,” said Carlo Alberto Carnevale-Maffe, professor of business strategy at Milan’s Bocconi University. “Hidden documents found recently wouldn’t have changed the substance of the original findings.”

The Bank of Italy said that as early as 2010 it sought daily liquidity reports from the lender as margin calls on Santorini drained funds. The regulator said a week ago Monte Paschi hid documents, impeding its analysis of the “true nature” of the company’s dealings.

It got full reports, and did nothing. So naturally, the spin continues:

Regulatory oversight of Monte Paschi was “continuous and thorough” and the bank remains solid even with a capital shortfall and possible losses linked to structured deals, Finance Minister Vittorio Grilli said in parliament yesterday.

"Solid" after its third bailout in three years? Italians sure have some loose definitions.

And while the key fallout in this case is political, for now, with most of the heat falling on the Democratic Party's Bersani, who runs the local government in Siena where BMPS is based, the spotlight may and will soon shift to none other than everyone's favorite currency manipulator.

Mario Draghi, 65, led the Bank of Italy from 2005 to 2011, when he left to succeed Jean-Claude Trichet, 70, at the helm of the European Central Bank. He has worked as an economics professor in Italy, a financial diplomat at the World Bank, a bureaucrat at his country’s Treasury and a banker at Goldman Sachs Group Inc. (GS) In December 2005, he was named to replace Italian central bank Governor Antonio Fazio, 76.

Officials for the Bank of Italy didn’t have an immediate comment. Asked about Draghi’s role in overseeing Monte Paschi, an ECB spokeswoman declined to comment.

Prosecutors in Trani, Italy, opened an investigation into the Bank of Italy and market watchdog Consob’s supervisory activity on Monte Paschi, consumer group Adusbef said in an e- mailed statement today. The investigation follows a complaint submitted by the lobby earlier this year.

The Bank of Italy’s role isn’t to “police” Monte Paschi, the current governor, Ignazio Visco, 63, said Jan. 25 in an interview with Bloomberg Television in Davos, Switzerland.

The Bank of Italy “summoned the senior management of Monte Paschi” and of the foundation that is its biggest shareholder in November 2011 “to make them face up to their responsibilities and ask Paschi to quickly and definitively turn around the way it conducts its business,” the report said.

But wait there is more.

Because while the bulk of the previously disclosed legacy derivative deals took place during the "Old Normal" before Italy had to be bailed out each and every day (current eye of the hurricane notwithstanding), yet another derivative deal has emerged, just as we predicted when we said that loads more of dirty laundry will emerge as follows: "Of course there will be more 'cases' – to assume this is isolated is the height of stupidity and naivete, but what else is an Italian minister to do to preserve the precarious stability attained after months of endless bluster from the ECB that Europe is 'fine' – why pull a Juncker and lie of course." Sure enough:

Monte Paschi risks further losses of as much as 500 million euros on a 2010 securitization of about 1.5 billion euros of real estate loans, dubbed “Chianti Classico,” weekly Panorama said today, citing documents that include minutes of board meetings from November and December of last year. A Monte Paschi official didn’t have an immediate comment on the report.

And while over the weekend the Bank of Italy gave its blessings to a third bailout of the troubled lender, not even that seems guaranteed:

Italian consumer association Codacons is seeking to block Monte Paschi’s bailout. The group said it will file a complaint in a Rome administrative court against the Cabinet, Economy Ministry, Italy’s central bank and market regulator Consob, seeking 3.9 billion euros in damages from the Bank of Italy for not adequately monitoring the bank’s activities.

Codacons’ request follows criticism about the central bank’s supervision raised by some politicians, including former Finance Minister Giulio Tremonti and another consumer group, Adusbef.

Because should the latest bailout of BMPS fail, and a rigorous investigation into what is truly going on in the Italian banks' balance sheets take place, the brief lull that Europe has been in in the past few months will abruptly end.

Sure enough, the local market may already be getting a whiff of the buried bodies, because as reported earlier, the local market just  suffered its worst drubbing in six months, with BMPS halted limit down into the close.

And with Italian elections in less than one month, and Monte Paschi suddenly the biggest leverage the opposition has against the status quo, expect for many more cockroaches to emerge in the coming days.