Archives for February 2013

Air Products: Deflated Enough

Air Products: Deflated Enough

Courtesy of Paul Price of Market Shadows

In the latest Best Game in Town, MarketShadows, March 10, 2013 

Note: The Air Products Put has not been sold yet, the price of it did not hit our limit (3/4).

Tough market days like Monday, when the DJIA dropped more than 216 points, provide second chances. Stocks that seemed like they would never come back to earth get hit in sympathy with most other shares.

Air Products & Chemicals (APD, $84.34) is a high-quality name that has pulled back from a 2011 peak of $98.00 to close yesterday at $84.34. APD’s stock price stability and earnings predictability each rate in the top 10% – 20% of all companies. The $0.64 quarterly dividend provides a 3% current yield. That may increase soon as management typically raises the payout during the June quarter. 

APD   Value Line Metrics       Source- Value Line  Feb. 8, 2013 issue 

Zacks carries 2013 – 2014 estimates of $5.77 and $6.41 respectively putting APD at 14.6x this year’s and less than 13.2x 2014’s expectations. That compares with APD’s 10-year median multiple of 18x. 

There has been solid technical support around $77-$78 over the past two-and-a-half years. APD touched prices that low only during periods of extreme market turmoil. It bounced back quickly each time to $90 or better. 


APD 36-months (daily) Feb. 26, 2013

A return to just 15.5 times 2013 earnings would bring APD right back towards $90 once again. That suggests a low-risk opportunity for either buying the stock directly or selling (writing) one January 2014 put with a $85 and $90 strike. Here is the pricing of those puts as of 4 pm on Tuesday.


APD - Put details


If APD closes above the strike price ($85 or $90) on January 17, 2014, the put will expire worthless. This would be good for us as put writers (sellers) because we would keep the money collected from selling the put.

If we are forced to buy the stock because it is trading below the strike price at expiration, our net cost would be strike price minus the amount we collected for selling the put (i.e. $77.50 with the $85 put, and $79.40 with the $90 put). In either case, our net price for the stock would be close to the best prices of the past 36 months. 

Both scenarios look good – selling a put that expires worthless, or selling a put and buying APD at a discount. In the first case, we keep the premium. In the second case, we buy shares at a discount. The $90 strike provides more upside than the $85 strike price, with a small sacrifice in downside protection (lower margin of safety). Even the $90 target price does not look overly aggressive. APD shares hit a peak of $90 or above during six of the past seven calendar years, including this year.  

Writing puts, as opposed to simply buying shares, lets us invest in APD without needing to call the end of the market’s selloff. For those who do not sell options, I like the stock around $84. 

We are going to sell one APD Jan. 2014 $90 put in our Virtual Put Selling Portfolio with a limit price of $10.60 when the market opens on Wednesday, February 27th.

APD put prices Feb. 26, 2013 

Source: TradeStation  Feb. 26, 2013

Disclosure:  Long APD shares 


Market Comments: Lots of Words, Little Meaning

Market Comments: Lots of Words, Little Meaning 

By Paul Price

To fully appreciate just how useless technical jargon and charting can be, read the words line by line. Here’s an example:

Screen Shot 2013-02-26 at 5.01.04 PM

This was published early on Tuesday, February 26, 2013, following yesterday’s greater than 300-point intra-day negative reversal of the DJIA.

1)    The analysts and commentators warning about a market peak could indeed be correct.

Indeed they could; it’s hard to argue with that.

2)    Perhaps a major top is in place.

Perhaps. What action does that dictate?

3)    They could be wrong as well.

That’s always a possibility. What action does that suggest?

4)    The market could be presenting a bear trap.

It might be. What action does that call for?

5)    If support levels hold, or are temporarily breached…the market may move higher.

If the market doesn’t go down, and stay down, it may go up.

6)    Any true breaching of the support level may indicate a significant correction.

If the market goes down significantly, we might be in for a down market.

7)    Plug your ears and watch the charts.

We will only know if Monday’s action was a buying opportunity or the start of a correction after it’s too late to do anything about it.

The true value of the shares we buy does not vary based on market action. In the absence of any company-specific news, lower prices are good for investors with money to commit to new positions. 

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If you haven’t yet, read the latest MarketShadows Newsletter: February 24, 2013: Not Done Rising, But Night Will Come  

Jack Lew’s Grotesque Citi Employment Deal and the Institutionalization of Corruption

Jack Lew’s Grotesque Citi Employment Deal and the Institutionalization of Corruption

Courtesy of Yves Smith of Naked Capitalism

Corruption has now become so routine in Washington that improprieties far worse than Turbo Timmie’s implausible failure to pay taxes on income from his days working as a consultant to the World Bank barely evoke a yawn from the media. Apparently the fourth estate is either so bedazzled by star turns, like Michelle Obama presenting at the Oscars (!!!) or so cowed by the prospect of being cut off from information that it dutifully falls in line.

Let’s look at the presumed incoming Treasury Secretary, Jack Lew. He’s a die hard neoliberal, played a role in financial deregulation as Clinton economics team member, and a backer of NAFTA. But what is surprising is the limited interest in his personal dealings, which have been examined critically by Pam Martens and Bloomberg’s Jonathan Weil. Recall that Lew is essentially a career elite technocrat, with his major stint out of government being during the Bush Administration, when he first served as the Executive Vice President for Operations at NYU (where his noteworthy accomplishment was busting the bargaining rights of grad students) and then became the chief operating officer for Citigroup’s alternative investment group.

Weill zeroed in one provision of Lew’s employment agreement at Citigroup, that if Lew left for a “high level position with the United States government or regulatory body” his 2006 and 2007 guaranteed incentive and retention awards. The 2008 rider to the letter provided that if Lew left for the same type of “high level position” his restricted stock would vest immediately. Frankly, I think Weil is more riled up about this provision than he ought to be. The bank was giving particularly generous guarantees for joining. There was no reason to pay out on those guarantee if Lew broke his contract, unless he went to do something that would be of comparable value to the bank. You may not like the logic, but this is pretty cold commercial logic at work. Weil seems to have misread the “guaranteed incentive and retention awards” to mean Lew’s annual bonus on an ongoing basis. It didn’t. It’s a defined term that refers only to special goodies he got in 2006 and 2007.

What I find more disturbing is if you read the totality of Lew’s agreement versus Citi’s performance and Lew’s 2008 pay.

Remember, Lewis came from a job at NYU where he already looks to have been considerably overpaid. He received over $840,000 for the academic year 2002-2003, which had him earning more than most university presidents, including NYU’s president. And on top of that, as Pam Martens ferreted out, he was apparently given a $1.3 million house. I’m not making that up, go read her piece. The mechanism was that NYU lent the $1.3 million to buy the house to Lew and then forgave it over five years. Oh, and they paid him the money to pay the interest too. We will assume that the forgiveness of debt was reported properly to the IRS.

Now the house deal (which is rather bizarre given that NYU owns lots of nice faculty housing) might be what made Lew’s pay deal so out of line relative to his job. But if the forgiveness of debt was not included in the total, it’s even more insane, the equivalent of $1.1 million a year.

But Citi was still happy to pay over the market. If you read the Lew employment agreement, he got a $300,000 salary and a $1 million a year guaranteed incentive and retention award for each of 2006 and 2007. Oh, and he ALSO got a $700,000 signing bonus in restricted stock (or cash if the relevant committee did not approve the award!) that would vest 25% a year over the next four years. Oh, and the last goodies: he got his offer letter on June 26, 2006, and he joined in July. But his $1 million guaranteed incentive and retention award was NOT pro-rated for that year. And he got to take a $400,000 advance against it when he joined.

Now a general rule in headhunter land is you need to pay someone a 30% premium over their current job to get them to leave. But that is when they are recruiting someone with a good resume who is well situated away from a pretty secure position. You are paying them for assuming the risk of failure in a new job. There’s no evidence that Lew was aggressively courted to leave his job at NYU because a university administrator would be the perfect guy to play an executive role in a hedge fund business. The flip side, of course, is if a guy like Lew landed a plum government or regulatory job after Citi, pretty much any pay level would be a screaming bargain. And between Lew’s own history and then Citigroup vice chairman Bob Rubin’s deep network in the Democratic party, it would seem that the only risk was how long it took to get the Dems back in power.

But let’s look at what happened. Remember how Citi’s stock has cratered?

It is really hard to discern the scales, but Lew’s $700,000 award would have been made when Citi was trading (in post reverse split term) in the $480 to $500 a share range. When he joined the Obama administration as deputy secretary of state, the stock was in the $15 to $18 range. So it was pretty much worthless. Any restricted stock component of his 2007 bonus would also have lost most of its value.

Now, Lew’s salary was increased to $350,000 in 2008. Given that the bank was hemorrhaging losses and his unit was part of the problem, there’s no justification for a salary rise (remember, the wheels were staring to come off in 2007, as Citi’s stock price attests). Let us look at how Goldman, which was one of the stronger major players,* handled executive and staff pay in 2008. From Bloomberg:

Goldman Sachs Group Inc. eliminated 2,500 jobs in the fourth quarter and slashed average pay per worker 45 percent to $363,654 as the firm posted the first quarterly loss since going public almost a decade ago….

Goldman Sachs Chief Executive Officer Lloyd Blankfein and six deputies agreed to forgo their year-end bonuses after the firm converted to a bank-holding company and accepted $10 billion from the government to help it survive a financial crisis that eliminated three smaller rivals. The firm’s bonus pool, estimated at 60 percent of total compensation, dropped to $6.56 billion or an average $218,193 per employee this year.

Yet Lew’s 2008 bonus of $944,000 was almost identical to his 2007 guarantee (note that we don’t know if he got any other goodies in cash, but again, given that the earnings of the bank fell 83% from prior year levels, that would be awfully unseemly). And let us not forget that this came out of taxpayer largess, not earnings.

Weill adds that Lew stood to receive another $250,001 to $500,000 in the cashout of restricted stock. Given the stock chart above, that has to have been almost entirely a 2008 award, any prior year awards would be worth chicken feed. And the bank knew as of November 15 (if not sooner) that Lew was going to the Administration, hence the award would be paid out in cash, out of taxpayer monies. In other words, that award should not be mistaken as a prior year grant, it’s almost all for 2008, and on top of that, probably understood at the time it was awarded to be effectively a cash award.

This isn’t hard to understand. When Lloyd Blankfein, who was excoriated by former Goldman co-chairman John Whitehead for Goldman’s role in leading “outrageous”n pay increases over Wall Street, is requiring significantly lower pay levels of his executives and troops for their 2008 pay. By contrast, a mere (albeit senior) administrator at a bank on government life support, got an effective increase. Yet as reported in the Washington Times, Lew had the temerity to tell Congress:

My position at Citi was a management position,” Mr. Lew replied. “I was not an investment adviser. My compensation was in line with other management executives at the firm and in similarly complex operations.”

It may be true that the entire executive team was feeding at the trough as much as Lew. However, a look at the proxy shows that none of the top five executives at Citi took cash bonuses for 2008. So if top executives were taking major pay cuts, how could Lew, an administrator in a money-losing unit, claim to be treated just the same as everyone else?

But this simply means that Lew is a member of a protected class. The rules that apply to little people, including giving accurate, as opposed to strained-at-best, answers to Congressmen, just don’t apply to him. The idea that his pay package was basically a huge option payment by Citi on the pretty good odds that he’d land another big deal official post, doesn’t seem to occur to him. And why is that worth so much to Citi? Well, as we know, corruption in the US does not (often) take the form of briefcases full of cash being left in an office. It’s an ugly combination of intellectual capture, of mutual backscratching, and “don’t rock the boat,” of accepting norms of discourse, behavior, and action, that circumscribe the range of possible actions.

Lew no doubt believes he was paid according to merit, despite the blindingly obviously evidence to the contrary. And that sense of entitlement is what will enable him to kill old people without a second though. Because that is what winning cuts to Social Security and Medicare will do, given that Obama punted on his chance to tackle the health care cost problem.

I had predicted Lew would have us wanting Geithner back. At least Geithner would get twitchy when grilled. That means, somewhere inside, he actually knows right from wrong. Lew is such a bland technocrat that I wonder whether he has any compunctions.

But the lack of consternation about Lew’s financial record, and the way some respected members of what passes for the left (Robert Reich and Jamie Galbraith) have defended Lew, in part also shows how much things have changed in a mere four years. Obama’s lying has become so predictable that it’s hard to stir up any outrage over it.** And since fish rot from the head, one of Obama’s singular accomplishments is in defining deviancy down throughout the Beltway. For instance, Obama took the unheard-of step of collecting “unlimited corporate cash” in the words of Roll Call, with virtually nil in the way of disclosure, took even stalwart supporters like the Grey Lady aback.

So Lew is indeed perfect for his new role, just not in the way ordinary Americans expect him to be.

* I don’t buy Jamie Dimon’s claims re JP Morgan’s financial condition. Yes, the traditional bank was in vastly better shape than Citi or Bank of America. But JP Morgan runs a monster derivatives clearing operation which dwarfs the risk in the traditional bank. If AIG or Morgan Stanley had failed after Lehman, the blowback would most assuredly have taken JP Morgan down as well.
** Yes I know politicians lie, but Obama has completely redefined the boundaries of acceptable political fudging. It’s now all dishonesty, all the time.

Youth Vote Propels Five Star Movement Into First Place as Largest Political Party in Italy

Courtesy of Mish.

By a very slim margin Beppe Grillo’s Five Star Movement is the largest political party in Italy. Young voters and first-time voters are responsible for the surge (see comments from “AC” below).

Here are the official election results.


  • PIER LUIGI BERSANI – PARTITO DEMOCRATICO – 8,644,187 Votes – 25.42%   
  • SILVIO BERLUSCONI – IL POPOLO DELLA LIBERTA’ – 7.332.667 Votes – 21.56%

Bersani gets 55% of the Chamber seats because his center-left coalition barely beat Berlusconi’s center-right coalition by a 29.54% to 29.18% margin otherwise Berlusconi would be courting Beppe Grillo (likely to no avail) to form a coalition.


  • PIER LUIGI BERSANI – PARTITO DEMOCRATICO – 8,399,991 Votes – 27.43%
  • SILVIO BERLUSCONI – IL POPOLO DELLA LIBERTA’ – 6,829,135 Votes – 22.30%

The center-left received a higher percentage of votes than the center-right by a 31.63% to 30.72% margin. However, Senate seats are assigned based on regional totals and the result will be something like a 119 to 117 spit with the Five Star Movement picking up 54 Seats. A majority takes 158 so no coalition is likely.

Comments From “AC”

Reader “AC” who is from Italy but now lives in France writes …

Final result are now available: M5S is the first political party at the Chamber of representatives, by a mere 46k voters. The Center-Left coalition scored first as coalition and therefore received a 55% majority of seats in the Chamber. There is no majority in the Senate and no possible majority even combining Bersani with Monti, so the result is a hung Parliament, exactly the forecast I made months ago.

In the Senate M5S is not the first party and scored a little bit less (23.79%). The main differences in the voters between Chamber and Senate is that to vote for the Chamber you must be eighteen, for the Senate you need to be 25 years old. This means that youngest part of the population and first-time voters voted massively for M5S.


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The Unsafe Foundation of Our Housing ‘Recovery’

Courtesy of Charles Hugh-Smith via Peak Prosperity

What could go wrong with the housing 'recovery' in 2013?

To answer this question, we need to understand that housing is the key component in household wealth. And, that Central Planning policies are aimed at creating a resurgent “wealth effect,” as follows: When people perceive their wealth as rising, they tend to borrow and spend more freely. This is a major goal of U.S. Central Planning.

Another key goal of Central Planning is to strengthen the balance sheets of banks and households. And the broadest way to accomplish this is to boost the value of housing. This adds then collateral to banks holding mortgages and increases the equity of homeowners.

Some analysts have noted that housing construction and renovation has declined to a modest percentage of the gross domestic product (GDP). This perspective understates the importance of the family house as the largest asset for most households and housing’s critical role as collateral in the banking system.

The family home remains the core asset for all but the poorest and wealthiest Americans. Roughly two thirds of all households "own" a home, and primary residences comprised roughly 65% of household assets of the middle 60% of households – those between the bottom 20% and the top 20%, as measured by income. (The U.S. Census Bureau typically divides all households into five quintiles; i.e., 20% each.)

Since housing is the largest component of most households’ net worth, it is also the primary basis of their assessment of rising (or falling) wealth (i.e., the "wealth effect.") No wonder Central Planners are so anxious to reflate housing prices. With real incomes stagnant and stock ownership concentrated in the top 10%, there is no other lever for a broad-based wealth effect other than housing.

Extreme Measures

Given the preponderance of housing in bank assets, household wealth, and the perception of wealth, the key policies of Central Planning largely revolve around housing: keeping interest rates (and thus mortgage rates) low, flooding the banking sector with liquidity to ease lending, guaranteeing low-down-payment mortgages via FHA, and numerous other subsidies of homeownership.

At least three aspects of this broad-based support are historically unprecedented:

1) The purchase of $1.9 trillion of mortgage-backed securities (MBS) by the Federal Reserve.

The Fed purchased $1.1 trillion in mortgages in 2009-10 and it recently launched an open-ended program of buying $40+ billion in mortgages every month. Recent analysis by Ramsey Su found that Fed purchases have substantially exceeded the announced target sums; the Fed is on track to buy another $800 billion within the next year or so. This extraordinary program is, in effect, buying 100% of all newly-issued mortgages and a majority of refinancing mortgages.

Never before has the nation’s central bank directly bought almost 20% of all outstanding mortgages this raises the question: Why has the Fed intervened so aggressively in the mortgage market? There is no other plausible reason other than to take impaired mortgages off the books of insolvent lenders, freeing them to repair their balance sheets.

Regardless of the policy’s goal, the Fed now essentially controls a tremendous percentage of the mortgage market.

2) After the insolvency of the two agencies that backed many of the mortgages originated in the bubble years (Fannie Mae and Freddie Mac), the minor-league backer of mortgages (FHA) suddenly expanded to fill the void left by Fannie and Freddie.

Many of these mortgages require only 3% down in cash, just the sort of risky “no skin in the game” mortgages that melted down in 2008.

Given this mass issuance of low-collateral loans to marginal buyers, it is no surprise that the FHA will soon require a taxpayer bailout to cover its crushing losses from rising defaults.

In 2010, 97% (!!) of all mortgages were backed by government agencies, an unprecedented socialization of the mortgage market. (Source)

This raises two questions: Where would the mortgage and housing markets be if Central Planning hadn’t effectively socialized the entire mortgage market? What will happen to the market when Central Planning support is reduced?

3) Official measures of inflation are viewed by many with a healthy skepticism, but even this likely-understated rate has recently exceeded 2.5% annually.

In this context, it is unprecedented that one-year Treasury bonds have near-zero yields, effectively costing owners a 2%+ annual fee for the privilege of owning short-term Treasurys.

Even more astonishing, rates for conventional 15-year mortgages are comparable to official inflation (the Consumer Price Index, or "CPI"). Lenders are earning near-zero premiums on these mortgages. How sustainable is this imbalance of risk and return?

The enabler of these extremes is, once again, the Federal Reserve, which has purchased hundreds of billions of dollars in Treasury bonds and flooded the banking sector with zero-interest “free money.”

This formidable Central Planning support of housing has placed a bid (i.e., a floor) under housing, resulting in two bounces since the housing bubble popped in 2007-9.

The first heavily subsidized rise faltered. Will the latest pop also reverse? Or is the much-desired “housing bottom” in, from which prices will continue their ascent?

In the macro context, what housing bulls are counting on is the emergence of an “organic,” self-sustaining recovery in housing, based not on Central Planning subsidies but on private demand and non-agency mortgages.

Housing skeptics are looking for signs of what will happen when unprecedented support and intervention in the mortgage and housing markets is reduced or withdrawn.

The Foundation of Housing: Debt and Federal Subsidies

About two-thirds of all homeowners have mortgages. As I noted in The Rise and Fall of Phantom Housing Collateral, mortgage debt doubled from about $5 trillion in 1997, before the housing bubble, to $10.5 trillion in 2007, at the top of the bubble.

This reliance on debt informs the Central Planning policies of lowering interest rates and guaranteeing mortgages via Federal agencies such as the FHA. The only way debt can increase is if incomes rise or the costs and qualification standards of borrowing decline. Since income for 90% of households has been stagnant for decades, the only way debt can expand is by lowering interest rates and reducing the risk exposure of debt issuers via Federal guarantees.

These policies have been pushed to the maximum. As a result, the policy tool bag to further boost housing is now empty.

Now there is only one direction left for interest rates (up) and for housing subsidies and guarantees (down).

Another support of housing recovery is the restriction of homes on the market. Lenders are limiting the inventory of homes for sale by keeping many distressed/foreclosed homes in the off-market shadow inventory. This artificial restriction, coupled with low rates and government subsidies, has supported the modest recovery shown on this chart (courtesy of Lance Roberts) of total housing activity:

While housing has recovered to 2010 levels, what is not visible is the collapse in housing’s share of net worth displayed in this chart:

Housing equity as a percentage of total net worth declines when the stock market rises strongly while housing gains at a much lower rate (for example, during the Bull markets of 1952-1968 and 1982-2000) and rises as stock equity falls (for example, 1969-1981) while housing rose. In the 2001-2008 era, both equities and housing both climbed sharply, but since housing is the larger share of most households’ net assets, housing’s rise overshadowed the expansion of stock net worth, causing home equity to rise as a percentage of total net worth.

The collapse of the housing bubble and the stock market pushed home equity as a percentage of net worth to new lows. The subsequent doubling in the stock market has had little effect on the bottom 90% of households, as the top 10% of households own 85% to 90% of all stocks. (Source)

In broad brush, the wealth of middle class of homeowners has been influenced by four trends:

  1. The stagnation of real income
  2. A rapid rise in mortgage and other debt
  3. The use of debt to fund consumption
  4. The collapse of housing equity as the basis of debt-based consumption

In other words, Federal subsidies and Federal Reserve policies enabled a vast expansion of debt that masked the stagnation of income. Now that the housing bubble has burst, this substitution of housing-equity debt for income has ground to a halt.

This created a reverse wealth effect: The 70% between the bottom 20% and the top 10% have seen their net worth plummet while their debt load remains stubbornly elevated. 

Americans saw wealth plummet 40 percent from 2007 to 2010, Federal Reserve says. (Source)

This chart is nominal rather than real (adjusted), but the relative expansion of debt is clearly visible:

While charts like this lump all household debt and income together, this masks the reality that there is a clear divide between the top 10% and the bottom 90% in terms of income and debt. The debt load of the top 10% is considerably lighter than that of the bottom 90%, while income and wealth gains have flowed almost exclusively to the top 20%.

The top quintile accrued 89% of the total growth in wealth, while the bottom 80 percent accounted for 11%. (Source)

Unsustainable Pricing Will Introduce the "Poverty Effect"

If we put all this together, we get a picture of a middle class squeezed by historically high debt loads, stagnant incomes, and a net worth largely dependent on housing.

In response, Central Planners have pulled out all the stops to reflate housing as the only available means to spark a broad-based “wealth effect” that would support higher spending and an expansion of household debt.

This returns us to the key question: Are all these Central Planning interventions sustainable, or might they falter in 2013?  

Once markets become dependent on intervention and support to price risk and assets, they are intrinsically vulnerable to any reduction in that support.

Should these supports diminish or lose their effectiveness, it will be sink-or-swim for housing. Either organic demand rises without subsidies and lenders originate mortgages without agency guarantees, or the market could resume the fall in valuations Central Planning halted in 2009.

In Part II: The Forces That Will Reverse Housing's Recent Gains, we examine the statistical, historical, and demographic trends that suggest the market recovery is now dangerously vulnerable to a relapse, regardless of Central Planning intervention.

Should housing prices resume a protracted march downwards, as we've detailed here is quite possible, get ready for the "poverty effect" to drain the financial markets of their current euphoria. As the middle 60% of households begin losing a substantial percentage of their net worth, expect consumer spending to dry up and recessionary forces to return in force.  (Source: Part II)

Click here to read Part II of this report

China Overheating? Biggest Weekly Cash Drain in History; Questions Surface Over Chinese Growth Numbers

Courtesy of Mish.

In December I suggested the modest bounce in China PMI would not last. It didn’t. The allegedly sustainable recovery in China is already in question.

The HSBC Flash China Manufacturing PMI™ shows manufacturing conditions barely above contraction.

Key points

  • Flash China Manufacturing PMI™ at 50.4 (52.3 in January). 4-month low.
  • Flash China Manufacturing Output Index at 50.9 (53.1 in January). 4-month low

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “The Chinese economy is still on track for a gradual recovery. Despite the moderation of February’s flash PMI, the index recorded the fourth consecutive reading above the 50 critical line. The underlying strength of Chinese growth recovery remains intact, as indicated by the still expanding employment and the recent pick-up of credit growth.

Questions Surface Over Chinese Growth Numbers

Those expecting China to be in some sort of sustainable recovery with Europe in a major recession and the US in a big slowdown if not outright recession are a bit delusional.

Please consider China’s Premature Overheating.

China began this year with an off-the-charts explosion in credit issuance. Last week, it broke records again, this time for the amount of cash drained from its banking system. The record credit issuance of 2.5 trillion yuan ($400 billion) in January — comprising both bank lending and non-bank financial institutions’ credit — always looked as if it was verging on the reckless.

The surprise perhaps is that this reversal came so early. The central bank withdrew 910 billion yuan from the economy via open-market operations last week, its biggest weekly cash drain ever.

This action coincided with warnings from Beijing for local governments to keep a tight reign on property-market speculation, amid fears of bubbles reappearing. On Friday, the government further extended its existing battery of property taxes to try to take the heat out of the market. The new measures target non-residential property and buyers of second homes.

In recent weeks, the Chinese capital has literally ground to a halt due to smog worsened by traffic and factories. Nomura says in a new report that pollution has got so bad, it may force policy change on the government, which will inevitably reduce growth in the short term. An unusual appendix in the report was a nationwide map of Particulate Matter (PM) readings.

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Why We’re Ungovernable, Part 7: Italy Does Chaos With Style

Courtesy of John Rubino.

As an Italian-American I’m allowed to say it: Italians are an amusing mess. They go on about “la dolce vita,” the sweet life of long lunches and short work days and pretty girls on little scooters – without acknowledging or apparently even realizing that the whole show is based on other people’s money.

Take away the credit card and they, addicts forced to go cold turkey, descend into existential confusion. Which brings us to today’s national election. Held as the euro crisis seemed to be abating – thanks to trillions of new euros from the European Central Bank – the contestants were: the technocrat ex-premier who was recently forced to resign for undisclosed reasons, the media mogul and former premier whose creepy/criminal lifestyle nearly landed him in jail last time around, a stand-up comic known for raunchy humor who can’t hold office due to a manslaughter conviction, and an ex-communist who represents the workers and students most likely to stage the next general strike.

A bad bunch, sure, but at the end of the day one of them will have the power to at least try to address the country’s problems, right? Nope, that’s not how bankrupt countries work, at least on the way down. (At the bottom they’ll give absolute power to a “strong leader” who promises to restore order, but for now Italian voters, like their American counterparts, still cling to the illusion that normal life can be restored with a few tweaks of the tax code or short-term interest rates.)

Instead, my ancestral homeland got a hung jury:

Italy faces political gridlock after crucial election

ROME (AP) — The prospect of political paralysis hung over Italy on Monday as partial official results in crucial elections showed an upstart protest campaign led by a comedian making stunning inroads, and mainstream forces of center-left and center-right wrestling for control of Parliament’s two houses.

The story of the election in the eurozone’s third largest economy was shaping up to be the astonishing vote haul of comic-turned-political leader Beppe Grillo, whose 5 Star Movement has capitalized on a wave of voter disgust with the ruling political class.

Another surprise has been the return as a political force of billionaire media mogul Silvio Berlusconi, who was forced from the premiership at the end of 2011 by Italy’s debt crisis, and whose forces now had a strong chance of capturing the Italian Senate. His main rival, the center-left Pier Luigi Bersani, appeared headed toward victory in Parliament’s lower house.

The unfolding murky result raised the possibility of new elections in the coming months and bodes badly for the nation’s efforts to pass the tough reforms it needs to snuff out its economic crisis and reassure jittery markets.

“This has never happened before,” said James Walston, a political science professor at American University of Rome. He predicted such a swirl of political chaos that new elections may need to be called as soon as the new legislature chooses the nation’s next president this spring.

So nothing gets done, the debt continues to accumulate, and the financial system shambles ever-closer to the cliff’s edge.

Just to be clear, Italy isn’t wallowing that much more deeply in denial than France with its 75% marginal tax rate or the US with our monthly debt ceiling/fiscal cliff soap operas. It’s just the latest example of what happens when a country goes broke but can’t accept the fact – and is armed with a printing press to maintain appearances beyond what would be possible in a sound money world.

In the meantime, this isn’t just a local story. Italy is the third biggest country in the eurozone and it owes German and French banks a ton of money. Chaos there is chaos everywhere. See the next chart, which tracks the Dow Jones Industrial Average as the Italian results came in towards the end of the trading day.

Dow after Italian election


Visit John’s Dollar Collapse blog here >

States That’ll Get Slammed By Sequestration

CHART OF THE DAY: Here Are The States That'll Get Slammed By Sequestration

Courtesy of Sam Ro, Business Insider 

Unless Washington can pull off a last minute deal, the sequestration budget cuts will begin on March 1.

Sequestration is the series of $85 billion worth of spending cuts that'll ripple across the U.S. government.

And across the U.S., some states are likely to get hit worse than others.

Wells Fargo's Mark Vittner and Michael Brown took a closer look and build a map.  From their report:

In order to assess the potential regional impact of these budget cuts, we have identified those states that have the greatest exposure to federal funding cuts. We utilize the metrics calculated by the Pew Center on the States for federal spending as a percentage of state GDP.  We then identify those states that are most susceptible to defense and those most susceptible to nondefense spending cuts. Even a cursory review of the data shows that the process of budget sequestration will harm certain states disproportionally. In general, the greater Washington, D.C. area and southern states will be the hardest hit, while states in the Midwest and along the West Coast will likely be impacted to a lesser extent.

Here's their map:


Chart of the day shows federal spending as a percent of state gdp, february 2013

Time To Stop Monsanto And The US Supreme Court

Courtesy of The Automatic Earth

Artwork: Ilargi for the Automatic Earth

The US Supreme Court heard a case on February 19 that is interesting perhaps not even so much because of the topic at hand but more because of the level of absurdity involved. It feels like we warpsped our way into a parallel universe where the laws of nature are entirely different from those on earth.

That is to say, the court should never have been in a position to hear the case, but it has created the legal space for itself, aided and abetted by Congress and the US patent system, to hear it anyway. Because of this we should all ask ourselves: How on earth have we ever allowed things to get this far? What were we thinking, and what were we not, because we were busy doing other things? And finally: how do we get out of this parallel universe and into our own?

I would argue that it's perhaps the US Supreme Court itself (and maybe the US government as a whole) that should be taken to court by the international community, for instance for grossly overstepping its legal boundaries, but let's first look at the case before the court last week.

The original suit, one that involved patent infringement, was filed by chemical conglomerate Monsanto, which has aggressively moved into the food industry in the past few decades with the implicit purpose of using it to sell more chemicals, against Indiana farmer Vernon Hugh Bowman.

It is one of a large number, 142, patent infringement suits against 410 farmers and 56 small businesses in the US. Monsanto alleges that Mr. Bowman has infringed on one of its patents, the Roundup Ready soybean, by buying cheap(er) "excess" soybeans from a local grain elevator for a late-season planting, which, first, allowed him not to pay the company the full price for its patented seeds, and second, runs counter to its demand that farmers buy new seeds for every planting instead of saving seeds from the previous harvest.

Reading about the case before it came before the court, I found Mr. Bowman's argumentation neither very strong nor very interesting. In fact, he might as well be on Monsanto's payroll. Mr. Bowman knew that many of the seeds he was buying were of Monsanto's Roundup Ready variety, and he had been buying these seeds at full price on previous occasions, even earlier the same year. Which is why he sprayed the late crop in question with another Monsanto product, the Roundup herbicide. The first reports are that the Supreme Court Appears to Defend Patent on Soybean.

"Why in the world,” Chief Justice John G. Roberts Jr. asked, “would anybody spend any money to try to improve the seed if as soon as they sold the first one anybody could grow more and have as many of those seeds as they want?"

I’ll get back to this, but one thing should be clear: People have spend time and effort, blood sweat and tears, throughout history, to improve seeds. Why would that stop with Monsanto? Because they spend money? Nobody ever had the idea that their improved seeds would be eligible for patents. Along comes the chemical industry, takes the seeds that have undergone all these generations of improvements, changes them a little bit, and voila! owns them outright. No, really.

What Mr. Bowman purports to fight all the way up to the Supreme Court is Monsanto's notion that the patent protection for its seeds "extends for generations down", and granted, that in itself is not a moot point. However, it pales in comparison with the much larger issues at play here. It's part of a far more severe case of insanity that has silently become our reality while we were chowing down the supersized "foods" produced courtesy of Monsanto's seed patents.

Here are some details from the Guardian:

Monsanto sued small farmers to protect seed patents, report says

In its report, called Seed Giants vs US Farmers, the [Center for Food Safety] said it had tracked numerous law suits that Monsanto had brought against farmers and found some 142 patent infringement suits against 410 farmers and 56 small businesses in more than 27 states. In total the firm has won more than $23 million from its targets, the report said.

However, one of those suits, against Indiana soybean farmer Vernon Hugh Bowman, is a potentially landmark patent case that could have wide implications for genetic engineering and who controls patents on living organisms. The CFS and SOS are both supporting Bowman in the case, which will be heard in the Supreme Court later this month.

"Corporations did not create seeds and many are challenging the existing patent system that allows private companies to assert ownership over a resource that is vital to survival and that historically has been in the public domain," said Debbie Barker, an expert with SOS and one of the report's co-authors. Another co-author, CFS legal expert George Kimbrell, said victory in the Bowman case could help shift that balance of power back to farmers. "The great weight of history and the law is on the side of Mr Bowman and farmers in general," he said.

The report also revealed the dominance that large firms and their genetically altered crops have in the US and global market. It found that 53% of the world's commercial seed market is controlled by just three firms – Monsanto, DuPont and Syngenta.

Meanwhile genetically-altered commodity crops – and thus the influence of patent protection – have spread to become overwhelmingly dominant. In the US some 93% of soybeans and 86% of corn crops come from such seeds.

Yes sirree, you heard that right: patents on living organisms. Also known as a licence to kill (among other things). And if a farmer cannot own his seeds, what about his animals? Or what if Monsanto figures out a gene variation that limits your own personal risk of a disease, say, cancer? Does it own you outright then? Or will it only give you the choice between becoming a debt slave or dying young?

And in this specific court case, it doesn't even stop there:

Monsanto, J.C. Penney, Elsevier: Intellectual Property

BSA – The Software Alliance, whose members include Apple Inc. and Microsoft Corp., told the court that eliminating patent protection for self-replicating seeds could facilitate software piracy. Research universities and biotechnology companies say a victory by Bowman would harm their ability to license their work in cancer research, crop protection and nutrition.

Diagnostic companies including Agilent Technologies Inc. and Life Technologies Corp. said they often sell items for research use only, which allows them to charge lower prices by preventing replication of their products. They asked the court to uphold Monsanto’s conditions.

Brave new world, don't you know. Once you manage to make people treat their food the same way they treat a software application, you have, let's say, redefined progress. Still, that the highest court in the land, any land, does it, is a both deeply saddening and literally life threatening abomination. And it paints a society teetering on the very thin edges of its moral wits.

The essence of what's involved is that Monsanto tweaked but one small part of the seed (a gene), but was subsequently granted full ownership of the whole seed by the US patent system. It can thus forcefully demand payment from farmers who may not even want the genetic mutation involved. What's more, certainly for crops that cross-pollinate it's inevitable that ever more "original" seeds become "contaminated" with Monsanto's tweaked genes. And there we enter a legal (and moral) one-way street: while Monsanto can sue a farmer whose crops have been contaminated with its patented seeds, the farmer can not do the reverse, since Monsanto's the only party that holds a patent. And that is truly insane on many fronts.

For 10-12,000 years, people all over the world have been improving agricultural crops in multiple ways, changing plants from their wild origins to their present domesticated versions. One of the most important changes, obviously, has been to make it easier to save seeds and plant these in the new year for the next harvest (no mean feat).

Monsanto now simply takes all of this away in just a few years time. With impunity. And with encouragement from the US government and Supreme Court. Farmers have to sign a contract that forces them to buy new seeds every single year, or they will be prosecuted. Some seeds have been genetically manipulated in such a way that seeds are infertile and impotent to begin with or don't develop at all (terminator seeds).

Monsanto takes a proud global tradition of 12,000 years that has involved millions of farmers through hundreds of generations and kills off their sweat, toll and achievements in just a few years' time. Making all farmers, and all people, dependent on its products. This is the opposite of food security. After all, when Monsanto et al thoroughly control our food supply, what do you think they will do? Lower prices? They are commercial conglomerates that run profit based businesses. Where and when possible, they are legally obliged to maximize profit for their shareholders. Hence, if and when they control our food supply they will in all likelihood be legally obliged to double or triple prices if doing so raises their profits.

When you think about it, it's crazy in a very deep and profound way that people's basic necessities are sold in international markets and thus subject to speculation and boom and bust cycles. Food, water, shelter, heating should be under control of the (local) people, not faceless corporations that can manipulate pricing as they see fit in their quest for profits that benefit equally faceless international shareholders. And I can rest assured I'll be labeled a clown for saying so.

People need to be able to grow their own food, and that food should not be limited to only those crops that Monsanto and its ilk choose not to tweak and patent. In the present situation, however, as reflected in the way it's treated by the US government and Supreme Court, you might be forgiven for thinking Monsanto does God's work. And that's not the only thing the company has in common with Goldman Sachs:

The Revolving Door: FDA and the Monsanto Company

According to the United States Food and Drug Administration (FDA), its responsibilities include “[p]rotecting the public health by assuring that foods are safe, wholesome, sanitary and properly labeled.” This responsibility entails regulating a large number of companies producing this nation’s food, making appointments to the high-level positions within the agency very important.

Most high-level FDA employees have a background in either medicine or law, but one of the largest private-sector sources is the Monsanto Company. Over the past decades, at least seven high-ranking employees in the FDA have an employment history with the Monsanto Company. Tweet Stat:

Connections have led many to speculate whether any conflicts of interest exist within this revolving door between the big food companies and the department charged with regulating them.

At the forefront of this controversy is Michael R. Taylor, currently the deputy commissioner of the Office of Foods. He was also the deputy commissioner for Policy within the FDA in the mid ’90s. However, between that position and his current FDA position, Mr. Taylor was employed by Monsanto as Vice President of Public Policy.

During his employment with Monsanto, the company was developing rBGH, a type of beef growth hormone. Mr. Taylor advised the company on the possible legal implications of using the hormone on cattle that could reach beef markets for human consumption. However, when Taylor left Monsanto for the FDA, he became one of the main authorities behind the FDA’s rBGH labeling guidelines, posing potential conflicts of interest.

Also tied up in the rBGH debacle are Margaret Miller and Susan Sechen. Miller, the deputy director of the Office of New Animal Drugs at the FDA, and a former Monsanto scientist, helped develop rBGH. Sechen, a data reviewer in Miller’s department, worked as a graduate student on some of the initial bovine drug studies. These studies were conducted at Cornell University and were financed by none other than Monsanto.

Other Monsanto alumni include Arthur Hayes, commissioner of the FDA from 1981 to 1983, and consultant to Searle’s public relations firm, which later merged with Monsanto. Michael A. Friedman, former acting commissioner of the FDA, later went on to become senior Vice President for Clinical Affairs at Searle, which is now a pharmaceutical division of Monsanto. Virginia Weldon only became a member of the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee, after retiring as Vice President for Public Policy at Monsanto.

Well aware of its accused ‘revolving door’ connection with the FDA and other government agencies, Monsanto has issued several press releases denying collusion with the government. In fact, it posted on its official website that collusion theories relating to these agencies, including the FDA, “ignore the simple truth that people regularly change jobs to find positions that match their experience, skills and interests.”

In real life, the US legal system should protect its citizens against both Goldman Sachs and Monsanto, because both pose very real threats to everyone's well being. Instead, both enjoy untouchables status and feed at the Washington trough. While there can be no doubt that Monsanto is a profitable business, the US agriculture industry still receives tens of billions in direct and indirect subsidies. Not that Europe feels like being left behind: from the recently agreed EU budget, no less than 40% goes to the food industry. Much of that ends up in France, lest a hundred kilometers tractors traffic jam wind up on the Champs Elysees, and if only French farmers would still use it to fight Monsanto, it might be well spent too, but those days are long gone.

It doesn't matter what Congress or the Supreme Court say or decide. People anywhere in the world, and that includes the US, have an inalienable right to feed themselves. Present politics, and present interpretation of existing law by a highly politicized legal system deny people that right. As time goes by, any American who wishes to plant corn to feed their family increasingly runs the risk of being sued by Monsanto because its manipulated genes have spread to heritage seeds as well.

It's not over the top to compare this to entering a parallel universe, because the laws that today govern our food supply are completely different from what people in the street think they are. Up is not up, and down not down. Our right to feed our children has been made subordinate to the right of chemical companies to change the very food we count on to keep our children fed. To top it all off, the "modern" food industry claims that it, and it alone, provides the necessary tools without which our children would go hungry. God's work indeed. Makes you wonder what keeps the devil occupied these days.

One thing is certain: a Supreme Court that tramples its citizens' inalienable rights has no authority. It's amazingly simple.


Richard Wolff on Fighting for Economic Justice and Fair Wages

Richard Wolff on Fighting for Economic Justice and Fair Wages

By Bill Moyers

Richard Wolff joins Bill to discuss the disaster left behind in capitalism’s wake, and the fight for economic justice, including a fair minimum wage.

SP 500 and NDX Futures Daily Charts – Risk Off, Bubble Down, Berlusconi-style

SP 500 and NDX Futures Daily Charts – Risk Off, Bubble Down, Berlusconi-style

Courtesy of Jesse's Cafe Americain 

This was the worst daily sell off in US equities since last November.

The spokesmodels were blaming this on 'The Three B's: Berlusconi, Bernanke, and Boehner.'

That is of course a thin film to cover what really happened today, which is that the bubble rally of the past two months or so, led by the relentless buying of the SP futures and the market manipulation of the big funds, let some air out today as big cap earnings drew to a close.

As it turns out Mr. Boehner had absolutely nothing new to say, except to repeat the same rhetoric about no more tax revenues including the closing of loopholes.   He took a hard line on any tax increases.  Eric Cantor echoed the same thing.

And Bernanke will say very little tomorrow, unless he makes a serious policy statement mistake.

But the surprise that Berlusconi garnered more votes than expected, by appealing to the anti-austerity forces, cautioned many that their optimism of a new anschluss in Europe may not happen quite so easily and broadly. It does not matter that Berlusconi is a star of the opera buffa genre of Italian politics.  And it certainly did not justify this volatile of a sell off, except that stocks had run quite too far and therefore the underpinnings of the markets were inherently unstable.

Let's see if the bubble in financial assets will take a bigger pause, is done, or is merely taking profits in advance of another leg up.  Keep an eye on Europe.  


Pinocchio traders with fantastic returns are lying to themselves

Here's an excellent article by Barry Ritholtz discussing our tendency to lie to ourselves.

Mark Twain: “Everybody lies — every day; every hour; awake; asleep; in his dreams; in his joy; in his mourning.”


Source: via Cathy on Pinterest

Pinocchio traders with fantastic returns are lying to themselves 

In my last column, we discussed my annual rite of Mea Culpa. That’s where I look back at the prior year to evaluate what I got wrong and why. It is a humbling experience designed to make me a better investor, and I have been doing it — in public — for several years. Numerous readers have told me that this is a rarity in the world of finance.

But every year I hear from a small segment of active traders who misread what the discussion is about, seeing it as an invitation to brag about their best trades. Astonishingly, these e-mailers have all significantly outperformed the markets over the years, putting up fantastic return numbers. They never seem to have a losing trade. They sold Apple at exactly $705 and bought gold precisely at the bottom. Even more amazingly, they got out at the market top in October 2007 and bought in at the exact lows in March 2009.

The polite term for these people is “fibbers.” Personally, I say it’s lying.

Mathematical probabilities make these claims of uniformly spectacular track records extremely unlikely. And what I find most intriguing is that these Pinocchio traders (as I call them) are not really lying to you or me, but, rather, to themselves.

Little white lies are told by humans all the time. Indeed, lying is often how we get through each day in a happy little bubble. We spend time and energy rationalizing our own behaviors, beliefs and ­decision-making processes.

Keep reading: Pinocchio traders with fantastic returns are lying to themselves – The Washington Post.

Beppe Grillo’s Five Star Movement On Verge of Being Largest Political Party in Italy; Italy Stock Market Futures Plunge 3.5%

Courtesy of Mish.

As the vote totals wind down, Beppe Grillo is the symbolic winner in the election. His MoVimento 5 Stelle (MS5 – Five Star Movement) is on the verge of becoming the largest party in Italy by popular vote.

As of 4:00 PM…

The center-left coalition of four political parties has 29.7% of the vote, but Bersani’s party, Partito Democratico (Pd), has 25.5% of the vote.

Beppe Grillo has no coalition. His MoVimento 5 Stelle (M5S) party is in a dead tie with 25.5% of the vote.

The center-right coalition of nine political parties received 29.0% of the vote, but Berlusconi’s party, Il Popolo della libertà (Pdl), received 21.4% of the vote.

On an Actual Party (Not Coalition Basis)

  • Pier Luigi Bersani – Partito Democratico (Pd) – 25.5%
  • Beppe Grillo – MoVimento 5 Stelle (M5S) 25.5%
  • Silvio Berlusconi – Il Popolo della libertà (Pdl) – 21.4%

Those totals are as of 4:00 Central. I have been watching the totals for a half hour. M5S has been inching up steadily. A half hour ago M5S was down by .5%. Momentum suggests M5S will overtake Partito Democratico (Pd).

Italy MIB Stock Market Futures Plunge

From the Guardian Election Blog

Update As of 4:20 PM

Continue Here

Quick Rise, Sharp Pullback- That’s LIFE

Quick Rise, Sharp Pullback- That’s LIFE

See also:  MarketShadows February 24 2013 Newsletter: Not Done Rising, But Night Will Come 

Courtesy of Paul Price 

Global biotechnology supplier Life Technologies (LIFE, $58.19) was formed in November 2008 when Applied Biosystems and Invitrogen merged. The company has prospered since. LIFE was reportedly being courted for a buyout by publicly traded Thermo Fisher Scientific (TMO) as well as some private equity outfits. 

It appeared a deal would be struck. LIFE shares surged to a new all-time high of $65.84 this year in anticipation of a bid. Last week the stock sunk back to the $58 range after terms could not be agreed upon.

LIFE Feb. 19 - 22 2013

The company continues to do well. Adjusted earnings for 2012’s Q4 and full year were both records. Management gave 2013 guidance of $4.30 – $4.45 which compares favorably with non-GAAP EPS of $3.98 for the year just completed. 

LIFE’s strong business trends and international footprint would be attractive to many suitors. The 80% or so of total revenues that come from consumables/services mimic Gillette’s classic ‘Make money on recurring razor blades sales and don’t worry about the margins on the razors’ approach. 

LIFE   2009 - 2011 data

LIFE was willing to sell but is holding out for a higher price than was being offered. Many times one or more of the interested parties will come back to the table. Research firm Morningstar saw fair value for LIFE at $64 as a stand-alone.

LIFE - Morningstar ratings (1)

The company bought back 13.8 million shares during 2012 at an average cost of $46.01 per share. Directors indicated another 2 million shares had been retired just since January 1, 2013.

The stock has decent but unspectacular upside if no deal materializes. It could surge quickly again if takeover rumors resurface. I used last Wednesday’s price dip and increased volatility to sell some January 2014 $55 puts for a premium of $4.20 per share. Friday’s bid was slightly lower due to the shares' late-week stability. The $50 strike would allow for a lower break-even point while offering less potential profit if the stock holds steady or rebounds. 

LIFE put details

Note: These options are not actively traded. Be sure to use limit orders that fall between the bid/ask spreads.

Maximum gains on each put would come as long as LIFE closes at, or above, their respective strike prices ($50 or $55). Gains would be 100% of the premium received ($2.25 and $4.00, respectively). 

If LIFE closes below the strike price on the expiration date, the worst-case scenario would require purchase of 100 shares per put contract at a net outlay of the ‘if put’ prices shown in the chart above (strike price minus premium collected). $50 or $55 strike put sellers could sustain up to 17.9% or 12.3% drops, respectively, from the trade inception price without suffering a loss.

We will place an order to sell 1 contract on the LIFE Jan. 2014 $55 strike with a limit of $4.00 when the market opens on Monday February 25, 2013. 

LIFE put prices

Disclosure:  Short LIFE Jan. 2014 $55 puts

Click here for a screenshot of the full Virtual Put Selling Portfolio that our LIFE put will be joining. 

Judge Sides With Einhorn and Halts an Apple Shareholder Vote


Source: via Autumn on Pinterest


Mr. Einhorn’s hedge fund firm, Greenlight Capital, has sued Apple in Federal District Court in Manhattan, arguing that the company improperly tied together several shareholder issues to be put for a vote into one proposal. Such bundling violated rules set by the Securities and Exchange Commission, lawyers for the hedge fund argued.

At the heart of the hedge fund’s complaint was that Apple combined a plan to eliminate its ability to issue preferred stock without shareholder approval with two other initiatives that Greenlight favored. By allowing the vote to proceed, lawyers for the firm argued, Greenlight was being forced to vote against its own interests.

The judge overseeing the case, Richard Sullivan, firmly agreed with that interpretation.

“Given the language and purpose of the rules, it is plain to the court that Proposal No. 2 impermissibly bundles ‘separate matters’ for shareholder consideration,” Judge Sullivan wrote in his order…

Full article: Judge Sides With Einhorn and Halts an Apple Shareholder Vote –

The Extraordinary Science of Addictive Junk Food


Source: via on Pinterest

This looks interesting….


On the evening of April 8, 1999, a long line of Town Cars and taxis pulled up to the Minneapolis headquarters of Pillsbury and discharged 11 men who controlled America’s largest food companies. Nestlé was in attendance, as were Kraft and Nabisco, General Mills and Procter & Gamble, Coca-Cola and Mars. Rivals any other day, the C.E.O.’s and company presidents had come together for a rare, private meeting. On the agenda was one item: the emerging obesity epidemic and how to deal with it. While the atmosphere was cordial, the men assembled were hardly friends. Their stature was defined by their skill in fighting one another for what they called “stomach share” — the amount of digestive space that any one company’s brand can grab from the competition.

Keep reading:  The Extraordinary Science of Addictive Junk Food –

It’s Always The Best Time To Buy

Jim Quinn argues that the housing recovery is a Wall Street scam designed to bilk the American middle class of what remains of their net worth.

Courtesy of Jim Quinn of The Burning Platform

“The continuing shortages of housing inventory are driving the price gains. There is no evidence of bubbles popping.”David Lereah, NAR mouthpiece/economist – August 2005

“The steady improvement in home sales will support price appreciation despite all the wild projections by academics, Wall Street analysts, and others in the media.” David Lereah, NAR mouthpiece/economist – January 10, 2007

“Buyer traffic is continuing to pick up, while seller traffic is holding steady. In fact, buyer traffic is 40 percent above a year ago, so there is plenty of demand but insufficient inventory to improve sales more strongly. We’ve transitioned into a seller’s market in much of the country. We expect a seasonal rise of inventory this spring, but it may be insufficient to avoid more frequent incidences of multiple bidding and faster-than-normal price growth.” – Lawrence Yun – NAR mouthpiece/economist – February 21, 2013

I really need to stop being so pessimistic. I’m getting richer by the day. My home value is rising at a rate of 1% per month according to the National Association of Realtors. At that rate, my house will be worth $1 million in less than 10 years. My underwater condo (figuratively – not literally) in Wildwood will resurface and make me rich beyond my wildest dreams. Larry Yun, the brilliant economic genius employed by the upstanding and truth telling NAR, reported that median home prices soared by 12.3% in January (down 3.7% from December) over the prior year and there is virtually no inventory left to sell – with a mere 1.75 million homes in inventory – the lowest level since 1999. The median sales price of $173,600 is up “dramatically” from last year’s $154,500 level. I’m sure the NAR meant to mention that home prices are still down 25% from the 2005 high of $230,000. Every mainstream media newspaper, magazine, and news channel is telling me the “strong” housing recovery is propelling the economy and creating millions of new jobs. Keynesian economists, Wall Street bankers, government apparatchiks and housing trade organizations are all in agreement that the wealth effect from rising home prices will be the jumpstart our economy needs to get back to the glory days of 2005. Who am I to argue with such honorable men with degrees from Ivy League schools and a track record of unquestioned accuracy as we can see in the chart below? 




Mr. Lereah added to his sterling reputation with his insightful prescient book Why the Real Estate Boom Will Not Bust—And How You Can Profit from It, which was published in February 2006. I understand Ben Bernanke has a signed copy on his nightstand. According to David, he voluntarily decided to leave the NAR in mid-2007 as home prices began their 40% plunge over the next four years. He then admitted in an interview with Money Magazine in 2009 that he was nothing but a shill for the real estate industry, no different than a whore doing tricks for $20. Except he was whoring himself for millions of dollars and contributing to the biggest financial fraud in world history:

“I was pressured by executives to issue optimistic forecasts — then was left to shoulder the blame when things went sour. I was there for seven years doing everything they wanted me to. I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right in line with most forecasts. The difference was that I put a positive spin on it. It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.”

After Mr. Lereah slithered away from his post he was replaced by the next snake – Lawrence Yun. He proceeded to put the best face possible on the greatest housing collapse in recorded history, assuring the public it was the best time to buy during the entire slide. Five million foreclosures later he’s still telling us it’s the best time to buy. Why shouldn’t we believe the National Association of Realtors and the mainstream media that report their propaganda as indisputable fact? These noble realtooors only have the best interests of their clients at heart. Remember when they warned people about the dangers of liar loans, negative amortization loans, appraisal fraud, nefarious mortgage brokers, criminal bankers, corrupt ratings agencies and the fact that home prices had reached a high two standard deviations above the normal trend? Oh yeah. They didn’t make a peep. They disputed and ridiculed Robert Shiller and anyone else who dared question the healthy “strong” housing market storyline. In late 2011 this superb, above board, truth telling organization admitted what many financial analysts and “crazy” bloggers had been pointing out for years. They were lying about home sales. Their data was false. Between 2007 and 2011, the NAR reported 2.95 million more home sales than had actually occurred. This was not a rounding error. This was not a flaw in their methodology, as they claimed. It was an outright fraudulent attempt to convince the public that the housing market was not in free fall. These guys make the BLS look accurate and above board.   


We are now expected to believe their monthly reports as if they are gospel. The mainstream media continues to report their drivel about the lowest inventory level in 14 years without the slightest hint of skepticism.

The Incredible Shrinking Inventory

We are told by good old Larry Yun that there are only 1.74 million homes left for sale in this country and at current sales rates we’ll run out of inventory in 4.2 months. Oh the horror. You better buy now, before it’s too late. We must be running out of houses. Someone call Bob Toll. We need more houses built ASAP, before this becomes a crisis. But there seems to be problem with this storyline. Existing home sales are falling. Even using the NAR seasonally manipulated numbers, sales in January were lower than in November. In a country with 133 million housing units, there were 291,000 existing home sales in January. If there is an inventory shortage, why have new home sales fallen every month since May of 2012? There were a total of 10,000 completed new homes sold in December in the entire country. Housing starts plunged by 8.5% in January. Does this happen when you have a strong housing market? Do you believe the NAR inventory figure of 1.74 million homes for sale? The last time the months of supply was this low was early 2005 – during the good old days.

Let’s examine a few facts to determine the true nature of this shocking inventory shortage. According to the U.S. Census Bureau:

  • There are 133 million housing units in the United States
  • There were 115 million occupied housing units in the country, with 75 million owner occupied and 40 million renter occupied.
  • For the math challenged this means that 13.5%, or 18 million housing units, are vacant.
  • Only 4.3 million are considered summer homes, and 3.9 million are available for rent. That leaves 9.8 million homes completely vacant.
  • The Census Bureau specifically identifies 1.6 million of these vacant housing units as up for sale.

So, with 9.8 million vacant housing units in the country and 1.6 million of these identified as for sale, the NAR and media mouthpieces have the balls to report only 1.74 million homes for sale in the entire U.S. This doesn’t even take into account the massive shadow inventory stuck in the foreclosure pipeline. Of the 75 million owner-occupied housing units in the country, 50 million have a mortgage. Of these houses, a full 10.9% are either delinquent or in the foreclosure process. This totals 5.4 million households, with 1.9 million of these households already in the foreclosure process. The number of distressed households is still double the long-term average, even with historically low mortgage rates, multiple government mortgage relief programs (HARP), and Fannie, Freddie and the FHA guaranteeing 90% of all mortgages. Do you think the NAR is including any of these 5.4 million distressed houses in their inventory numbers?



Then we have the little matter of a few home occupiers still underwater on their mortgages. After this fabulous two year housing recovery touted by shills and shysters, only 27.5% of ALL mortgage holders are underwater on their mortgage. This means 13.8 million households are in a negative equity position. Those with 5% or less equity are effectively underwater since closing costs usually exceed 6% of the house’s value. That adds another 2.2 million households to the negative equity bucket. Do you think any of these 16 million households would be selling if they could?  


U.S. homeowners with a mortgage are slowly gaining equity back in their homes.


The negative equity position of millions of homeowners gets at the gist of the effort to re-inflate the housing bubble. By artificially pumping up home prices, the Wall Street titans and their co-conspirators at the Federal Reserve and Treasury Department are attempting to repair insolvent Wall Street bank balance sheets, lure unsuspecting dupes back into the housing market, reignite the economy through the old stand-by wealth effect, and of course enrich themselves and their crony capitalist friends. The artificial suppression of home inventory has been working wonders, as 2 million homeowners were freed from negative equity in 2012. If they can only lure enough suckers back into the pool, all will be well. Phoenix must have an inordinate number of chumps with home prices rising by 22.5% in 2012 as investors and flippers poured into the market with cheap debt and big dreams. Of course everything is relative, as prices are still down 44% from the peak and 40% of mortgages remain underwater. I strongly urge everyone without a functioning brain to pour their life savings into the Phoenix housing market. Larry Yun says it’s a can’t miss path to riches.  

Despite the propaganda, hyperbole, and cheerleading from the corporate media, the fact remains that national homeowner’s equity is barely above its all-time low of 38%, down from 62% in 2000 and 70% in 1980. The NAR shills, Federal Reserve drug pushers, Wall Street shysters, and pliant media lured the middle class into the false belief that housing was an asset class that could make you rich. Homes became the major portion of middle class net worth. As prices were driven higher from 2000 through 2006, the middle class took the bait hook line and sinker and borrowed billions against their ever increasing faux housing wealth. This set up the impending collapse of middle class net worth, created by the 1%ers on Wall Street, in Washington DC, and in corporate executive suites across the land. 

The median American household lost 47% of its wealth between 2007 and 2010. Average household wealth, which is skewed dramatically by the richest Americans, declined by only 18%. Real estate only accounts for 30% of the net worth of the rich. For the middle 60%, housing has risen from 62% to 67% of total wealth since 1983. Middle class families’ saw their cash cushion fall from 21% in 1983 to 8% before the crash. They were convinced that living on Wall Street peddled debt was the path to prosperity. After the crash, the middle class has been left with no cash, underwater mortgages, declining real wages, less jobs, and a mountain of credit card debt. Delusions have been crushed. But an on-line degree from the University of Phoenix funded by a Federal student loan of $20,000 will surely revive the fortunes of the average unemployed middle class worker.  


Despite the destruction of middle class hopes, dreams, and net worth, the ruling plutocracy has decided the best way to revive their fortunes is to lure the ignorant masses into more student loan debt, auto debt and mortgage debt.

Don’t Look Behind the Curtain

“The real hopeless victims of mental illness are to be found among those who appear to be most normal. Many of them are normal because they are so well adjusted to our mode of existence, because their human voice has been silenced so early in their lives that they do not even struggle or suffer or develop symptoms as the neurotic does. They are normal not in what may be called the absolute sense of the word; they are normal only in relation to a profoundly abnormal society. Their perfect adjustment to that abnormal society is a measure of their mental sickness. These millions of abnormally normal people, living without fuss in a society to which, if they were fully human beings, they ought not to be adjusted.” Aldous Huxley – Brave New World Revisited


What is normal in a profoundly abnormal, manipulated, propaganda driven society? The NAR and Federal government issue their public relations announcements every month and attempt to spin straw into gold. The media then fulfill their assigned role by touting the results as unequivocal proof of an economic recovery. This is all designed to revive the animal spirits of the clueless public. Statistics in the hands of those who have no regard for the truth can be manipulated to portray any storyline that serves their corrupt purposes. When I see a story about the housing market referencing a percentage increase as proof of a recovery I know it’s time to check the charts. You see, even a fractional increase from an all-time low will generate an impressive percentage increase. So let’s go to the charts in search of this blossoming housing recovery.

The media, NAHB, and certain bloggers look at this chart and declare that new home sales are up 20% from 2011 levels. Sounds awesome. I look at this chart and note that 2011 was the lowest number of new home sales in U.S. history. I look at this chart and note that new home sales are 75% below the peak in 2005. I look at this chart and note that new home sales are lower today than at the bottom of every recession over the last fifty years. I look at this chart and note that new home sales are lower today than they were in 1963, when the population of the United States was a mere 189 million, 40% less than today’s population. Do you see any signs of a strong housing recovery in this chart?    




The housing cheerleaders look at the chart below and crow about a 75% increase in housing starts. I look at this chart and note that housing starts in 2009 were the lowest in recorded U.S. history. I look at this chart and note that total housing starts are down 60% and single family starts are down 70% from 2006 highs. I look at this chart and note the “surge” in housing starts is completely being driven by apartment construction, because the student loan indebted youth can’t afford to buy houses. I look at this chart and note that housing starts are 40% below 1968 levels. Do you see any signs of a strong housing recovery in this chart?   




Those trying to lure the gullible non-thinking masses into paying inflated prices for the “few” houses available for sale declare that existing home sales are up 50% in the last two years. Of course, the 3.3 million low in 2010 was the lowest level in decades. Existing home sales are still 30% below the 2005 high of 7.2 million and the abnormal structure of these home sales is dramatically different than the normal sales of yesteryear.




The wizards behind the curtain don’t want you to understand how the 50% increase in existing home sales has been achieved. They just want you to be convinced that a return to normalcy has happened and it’s the best time to buy. The NAR wizards and the media wizards don’t publicize the composition of these skyrocketing sales. At the end of the NAR “buy a home before it’s too late” monthly press release you find out that distressed homes (foreclosed & short sales) now make up 23% of all home sales and have accounted for well over 30% of all home sales since 2010. Another 28% of home sales are all-cash sales to investors looking to turn them into rental units or flip them for a quick buck. Lastly, 30% of homes are being bought by first time home buyer pansies who have been lured into the market by 3.5% down payment loans through the FHA, with the future losses born by middle class taxpayers who had no say in the matter. Prior to the housing crash, normal buyers who just wanted a place to live, accounted for 90% of all home purchases. Today they make up less than 30% of home buyers. Does this chart portray a normal market or a profoundly abnormal market? Does it portray a healthy housing recovery based upon sound economic fundamentals?      


 all cash buyers

The answer is NO. The contrived elevation of home sales and home prices has been engineered by the very same culprits who crashed our financial system in the first place. This has been planned, coordinated and implemented by a conspiracy of the ruling oligarchy – the Federal Reserve, Wall Street, U.S. Treasury, NAR, and the corporate media conglomerates.

Ben’s job was to screw senior citizens and drive interest rates low enough that everyone in the country could refinance, attract investors & flippers into the market, and propel home prices higher. Wall Street has been the linchpin to the whole sordid plan. They were tasked with drastically limiting the foreclosure pipeline, therefore creating a fake shortage of inventory. Next, JP Morgan, Blackrock, Citi, Bank of America, and dozens of other private equity firms have partnered with Fannie Mae and Freddie Mac, using free money provided by Ben Bernanke, to create investment funds to buy up millions of distressed properties and convert them into rental properties, further reducing the inventory of homes for sale and driving prices higher. Only the connected crony capitalists on Wall Street are getting a piece of this action.

The Wall Street big hanging dicks have screwed the American middle class coming and going. The NAR and media are tasked with what they do best – spew propaganda, misinform, lie, cheerlead and attempt to create a buying frenzy among the willfully ignorant masses. The chart below reveals the truth about the strong sustainable housing recovery. It doesn’t exist. Mortgage applications by real people who want to live in a home are no higher than they were in 2010 when home sales were 33% lower than today. Mortgage applications are lower than they were in 1997 when 4 million existing homes were sold versus the 5 million pace today. The housing recovery is just another Wall Street scam designed to bilk the American middle class of what remains of their net worth.



The multi-faceted plan to keep this teetering edifice from collapsing is being executed according to the mandates of the financial class:

  • Distribute hundreds of billions in student loans to artificially suppress the unemployment rate, while the BLS adjusts millions more out of the labor force – CHECK
  • Have Ally Financial (80% owned by Obama) and Wall Street banks dole out subprime auto loans to millions and offer 7 year financing at 0%, while GM (Government Motors) channel stuffs its dealers, to create the appearance of an auto recovery – CHECK
  • Drive mortgage rates down, restrict home supply through foreclosure market manipulation, shift the risk of losses to the taxpayer, and allow Wall Street to control the housing market – CHECK
  • Have the corporate mainstream media continuously spout optimistic, positive puff pieces designed to convince an ignorant, apathetic public that the economy is improving, jobs are being created, and housing has recovered – CHECK

Free money, government subsidies, no regulation, Wall Street hubris, get rich quick schemes, media propaganda, and an ignorant public – what could possibly go wrong?   

Here is what could and will go wrong. Everyone in the country that could refinance to a mortgage rate of 4% or lower has done so. Contrary to Bernanke’s rhetoric that “QE to Infinity” would lower mortgage rates, they have just risen to a six month high as the 10 Year Treasury rose 60 basis points from its 2012 low. If mortgage rates just rose to a modest 5% the housing market would come to a grinding halt as no one would trade a 3.5% mortgage for a 5% mortgage. As I’ve detailed earlier, there are 3.9 vacant housing units available for rent. Almost half of the new housing units under construction are apartments. The Wall Street shysters are converting millions of foreclosed homes into rental units. This avalanche of rental properties will depress rents and destroy the modeled ROI calculations of the brilliant Wall Street Ivy league MBAs. These lemmings will all attempt to exit their “investments” at the same time. The FHA is already broke. The mounting losses from their 3.5% down payment to future deadbeats program will force them to curtail this taxpayer financed debacle. There will be few first time home buyers, as young people saddled with a trillion dollars of student loan debt are incapable of buying a home.

These are the facts. But why trust facts when you can believe Baghdad Ben and the NAR? It’s always the best time to buy.



“All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.  The vast majority of mortgages, including even subprime mortgages, continue to perform well.  Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.” – Ben Bernanke – May 17, 2007

Italy Senate “Ungovernable”; No Coalition Possible

Courtesy of Mish.

La Republica confirms what we long thought highly likely: The Italian Senate is Ungovernable.

A Senate majority takes 158 seats and no party has more than 123 at the moment. The current results look like this:

Senate Seat Projections

  • Bersani 104
  • Berlusconi 123
  • Grillo 57
  • Monti 17

There are 315 total seats and the total above is only 301. Although 14 seats remain, not even a Monti-Bersani coalition in addition to those 14 seats would bring Bersani’s total to 158.

Curiously, it appears Bersani received a plurality of the Senate popular vote with 32% compared to Berlusconi’s 30.2%. Grillo weighs in with 23.9%, and Monti at 9.1%.

If 123-104 in favor of  Berlusconi over Bersani sounds strange, it is not unlike a presidential election in the US where one candidate wins the popular vote and another candidate wins the election based on  state-by-state electoral votes.

Chamber Comparison to US

In Italy, both houses of parliament share duties equally. In the US, financial bills originate in the House, and only the Senate has a say in approval of judges and cabinet-level positions.

“AC” writes …”Most likely Italy will go back to vote within a couple of months, probably after changing the electoral law.”

Mike “Mish” Shedlock 

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Lies, Damned Lies, And Banks: Deutsche Bank Caught Again

Courtesy of Wolf Richter

Deutsche Bank, long coddled by the German government, is mired in a swamp of costly “matters,” such as the Libor rate-rigging scandal or the carbon-trading tax-fraud scandal that broke with a televised raid by 500 police officers on its headquarters. It’s writing down assets and setting up reserves to settle these allegations.

Co-CEO Jürgen Fitschen insinuated more gloom was to come. The bank, he said, would “be confronted with more developments in these and other matters” [The Putrid Smell Suddenly Emanating From European Banks]. And now, one of these other matters seeped to the surface: the bank had known for years about the impact of commodities speculation on food prices and the havoc it wreaked on people in poor countries. And it had lied to the German Parliament about it.

On June 27, 2012, David Folkerts-Landau, head of Deutsche Bank’s DB Research, educated a parliamentary commission about the dire consequences of food price inflation—and what didn’t cause it.

“In developing countries where often up to 90% of the income must be spent on food,” he said, “price increases of wheat, corn, and soybeans in the years 2007-2008 and 2010-2011 had devastating consequences.” Volatility made it worse. “Even spikes of only a few months are a serious threat to food security.”

While the volume of options and derivatives in agricultural markets had been ballooning in recent years, “primarily in search of higher yields,” he said, there was “hardly any sound empirical evidence” for the assertion that any of it “led to price increases or higher volatility.”

He cited the big players. The US Commodity and Futures Trading Commission (CFTC) had received “no reliable economic analysis” that showed that excessive speculation influenced the markets. US Department of Agriculture came to the same conclusion in 2009. And the Bank for International Settlements (BIS) pointed out as early as 2007 that there was “no convincing causal relationship” between speculation and price increases. That the BIS would say that makes sense: it groups together 58 central banks, including the most prodigious money printers. On its board: Fed Chairman Ben Bernanke, NY Fed President William Dudley, ECB President Mario Draghi, etc. etc.

Thus inspired, Folkerts-Landau concluded that “commodity prices are primarily determined by fundamental demand and supply factors,” not speculation.

Alas, foodwatch, an independent non-profit, has obtained four studies by DB Research and two studies by German insurance and finance conglomerate Allianz that showed that both companies had known for years that commodity speculation—one of their major business activities—drove up food prices.

In September, 2009, a DB Research study pointed out: “Speculation has also contributed to price increases.”

A year later, DB Research found that speculation could be “distorting the normal functioning of the market,” which “can have grave consequences for farmers and consumers and is in principle unacceptable.” It argued that it was important for the proper “functioning of the food chain” that commodity derivatives serve their original purpose of price discovery and hedging against volatility. And it suggested that more regulation of derivatives would “be helpful in avoiding excesses.”

In January, 2011, DB Research—shocked that high food prices had at least in part triggered social unrest in a number of countries in Latin America, Asia, and Africa—admitted that “in some instances speculation might have added to the price movement.”

Two months later, DB Research acknowledged that in developing countries where “consumers spend over 50% of their income on food,” price increases can be devastating and “hollow out the right to food.” While there was no consensus on the role of derivatives, the study nevertheless fingered speculation: “When speculation drives prices to a level that is no longer consistent with fundamental data, this can have serious consequences for farmers and consumers.”

Hence another scandal: large banks have known for years that commodities speculation and related products that they sold to their clients caused immense damage to people in developing countries and hurt people even in rich countries. foodwatch points out that even short price spikes can cause permanent damage to already mal-nourished children—and can lead to death. Yet banks “deceive the public, even lie to Parliament, to continue without scruples to profit at the expense of those who are starving.”

But the banks are just a link in the chain. Central banks have cranked up their printing presses and flooded the world with speculative capital, causing asset bubbles left and right. Their stated policy goal is to cause inflation, but when food-price spikes wreak havoc around the world, it’s of course someone else’s fault.

Deutsche Bank is flailing to get this under control. There have already been noisy demands that it remove those financial products from the markets that bet on price changes of agricultural commodities. But the bank is the bedrock of the German economy, and Germany must soldier on. All hopes rest on it: its vibrant economy teeming with globalized, ultra-competitive, export-focused companies is supposed to drag France and other Eurozone countries out of their economic morass. But then, there’s an ugly reality. Read….  What If Germany Gets Bogged Down Too? Or Has It Already?

Real Time Italian Election Data and Projections; TV Projections Show Berlusconi Coalition Leading in Italy Senate

Courtesy of Mish.

Reader Lorenzo sent a link where one can watch Italian Election Results (actual vote totals, not exit poll predictions).

Click on “Camera” to see Chamber results (lower house of parliament).
Click on “Senato” to see Senate results (upper house of parliament).

As of this time, Results look like this


  • Bersani 34%
  • Grillo 27%
  • Berlusconi 24%
  • Monti 9%


  • Bersani 33%
  • Berlusconi 28%
  • Grillo 24%
  • Monti 9%

Recall that senate races are regional not national. What matters is how the key regions turn out. Berlusconi can easily win the Senate with small wins in key areas while losing by big margins elsewhere. That appears to be what is happening.

Berlusconi Coalition Leading in Italy Senate

Yahoo! Finance reports TV Projections Show Berlusconi Coalition Leading in Italy Senate.

The centre-right coalition led by former prime minister Silvio Berlusconi was leading in the race for the Italian Senate, according to updated projections from television stations after vote counting began on Monday.

Polls from La 7, SkyTG24 and state television RAI put the coalition between Berlusconi’s People of Freedom party and the pro-devolution Northern League ahead in the overall national vote count.

The projections from La 7 also put the coalition ahead in the key regions of Lombardy, Sicily and Campania.

Hung Parliament on the Way

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UBS, FINRA, and Naked Short Selling: “Duration, Scope and Volume of The Trading Created a Potential for Harm to The Integrity of The Market.”

Courtesy of Larry Doyle.

Last summer I tagged Wall Street’s industry funded police at FINRA as being little more than meter maids. With a recent review of FINRA’s largest fine imposed in its history, I now realize that I have actually done a serious disservice to those diligent and hard working meter maids patrolling our cities and towns. How so?

Let’s navigate and look more deeply into FINRA’s $12 million fine imposed on those paragons of virtue who ran Union Bank of Switzerland’s equity operations.

What did UBS do to deserve FINRA’s “largest” fine? 

As highlighted last summer by Securities Technology Monitor:

UBS SECURITIES LLC – $12,000,000

The firm mismarked millions of sale orders in its trading systems at various times. Extrapolating from the quantified violations indicated that the firm likely mismarked tens of millions of sale orders during the Relevant Period. Many of these mismarked orders were short sales that were mismarked as “long,” resulting in additional significant violations of Reg SHO’s locate requirement.

What exactly is Reg SHO? From the very agreement between FINRA and UBS, we learn a wealth of information including:

Reg SHO requires a broker-dealer to have reasonable grounds to believe the security can be borrowed so that it can be delivered in time for settlement before effecting a short sale in that security. Identifying a source from which to borrow such security is generally referred to as obtaining a “locate.” Reg SHO requires that the “locate” must be obtained and documented prior to effecting the short sale.

When was Reg SHO enacted?

On July 28, 2004, the Securities and Exchange Commission (the “SEC”) adopted 17 CFR Part 242 (“Reg SHO”) under the Securities Exchange Act of 1934 (“Exchange Act”), effective September 7, 2004, with a compliance date of January 3, 2005.

When did UBS fall into line and decide that it might want to comply with Reg SHO?

It was not until at least 2009 that the Firm’s supervisory framework over its equities trading business was reasonably designed to achieve compliance with the requirements of Reg SHO and the other securities laws, rules and regulations described herein.

As set forth below, the Firm failed to comply with certain requirements of Reg SHO, FlNRA Rules, NASD Rules and federal securities laws during the period covering, in whole or in part, January 3, 2005 through March 2010, with several violations continuing through December 31,2010 (the “Relevant Period”).

There you go. Five plus years before the crowd at UBS decides to play by the rules. One only wonders what the “meter maids” were doing during this period to see that the rules were being enforced. Lots of coffee and donuts, perhaps? Maybe a few crossword puzzles, bridge perhaps, or working on the summer outing?

How egregiously did UBS fail to comply with Reg SHO?

In particular, UBS’s supervisory and compliance monitoring flaws included a failure to: (1) establish and maintain a supervisory structure that was sufficient to adequately supervise its compliance with Reg SHO, especially in light of the complexity of its equities trading activities; (2) establish, maintain and enforce written supervisory procedures for each of its trading desks that were reasonably designed to achieve compliance with Reg SHO, (3) develop and implement effective supervisory reports to monitor for compliance with Reg SHO; (4) establish adequate information technology implementation and change control procedures relating to Reg SHO; (5) adequately educate and train certain personnel with regard to compliance with Reg SHO; and (6) establish an adequate Reg SHO compliance monitoring program.

The Firm’s failure to comply with Reg SHO’s locate requirement extended to numerous Firm trading systems, desks, accounts and strategies, and also impacted the Firm’s technology, operations. and supervisory systems and procedures .

System-wide. Must have been plenty of rea$on$ not to “play by the rules.” But how many trades are we talking about in which UBS failed to comply with Reg SHO?

As a result of these failures, the Firm improperly entered millions of proprietary and customer short sale orders at various times during the Relevant Period without having reasonable grounds to believe that the securities could be borrowed and available for delivery. A significant number of these short sale orders were in hard-to-borrow securities. Extrapolating from the quantified violations indicates that during the Relevant Period, the Firm likely entered tens of millions of proprietary and customer short sale orders without having reasonable grounds to believe that the securities could be borrowed and available for delivery.

Tens of millions? Begs the question whether UBS transacted every piece of business in this manner. What again was the size of the fine that FINRA’s “meter maids” imposed?

Censure and Fine in the amount of $12,000,000.

Let’s do the math. Let’s say that it was an even 10 million customer and proprietary short sales that failed to comply with Reg SHO. Let’s see, $12,000,000/10,000,000 . . . anybody got a calculator? Yep, that is a fine of $1.20 (one dollar and twenty cents, folks!) for each and every violation of Reg SHO by UBS.

$1.20/violation? I knew free market capitalism was on the decline but I had no idea it was trading this cheaply.

Meter maids? I do not know about you, but most parking violations I get hit with are a minimum of $15.00 and often more than that.

What are the real costs of UBS’ transgressions?

The duration, scope and volume of the trading created a potential for harm to the integrity of the market.

FINRA sold out the integrity of the market for $1.20/violation.

The real question needing to be answered are the names of those stocks that UBS shorted or allowed to be shorted. What happened to those companies, their employees, and their livelihoods? Think they might be worth a little more than $1.20? Little wonder why investors, consumers, and American taxpayers have such little trust and confidence in Wall Street, Washington, and our financial regulators.

$1.20 . . . you cannot make this stuff up. For those interested in reviewing the entire 26 page “ticket’ that serves as the agreement between UBS and FINRA, I welcome submitting the following (click on image to access PDF document):

Navigate accordingly.

Larry Doyle

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.

Who’s Behind the Curtain of Treasury Nominee Jack Lew’s Funny Money

Courtesy of Pam Martens.

Have you ever landed a new job with a private employer who bought you a $1.3 million house and paid you a bigger salary than your boss. Did you ever have an employment contract that called for awarding you a bonus of $940,000 if you could somehow advance yourself from shepherding an insolvent bank to a “full time high level position with the U.S. government or regulatory body.” How about getting a deal where your company will leverage your investment in a Cayman Islands fund by chipping in $2 for every $1 you put in and let you keep all the winnings. Did you ever refinance a mortgage loan, take out $352,195 in new cash and not have to pay a legally mandated mortgage recording tax?   

I don’t know of anyone in America who has these kinds of skeletons popping out of their closets daily except  the one man that President Obama continues to support for a “full time high level position” on one of the highest perches in America: his nominee, Jack Lew, for U.S. Treasury Secretary. 

The Treasury Department is not some little nickel and dime operation where screaming conflicts and funny money games in your past don’t matter. It’s the Federal agency that collects the Nation’s taxes, pays the Nation’s bills, prints our currency and oversees the stability of the financial system. (And if the past is prologue, it can run the Nation into deep debt throwing money at insolvent institutions on Wall Street.) If you don’t have trust and confidence in the man running the U.S. Treasury Department, you don’t have trust and confidence in anything to do with money in America. If you follow some excruciatingly bad advice and nominate a man who can’t pass the smell test from the get-go, have the good sense to yank the nomination before your reputation follows that of the nominee. 

Max Baucus, Chairman of the Senate Finance Committee, needs to stop pretending that it’s a few rogue Republican Senators who have a problem with Jack Lew. It’s everybody, left right and center, who has taken a close look at this man’s past. 

Let’s start with that $1.3 million house purchase in the Riverdale section of the Bronx on August 22, 2001. Lew was coming out of the Federal government and a residence in Potomac, Maryland and taking an administrative job at New York University – a nonprofit institution subsidized by the taxpayer. Lew had never worked for NYU before and thus had no track record with them.  Why would NYU buy this man and his family a $1.3 million home? Lew has tried to characterize this as a housing allowance. 

I reviewed the document filed with the New York City property records department. On August 22, 2001, the New York University Law School Foundation gave Lew and his wife a $1.3 million mortgage so that they could buy this luxurious stone home with 4,584 square feet of living space in an upscale neighborhood in the Bronx.

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“Great Rebalancing” Book Review: Two Thumbs Up; Investment Ideas for Unconventional Times

Courtesy of Mish.

With much pleasure, I highly recommend Michael Pettis’ newest book “The Great Rebalancing“.

Pettis’ book covers global trade issues with a focus on current events in Asia, Europe, the United States, and the commodity producing nations.

Read the book and you will see that much of the “common wisdom” espoused by others on global trade issues is not “wisdom” at all.

For example, in a chapter called “The Exorbitant Burden“, Pettis debunks the nearly universal misconception that the United States receives a great benefit from having the world’s reserve currency. That chapter alone, is well worth the price of many books.

Want to understand why the Eurozone is doomed as it now exists? Read Pettis’ chapter “The Case For Europe“.

Other reviews of “The Great Rebalancing” (all favorable) primarily focused on Pettis’ predictions. Although I agree with most of his predictions, what’s really important are the fundamental driving issues, not the predictions per se.

As far as solutions go, I prefer a return to a gold standard (a topic Pettis discusses while favoring something else). However, his book is primarily devoted to trade fundamentals, not global solutions, so disagreements (or agreements) on solutions are easily overlooked.

Michael Pettis at has taught me most of what I know about global trade. I also happen to believe he is the world’s foremost expert on China in relation to trade and global macro events.

I give two thumbs up to “The Great Rebalancing“.

Investment Ideas for Unconventional Times

Michael Pettis will be a speaker at an economic conference I am hosting on April 5th in Sonoma, California. For details, please see Wine Country Conference.

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Two Cows: The Infographic

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

There are many complexities in the socio-economic structures that the nations (and corporations) of the world have used (and abused) over the years. Volumes have been written to explain the intricacies of Capitalism, Fascism, Communism, and Socialism; and how these impact various corporations from Iran to Greece to Australia. However, in the interest of brevity, the following infographic – utilizing nothing more than two cows (which perhaps should now be horses, considering their inflationary displacement capacity for firms like IKEA and Nestle) to provide everything you need to know about ecomoomics.