Archives for March 2013

Bank of Cyprus savers could lose up to 60%

Bank of Cyprus savers could lose up to 60% (via AFP)

Big savers in Cyprus's largest bank face losses of up to 60 percent, far greater than originally feared under the island's controversial EU-led bailout plan, officials said on Saturday. Cyprus meanwhile launched an investigation into a list published in Greek newspapers of Cypriot politicians who allegedly…

No Surprises

No Surprises

Courtesy of the Reformed Broker, 

As a general rule, it gets harder and harder to surprise people the more you do it.

So too goes the game of economic expectations – as reports come in better, economists nudge their forecasts for future reports higher and higher. Until they get ahead of themselves and the data starts to "disappoint".  It's all enormously ridiculous but we pay attention regardless.

Jeff Kleintop (LPL Financial) cited this inability to continue to surprise as one of his potential warning signs for the next spring slide.

From his note:

Economic surprises – The Citigroup Economic Surprise Index [Figure 1] measures how economic data fares compared with economists’ expectations and has marked the spring peaks in both economic and market momentum in recent years. While the latest readings have not surged up near the 50-level that marked the peaks of recent years, the weakening trend does suggest expectations may have become too high. Turning points typically have coincided with a falling stock market relative to the safe haven of 10-year Treasuries.


Also, here's Bespoke's roundup of economic data vs expectations through the month of March:

Below is a chart that shows the percentage of economic indicators that have beaten estimates during March as the month has progressed.  As shown, back on March 13th, a whopping 81.5% of March indicators had come in better than expected.  Since then, however, we've seen a pretty sharp drop-off, with a big decline this week down to just 61.3%.  It looks like economists jumped on the bullish bandwagon in the middle of the month and they're now starting to get burned.



10 Warning Signs Of Another Spring Stock Market Slide (Business Insider)

Economic Indicators Ending March on a Down Note (Bespoke)



Who’s Next? Italy’s Monte Paschi Admits Billions in Deposit Outflows

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

It appears, given news from Italy today, that European depositors are increasingly coming to the realization that deposits in their local bank are not 'safe' places to put their spare cash, but are in fact loans to extremely leveraged businesses.

In a somewhat wishy-washy, 'hide-the-truth'-like statement on Monte dei Paschi's website, the CEO admits to, "the withdrawal of several billion in deposits." Of course, the reasons why these depositors withdrew their capital from the oldest bank in the world will never be known though of course he blames it on "reputational damage" from their derivative cheating scandal.

Unsurprisingly, as Reuters notes, the CEO declined to give a forecast on the level of deposits at the end of the first quarter of 2013; no wonder given the bank just doubled its expectations for bad loans and the 'Cypriot Solution' dangling over uninsured depositor hordes.

BMPS Capital Structure…


Via Reuters,

Customers' deposits at Italian bank Monte dei Paschi fell by "a few billion euros" … the bank said in a document posted on its web site on Saturday.

But it has yet to make clear what impact the scandal itself had on its first quarter results.

"The illicit nature of the derivatives trades and their consequence on the bank's assets exposed the bank to reputational damage that was immediately translated into…the withdrawal of a few billion euros in deposits," the bank said in a document for shareholders attending its April 29 meeting.

But he declined to give a forecast on the level of deposits at the end of the first quarter of 2013 or to indicate the outlook for net interest income and loan loss provisions.


Beppe Grillo “We are the French Revolution Without the Guillotine”

Courtesy of Mish.

With Beppe Grillo and unwilling to form a coalition government, and with Prime former Prime Minister Silvio Berlusconi making demands that Bersani will not go along with, Italian President Giorgio Napolitano Considers Options.

One of those options includes stepping down early so the next president can call elections. Under Italian law, an outgoing president is restricted. Napolitano’s term ends mid-April.

Napolitano, who met with lawmakers yesterday, may make an announcement today, the president’s spokesman said late yesterday. Napolitano will continue talks with leaders in parliament and may consider resigning, daily La Repubblica reported today, without citing anyone.

To reach a compromise, Napolitano would need help from lawmakers loyal to either former Prime Minister Silvio Berlusconi or Beppe Grillo’s Five Star Movement. Berlusconi said yesterday he would back a government in partnership with the Democratic Party, while Grillo reiterated he will shun a deal with other parties.

“We were and still are open to giving life to a coalition,” Berlusconi, 76, said yesterday after meeting Napolitano. “We think it’s logical that if we form a government together, a coalition government, then together we must discuss about who will be the best president of the republic.”

Vito Crimi, Five Star’s head in the Senate, and Roberta Lombardi, the party’s leader in the Chamber of Deputies, repeated their resistance to compromise after meeting Napolitano yesterday. That position was praised by Grillo later in an interview broadcast on his website.

“We’re going to win with our ideas and our strength because we’re a miracle,” Grillo said. “We are the French Revolution without the guillotine.”

Poison Pill

Silvio Berlusconi is willing to form a coalition but his price of admission is high.

Berlusconi wants to shield himself from further lawsuits, and he wants new rules favorable to his PdL party. He also wants the PdL to name the next president.

Grillo would never go along with such demand, and Bersani has thrice ruled out such a deal.

The sane thing to do would be for Napolitano to step down so there could be early elections. If he goes the route of attempting to find a technocrat suitable to everyone, the odds of success will be very low, and the odds the election delayed until September, high.

My main scenario remains No Working Government for 7 Months, Then Elections in September but an early resignation by Napolitano could alter the time line….

Continue Here

Robot Reality: “Last Resort” Service Jobs Next to Go; “Baxter” Back in the News

Courtesy of Mish.

I have written about “Baxter” before. Baxter is not a person. Rather Baxter is a robot rapidly replacing humans in various manufacturing jobs.

See Meet “Baxter” the Robot Out to Get Your Minimum-Wage, No Benefits, Part-Time Job, Because He’s Still Much Cheaper; Fed Cannot Win a Fight Against Robots.

Service Jobs Next to Go

Baxter is back in the news. The Fiscal Times says The Robot Reality: Service Jobs Are Next to Go.

If you meet Baxter, the latest humanoid robot from Rethink Robotics – you should get comfortable with him, because you’ll likely be seeing more of him soon.

Rethink Robotics released Baxter last fall and received an overwhelming response from the manufacturing industry, selling out of their production capacity through April. He’s cheap to buy ($22,000), easy to train, and can safely work side-by-side with humans. He’s just what factories need to make their assembly lines more efficient – and yes, to replace costly human workers.

But manufacturing is only the beginning.

This April, Rethink will launch a software platform that will allow Baxter to do a more complex sequencing of tasks – for example, picking up a part, holding it in front of an inspection station and receiving a signal to place it in a “good” or “not good” pile. The company is also releasing a software development kit soon that will allow third parties – like university robotics researchers – to create applications for Baxter.

These third parties “are going to do all sorts of stuff we haven’t envisioned,” says Scott Eckert, CEO of Rethink Robotics. He envisions something similar to Apple’s app store happening for Baxter. A spiffed-up version of the robot could soon be seen flipping burgers at McDonalds, folding t-shirts at Gap, or pouring coffee at Starbucks.

What’s worrisome to Martin Ford [robotics expert and author of The Lights In the Tunnel: Automation, Accelerating Technology and the Economy of the Future] is that these jobs have been offering a huge safety net to the middle class.

They’re jobs he calls “the jobs of last resort.” When someone can’t find a salaried job, they look for lower-paying service jobs to get by – and because the jobs typically have a high turnover rate, they’re more likely to be available. Think of all the college graduates who take jobs as cashiers or baristas before they find salaried work. If those jobs were to vanish, those workers would be forced to file for unemployment instead.”

Jobs of Last Resort

The Fed and the Obama administration are both clueless as to why this is happening and what to do about it….

Continue Here

Wall St Burdens the Public Debt

Wall St Burdens the Public Debt

Courtesy of 

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.

As the effects of the sequester agreement ripple through the American economy–massive cuts, that is, to social programs, and the military to some extent–one thing is clear: both sides–President Obama and the leadership of the Republican Party–seem to think that public debt is the biggest challenge facing the American economy. Well, our next guest begs to differ.

Now joining us in the studio is Michael Hudson. He was a Wall Street financial analyst, is now a distinguished research professor of economics at the University of Missouri-Kansas City. His recent books are The Bubble and Beyond and Finance Capitalism and Its Discontents.

Thanks for joining us again.


JAY: So I’m reading your material, and clearly you don’t agree that public debt’s the issue. Why? And if not, what is?

HUDSON: Well, the one kind of debt that really isn’t an issue is public debt, because there’s a great difference between public and private debt. Governments can own the printing presses. No government can become insolvent as long as its debt is owed in its own currency. And not only has the U.S. public debt gone down as a proportion of GAP [sic] and national income; it actually is financed very largely by the Federal Reserve simply printing money.

The pretense in Washington is that when government debt goes up, it’s because you’re borrowing from people and somehow crowding out other markets, and if you don’t borrow from the banks, if you print your own money, that somehow that’s going to create hyperinflation.

JAY: Yeah. I mean, the contention–the argument would be you can’t keep doing this without any limits to it, ’cause at some point people don’t want your currency anymore.

HUDSON: The United States has been doing it without limit and has no limit for the last–since the financial crisis of 2008.

Now, there’s something very interesting. All of the people in Washington–and I just came from a conference down there–they’re all talking about the debt that’s owed to the Social Security people, recipients, to the Medicaid recipients. They’re talking about–and the debt owed to labor and to most of the population.

And yet for every half a trillion dollar deficit that the government has spent into the economy, it’s created twice as much, $1 trillion, in the form of giveaway to the banks.

Not a single Republican, not a single Democrat has talked about what has actually increased the government debt by $13 trillion since 2008. And that is the bailouts of the banks, taking a Freddie Mae [sic] and Freddie Mac onto the public balance sheet for $5.3 trillion to bail out the banks from their reckless mortgage loans, the more than $2 trillion in quantitative easing when the Federal Reserve has just created credit to give to the banks to buy their junk mortgages and cash for trash.

So somehow there’s an idea that creating a credit to give to the banking system for President Obama to say, we want the banks to get lending again and we want Americans to keep borrowing–. They want to re-inflate the private debt market, the real estate market back to its previous unaffordably high levels.

JAY: So the point you’re making is you’re saying it’s okay to, quote-unquote, print money as long as it’s going to the banks,–


JAY: –but you can’t print money–the reason I’m going quote-unquote is you don’t really have to print it. It’s just, like, tapping into the–

HUDSON: It’s all on a computer keyboard now. They don’t even have [crosstalk]

JAY: –tapping at the keyboard. But they won’t create that same kind of money in order to get the real economy going.

HUDSON: Right. Now, it’s just amazing that the people who were talking about let’s get the government debt under control are only then following it by saying, so cut back Social Security and squeeze labor and cut back social spending. Not a single person is saying, cut back the giveaways to the bank; stop trying to reinflate the market. To the Obama administration and the Republicans they’re saying more private debt is the solution.

Well, in reality, the problem is private debt, not the government debt. And that’s because unlike government debt, private debts have to be repaid. And there are only two ways of resolving a private debt problem for an economy as a whole. Either you do the American way, which is foreclosure and essentially foreclose on the real estate, or you write down the debts to the ability that can be paid.

Now, in the past, when you had a financial crisis, the banks would have to liquify the loans. They take the loss on the loans. The debts would be written down to whatever the market could afford. That was the old market solution to the debt problem. But now the government is saying, we cannot have a market solution to the debt problem because our constituency, our largest campaign contributors, the banks, would lose, so we have to keep the debts in place, and in fact we have to have even more debt to reinflate the real estate market so that the banks won’t lose any money on the fact that they’ve lent much too much money that cannot be repaid.

So you have something very interesting. The largest form of debt in America is real estate debt by homeowners.

When I first went to work on Wall Street in 1961, everybody had to–there was a rule of thumb on Wall Street. If you were taking out a home mortgage, they would limit it: the mortgage payment couldn’t exceed 25 percent of your income. That was the rule of the thumb. The banker would ask: how much money do you make? And they’d say, okay, you can afford to pay 25 percent of that in debt. Well, then the banks began to make larger and larger loans.

So last year, Sheila Bair, the head of the Federal Deposit Insurance Corporation, said she recommended limiting the amount of mortgage debt service to 32 percent of the loans.

Well, just a few months ago, the federal housing agency of the government said, okay, the government will guarantee nine out of every ten mortgages in America are now guaranteed by the federal housing administration to the banks for up to 43 percent of the income of the borrower to be paid to the banks as mortgage service.

Now, just imagine what that does to a family. If you’re paying 43 percent of your income to the banks for your mortgage, if you’re paying–some people are paying 25 percent of their income for student loans. But forget student loans. Let’s say only 10 percent of your income, above that, goes for other bank loans, credit card loans; you have 15 percent of your salary taken out for Social Security; and then you have income tax. Then you’re only going to be able to spend about 20 percent of your salary on the goods and services you produce.

JAY: And then they wonder why there’s no demand in the economy.

HUDSON: That’s exactly the point. It’s all about demand in employment. And what the people who are talking about the debt situation in Washington are leaving out of account is the employment. How on earth are Americans going to buy what they produce if they have to pay all the money to the bankers, and the bankers are using this money not to buy goods and services themselves, they’re using the money to make yet more loans to try to get yet more interest, and it’s [crosstalk]

JAY: Yeah, I’m seeing in my mail now I’m getting all these do you want a new credit card ads, or envelopes are coming through again; TV ads for credit cards are in full steam again. So I guess now that the banks have gotten a lot of free money from the Fed, they’re going to maybe perhaps start another credit bubble to try to get things going.

HUDSON: Well, that’s the government–the government policy doesn’t call it a credit bubble this time. They call it reflating real estate, and they call it a fiscal responsibility of balancing the budget.

But fiscal responsibility for the government debt is irresponsible for the economy, ’cause if the government doesn’t run a debt, if the government doesn’t run a surplus, then it’s not going to be pushing money into the economy. And if the government doesn’t use this opportunity that we’re having now to run a deficit and to–not to tax the Social Security recipients (this just occurred in January), not to add to the tax withholding, if it does what the Republicans want and runs a surplus or balances the budget, then all of the growth in the economy will be left to commercial banks to finance. The growth of private debt will grow to even more than the current 75 to 80 percent of family income–.

JAY: That’s even assuming the private banks are willing to loan, because part of the problem is they don’t want to loan because they don’t trust the economy.

HUDSON: But as long as the government treats the entire loan system like student debt–the government is now saying to the banks, loan whatever you want to students. We don’t care if they can’t pay. We don’t care if your loan is reckless. We, the so-called tax payer, will pay. And it’s not the taxpayer, of course; it’s the Treasury that just creates the money to pay.

So, first of all, there’s a pretence that the taxpayer has to pay when the government runs a deficit. The taxpayers don’t pay for the deficit; the government simply prints the money. A private family can’t do that. If you run a deficit and you’re a family balance sheet–.

JAY: But hang on. A lot of the money they’re raising is through Treasury bills, which is a form of a loan.


JAY: They’re not just–and there is a rising public debt, and they are paying interest. It’s very, very low right now, the interest the American government’s paying on its debt, but that could go up. So it’s not this isn’t without risk of at some point paying serious interest.

HUDSON: Well, there are three sources that a government can borrow from. They act as if–the only source they talk about is borrowing from the capital markets, from the banks and the bondholders. But the government can borrow from the Federal Reserve, no interest whatsoever, and simply create the money. That’s what it’s done for the $13 trillion of bailout that it’s given Wall Street.

JAY: But they seem to believe there needs to be limits to that; otherwise, people lose confidence in the dollar. That’s at least the logic they say. And then they go out and they–but they–and they are getting almost interest-free money now for T-bills, so they are borrowing it.

HUDSON: But it’s–you’re absolutely right. That’s just what they’re saying. And how can they say that people are losing faith in the dollar when the dollar has continued to go up and up and up against the euro, against the pound sterling, against other currencies that don’t have the printing press? The reason people are putting their money into Treasury bills, the reason the Treasury bills, if you buy them, only yield half a percent or a quarter percent now, is because other countries have faith that America has the printing press and can print the money. So it’s exactly the opposite of the Zimbabwe syndrome. People talk about Zimbabwe, but only Zimbabwe can print its own money or America can print its own money.

JAY: But there’s clearly got to be some limit to how much you can do that. Otherwise, give everybody $1 billion and, you know, life would be fine. There are limits to this.

HUDSON: Yes, of course there’s a limit. The limit is so far not being reached because the rest of the world is imposing the very kind of austerity that the Republicans are trying to force on America. The rest of the world is saying, we want to be fiscally responsible even at the cost of shrinking our economies. So their economies are falling apart, and the savers in their economies are sending their money into the United States. So the reality is the opposite of the rhetoric that’s being used by the politicians.

JAY: But the argument they would give you is that if you start printing too much money, then people will lose confidence and they won’t keep doing–they stop buying American T-bills and they won’t be sending money here. Right now it’s the safe haven for global money.

HUDSON: There is indeed one entity that has been producing too much money, way too much money, irresponsibly, and that’s the banking system that led to the credit crisis. It was–the money that has been inflating prices has been the commercial banks inflating real estate prices, inflating education prices, inflating prices for stocks and bonds that have just had a huge bubble. So the inflationary money creation is by the commercial banks, not by the government. And nobody’s talking about that. Of course they’ve reached the limit. But it’s the banks that are creating money.

And somehow people have believed that inflation is very good if what’s going up is the price of your home. But then when the price goes down, what’s really gone up has been your debt, and what people thought was an asset boom in net worth and wealth creation (as Alan Greenspan said), it turns out to be debt creation. And all–they’re left with a massive debt. And it’s the private debt that is the residue of the bubble economy that is now the big problem in overlaying the economy. And instead of trying to resolve that problem by writing down the debts to the ability to pay, by writing down housing debts to the real value of the house, so the current mortgage, or writing it down to the one-quarter of your income that used to be normal and is normal in other countries–by refusing to roll back the public debt and write it down, the government is pushing austerity here, just exactly as the pound is doing in Europe, as the Eurozone is doing.

So all you have to do is look at Greece, Spain, and Ireland, and you say, is that going to be America’s future under this kind of pretense that government debt’s bad, bank debt is good, run into more debt, that will save us? It’s as if they believe the Americans can borrow their way out of debt. That’s the current policy.

JAY: Thanks for joining us, Michael.

FactSet: Negative Earnings Guidance at Seven Year Highs

FactSet: Negative Earnings Guidance at Seven Year Highs

Courtesy of 

The below from FactSet Research's end of Q1 report (emphasis mine):

* For Q1 2013, 86 companies have issued negative EPS guidance and 24 companies have issued positive EPS guidance. This marks the fourth consecutive quarter that the percentage of negative guidance has been above 70% at the end of the quarter.

* For the current fiscal year, 168 companies have issued negative EPS guidance and 77 companies have issued positive EPS guidance. This marks the third consecutive month that the percentage of negative EPS guidance has increased, as many companies have transitioned to issuing annual guidance for 2013 (as the new current fiscal year) instead of 20 12 over the past few months.

* For Q4 2012, all 113 of companies that issued quarterly EPS guidance have reported earnings for the quarter. Of these 113 companies, 74% reported actual EPS above guidance, 21% reported actual EPS below guidance, and 4% reported actual EPS equal to guidance. The percentage of companies that reported EPS above guidance is below the five-year average (78%).

* Over the past five years, companies that issued either quarterly or annual EPS guidance have outperformed companies that did not issue quarterly or annual EPS guidance.

* For Q1 2013, 86 companies have issued negative EPS guidance while 24 companies have issued positive EPS guidance. As a result, the overall percentage of companies issuing negative EPS guidance to date for Q1 2013 stands at 78% (86 out of 110). If this is the final percentage for the quarter, it will mark the highest percentage of companies issuing negative EPS guidance since FactSet began tracking guidance data in Q1 2006.


Not my favorite trend here…



“I Went To Sleep Friday A Rich Man, I Woke Up Poor”

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Another non-Russian, non-oligarch, non-billionaire, non-tax-evader speaks up…

So much has been written of the Cypriot bail-ins and massive haircuts for the uninsured depositors – assumed to be nasty oligarchic Russian money-launderers – that, it appears, the reality for people living in Cyprus has been forgotten.

We noted earlier the small business issues, but as the Sydney Morning Herald reports, real lives have been destroyed. 65-year-old John Demitriou retired (back) to the picturesque fishing village of Liopetri, Cyprus, with his life-savings of around $1 million living off the interest it paid from Laiki 'Popular' Bank and spending it on his grandchildren. He was in no hurry to invest it; to spend it on big purchases.

Then, after being told just last week by his bank manager, "there's no problem, nothing to worry about," he so painfully notes, "I went to bed Friday as a rich man. I woke up a poor man," as Laiki's depositors over EUR100,000 were devastated thanks to the bail-in. The Australian Department of Foreign Affairs notes, "there is no need for special measures," to help John (or the other 5000 Cypriot-Australians on the island) as he exclaims, "it's not Russian money; it's not black money; it's my money."

Via Sydney Morning Herald,

''Very bad, very, very bad,'' says 65-year-old John Demetriou, rubbing tears from his lined face with thick fingers. ''I lost all my money.''

John now lives in the picturesque fishing village of Liopetri on Cyprus' south coast. But for 35 years he lived at Bondi Junction and worked days, nights and weekends in Sydney markets selling jewellery and imitation jewellery.

He had left Cyprus in the early 1970s at the height of its war with Turkey, taking his wife and young children to safety in Australia. He built a life from nothing and, gradually, a substantial nest egg. He retired to Cyprus in 2007 with about $1 million, his life savings.

He planned to spend it on his grandchildren – some of whom live in Cyprus – putting them through university and setting them up. There would be medical bills; he has a heart condition. The interest was paying for a comfortable retirement, and trips back to Australia. He also toyed with the idea of buying a boat.

He wanted to leave any big purchases a few years, to be sure this was where he would spend his retirement. There was no hurry. But now it is all gone.

''If I made the decision to stay, I was going to build a house,'' John says. ''Unfortunately I didn't make the decision yet.

''I went to sleep Friday as a rich man. I woke up a poor man.''

His money was all in the Laiki ''Popular'' Bank which was the main casualty of Cyprus' bailout package set by the European Union. Laiki is to be dismantled. Savings of less than €100,000 are to move to the Bank of Cyprus. Anything more than that will almost certainly be wiped out as the bank is wound down, its remaining assets taken by the bank's creditors.

Last week he heard a rumour that the bank was in trouble and went into Aiya Napa to ask his bank manager – a friend – if he should move his life savings.

''There's no problem, nothing to worry about,'' he was told.

Not so. ''I go to bed and I can't sleep. I walk around, I have a coffee. I am thinking about my family.''

John's tears flow. As he chokes up, his son George, who moved to Cyprus in 1990, explains.

''The whole family, we used to work at the markets. I would work at the markets on the weekend to help my parents while my mates were off having fun. Honest work in honest jobs. Now all that hard work is paying the debts of other people and the government. It's disgusting, to be honest.''

George says he can start again – if things get worse he and his family might move back to Australia.

''But not my dad. He can't go back to Australia. He is not allowed to fly because of his heart, and anyway where would he live? He has no house. He will have €100,000 left to live off. Soon he's not going to have a cent to his name.''

John has a thin hope. His money was sitting in the bank in Australian dollars instead of euros, so he wonders if it would be exempt from the bank's collapse. But the bank's doors are closed, so he doesn't even know to whom he should put that argument.

''For the moment I am 'sitting on charcoal', as they say,'' waiting to see if he gets burnt.

''It's not Russian money, it's not black money. It's my money.''

There are almost 5000 Cypriot-Australians on the island. Most are – or were – self-sufficient veterans of the 1950s engineering boom or the 1974 war who came back to retire or to be with family (John is looking after his 90-year-old mother).

This week Britain stopped paying pensions into Cypriot accounts, advising expatriates to open a British bank account instead.

Australia's high commission in Nicosia has already fielded inquiries from dual nationals seeking advice on their pensions. They were told to set up different payment arrangements, a spokeswoman for the Department of Foreign Affairs and Trade said.

''We expect the main impact will be for Australians who have invested large sums in Laiki Bank or the Bank of Cyprus,'' she said. ''There is no need for special measures at this stage.''


Don’t Count on Dodd-Frank… Yet

Don’t Count on Dodd-Frank… Yet

By Lauren Feeney

Almost three years after President Obama signed the Dodd–Frank Wall Street Reform and Consumer Protection Act into law, few of its provisions have actually come into effect. Thanks in part to the banking lobby, the process is stuck in what The Washington Monthly calls “the seventh circle of bureaucratic hell.” We checked in with Economist Simon Johnson to find out where things stand and whether we should be worried.

Lauren Feeney: What’s the current status of the Dodd-Frank Act?

Simon Johnson: Implementation of the Dodd-Frank act has been painfully slow – and much slower than anyone imagined when the legislation passed in the summer of 2010.

The good news is that efforts to repeal Dodd-Frank have largely, although not completely, run out of steam.

Feeney: Why is progress so slow?

Johnson: The financial sector is a very powerful lobby. They have many friends on Capitol Hill and some parts of our country’s regulatory apparatus remained unduly captivated, if not captured, by the mystique of mathematical finance.

Feeney: The Volcker Rule, one of the key components of Dodd Frank, was supposed to go into effect in July 2012. It’s still not in place. What’s the holdup?

Johnson: The lobby.

Keep reading: Don't Count on Dodd-Frank… Yet | Q&A |

Simon Johnson. Photo credit: Robin Holland

Simon Johnson is a former chief economist of the International Monetary Fund and now a professor at MIT’s Sloan School of Management and senior fellow at the Peterson Institute for International Economics. His most recent book is White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You. Johnson spoke with Bill Moyers in May about JP Morgan’s multi-billion dollar loss.


It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors

It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors

Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone “troika” officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds.  

New Zealand has a similar directive, discussed in my last article here, indicating that this isn’t just an emergency measure for troubled Eurozone countries. New Zealand’s Voxy reported on March 19th:

The National Government [is] pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts . . . .

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

Can They Do That?

Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here and here.) But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.”  The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.

The 15-page FDIC-BOE document is called “Resolving Globally Active, Systemically Important, Financial Institutions.”  It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain “financial stability.” Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:

An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equitywould become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution.

No exception is indicated for “insured deposits” in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. The FDIC is an insurance company funded by premiums paid by private banks.  The directive is called a “resolution process,” defined elsewhere as a plan that “would be triggered in the event of the failure of an insurer . . . .” The only  mention of “insured deposits” is in connection with existing UK legislation, which the FDIC-BOE directive goes on to say is inadequate, implying that it needs to be modified or overridden.

An Imminent Risk

If our IOUs are converted to bank stock, they will no longer be subject to insurance protection but will be “at risk” and vulnerable to being wiped out, just as the Lehman Brothers shareholders were in 2008.  That this dire scenario could actually materialize was underscored by Yves Smith in a March 19th post titled When You Weren’t Looking, Democrat Bank Stooges Launch Bills to Permit Bailouts, Deregulate Derivatives.  She writes:

In the US, depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren’t even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders.

One might wonder why the posting of collateral by a derivative counterparty, at some percentage of full exposure, makes the creditor “secured,” while the depositor who puts up 100 cents on the dollar is “unsecured.” But moving on – Smith writes:

Lehman had only two itty bitty banking subsidiaries, and to my knowledge, was not gathering retail deposits. But as readers may recall, Bank of America moved most of its derivatives from its Merrill Lynch operation [to] its depositary in late 2011.

Its “depositary” is the arm of the bank that takes deposits; and at B of A, that means lots and lots of deposits. The deposits are now subject to being wiped out by a major derivatives loss. How bad could that be? Smith quotes Bloomberg:

. . . Bank of America’s holding company . . . held almost $75 trillion of derivatives at the end of June . . . .

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.

$75 trillion and $79 trillion in derivatives! These two mega-banks alone hold more in notional derivatives each than the entire global GDP (at $70 trillion). The “notional value” of derivatives is not the same as cash at risk, but according to a cross-post on Smith’s site:

By at least one estimate, in 2010 there was a total of $12 trillion in cash tied up (at risk) in derivatives . . . .

$12 trillion is close to the US GDP.  Smith goes on:

. . . Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. . . . Lehman failed over a weekend after JP Morgan grabbed collateral.

But it’s even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors.

Perhaps, but Congress has already been burned and is liable to balk a second time. Section 716 of the Dodd-Frank Act specifically prohibits public support for speculative derivatives activities. And in the Eurozone, while the European Stability Mechanism committed Eurozone countries to bail out failed banks, they are apparently having second thoughts there as well. On March 25th, Dutch Finance Minister Jeroen Dijsselbloem, who played a leading role in imposing the deposit confiscation plan on Cyprus, told reporters that it would be the template for any future bank bailouts, and that “the aim is for the ESM never to have to be used.”

That explains the need for the FDIC-BOE resolution. If the anticipated enabling legislation is passed, the FDIC will no longer need to protect depositor funds; it can just confiscate them.

Worse Than a Tax

An FDIC confiscation of deposits to recapitalize the banks is far different from a simple tax on taxpayers to pay government expenses. The government’s debt is at least arguably the people’s debt, since the government is there to provide services for the people. But when the banks get into trouble with their derivative schemes, they are not serving depositors, who are not getting a cut of the profits. Taking depositor funds is simply theft.

What should be done is to raise FDIC insurance premiums and make the banks pay to keep their depositors whole, but premiums are already high; and the FDIC, like other government regulatory agencies, is subject to regulatory capture.  Deposit insurance has failed, and so has the private banking system that has depended on it for the trust that makes banking work.

The Cyprus haircut on depositors was called a “wealth tax” and was written off by commentators as “deserved,” because much of the money in Cypriot accounts belongs to foreign oligarchs, tax dodgers and money launderers. But if that template is applied in the US, it will be a tax on the poor and middle class. Wealthy Americans don’t keep most of their money in bank accounts.  They keep it in the stock market, in real estate, in over-the-counter derivatives, in gold and silver, and so forth.

Are you safe, then, if your money is in gold and silver? Apparently not – if it’s stored in a safety deposit box in the bank.  Homeland Security has reportedly told banks that it has authority to seize the contents of safety deposit boxes without a warrant when it’s a matter of “national security,” which a major bank crisis no doubt will be.

The Swedish Alternative: Nationalize the Banks

Another alternative was considered but rejected by President Obama in 2009: nationalize mega-banks that fail. In a February 2009 article titled “Are Uninsured Bank Depositors in Danger?“, Felix Salmon discussed a newsletter by Asia-based investment strategist Christopher Wood, in which Wood wrote:

It is . . . amazing that Obama does not understand the political appeal of the nationalization option. . . . [D]espite this latest setback nationalization of the banks is coming sooner or later because the realities of the situation will demand it. The result will be shareholders wiped out and bondholders forced to take debt-for-equity swaps, if not hopefully depositors.

On whether depositors could indeed be forced to become equity holders, Salmon commented:

It’s worth remembering that depositors are unsecured creditors of any bank; usually, indeed, they’re by far the largest class of unsecured creditors.

President Obama acknowledged that bank nationalization had worked in Sweden, and that the course pursued by the US Fed had not worked in Japan, which wound up instead in a “lost decade.”  But Obama opted for the Japanese approach because,according to Ed Harrison, “Americans will not tolerate nationalization.”

But that was four years ago. When Americans realize that the alternative is to have their ready cash transformed into “bank stock” of questionable marketability, moving failed mega-banks into the public sector may start to have more appeal.


Ellen Brown is an attorney, chairman of the Public Banking Institute, and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are and details of the June 2013 Public Banking Institute conference in San Rafael, California, see here.



The Other Currency War

Courtesy of John Rubino.

Most of the recent “currency war” talk refers to countries trying to lower the value of their currencies to gain a trade advantage and/or make their debts more manageable. But this war has another theater, where a weaker currency is not the main goal.

Start with the premise that when a country conducts most of its trade in another currency, it cedes power to the “reserve currency” issuer. Right now that’s the US. Because oil and most other things are traded in dollars, the world’s central banks have to hold a lot of dollars as reserves. The resulting nearly-infinite global demand for dollars allows Washington to borrow as much as it wants, and to govern without having to make hard spending and tax choices that other countries have to live with. It also allows the US to fund a military that dwarfs everyone else’s and to throw its weight around in ways far out of proportion to its population or moral authority. If you’re a would-be superpower like China, Russia, India or Brazil, “dollar hegemony” is in your way.

So there’s an advantage to be gained by cutting the dollar out of bi-lateral trade in favor of one’s own currency. Here’s how China and Brazil are playing it:

China, Brazil sign trade, currency deal ahead of BRICS summit

BRICS members China and Brazil agreed on Tuesday to trade in their own currencies the equivalent of up to $30 billion per year, moving to take almost half of their trade exchanges out of the U.S. dollar zone.

The agreement, due to last three years and signed hours before the start of a BRICS summit in Durban, South Africa, marked a step by the two largest economies of the emerging powers group to make real changes to global trade flows long dominated by the United States and Europe.

“Our interest is not to establish new relations with China, but to expand relations to be used in the case of turbulence in financial markets,” Brazilian Central Bank Governor Alexandre Tombini told reporters after the signing.

Trade between the two countries totaled around $75 billion in 2012. Brazilian officials have said they hope to have the trade and currency deal operating in the second half of 2013.

At the summit in Durban, the fifth held by the group since 2009, Brazil, Russia, India, China and South Africa are widely expected to endorse plans to create a joint foreign exchange reserves pool and an infrastructure bank. They are also due to discuss trade and investment relations with Africa.


According to the IMF, dollars make up about 62% of allocated central bank currency reserves, with the other 38% in mostly euros and pound sterling. The yen accounts for 4%, and the Chinese yuan virtually zero. But China is now the world’s biggest trading power, with Brazil and India not that far behind. So why does the dollar still get to dominate world trade, with all the advantages that confers? Because it’s been that way since World War II, and old habits die hard. But as bi-lateral trade deals like the above become common, countries trading with China and Brazil in local currencies instead of dollars will need large yuan and real reserves and correspondingly fewer dollars.

If central banks start selling dollars to buy other currencies, this will, other things being equal, force down the dollar’s value. Which, ironically, helps the US in the other currency war theater, where victory is defined as a cheaper currency. An orderly transition to a multi-reserve-currency world would make US export industries more profitable and our debts less onerous (at least according to conventional wisdom).

The problem is that markets don’t normally do orderly transitions. They get going in one direction and then, when a critical mass of players decides the trend will continue, they go parabolic. The asset in question soars or falls off the table. So the combination of US policy designed to weaken the dollar and other countries actively trying to supplant the dollar as a reserve currency makes a gradual, smooth decline in the dollar’s value the least likely scenario.

Visit John’s Dollar Collapse blog here >

Why Does No One Speak of America’s Oligarchs?

Why Does No One Speak of America’s Oligarchs?

Courtesy of Yves Smith, Naked Capitalism 

One of the striking elements of the demonization of Cyprus was how it was depicted as a willing tool of Russian money launderers and oligarchs. Never mind the fact, as we pointed out, that Cyprus is not a tax haven but a low-tax jurisdiction, and in stark contrast with the Caymans and Malta, has double-taxation treaties signed with 46 nations and has (now more likely had) with six more being ratified. Nor is it much of a tax secrecy jurisdiction, according to the Financial Secrecy Index. Confusingly, in the overall ranking, lower numbers are worse (Switzerland as number 1 is the baaadest) but in the secrecy score used to derive the rankings, higher is worse, with 100 being utterly opaque.

The total rank is a function of “badness” (secrecy score) and weight (amount of business done). You’ll notice that all the countries ranked as worse than Cyprus have secrecy scores more unfavorable than it, with the exception of Germany, which is a mere 1 point out of 100 less bad, and the UK, which scores considerably lower (Nicholas Shaxson, author of Treasure Islands, would take issue with that reading, but he takes a more inclusive view of the boundaries of a financial services industry. For the UK, thus he not only includes the “state within a state” of the City of London, but also the UK’s secrecy jurisdictions, such as the Isle of Man, in his dim view of the UK as well as the US on secrecy). And even so, its greater volume of hidden activity gives it a much worse overall ranking. Of countries 21 up 30, only 3 rank as less bad on secrecy: Canada, India, and South Korea.


And as far as how many oligarchs have deposits there, even the New York Times, in a story framed around a lawyer who sets up shell companies for Russian investors, mentions in passing at the end:

Any dirty money flowing through Cyprus, however, is dwarfed by funds generated by legitimate businesses looking for easy and legal ways to avoid taxes. There are so many Russian companies registered in Cyprus for tax reasons that the tiny country now ranks as Russia’s biggest source of direct foreign investment, most of it from Russian nationals through vehicles registered in Cyprus.

And the oligarchs with meaningful involvement in Cyprus? The New York Times did find one, but he seems to be the exception rather than the rule. From Cyprus Mail:

“You must be out of your mind!” snapped tycoon Igor Zyuzin, main owner of New York-listed coal-to-steel group Mechel , as he dismissed a suggestion this week that the financial meltdown in Cyprus posed a risk to his interests.

His response is typical across the oligarch class of major corporations and super-rich individuals, reflecting the assessment of officials and bankers on the Mediterranean island who say the bulk of the billions of euros of Russian money in Cyprus comes from smaller firms and middle-class savers…

Sources in the wealth management, advisory and banking industry in Nicosia say Russia depositors are typically smaller savers and entrepreneurs. Fiona Mullen, a British economist in Cyprus, said Russians she encounters tend to be buying 300,000-euro homes, not the palaces favoured by oligarchs in London.

Now notice how much space I’ve devoted to showing that major parts of the conventional narrative about Cyprus are not all that they are cracked up to be. But see another implicit part of the story: that Russia’s oligarchs and “dirty money” are a distinctive national creation. Do you ever hear Carlos Slim or Rupert Murdoch or the Koch Brothers described as oligarchs? To dial the clock back a bit, how about Harold Geneen of ITT, which was widely known to conduct assassinations in Latin America if it couldn’t get its way by less thuggish means? (This is not mere rumor, I’ve had it confirmed by a former ITT executive).

The one way in which the Russians top rich do occupy a distinctive place is in the role that violence often played in their ascent. But violence is also a common feature in what reader Scott called the Land of the Dash Cam. Nevertheless, one of my colleagues who opened the Moscow office for Dun & Bradstreet and got it profitable in a year and a half bragged that she was probably the only person who sued a Russian oil company, won the case, collected the judgment, and lived to tell the tale, She also had an ex KGB officer as driver who filled her in on the finer points of murder, Russian style (for instance, to really cover your tracks, you need three people: A kills the person you want dead, B kills A, and C kills B. Type A is pretty cheap to hire, but finding the person for the B role is the expensive item, since he has to be skilled enough to kill a low level killer. Of course, C is not cheap either).

Nevertheless, Simon Johnson clearly described in his important 2009 Atlantic article, The Quiet Coup, that American was in the hands of oligarchs:

Every crisis is different, of course….But I must tell you, to IMF officials, all of these crises looked depressingly similar….Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise…

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again)….But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Now Johnson carefully laid the bread crumbs, but so as not to violate the rules of power player discourse, pointedly switched from the banana republic term “oligarch” to the more genteel and encompassing label “elites” when talking about the US (“elites” goes beyond the controlling interests themselves to include their operatives as well as any independent opinion influencers). Yet despite his depiction of extensive parallels between the role played by oligarchs in emerging economies and the overwhelming influence of the financial elite in the US, there’s been a peculiar sanctimonious reluctance to apply the word oligarch to the members of America’s ruling class. Some of that is that we Americans idolize our rich, and the richer the better. No one looks too hard at the fact many of our billionaires started out with a leg up, parlaying a moderate family fortune (for instance, in the case of Donald Trump) into a bigger one, or having one’s success depend on other forms of family help (Bill Gates’ mother having the connection to an IBM executive that enabled Gates to license MS-DOS to them).

But the fact that some people have advantages and are able to make the most of them, isn’t the reason to pin the “o” word on America’s top wealthy. It’s that, like Simon’s prototypical emerging market magnates, they increasingly dominate our society and are running it strictly for own self interest and devil take the rest of us. And the results on important metrics are worse than in Russia. The Gini coefficient is a widely-used measure of income inequality. The Gini coefficient is worse (higher) for the US than for Russia. Even though its rich have gotten richer and have pulled away from their lessers, the rest of the population has also done better:

In dollar terms, Russia’s GDP increased 7.5-fold over the last decade from around $200bn to $1.5 trillion; at the same time, nominal average wages increased 14-fold over the same period from $50 to around $700 a month.

And the latest statistics on the Gini coefficients (at least readily findable on the Web) are a few years stale. As we’ve written, the income gains in the US from 2009 to 2011 went entirely to the top 1%, which saw a 121% increase; the rest of the population suffered a small decline. That would increase the US Gini coefficient even further.

And on top of that, the cash hoarding habits of both poor and rich Russians, and the comparative difficulty that low and moderate Americans have in escaping the strong grip of the IRS may mean the Russian wealth inequality is lower than official figures indicate. The Telegraph again:

“The proportion of mattress-stuffed money among Russia’s poor is much higher than among America’s poor, as the US tax net is so much tighter,” says Liam Halligan, chief economist at Prosperity Capital Management. “That suggests US inequality is even worse relative to Russia than the numbers suggest.”

Now many readers may still recoil at the oligarch label being applied to America’s top wealthy, or Russians being much better at trickle-down economics that the plutocrats here who keep selling it despite overwhelming evidence that it isn’t operative here. But what about the celebrated John Paulson, who became a billionaire by not simply betting agains the housing market, but as we described in ECONNED, using CDOs that had the effect of pumping the bubble up bigger? Or the principals of Magnetar, whose CDO strategy played an even more direct role in extending the toxic phase of subprime lending beyond its sell by date? How about the Walton family, whose company is a welfare queen, with employees who depend on Medicare and emergency rooms for health care?

Some of the oligarch image is blunted here by the fact that the most visible members of the 1% and 0.1% are CEOs, who are increasingly chosen for their credibility with media. Their polished veneer and (in almost all cases) conventional credentials would seem to set them apart from the prototypical bad American plutocrat, the robber baron. After all, these are Peter Druckerized pinnacles of the managerial class, there by virtue of merit.

Anyone who has been inside Corporate America will tell you that merit is at most only one component in who gets ahead. As we pointed out in 2007:

Moreover, performance appraisal systems, which are the foundation for bonuses and other merit based pay, are hopelessly and intrinsically flawed. Carnegie Mellon professors Patrick D. Larkey and Jonathan P. Caulkins’ 1992 paper “All Above Average and Other Unintended Consequences of Performance Evaluation Systems,” discuss how, despite 100 years of effort, performance appraisal systems fail to achieve their intended results due to romanticized notions about how organizations work and difficulties in making comparative rankings of workers engaged in different tasks. For example, the article discussed the many ways a boss’s motivations and quirks could lead to misleading ratings.

Caulkins and Larkey’s analysis showed that the idea that organizations are or can be meritocracies is a myth. Yet people have a powerful need to believe that society and the institutions they belong to are fair. These factors explain not only why increasing income

Top executives have operated in a manner that is less obviously thuggish than the violent ways of some of Russia’s richest, but the hollowing out of labor and shortened job tenures have come with high costs across broad swathes of society. And the oligarchs that Johnson singled out, the elite that control the biggest financial firms, have become singularly, systematically predatory. We discussed long from in ECONNED the scale and nature of the looting that produced the global financial crisis.

And let us not forget that people are dying thanks to bank-related abuses, even though it’s not as direct or obvious as by assassinations. On the mortgage front alone, we’ve discussed for three years how many foreclosures are simply unwarranted, some created by servicers for their own profit, many of the others unjustified because it would have been better for everyone, the borrower, the mortgage investors, the broader community, for the borrower to get a modification, but the servicer put its own bottom line first and foreclosed. There have been cases of suicides on the eve of foreclosures, and even a courtroom death that was attributed to the stress of fighting a dubious foreclosure. But in addition to these clear cases of death by bank, there are many more cases where the financial distress of a foreclosure leads to a later suicide, or the curtailment of spending on health measures that shorten lifespans. The major servicers have blood on their hands as much, likely much more, than the demonized Russian oligarchs, but everyone here is too polite to say so out loud.

Confucius said that the beginning of wisdom was learning to call things by their proper names. The time is long past to kid ourselves about the nature of the ruling class in America and start describing it accurately, as an oligarchy.

Arizona Lawmakers Advance Bill Allowing Gold and Silver as Money; Bureaucratic Nightmare?

Courtesy of Mish.

I have encouraging news in the state of Arizona where lawmakers back gold, silver as currency.

The measure is Arizona’s latest jab at the federal government, which prohibits states from minting their own money. It also reflects a growing distrust of government-backed money.

The bill, which advanced in a 4-2 vote by a House committee Monday, states that gold and silver should be legal currency not subject to tax or regulation as property. The Republican-led Senate gave the bill its blessing in February in a 17-11 partisan vote.

The bill would let people use the precious metals as money as long as businesses agree to take them. If made law, it would take effect in 2014.

Democrats oppose the measure. They say it would be a bureaucratic nightmare because businesses don’t have the equipment to determine the value of gold and silver.

Bureaucratic Nightmare?


The bill is well written and extremely well thought out. It does not force companies to accept gold or silver (nor should it), it merely allows businesses to do so if they want. Any company that does not want to deal with gold or silver will not have to. So where’s the nightmare?

States will not be minting their own money under such a proposal (nor should they) so there is no conflict on that part of Federal law.

I commend this bill, expect Arizona lawmakers to pass it, and urge the Governor to sign it. When that happens, gold will once again be legal money.

I support gold as money and believe gold is money whether or not the bill passes.

There is significant reason for people to distrust government-sponsored fiat currencies backed by nothing. I made the case recently in Fraudulent Guarantees; Fictional Reserve Lending; Comparison of US to Cyprus; What About New Zealand?

Here is a brief synopsis, but I encourage you to read the full article….

Continue Here

Where Two Strangers Never Meet: Self-Serving Bias

Where Two Strangers Never Meet: Self-Serving Bias

"If you can meet with Triumph and Disaster, and treat those two strangers just the same"

IF … Rudyard Kipling

Courtesy of Tim Arr, The Psy-Fi Blog

Problematic Pronouns

We all probably know someone who believes that their successes are entirely down to their own levels of skill and whose failures are someone else’s fault.  To some extent most of us will meet them in the mirror each morning.  This is self-serving bias in action.  As Donelson Forsyth explains it:

“Those told they failed attribute performance to such external factors as bad luck, task difficulty, or the interference of others, and those told they succeeded point to the causal significance of such internal factors as ability and effort.”

Now, what do you think will happen to a corporation if you put someone with a bad case of self-serving bias in charge?  Beware the CEO with a bad case of the personal pronouns, that’s what I say. And let's not talk about global warming.
Driven To Fail
Apocryphally most drivers believe that they’re above average, a statistical impossibility.  In fact, as Ola Svenson showed in Are We All Less Risky And More Skilful Than Our Fellow Drivers? it appears to be a rare apocryphal "fact" which happens to be true:

“In the US sample 93% believed themselves to be more skillful drivers than the median driver and 69% of the Swedish drivers shared this belief in relation to their comparison group. “

Generally we have an unduly positive image of ourselves, and we gravitate towards activities at which we’re naturally good, rather than those which we’re bad at; which reinforces our self-perception.  Self-serving bias (otherwise known as self-serving attribution bias, or SAB) would seem to arise quite naturally from this bias to the positive.  And, frankly, given all the crap we have to put up with most of the time if we don’t believe in ourselves we’d probably drown in misery.
Normal, Sad and Dangerous To Know
Unfortunately a perfectly natural bias to the positive gets taken to the extreme in some people and people with a bad case of self-serving bias are quite dangerous to be around.  One piece of research, by Theo Offerman, Hurting Hurts More Than Helping Helps, suggests that people with a positive self-image will respond less favorably to someone being nice to them than you might expect:

“After all, someone as nice as yourself deserves to be treated well.”

But, of course, this effect is reversed if someone is nasty to you.  In fact subjects are much more likely to reciprocate an intentionally hurtful action than an intentionally helpful one.  And the key is intentionality – people with a strong positive self-image really, really don’t like being mistreated.
Believing in Yourself
Of course, if most people are afflicted by self-serving bias then most investors will also be, and the tendency to attribute our investing successes to skill and our failures to the incompetence of management or some other ethereal force has long been attested to.  For instance, in Investor Psychology and Market Under- and Overreactions the authors note:

“The confidence of the investor in our model grows when public information is in agreement with his information, but it does not fall commensurately when public information contradicts his private information. The psychological evidence indicates that people tend to credit themselves for past success, and blame external factors for failure”.

Applied to stock market trading this has several disconcerting implications, because if we believe our triumphs are the outcome of our own efforts and our failures the result of unavoidable external interventions we’re never going to learn – we’re blocking our own feedback paths, and feedback is critical to improving investment performance (see: Depressed Investors Don't Need Feedback. Everyone Else Does).  We would expect such beliefs to tend to lead to overtrading and as we’ve seen overtrading leads to underperformance.  However, the implications go beyond this, as Simon Gervais and Terrance Odean point out in Learning to be Overconfident:

“In times when aggregate success is greater than usual, overconfidence will be higher … In many markets returns will be a trader’s metric of success. Traders who attribute returns from general market increases to their own acumen will become overconfident and therefore trade more actively.  Therefore we would predict that periods of market increases will tend to be followed by periods of increased aggregate trading.”

Shocking, ain't it?


Of course, this result is intuitively obvious.  Fortunately, given that human intuition is about as reliable a guide as a compass in a cyclotron, there’s some empirical evidence to support the idea.  Most interestingly the model goes on to suggest that we’re more overconfident early in our investing lifetimes – experience does reduce this effect, as we saw confirmed in Investor Decisions – Experience Is Still Not Enough (But It Helps A Bit).
However, behavioral biases don’t stop at one level, they afflict us all, no matter what position we hold.  Just as self-serving bias impacts us in ordinary life and as investors it will also afflict us at work.  And when your job happens to be as a chief executive of a major corporation this can have consequences for more than you and your immediate family.
In a neat study, Managers’ Self-Serving Attribution Bias and Corporate Financial Policies, Feng Li looks at how and when CEO’s use the personal pronoun “I” in 10-K filings.  The finding is unsurprising at one level – when times are good executives are quick to promote themselves, and when times are not so good they’re rather more likely to retreat to use of the third-person.  Heads I win, tales they lose.  However, the implications are rather graver than the sloping of well padded corporate shoulders.  Let me quote at length:

“Consistent with this argument, managers with more SAB [self-serving bias] are more likely to issue forward-looking statements and make earnings forecasts, the tone (e.g., positive versus negative) of their forward-looking discussions has smaller variation, and their earnings forecasts tend to be overly optimistic. Firms whose managers have more SAB have higher investment-cash flow sensitivity and experience more negative market reactions around acquisition announcements. These firms also tend to have higher leverage, rely more on long-term debt financing, are more likely to repurchase stocks, and are less likely to issue dividends.”

On a slightly more positive note Andy Kim in Self-Serving Attribution Bias and CEO Turnover suggests that CEO’s with bad cases of self-serving attribution bias are more likely to get fired.  Even the market response to these executives appearing on CNBC is generally negative, so not all media exposure is bad.
Climatic Penury
From all of which we can roughly conclude that people who aren’t very good at accepting the blame are not good for us personally or as investors.  However, because this is an all-encompassing bias it can appear in all sorts of places: we even find this in national attitudes to who should bear the costs of mitigating climate change – a difference that appears to mirror the current impasse in negotiations, and probably reflects the impact of self-serving bias on the negotiators.
Of course, we can’t attribute all of the woes of the world to self-serving bias, but the idea that what’s good for us is fair, that our successes are always the result of our innate skill and that our failures are inevitably caused by evil outside intervention is a dangerous one for investors.  For us the proper state is to be egoless; willing to recognize that triumph and disaster are strangers we should treat just the same.
In investing, as in life, dogmatic persistence with a particular approach is a good thing right up until it isn’t.  Very many very rich people have got that way by believing in themselves and ignoring feedback – but unfortunately these are just the ultimate result of survival bias.  If everyone gambles constantly someone will fluke a fortune.  Following these “successes” is a one-way ticket to penury.  Better take the long reflexive way home.  You may not end up filthy rich, but at least you won’t end your days chasing hubcaps for a crust.
Self-serving bias, self-serving attribution bias added to The Big List of Behavioral Biases.

Wall-Street Craziness Is Back

Wall-Street Craziness Is Back

Courtesy of Wolf Richter,

The craziness on Wall Street, the reckless for-the-moment-only behavior that led to the Financial Crisis, is back. This time it’s Citigroup that is once again concocting “synthetic” securities, like those that had wreaked havoc five years ago. And once again, it’s using them to shuffle off risks through the filters of Wall Street to people who might never know.

What bubbled to the surface is that Citigroup is selling synthetic securities that yield 13% to 15% annually—synthetic because they’re based on credit derivatives. Apparently, Citi has a bunch of shipping loans on its books, and it’s trying to protect itself against default. In return for succulent interest payments, investors will take on some of the risks of these loans.

The first deal of this type was negotiated privately with Blackstone Group and closed last December. This second deal will be open to a broader group of institutional investors. Soon, similar synthetic securities will be offered to the treasurers of small towns in Norway.

But shipping loans are a doozy. After its bubble, the shipping industry fell into a deep crisis. It’s such a problem that Andreas Dombret, member of the Executive Board of the Bundesbank, listed it as one of the four risks to overall financial stability in Germany—in Hamburg alone, there were over 120 shipping companies. He fingered two causes: shipping rates that had plunged during the Financial Crisis and never recovered, and continued overbuilding of ships of ever larger sizes, driven by “cheaply available financial means,” a direct reference to the easy money handed out by central banks.

And then he waded into the bloodbath in Germany: retail funds that blew up and were shuttered, banks whose shipping portfolios suffered heavy hits, an industry that was breaking down…. Capital destruction, the inevitable consequence of central-bank passion to create bubbles. Now, the Bundesbank was looking at it from a “broader perspective,” he said, with an eye “on the stability of the entire financial system.”

That was mid-February. Two weeks ago, the largest ship-financing bank in the world, HSH Nordbank, which had already been bailed out in 2008, cratered and was bailed out again by its two main owners, the states of Hamburg and Schleswig-Holstein.

So, with the smell of putrefaction wafting from Citi’s shipping-loan closets, it’s time to sell high-yield derivatives based on them. If hedge funds buy them, fine. Presumably, they understand the risks. But these products may end up in funds favored by state and municipal retirement systems. They’re starved for yield and are chasing it every chance they get in this zero-yield environment. And “alternative investments” are hot. So, banking crap would be shifted once again to retirees—with a satisfied nod from the Fed.

The Fed’s drunken passion to print has led to the most gargantuan credit bubble ever, a farmland bubble, commodity bubbles, equity bubbles, heck, even a new housing bubble as hot money buys up billions of dollars in homes and now can’t rent them out [a debacle that I wrote about in…. Housing Bubble II: But This Time It’s Different].

It was never intended to fix the damage that the Financial Crisis had done to the real economy—as experienced by people, and not as measured by the Dow which is setting new highs. Some of these issues are very basic. For example, income.

Median household income in February was $51,404 (Sentier Research), down $590 on an inflation-adjusted basis, or 1.1%, from January. Culprit: the red-hot 0.7% increase in consumer prices that month. It wasn’t a fluke but part of an insidious long-term trend. Adjusted for inflation, median household income in February was:

  • 5.6% lower than in June 2009, during the Financial Crisis, or the beginning of the “recovery,” whichever.
  • 7.3% lower than in December 2007, the beginning of the recession.
  • 8.4% lower than in January 2000, when the data series began.

That year, median household income, expressed in February 2013 dollars, was $56,101! If it where this high today, households could spend more and save more, and they’d be more optimistic and enthusiastic, and the real economy would be humming along at a better clip.

Throughout these years, nominal wages have crept up just enough to bamboozle people into thinking that maybe this time it would be different, that this time they could actually buy more with the increased income, only to be whacked again by inflation. Their deteriorating circumstances shed a harsh light on the Fed-inspired craziness on Wall Street—and an even harsher light on the Fed’s persistent refusal to see it, though it’s happening right before their eyes.

The US-centric balance of economic power has been destabilized by the crumbling of EU welfare states and the rise of the state-sponsored capitalist BRICS, eager to seize the opportunity to attack the dollar’s preeminence. And so the inevitable is waiting to happen. Read….  The Dollar’s Death As Reserve Currency

North Korea Releases New Photos That Reveal Its ‘US Mainland Strike Plan’ In The Background

North Korea Releases New Photos That Reveal Its 'US Mainland Strike Plan' In The Background

Courtesy of Joe Weisenthal, The Business Insider

North Korea is making more noise.

Following the deployment of US B-2s to South Korea, North Korean President Kim Jong-un has ordered his military to be on alert for a strike against the US.

As part of the warning, North Korea has published two new images in a local paper (via Reuters) and what people are noticing is the background, which appear to show a missile strike plan on the US.

In this first one, the map of the US is most vivid. Here's the full picture.


north korea attack plan us



Then if you zoom in above the general's head (as points out) you can see a map of the US with lines coming into it (implying lines of attack). The text apparently reads "US Mainland Strike Plan" (which is not subtle).





The second photo is a bit less juicy, although it does show Kim Jong-un using an iMac.


kim jong un attack plan us


A key thing as points out is that the photos were released in a domestic workers paper, implying that the images are for internal consumption, rather than a real threat.

The Real Inflation Rate and What to Do About It

Dennis polled his readers some weeks ago to find out what they think the real inflation rate is. They also shared their real life examples demonstrating that it’s much higher than the rate reported by the government. 

The Real Inflation Rate and What to Do About It

By Dennis Miller of Casey Research

A little over a month ago we did a quick poll on what our readers thought the real rate of inflation was. The idea for polling our readers came from the disconnect between the official government rate of around 1% and what some had told me they were experiencing first hand.

Thank you to everyone who participated, particularly those who shared frustrating examples of the ever-increasing cost of living. There were close to 100 pages of reader comments, and I read them all… every single word.

This week's column is primarily written by you, our loyal readers. You will recognize the reader comments as they are indented. Here is one example to get us started:

I bought a down jacket from L.L. Bean four years ago for $100. Today, that same jacket is $250. You know you have inflation when even the price of down is up!

The weighted average for our reader-reported inflation rate is 8.07%. We are rounding this to 8%, and calling it the Money Forever Reader Poll Inflation Rate. We will use this rate in examples and graphs throughout the year, along with the BLS Rate and the Shadow Government Statistics' alternate rate.

I know our rate is unscientific, but I trust our readers more than I trust the Bureau of Labor and Statistics. In addition, Vedran Vuk, our senior research analyst at Miller’s Money Forever prepared the graph below showing the distribution of responses. We were hoping for a bell-shaped curve, but you will notice it stops with 23.6% of the respondents reporting that they believe inflation is 11% or higher. In light of this, we will add higher rate choices the next time we run our survey.

Time to Hear from Our Readers

Some readers disagreed with the rate options presented in the survey, apparently believing we are experiencing deflation:

There is no choice for 0-1%, -1%-0%, etc. I have found prices to be deflationary. Consider what my family buys on a regular basis and the trend since last year. Food: +1-2%; Gas: flat; Consumer electronics: -10 to -20%; Wood pellets: flat; Cord of wood: -10%; Kids' preschool and babysitting: flat; Propane fuel for heat/hot water/cooking: -25%; Labor for electricians/plumbers/landscaping: flat; Electric bill: flat; Construction materials: -5%; Skiing: +3%.

Many of the responses varied based on where the reader lives.

I track all my expenses using Quicken. My expenses in 2012 have gone up as follows: Groceries, +10%; utilities and property taxes, +9%; gas/diesel for vehicles, +1%.

I chose that example because of the property taxes. Many folks mentioned real-estate tax increases. In my case I have two homes, one in Illinois and one in Florida. Both were assessed at lower rates after the 2008 real-estate crash. My FL real-estate taxes have decreased accordingly. However, in IL they just changed the formula, and my taxes keep going up despite the decreased value of my home. Like many of the examples, it depends on where you live.

There were hundreds of examples of price increases due to smaller package sizes and/or reduced quality.

I am retired now, so my principal purchases are food, gas, and some clothing. … As to clothing, while Kohl's pricing looks great, the cotton thread count in Dockers pants is way down, and they wear and fray out a lot sooner.

One reader mentioned how much easier it is to carry home $100 in groceries, while another said he thought he was just getting stronger.

It looks like the cost of hosting a party is increasing rapidly.

A one-pound bag of Lay's Potato Chips used to cost $0.99. It is now 10.5 oz. and costs $4.99 if you can't find it on sale.

Stroh's beer cost me $4.39 a 12-pack at Food Lion before I left for Australia for 17 months in April 2011. It now costs $8.89 – up 100%. Schlitz and Pabst Blue Ribbon also went up 100%.

Nuts that used to cost $9.99 at Costco now cost $18.99.

There are specific items that have gone much higher: quality cheeses have gone up double digits.

My favorite cheese (Hoffman Sharp Cheddar) had a price jump of about 12% – about the same for Bass Ale.

The cheapest wine in California known as "2-buck Chuck" recently went against its famous name and raised the price from $1.99 to $2.49! That's a 25% increase.

Many folks mentioned the cost of meat.

Groceries are the worst – but not all groceries. Three years ago, when I moved here, I could catch bacon on sale for $1.79/lb. Now they advertise it for $3.50 for a 12-oz package.

I asked the guy at the meat counter if they were making bacon from "gold-plated" pigs. The "sale" price on fryers is 50% (that's fifty) percent higher than last winter.

And then eggs were mentioned.

I live in David, Panama, and while the cost of living here is generally less than in most of the US, we have seen real inflation in three years. Here are some examples of price increases in the past year or two: a dozen eggs, from $1.59 to $2.09; a pound of good coffee beans, from $5.79 to $6.49; a pound of tomatoes or potatoes from the produce stand, from $.50 to $.80; a gallon of milk, from $3.99 to $4.49. Some things have not changed much, such as meat, poultry, and canned and dry goods.

Some folks went bananas.

I judge real inflation by checking the price per pound of bananas at Fred Meyer's. That price has increased from 39 cents per pound at the beginning of last year to 59 cents per pound, i.e., around 50%.

As a monitor I use the price of bananas. They have gone from $.58/lb. to $.77/lb. in 2012. That would be a 33% increase.

Of course many mentioned McDonald's and other fast-food restaurants.

I don't know the percentages, but a filet o' fish at the local McDonald's is $4.16 (including tax) – this is at Lahaina Maui (Hawaii)… the combo meals go up to almost $8.00; this is considered cheap?

And not just in Hawaii.

What I've used to gauge real inflation for several years now is the extra-value meals at McDonald's. Between 1 January, 2012 and 1 January, 2013, average prices have increased by over 8%.

This reader takes on McDonald's, Subway, and Taco Bell.

I have a couple of examples based on a few of my semi-regular activities. The first would be lunch. Personally I like Taco Bell. I know, I can already hear the groans, but frankly, I like the food and the value. At times in the past when my schedule would dictate a quick lunch out, Taco Bell would cost me $2.75. My standard order was a taco, burrito, & medium Pepsi. I loved the fact that I could eat for under $3.00. Now, I like the fact that I can eat lunch for under $4.00, but I don't love it. The second item is that our local McDonald's recently increased my "senior coffee" from 37 cents to 55 cents. All right, call me cheap. I still like my senior coffee, but I no longer love it. Oh, I almost forgot. Subway recently had their "customer appreciation" promotion for December. They advertised $2.00 for one of two sandwiches, but at our local store they said they had to charge $2.55 because of "shipping costs"? I guess they don't appreciate us here as much as other places.

Restaurants in general were mentioned several times.

My favorite breakfast, 3 eggs & bacon in November 2012, $4.25; 3 eggs & bacon in January 2013, $6.00.

Biggest surprise over the last twelve months is the cost of dinner at our local Tex-Mex restaurant. The same basic dinners with a cocktail for each of us has risen 25%. We know the owner well, so we felt we could ask about the increased prices. He told us that everything he uses to provide his food to the customer has risen more than 20%, and then there is his staff. The word "lie" describes to a T what the government is doing to Americans, and I find it despicable.

Over the past two years prices on the restaurant menus have increased three times. We can't afford to eat out anymore; back to the slow cooker. Damn, I hate to wash dishes! Even dish soap has gone up.

Seems that folks in Australia have differing opinions.

I live in Australia, but I couldn't resist chucking in my 2 cents worth as we share the same crime here of manipulated government CPI numbers. In the last year my estimates for price rises living in Sydney are as follows. General household & food costs, + 10%. Restaurant food, + 10-20%. Beer at a pub, + 15%. Public transport, + 5%. Electricity bill, + 30%. Council rates, + 10%. Doctor's consultation, + 15%. Petrol, + 10%. Internet ADSL costs, + 10% (to be fair this one increased last year for the first time in 6 years). On average the cost of living here has easily gone up over 10% in the last year, and the government's reported CPI figure is 2.2%, laughable.

If anything, I'd say we are in a deflation. All the goods and services I access (except food and power) seem to be falling. I live in Australia, so maybe our (ridiculously) high dollar might be in play; I'd like to believe the inflation story, but here it just ain't so…

And now around the globe to Europe.

I live in Norway. Large plate of sushi used to cost 155 kroner (this was in 2011). In 2012 it costs 170 kroner, almost a 10% increase. Needless to say, I don't eat out as often as I would like to now, and if I do I order a smaller size! Inflation is rampant worldwide, not just the US.

Right now the Norwegian kroner and the Australian dollar are doing well against the US dollar, yet some still believe they are experiencing inflation.

Some readers mentioned the cost of feeding pets and other animals is also on the rise. I have a cousin who owns three horses. While we all love our pets, when the time comes for them to head for the great kennel in the sky, I wonder how much economics will factor into the decision about replacing them.

I own four dogs. Dog food has increased from $17.00 to $25.00. Again, this is for the same bag of dog food!

Big increase in feed prices for chicken feed and calf feed. I paid $13 for a 50# bag of poultry pelleted feed a year ago. I paid $17.80 yesterday. Calf feed went up over $13 for a 100# bag in August and has stayed there.

We shop for groceries at a DISCOUNT, no-frills store, which is much less expensive than the grocery stores. In the past year, we have noted increases, gradually, in items that never went up. Cat food in a can has increased from $0.27 per can to $.50. We live in the Sacramento area.

There are a lot of people who are already making tough decisions and adjusting.

The increase in private, grade-school tuition is my biggest issue. It's becoming too expensive to be a good Catholic.

As a single-income family of 5, I have no choice but to constantly think about saving. The little things we do change our lifestyles to compensate change in our inflation rate. When we switch from beef to pork we can't measure the true rate, because we have saved some of the difference financially while making up the difference in lifestyle. I have always done my own oil changes on my vehicles. I now change the oil filter every other oil change to save the cost of the filter. No more takeout lunches, and only one takeout coffee a day. Save, save, save! Sometimes I feel like a lean, mean saving machine, which doesn't make life as much of a pleasure as it could be. However not to complain; it is working. I am working, and the wolf is still stuck outside the door.

We defend ourselves from inflation as much as possible by investing in home essentials, like energy. We've installed a solar water heater to eliminate the cost (and inflation exposure) of propane to heat water, installed a high-efficiency pool pump to dramatically reduce electricity consumption, and unplug appliances when not in use to eliminate phantom loads. These investments are guaranteed, inflation-proof, and tax free. The best kind… in my opinion.

Greens fees at all three of the golf courses I play at regularly have increased about 10% over what they were 13 months ago. This has caused me to cut my three rounds weekly down to two. Also, local restaurants have boosted prices 5 to 15%. We now eat out once every two weeks, on average.

I gift my wife with a simple bouquet of flowers each week, at a cost of a mere $4.99. (How simple can I get?) Last week, the cost of that simple bouquet went from $4.99 to $5.99 – for the same flowers, same number, same wrapping. That's a 20% increase!

Umm, keep it up! It promotes family harmony.

You certainly get the picture. Some folks added a bit of humor.

I think a button with "WIN" on it would solve the problem, don't you? I mean… the government has to DO something, and a button is the clear answer.

Who would do a silly thing like that?

Some offered analogies.

In the first phase of a tsunami (The "drawback"), people stand around the beach, wondering what is going on. Things look different from the shore. They can't put their finger on exactly what is wrong and they are unaware of the devastation about to crash down upon them. This is where I feel that we, as a country, are regarding inflation. People are beginning to realize that something is happening, but they are not sure why, and they are certainly not aware of the danger just ahead. Just like during a tsunami, they should take this opportunity to head, very quickly, for higher ground.

The inflation in the USA feels like something is "stalking" you – not all the time; but it is definitely there.

And some understand the effects very clearly.

Anyone who has been living on SS [Social Security] checks since 2000 will tell you the same thing. They could not live on those checks alone, and depended on the interest they received from their savings accounts or CDs. They cannot do this any longer; they now need to withdraw principal or redeem some CDs just to make ends meet. This is not meant to debate the merits of the SS system, but it shows how inflation and the currency manipulation by the federal government is affecting those on fixed incomes with no hope of getting a raise. These people understand the effects of inflation more than any other group. These people live with fear every day, understanding they have little control over their financial future, while watching their life savings slowly vanish every year.

So there you have it – a representative sample from our readers. Food, pet food, health care, insurance, taxes, and more are on the rise for the most of us. One respondent lamented that most of the increases are for staples and not the kind of things you can easily ignore.

What Can We Do?

First and foremost, don't get too discouraged, and never, ever give up! We all may have to cut back, downsize, go back to work, or find alternate sources of income like annuities and reverse mortgages. We saved up our nest eggs with the idea that it would supplement our Social Security or pension, and now it is getting more difficult.

Personally, I will be damned if I am going to throw in the towel! If it takes more time to study and learn about investments, so be it. I made that commitment to my wife and myself – and to you. I have learned the value of top-quality research, and the Money Forever portfolio is reaping the benefits of that research (we just recently celebrated when the 5th of our 6 dividend stocks raised its dividend payout amount). If you would like to learn more about our portfolio and premium publication and how to use our system to stay ahead of rising inflation, I invite you to click here.

There are millions of retirees, seniors, and savers who share the same concerns. We are all fighting the inflation tsunami. Our subscribers are very like-minded when it comes to fighting for their portfolios; none of us is throwing in the towel.

In the next article I will break down the results and suggest ways to meet the challenges brought on by inflation.

US Savings Rate Near Record Low, Per Capita Disposable Income Almost Back To December 2006 Level

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

There was some good news for headline scanning algos this morning, when both personal incomes and spending came in modestly higher than expected, with incomes rising 1.1% compared to an estimated 0.8% increase, while spending was up 0.7%, also higher than the 0.6% expected. But while the superficial headline grab did indicate a modestly better climate for both spending and incomes, it was a look under the cover once again that revealed the full extent of the pain that US consumers continue to find themselves in, over 5 years since the start of the second great depression.

First, the bulk of the bounce in spending was driven by a surge in Non-Durable Goods, which rose by $48.5 billion in one month, and amounting to 61% of the total increase in personal outlays in February. This was the biggest monthly jump since the onset of the financial crisis: hardly inspiring much confidence for those companies which are wondering whether to ramp up capital expenditures and spending, especially since spending on Durable Goods declined by $400 million in February.



Second, while incomes did rebound after the plunge in January, the modest increase represented a rise in the personal savings rate to just 2.6% – the second lowest monthly savings print since 2007, excluding only the abysmal January 2.2% print. In other words, there is hardly much if any new room for additional spending with the savings rate nearly at record lows, and with US consumer continuing to reduce their outstanding revolving credit, the Q1 retail sales miracle will hardly be repeated in future months as US consumers seek to rebuild some cash buffer.



For those claiming there is something called a "recovery" underway, perhaps they can point out just where on this chart of Real Disposable Income per capita one can find said recovery. Because we are confused: with the average Real Disposable Income of $32,663 per person, or lower than where it was in December 2006 ($32,729), one may be excused for scratching their head.


Caught In The Cyprus Crossfire: Small Businesses Suddenly With Zero Cash

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

One of the prevailing false conventional wisdoms about the Cypriot cash confiscation is that it primarily affected rich, tax-evading individuals of Russian origin. Alas, those same individuals are likely to have been least affected, as subsequent discoveries of capital control breaches by the "richest and best connected" reveal, while increasingly it appears that the uninsured depositors on whose back the nation of Cyprus was bailed out are small and medium corporations, who had been parking cash for net working capital purposes with Cyprus' banks, cash which is now gone forever to feed the creeping insolvent Euro-monster, and which can't be used to fund such day to day business activities as payroll, purchases, and business operations.

Such as this one:

The most of circulating assets on our business Current Account are blocked.

Over 700k of expropriated money will be used to repay country's debt. Probably we will get back about 20% of this amount in 6-7 years.

I'm not Russian oligarch, but just European medium size IT business. Thousands of other companies around Cyprus have the same situation.

The business is definitely ruined, all Cypriot workers to be fired.

We are moving to small Caribbean country where authorities have more respect to people's assets. Also we are thinking about using Bitcoin to pay wages and for payments between our partners.

Special thanks to:

– Jeroen Dijsselbloem
– Angela Merkel
– Manuel Barroso
– the rest of officials of "European Comission"



So while Cypriots may have been quite cool and collected during yesterday's bank reopening when the Troika was kind enough to give them access to €300 of their cash per day, one wonders just how cool and collected they will be when the implications of the cash crunch spread through the system, when hundreds of small and medium business are forced to lay everyone off overnight, when paychecks suddenly stop and when not only savings but ongoing cash grinds to a halt.

Because if the locals thought the deposit haircut is the worst of it, just wait until the full brunt of what a -20% depressionary collapse in the economy hits them head on.

h/t Manuel

Madoff Offers to Names Names

Courtesy of Larry Doyle.

Has Uncle Sam closed the books on the Madoff investigation?

One would have to think so because there have been so few meaningful developments to emanate from the government’s ‘supposed’ pursuit of truth and justice in this case as to lead one to believe that the case is now closed.

Aside from a few ‘ne’er do well nitwits’ involved in Madoff’s operation, few if any meaningful names outside of the Madoff lair have been implicated in this massive scam.

Time may erode the public outrage over our government’s massive failure to protect and perform in this case but does that mean that justice neglected should remain justice denied?

One would think so given the fact that co-conspirators in this case have not surfaced or been brought to justice.

Begs the question as to just how much Uncle Sam really wants to share with the public as to what really happened within the Madoff operation.

The last person in this scandal who deserves a bully pulpit and any sort of meaningful public credibility is the scumbag Bernie Madoff himself.  That said, “information is everything” and with little of note in regard to meaningful information being shared with the public, one wonders whether investigators truly care to learn — or share — all of what transpired within the Madoff scam over the years.

For these very reasons, I find it truly regrettable that independent investigators of unquestioned credibility and integrity have not handled this case. If they did, who knows where the trail may have led them and who within the halls of power in Washington and executive suites on Wall Street might have been implicated. I think the chances of these developments ever occurring are slim and none and slim never had much of a chance to begin with.

All this said, the villain himself recently shared with Fox News that he is willing to name names of those within Wall Street banks whom he maintains knew what he was up to.

 . . . in an e-mail to FOX Business reporter Adam Shapiro received Tuesday, Madoff said he plans to offer specific information to Congressional committees investigating both his crimes and possible complicity on the part of Madoff’s banking partners.

Madoff said he has offered Irving Picard, the court-appointed bankruptcy trustee who has pored over Madoff’s finances since the scheme collapsed in late 2008, information that would prove his assertion, but the trustee has so far ignored Madoff’s efforts.

Madoff wrote to Shapiro: “From my first interview to the media I have said that ‘the banks must have known’, and were complicit and contributing to my crime. Although I have offered the bankruptcy TRUSTEE (sic) the information that I possessed that would demonstrate in detail their complicit behavior of banks like JP Morgan, Bank of N.Y., HSBC, Citicorp and others. The Trustee seems unwilling to act on my offer. Therefor (sic) I am offering this information to the appropriate governmental committees in the hope that this information will prove helpful in future regulation of the appropriate institutions.”

Amanda Remus, a spokesman for the trustee’s office, said in an e-mail: “The SIPA Trustee’s position is that, as the perpetrator of the largest Ponzi scheme in history, Madoff’s credibility is highly suspect and has no substantive value.”

Remus is right. Madoff has no credibility BUT then again neither does Whitey Bulger or any other hardened criminal. Does that mean investigators do not collect information from these scumbags, pursue the leads, and see where it takes them? Of course not. Is this really being done? Great question.

. . .  the U.S. Treasury Department disclosed in January that it’s conducting an investigation into J.P. Morgan’s dealings with Madoff. The department hasn’t described the scope of the investigation.

Really? Do you think we will learn anything of note? Or might this end with another token fine for lax oversight of money transfers and little else?

The issue here is whether investigators truly and fully care to pursue Madoff’s leads — or any others — that lead into the bastions of power and money (can you say, JP Morgan, HSBC, BONY Mellon, Citigroup?) that control our nation. 

Do you agree or disagree?

Larry Doyle

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

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

The Investment Game is Rigged, So Learn The Riggers’ Cheats and Play Accordingly

Courtesy of Lee Adler of the Wall Street Examiner

I want to set the record straight from the outset. I’m not bullish because economic fundamentals are strong, even though in some respects in the US they look somewhat ok on the surface. It’s all appearances.

Nor am I bullish because of the bullish technical trends, even though they are bullish.

I am bullish because the market is rigged. The central bank has rigged this market to do what it wants, and my observation has been and continues to be that central bank rigging works. I have watched these things very closely since the Fed began its transparency shtick in 2002, publishing its actions in open market operations daily. I saw then and have seen ever since that the Fed gets what it wants until the unintended consequences of its misreadings blow up in its face.

It takes more and more and more printed money for the Fed to get the result it wants, but that’s what the Fed has created, and that’s what the mad scientist Dr. Bernankenstein will experiment with until it becomes too obvious that his monster is out of control. Until events and processes unfold that force Bernanke to unplug the monster, I have to believe that what has appeared to work for them so far will continue to work.

The Fed is a serial blunderer, however. The last market collapse happened following a series of Fed blunders. Fomenting bubbles is a serial blunder, to which the Fed is addicted. The Fed has made the same mistake of attempting to reflate bubbles throughout history. It’s insane, but that’s the nature of those who seek and attain the power to run the game. They will push it to the limit until something blows up in their face.

That something is virtually always a manifestation of inflation, whether an out of control asset bubble, or consumer price inflation. Until one of those things, or something akin to them is sitting on the Fed’s face and farting, the insanity will continue. Under the circumstances, I will follow the rules of their game and play it accordingly until it seems likely that the incipient forces of inflation will force them to stop. At this point, I don’t see that yet.

Macro Liquidity Composite - Click to enlarge

Macro Liquidity Composite – Click to enlarge

Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE's Professional Edition risk free for 30 days!

Copyright © 2012 The Wall Street Examiner. All Rights Reserved. The above may be reposted with attribution and a prominent link to the Wall Street Examiner.

Speaking of Inequality

Speaking of Inequality

Courtesy of Kenneth Thomas of Angry Bear 

Travis Waldron at Think Progress pointed out this excellent article by David Cay Johnston. It dovetails well with my last post, which showed the fall of individual real wages and their failure to regain their peak fully 40 years after it was reached.

Johnston writes:

Incomes and tax revenues have grown from 2009 to 2011 as the economy recovered, but an astonishing 149 percent of the increased income went to the top 10 percent of earners. 
If you wonder how that can happen, the answer is simple: Incomes fell for the bottom 90 percent.

While this data is at the level of tax filing households, it is consistent with what we see at the level of the individual. More nuggets from Johnston:

From 1966 to 2011, adjusted gross income in the bottom 90% grew a total $59 (2011 dollars, not the 1982-84 dollars I used in my last post) in 45 years, from $30,378 to $30,437. 

"Candidate Bush said his tax cuts would make everyone prosper. But the real average pretax income of the bottom 90 percent in 2011 was $5,340 less than in 2000, a decline of more than $100 per week, or 15 percent, in pretax income."

The income share of the bottom 90% fell from 66.3% to 51.8% over the 1966-2011 period.

So we have seen inequality increase in pretax income plus changes in tax policy that have reduced the effective tax rates on corporations and capital gains, income which goes overwhelmingly to the rich. Thus, post-tax inequality is even worse than pretax inequality.

Johnston's report builds on the work of economists Emmanuel Saez and Thomas Piketty. Together with Facundo Alvaredo and Tony Atkinson, they have created the World Top Incomes Databases, very much worth checking out for a comparative look at U.S. inequality.

Cross-posted at Middle Class Political Economist.

David Covers His AAPL Short

David Covers His AAPL Short

David of All About Trends mentioned that he was shorting AAPL in this weekend's Market Shadows newsletter. Today, he covered his short position in AAPL. Following up on his short trade idea, he sent this to his subscribers and to us:

All About Trends 
SHORT SELL Locking In Gains
Trade Trigger Alert: AAPL
March 28, 2013
Given that AAPL is one of those popular names for painting the tape (i.e. market manipulation), we'll lock down our gains from shorting last Friday (3/22) and call it a day.
AAPL is currently trading at $ 444.50, and that will be the price we buy to cover our short 20 shares position.
(AAPL closed lower, at $442.71.)

1. The moment you take a trade, you are at the mercy of the market and have no control except when to sell/cover. If you are not willing to take the risk of losing, do not take the trade. Only take risks knowing you may lose.  Have a plan to limit your losses.
2. To help limit your loses, manage your trade size according to the conservative principles. Keep positions at 5% or less of your portfolio.  See Market Shadow's Virtual Value Portfolio for an example of how to apply rules to limit position sizes. Do not let a surprise disaster in one stock decimate your account.
3. A stock can only do one of three things: Rise, decline, or go nowhere. The moment you hit the enter button you are at the mercy of the market. You only decide when to sell/cover.  The market will do what IT wants to do.

To learn more about Allabouttrends, sign up for David's free, no obligation 15-day trial.

Use “PSW” as your promotion code.  No credit card is necessary. You’ll receive everything paying subscribers receive for free, for 15-days.  


THESE ARE NOT BUY RECOMMENDATIONS! Comments contained in the body of this report are technical opinions only. The material herein has been obtained from sources believed to be reliable and accurate, however, the accuracy and completeness cannot be guaranteed. is not an investment advisor, and does not endorse or recommend any securities or investments. Any trading ideas contained in this report may not be suitable for all investors and it is not to be deemed an offer or solicitation with respect to the purchase or sale of any securities. All trademarks, service marks and trade names appearing in this report are the property of their respective owners. We are not responsible for your trading decisions. Market Shadows and shall not be liable to anyone for any loss, injury or damage resulting from the use of any information. This information is strictly for educational and informational purposes. Allabouttrend's charts are courtesy of 

Canada Discusses Forced Depositor Bail-In Procedures for “Too Big To Fail” Banks in 2013 Budget

Courtesy of Mish.

Inquiring minds in Canada managed to slog through a massive 433 page budget proposal and discovered Depositor Haircut Bail-In Provisions For Systemically Important Banks.

Sure enough. Right on page 145 (PDF page 155) of the Canada Economic Action Plan for 2013 We see …

“The Government proposes to implement a bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail- in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants.”

In case you are unfamiliar with bank parlance, deposits are not “assets” they are “liabilities”. A plan that would turn “certain bank liabilities” into regulatory capital is a plan to confiscate deposits.

As noted in Fraudulent Guarantees; Fictional Reserve Lending; Comparison of US to Cyprus; What About New Zealand? I believe guarantees on deposits are inherently fraudulent. But at least the Reserve bank of New Zealand is upfrnot about the situation. Canada is not.

Mike “Mish” Shedlock

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