GSC - ÛnìCrêdit Sec.: It's the Europocalypse

[Virgil Showlion]

---

VirgilBot TP v0.01 Completed Thread Port - 337 post(s) in 1282 seconds.

Final post: Message #344 - 12/08/10 05:31 PM

---

[Virgil Showlion]

As a necessary measure for keeping the Empire of Frank's euphoria over the ADP (*cough* seasonal hires *cough*) number in check, I present to you the sobering reminder:

Food Prices Surge Past Record Highs
www.ft.com/cms/s/51241bc0-18b4-11e0-b7ee-00144feab49a,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F51241bc0-18b4-11e0-b7ee-00144feab49a.html&_i_referer=http%3A%2F%2Fwww.zerohedge.com%2Farticle%2Ffood-riots-next-fao-says-food-prices-surpass-record-highs-seen-during-2007-2008-bubble#axzz1AARnPqfN

The percentages they're talking about here dwarf the MRR.

Bon apetit--if you can afford it. :-\

[scaredshirtless]

LOL

Thanks Virgil!!!

[The Virginian]

I guess we will be starting that new diet soon!

[comokate]

Virgil, you pessimist you. Mother nature provides an abundance of protein just for the picking....

[Virgil Showlion]

As the endless ramp up in stocks continues to take its toll, Virginia legislators have piled onto the boat (along with Arizona and Wisconsin) looking at alternative currencies for after the inevitable dollar implosion.

To wit:

In what may one day be heralded as the formal proposal that proverbially started it all, the Commonwealth of Virginia introduced House Resolution No. 557 to establish a joint subcommittee to "to study whether the Commonwealth should adopt a currency to serve as an alternative to the currency distributed by the Federal Reserve System in the event of a major breakdown of the Federal Reserve System." In other words, Virginia will study the fallback plan of a "timely adoption of an alternative sound currency that the Commonwealth's government and citizens may employ without delay in the event of the destruction of the Federal Reserve System's currency" and avoid or "at least mitigate many of the economic, social, and political shocks to be expected to arise from hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System."

Most importantly as pertaining to the currency in question, "Americans may employ whatever currency they choose to stipulate as the medium for payment of their private debts, including gold or silver, or both, to the exclusion of a currency not redeemable in gold or silver that Congress may have designated 'legal tender'."

Find the full bill here lis.virginia.gov/cgi-bin/legp604.exe?111+ful+HJ557+pdf.

[Aman A.K.A. Ahamburger]

What about this??

Fed pays US Treasury record $78.4B last year
www.dailyfinance.com/rtn/press/fed-pays-us-treasury-record-78-4b-last-year/rfid403314988/?channel=pf

[scaredshirtless]

That's today aham...

What about "tomorrow"?

[Aman A.K.A. Ahamburger]

S_S, tomorrow is a new day, you just never know what it could bring!

[Virgil Showlion]

Fed pays US Treasury record $78.4B last year

From ZH earlier today (bold by me):

After the Fed bought over $1 trillion of US Treasury bonds in the past 2 years, it is now reverse payback time, in which the Fed gives the Treasury just a little more cash. The FRB announced that per "unaudited" 2010 results (obviously), the Fed is provisioning to pay the Treasury $78.4 billion, a 50%+ increase from the $47 billion paid to the Treasury in 2009. What is the basis of this payment? Why the Fed's charter of course: "Under the Board's policy, the residual earnings of each Federal Reserve Bank, after providing for the costs of operations, payment of dividends, and the amount necessary to equate surplus with capital paid-in, are distributed to the U.S. Treasury." Which means that as the Fed buys up ever more Treasurys, and as rates continue their inexorable rise higher, the Fed will continue to receive interest payments from the US Treasury, which, at the end of every year, it will promptly remit back to whoever the current incarnation of Tim Geithner is, in essence nullifying the "checks and balances" impact of cash out interest expense on Treasury, and thus government, deficit decisions. In fact, the greater the amount of debt issued, and therefore monetized, the less the Treasury actually has to pay in interest. And in the meantime, the higher interest rates go, the greater the duration-adjusted loss on Fed holdings.

Find the full article here: www.zerohedge.com/article/fed-remit-record-784-billion-ponzi-cash-treasury

[Aman A.K.A. Ahamburger]

I know what it means Vigil, do you have a point?? You posted an article about the FED crumbling. Explain yourself.

[Virgil Showlion]

You posted an article about the FED crumbling. Explain yourself.

I'd hope that the significance of reply #39 to reply #36 would be readily apparent. The remittance from the Fed to the US Treasury is the direct result of aggressive monetization in 2010. Tyler is simply reminding readers that 2010 was the year that Treasury holdings on the Fed's balance sheet soared to the tune of $1 trillion+ USD.

Regarding the collapse of the Fed--it's the end game. Anyone who can reliably predict if/when it will happen, even a few months in advance of the typical Wall Street analyst, could make an enormous profit betting on the outcome. The laypeople will be stuck with a worthless currency.

Even the Treasury's rosy predictions put the debt at 20 trillion by 2015. Drastic changes are coming, and they're not far away. It pays to keep an eye out.



Best Case:


Worst Case:

[djrick]

Even the Treasury's rosy predictions put the debt at 20 trillion by 2015.

Read more: notmsnmoney.proboards.com/index.cgi?board=moneytalk&action=post&thread=337&page=2#ixzz1Ai42TIWc

No one will be untouched by this, in one way or another.

[Virgil Showlion]

Some interesting thoughts by Mr. Hutchison over on SB. The article itself is about Hutchinson's justification for his views on an inevitable rise in interest rates. But my attention was drawn to this particularly controversial hypothesis near the end (bold by me):

We come finally to the most important and unexpected effect of higher interest rates. We now have at last a control experiment, to compare the job-creating capacity of a high interest rate environment with that of a low interest rate environment, and the contrast is a stark one. Following the unemployment peak of 1982, when real interest rates were very high under the tender ministrations of Paul Volcker, the U.S. economy created 4.7 million jobs in the first fifteen months. This time around, in spite of massive "stimulus" both fiscal and monetary and Bernanke's gravity-defying monetary efforts, the first fifteen months after the peak in unemployment have seen the creation of only 930,000 jobs - one fifth the number, in a workforce almost 40% larger.

The explanation is quite simple when you consider the question from first principles. Low interest rates reduce the cost of capital, hence increase the propensity of employers to use capital-intensive technologies, substituting capital for labor wherever possible. Conversely high interest rates, by making capital more expensive, increase the propensity of employers to hire more labor and train its existing workforce to produce more output rather than investing in capital-intensive equipment. Thus a high-rate economy has a smaller proportion of capital inputs in the total - about 28% of total inputs in the 1980s versus 32% recently, according to the Bureau of Labor Statistics - and a lower productivity growth rate, about 1.2% per annum in 1979-84 and 2.4% per annum in 2005-10. While the Greenspan/Bernanke monetary policies have increased recorded productivity growth, therefore, they have reduced job creation, in this recession creating a pool of long-term unemployed that will remain a miserable underclass until they pass on, decades in the future.

You could call this the "cheap robots" theory.

A most intriguing observation, as I'd never really thought of it before.

And a particularly troubling observation when juxtaposed with the ZH projections on interest payments in reply #41. For those of you reading this, what would you do with interest rates?

[comokate]

Feb 18, 2011 17:36:13 GMT -5 Virgil Showlion said:

Some interesting thoughts by Mr. Hutchison over on SB. The article itself is about Hutchinson's justification for his views on an inevitable rise in interest rates. But my attention was drawn to this particularly controversial hypothesis near the end (bold by me):

We come finally to the most important and unexpected effect of higher interest rates. We now have at last a control experiment, to compare the job-creating capacity of a high interest rate environment with that of a low interest rate environment, and the contrast is a stark one. Following the unemployment peak of 1982, when real interest rates were very high under the tender ministrations of Paul Volcker, the U.S. economy created 4.7 million jobs in the first fifteen months. This time around, in spite of massive "stimulus" both fiscal and monetary and Bernanke's gravity-defying monetary efforts, the first fifteen months after the peak in unemployment have seen the creation of only 930,000 jobs - one fifth the number, in a workforce almost 40% larger.

The explanation is quite simple when you consider the question from first principles. Low interest rates reduce the cost of capital, hence increase the propensity of employers to use capital-intensive technologies, substituting capital for labor wherever possible. Conversely high interest rates, by making capital more expensive, increase the propensity of employers to hire more labor and train its existing workforce to produce more output rather than investing in capital-intensive equipment. Thus a high-rate economy has a smaller proportion of capital inputs in the total - about 28% of total inputs in the 1980s versus 32% recently, according to the Bureau of Labor Statistics - and a lower productivity growth rate, about 1.2% per annum in 1979-84 and 2.4% per annum in 2005-10. While the Greenspan/Bernanke monetary policies have increased recorded productivity growth, therefore, they have reduced job creation, in this recession creating a pool of long-term unemployed that will remain a miserable underclass until they pass on, decades in the future.

You could call this the "cheap robots" theory.

A most intriguing observation, as I'd never really thought of it before.

And a particularly troubling observation when juxtaposed with the ZH projections on interest payments in reply #41. For those of you reading this, what would you do with interest rates?

The only solutions to our massive problems would require the pain and sacrifice of *everyone*, top to bottom, and real leaders would start with "feeling the pain" themselves. However with the rampant "I've got mine the heck with you" mentality that has been groomed for at least three decades, those solutions are not likely to be instituted.

[Virgil Showlion]

I think Hutchison is bringing out a real damned-if-you-do damned-if-you-don't argument, Como.

Tyler makes it clear that the last thing the US Treasury needs right now is for interest rates to climb: the cost of servicing the debt quickly eats into public funds, and the "optimal interest rate" per the oft-cited Taylor rule is still negative.

But Hutchison is showing us the other side of the coin. Namely that low interest rates may be partially (or largely) responsible for the sluggish recovery in employment.

I don't put much faith in our financial leaders, but this seems to be case where even if they wanted to do the right thing they don't seem to have many options.

[itstippy]

Who is producing the "cheap robots"? Germany?

[Virgil Showlion]

Who is producing the "cheap robots"? Germany?

I think it has more to do with replacing "customer sales representative" with "auto-answering service".

Plus, inventories of everything are sky high right now. There's probably a fire sale on 2008 model robots.

[decoy409]

itstippy, try DARPA (Pdf File)

Quote: www.robotictechnologyinc.com/images/upload/file/Presentation%20EATR%20Brief%20Overview%2014%20Aug%2009.pdf

[Virgil Showlion]

Hamburger might find the following interesting.

Although I wasn't actually referring to 2010 YoY values when debating Mr. Burger about Chinese US Treasury holdings, it turns out his exuberance there is also based on extremely bad journalism. To wit (bold by me):

As Zero Hedge disclosed on February 28, Treasury International Capital reported that it was adjusting Treasury holdings, which were for most part static, except for holdings of China and the UK, with $268 billion being added to the previous Chinese holdings of $891.6 billion making the new total $1,160 billion, while UK holdings declined by $269 billion to $272 billion (we are convinced this number will be further revised in the future). The fine print here, however, is that anyone who would take a mere 2 minutes to read the heading of the relevant TIC table, would find out that the revised Treasury number applies only for holdings from June 2010 onward, while everything before June 2010 is based on the old data series. And even a first year analyst at Bank of America knows that comparing and presenting pre- and post-revision data for public consumption is immediate grounds for termination (or an indication of extremely sloppy editorializing).

Readers are encouraged to check the source data indicating the variance between the "New Series" and the "Old Series" at the following link.

In other words, the farthest back one can possibly go back using the most recent data is June 2010, when the revised data begins. Bloomberg, however, completely ignored this, and based its entire article which somehow was supposed to confirm that foreign investors are not concerned about US inflation, and thus are adding to their holdings in droves, based on apples and oranges data.

What would the data look like if Blomberg had used a data series that is actually apples to apples, so that the December 2009 Chinese holdings of $894.8 billion data point is applicable?

Here is what Treasury data looked like pre-revisions (which includes the June 2009 and prior data as per the revised "Old Series" - luckily Zero Hedge now archives all obsolete, pre-revision government data just for these situations):

What is rather apparent is that instead of a surge from $894.8 billion to $1,160.1 billion, or a 30% increase in Chinese holdings, as incorrect as it may have been derived, using just the old data series, Chinese holdings actually declined to $891.6 billion. Of course, this calculation is also irrelevant as the US Treasury revised holdings halfway through the year, and therefore neither of these comparisons are actually relevant any longer.

The article comes with the charts and data (apologies, Mr. Burger, for I know how vexing such things must be).

For those that don't immediately follow: $269 believed to be in the hands of UK banks was actually owned by the Chinese. The treasury holdings were modified to reflect this fact. Tyler is pointing out that nobody knows how long this error may have taken to accumulate. They found it. They fixed it. However, Bloomberg (in their kool-aidy wisdom) has reported a glorious 30% increase in Chinese holdings of US Treasuries based on this correction.

It's as if I built up a car collection, had it valued in 2009, realized that I'd parked some cars in the neighbour's yard and forgot to count them, reported the correct number in 2010, and the headline read "Virgil Buys Cars! Increases Collection 30% in 2010!".

Truth is poisonous.

[Aman A.K.A. Ahamburger]

Spin it however you want. On the books right now, China has 1.6 Trillion in UST. I know you zero hedge, Tyler fanboys, like to hang on his every word. However, you have to take into account what is going in the books, if you think they are cooked or not. That is how you invest your money wisely. I though a guy who spent over 100k for a piece of paper would understand that.

[Virgil Showlion]

Spin it however you want.

Read: Truth. Bah!

China has 1.6 Trillion in UST.

Where are you getting this figure?

[decoy409]

China's holdings of US debt larger than reported

WASHINGTON (AFP) – China's holdings of US bonds reached $1.16 trillion at the end of December, almost $270 billion more than previously estimated, new data showed Monday.

Beijing, which has converted much of a huge trade surplus with the United States over the past two decades into buying up US treasuries and other securities, held 26.1 percent of the total of $4.44 trillion held by foreigners, the Treasury said.

The figures came as the US government recalculated its data on foreign holdings of US securities from June 2010.

Chinese-held Treasuries have fallen since hitting a high of $1.18 trillion in October, under the revised figures. Japan remained by far the second largest holder of US government debt, with $882 billion in December, around $1.3 billion less than original estimates.

Britain was third at $272.1 billion.
news.yahoo.com/s/afp/20110228/pl_afp/useconomyfinancebondschina

previously to that number as I had pointed out was,

Fed Will Buy Back Debt
The Federal Reserve said Tuesday it will use the proceeds from its mortgage-backed portfolio to buy back portions of government debt, a sign of the end of the Fed’s optimism that the recession is truly over. In buying $10 billion in Treasury securities a month—a small fraction of the $700 billion Treasury debt—the Fed will not be tackling the $2.3 trillion balance sheet amassed in response to the 2008 financial crisis. “Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months,” the Fed said in a statement. Interest rates will also remain at their current low level—0.25 percent—set in December 2008, at the heart of the financial meltdown.
www.thedailybeast.com/cheat-sheet/item/fed-will-buy-back-debt/recessionomics/

China pull-back paints unsettling rate picture
www.ft.com/cms/s/0/e9f96e18-392f-11e0-97ca-00144feabdc0.html#axzz1G7BQhP4O

And it's no more than a puzzle and the pieces do all go together. When ben buys the mother load shortly, indeed american households (consumers) are going to be looking out their window as they will have no longer a choice but to do so and ask, 'just what the heck is going on?'

[Virgil Showlion]

Decoy, your article above is precisely what is targeted by reply #49.

[decoy409]

Virgil,

People are so caught up with the now that they forgot about the later.

All of these things are still with us and never went away,they did not get better,and they certainly have not changed except for the worse.
NOTHING has changed,only grown worse.

Now I would like to see right now the market crash to zero,the dollar debt note to crash and for everybody screaming PROFIT! PROFIT! go try to collect.

It is a IMPOSSIBILITY as it is not there,and never was there.

And what I would have really of liked to have seen was that $12.8 TRILLION (currently being broke down to see who got what and then we will see what they did with it called INSIDER manipulation) NEVER to have came into play to keep the babies (WS) bottle full.

And we would already be on the road to recovery because we would of had a complete meltdown.

But instead out a town folks are sick of waiting for debt notes to be turned into real notes in their holdings. So to quell things for a bit ben is going out to hammer over $1 trillion of debt brought back home here.
Virgil I am pretty sure at this point that many have no idea what has happened or they would not be talking as they are,and the road we are on with no turning back now.

[Aman A.K.A. Ahamburger]

Sorry about the finger slip Virgil. 1.16 T

I brought up the issue about China buying treasuries through the UK a few different times. This guy has them pegged at 1.3 T.. The fact is Virgil, that all other reports that came out before the March 1 revised holdings are false.

China’s Treasury holdings ‘underestimated’:
www.ft.com/cms/s/0/7956362e-4437-11e0-931d-00144feab49a,s01=1.html?ftcamp=rss#axzz1G9zMm9cn

Published: March 1 2011 19:32 | Last updated: March 1 2011 19:32
China’s holdings of US government bonds are even higher than this week’s dramatic upward revision by the Treasury Department, say strategists.

On Monday, the Treasury released its annual revision of US Treasury securities held by foreign investors, which sent China’s holdings to $1,160bn at the end of December from a prior estimate of $892bn made just two weeks ago

The true figure, however, is closer to $1,300bn according to Michael Pond, interest rate strategist at Barclays Capital. Mr Pond’s estimate is based on revised Treasury data that shows UK buying rose from $94.5bn in June to $272bn by the end of December

“Most of that buying in the UK will get allocated back to China,” said Mr Pond. “The revisions show that China is buying Treasuries through UK money managers.”

Again, the figures are directly from the UST.

[Virgil Showlion]

I'm not contesting that China may own treasuries that were attributed to other countries, Ham. But Tyler is right on the money to point out that comparing post-correction figures (apples) to pre-correction figures (oranges) is giving a grossly distorted picture of the first derivative of treasury holdings.

My car analogy above holds and then some.

[Aman A.K.A. Ahamburger]

Dude, you are missing the point. On the UST books it says: China - 1.16Trillion. Cooked, spun, or oranges, that is what you as an investor needs to know.

[Virgil Showlion]

Not necessarily, my good Ham.

An investor in bonds is much more interested in whether 1.16 becomes 1.06 or 1.26 by year's end than in whether the correct figures are 2.16, 2.06, and 2.26. Price action is dictated by the first derivative.

I contend that prudent investing in 2011 will mean understanding inflation. Understanding inflation is largely an exercise in determining the wold's appetite for US debt. If apples-to-oranges journalism is leaving me with a grossly distorted picture of China's debt appetite in 2010, where does that leave the rest of my analysis?

[Aman A.K.A. Ahamburger]

where does that leave the rest of my analysis?

The same place that a lot of the D&G analysis has been over the last two years.

I know your a Virg investor , so I say it again. I brought up a few times that China has been buying debt through UK brokers. Mr Pond believes the number should be at 1.3Trillion right now. The socialist have been trying to spin the story that they are giving up on US debt.. YA right. However, you are correct, understanding the inflation that we are entering and what can be done to cool that, are very important factors for 2011.