Thursday, 28 October 2010

Clear the Court.

Baltic Dry Index. 2748 +21
LIR Gold Target by 2019: $3,000.

"No one can earn a million dollars honestly."

William Jennings Bryan

Ebenezer Squid and all the lesser squids of 200 West Street, New York City, want their day in court but on their own terms. For more on the Squids’ unbridled power and aspirations to rule the peonage, scroll down to Crooks and Scoundrels Corner. God’s work in High Frequency Trading, it transpires, can’t stand the light of day!

Chicolini here may talk like an idiot and look like an idiot, but don't let that fool you. He really is an idiot.

Groucho Marx.

We open today with the folks in the great white wilderness of Canada, beginning to notice that their southern cousins have gone bust! As their biggest single trading partner that’s a matter great concern. Getting paid for very real, limited supply assets like oil and gas, in very unbacked dodgy US fiat dollars, able to be created at will without limit, is a mug’s game. According to Goldman Sachs, another 4 trillion are about to come surging out of the Fed’s basement computer to pay for Uncle Sam’s profligate lifestyle. At what point is it better to hold on to real assets, rather than Uncle Sam’s pretty pictures of dead US presidents? That point is now rapidly approaching.

Neil Reynolds

The scary actual U.S. government debt

OTTAWA— From Wednesday's Globe and Mail

Boston University economist Laurence Kotlikoff says U.S. government debt is not $13.5-trillion (U.S.), which is 60 per cent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion – 840 per cent of current GDP. “Let’s get real,” Prof. Kotlikoff says. “The U.S. is bankrupt.”

Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the U.S. is in terrible fiscal trouble – far worse than the Washington-based lender of last resort has previously acknowledged. “The U.S. fiscal gap is huge,” the IMF asserted in a June report. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 per cent of U.S. GDP.”

This sum is equal to all current U.S. federal taxes combined. The consequences of the IMF’s fiscal fix, a doubling of federal taxes in perpetuity, would be appalling – and possibly worse than appalling.

Prof. Kotlikoff says: “The IMF is saying that, to close this fiscal gap [by taxation], would require an immediate and permanent doubling of our personal income taxes, our corporate taxes and all other federal taxes.

“America’s fiscal gap is enormous – so massive that closing it appears impossible without immediate and radical reforms to its health care, tax and Social Security systems – as well as military and other discretionary spending cuts.”

He cites earlier calculations by the Congressional Budget Office (CBO) that concluded that the United States would need to increase tax revenue by 12 percentage points of GDP to bring revenue into line with spending commitments. But the CBO calculations assumed that the growth of government programs (including Medicare) would be cut by one-third in the short term and by two-thirds in the long term. This assumption, Prof. Kotlikoff notes, is politically implausible – if not politically impossible.

One way or another, the fiscal gap must be closed. If not, the country’s spending will forever exceed its revenue growth, and no one’s real debt can increase faster than his real income forever.

Prof. Kotlikoff uses “fiscal gap,” not the accumulation of deficits, to define public debt. The fiscal gap is the difference between a government’s projected revenue (expressed in today’s dollar value) and its projected spending (also expressed in today’s dollar value). By this measure, the United States is in worse shape than Greece.


Today, Europe’s dodgy misfit leaders all get to assemble in Brussels for the traditional biannual punch up. While the featherweights get to strut around in the reflected glory of the heavies, the heavies are all terrified that Club Med is about to stick them with a bailout bill again. But first this, Belgium, the British joke upon the French and luckily for the hapless Belgians, without a government for almost 5 months, is in a national panic over the price of French fries, sorry chips, sorry Belgian frites. Happily, no free loaders assembling today in Brussels will be served anything as common as potatoes. Nor will a frites van be anywhere near Europe’s incompetent elite.

"Haggis /n./ Haggis is a kind of stuffed black pudding eaten by the Scots and considered by them to be not only a delicacy but fit for human consumption. The minced heart, liver and lungs of a sheep, calf or other animal's inner organs are mixed with oatmeal, sealed and boiled in maw in the sheep's intestinal stomach-bag.

October 26, 2010, 9:28 AM ET

Belgium in Crisis: Potato Prices Rise

Investors world-wide are braced for rising commodity prices: The cost of sugar is set to surpass the 30-year high recorded earlier this year, while breakfast cereal manufacturers will increase prices to reflect the soaring market value of corn. But for Belgium, the worst is yet to come: The potato market is “firm” and Belgian fries may be set to rise in price.

The Belgian frite is the staple that holds this country together. For the gentleman farmer in the Ardennes to the hipster fashion student of Antwerp, via the suit-wearing Eurocrat in need of sustenance after treaty negotiations that last into the small hours, nothing hits the spot like a large cornet de frites liberally smothered with mayonnaise, ketchup or sauce andalouse –- ideally accompanied by a trappist beer.

However, the crispy exterior and fluffy inside of Belgian fries cannot be achieved with any old potato. The “Bintje” variety is the raw material preferred by the Kingdom’s frites vans and takeaway stands, and the price is rising. Indeed, the Belgapom index — prepared on a weekly basis by eight potato experts based on market prices for Bintje potatoes of over 35mm, plus VAT, ready for immediate delivery and chipping –- has reached €135 per tonne, from just under €120 a month ago. A year ago, a tonne of finest tubers cost just €64.

Behind this rise -– which the 4,500 friteries of Belgium may well end up passing onto consumers -– is a rainy summer, the July heatwave and a bad harvest -– possibly even as bad as the winter of 2006-2007, when potato prices soared to record highs and many revelers chose to finish off Friday nights with a kebab. (Winter prices were also briefly higher than they are now in 2003-2004.)

In a country that hasn’t had a government for 135 days, this latest price rise -– which has prompted the Belgapom experts to change their call on the market to “firm” (offer is smaller or equal to demand) from stable, could severely exacerbate the situation. We’re seeing what happens when France is short of petrol. Imagine Belgium without fries.

Below, snake bit Euroland stumbles its way along towards a breakup. Germany is booming and needs higher interest rates to head off inflation. Club Med is still avoiding work and taxes, and in the case of the revolting French, rioting, and all are looking for a handout from the unloved booming Germans. Perfidious Albion, outside of Euroland but inside the EUSSR, is just hoping to get some of its money back and hoping no one brings up Britain’s massive debt. Given half a chance H.M.’s coalition G, is hoping to export even more austerity to the continent. The Brussels bureaucrats instead want an even bigger budget. No one attending is likely to bring the root cause of our problem, fiat currency, and great vampire squid bankster fraud.

If all else fails, immortality can always be assured by spectacular error.

J. K. Galbraith.

Tax Shortfalls Spur New Doubts on European Recovery

By LANDON THOMAS Jr. Published: October 27, 2010

LONDON — The mathematics of austerity are getting harder.

With economic conditions weaker than expected, tax revenue is coming up short of projections in parts of Europe. As a result, countries struggling with high deficits are now confronting the prospect that they will miss the budget deficit targets forced upon them this year by impatient bond investors.

Greece, for one, looks as if it will run a budget deficit for 2010 greater than the 8.1 percent of gross domestic product it agreed to as part of a rescue package from the International Monetary Fund and the European Union that amounted to more than $150 billion, according to a person briefed on the matter but not authorized to speak about it.

The adjustment, at worst, would result in a deficit of 8.9 percent of Greece’s output, this person said. Normally, such a small difference would not be cause for alarm.

But after the latest upward revision in Greece’s 2009 deficit — to about 15.5 percent from 13.5 percent of output — the miss has spurred investor fears that the Greek government will be unable to close the gap and that Greece may ultimately be forced to restructure its mountain of debt with foreign investors.

As word seeped into the market on Wednesday, Greek 10-year bond yields jumped to 10.3 percent, from 9.3 percent. That more or less reversed what had been an impressive bond market rally, when yields fell from more than 11 percent to just under 9 percent over the last month. The cost of insuring Greek bonds against a possible default also rose.

A spokesman for the Greek finance ministry declined to comment.

France Braces for Strikes in Unions’ Final Stand on Pension Bill

Oct. 28 (Bloomberg) -- France braced for train disruptions, flight cancelations and fuel shortages after unions called for a fifth, and some said final, strike today against President Nicolas Sarkozy’s pension bill, passed by parliament yesterday.

Unions are divided about the course of action after the lower house of parliament yesterday cast its final vote, approving the bill that will raise the minimum retirement age to 62 from 60. The bill must now be vetted by the constitutional court before it is promulgated into law by Sarkozy.

“Since there are no signs that Sarkozy will back down, the challenge for the unions is to find a way to wind down the protests without losing face,” said Guy Groux, an expert on labor movements at Cevipof, a Paris-based political research institute. “It’s clear the protests will peter out.”

Still, France’s largest union, Confederation Generale du Travail, said it will continue to push for concessions until the retirement plan is signed into law. “Until the law is promulgated, we’ll continue to act,” Bernard Thibault, head of the CGT union, said in an interview with newspaper Liberation yesterday. “Then we enter a different stage.”

About 30 percent of flights from Paris’s Charles de Gaulle airport will be canceled today. Trains and local transport will be disrupted and some government offices will be closed. Strikes at oil terminals have left refineries without the necessary crude to process into fuels such as gasoline and diesel. Workers at power plants have threatened to cut electricity production. Demonstrations are planned in cities across the country and unions have called for another day of protests on Nov. 6

Portuguese Budget Talks Stall, Final Passage in Doubt

Oct. 27 (Bloomberg) -- The Portuguese government and the country’s main opposition party broke off talks on the biggest budget cuts since at least the 1970s, possibly jeopardizing passage of the 2011 plan to tame the euro-region’s fourth- biggest deficit.

“There is no possibility of continuing the negotiation process,” Eduardo Catroga, a former finance minister who represented the opposition Social Democratic Party in the talks, said in Lisbon today. “My function from a technical standpoint no longer makes sense.”

The Social Democrats have opposed tax increases in the budget and called for deeper spending cuts. Finance Minister Fernando Teixeira dos Santos and Catroga had been negotiating this week after Portugal’s borrowing costs rose to a euro-era record on Sept. 28 amid Social Democrat threats to oppose the plan. Prime Minister Jose Socrates, lacking a parliamentary majority, needs the largest opposition party to back the budget or abstain for it to be passed.

“This is very, very important especially after the move in Portuguese bonds which was pricing in that an agreement would be finally reached, so it’s the exact opposite of what was expected,” said Ioannis Sokos, a London-based interest-rate strategist at BNP Paribas.

----- The extra yield investors demand to hold 10-year Portuguese bonds rather than German bunds, the European benchmark, climbed 16 basis points to 329 basis points after the announcement, the biggest increase in a month. The spread hit a record 441 basis points in September. The country’s PSI-20 benchmark index dropped 1.3 percent.

The Social Democrats have decided to wait until the day before the budget is due to be voted in parliament for the government to reconsider the opposition group’s proposals, Miguel Relvas, the Social Democratic Party’s secretary-general, said today.

Failure to pass the Portuguese budget “will plunge the country into a profound financial crisis with very serious consequences for our economy, in which we’ll see the channels of financing for our economy blocked,” Teixeira dos Santos said today in comments broadcast by SIC Noticias television. “It’s a very worrisome scenario.”

In Spain, Homes Are Taken but Debt Stays

By SUZANNE DALEY Published: October 27, 2010

MADRID — Manolo Marbán, 59, is still living in his house in Toledo and going to work in the small pink-and-aqua pet grooming shop he bought here in 2006, when he got swept up in Spain’s giddy real estate boom.

But Mr. Marbán does not own either anymore. The bank foreclosed on both properties last April, and he is waiting for the courts to issue the eviction notices. For most Americans facing foreclosure, that is the end of it. But for Mr. Marbán and thousands of others here, it is just the beginning of their troubles. When the gavel falls on his case, he will still owe the bank more than $140,000. “I will be working for the bank for the rest of my life,” Mr. Marbán said recently, tears welling in his eyes. “I will never own anything — not even a car.”

The real estate and banking excesses in Spain were a lot like those in the United States. Construction boomed, prices rose at an astonishing pace and banks gave out loans just as fast, often to customers like Mr. Marbán, who used the equity in his house to finance a mortgage for his shop. But those days are over. Spain now has the highest unemployment rate in the euro zone — 20 percent — and real estate prices are dropping. For many Spaniards, no longer able to pay their mortgages, the fine print in the deals they agreed to years ago is catching up with them.

Not only are Spanish mortgage holders personally liable for the full amount of the loan, but throw in penalty interest charges and tens of thousands of dollars in court fees, and people can end up, like Mr. Marbán, facing a mountain of debt. Bankruptcy is not the answer, either. Mortgage debt is specifically excluded here.

Elsewhere, it’s “every man for himself”, says Bloomberg, the G-20’s policy announcement didn’t even last out a week. Stay long precious metals. Whether our central banksters like it or not, the fiat currency regime is dying killed by profligate politicians and everyone wanting a free lunch.

‘Every Man for Himself’ on Currencies After G-20

Oct. 27 (Bloomberg) -- Finance chiefs from South Korea to South Africa signaled they may act to slow gains in their currencies, just four days after the Group of 20 vowed to soothe trade tensions in the $4 trillion-a-day foreign-exchange market.

Asian currencies fell to a one-week low after Bank of Korea Governor Kim Choong Soo said today that measures to mitigate capital flows could be “useful.” Hours later, the rand dropped as South African Finance Minister Pravin Gordhan said his government will use part of higher-than-expected tax revenue to build foreign reserves as it attempts to weaken the currency.

The shifts suggest G-20 members will keep trying to defend their economies from the slide of the dollar and capital inflows even after the group promised Oct. 23 to refrain from “competitive devaluation” and to increasingly embrace market- determined currencies.

“The G-20 made a vague pledge not to manipulate currencies much, but there was no mechanism to ensure that each country will not keep taking unilateral measures,” said Win Thin, global head of emerging markets strategy at Brown Brothers Harriman & Co. in New York. “It’s every man for himself.”

China’s yuan declined by the most in 22 months after the central bank set the weakest reference rate for the currency since September. Bank Indonesia will “guard” the rupiah at its “fundamental” level of 8,900 to 9,300 against the dollar and buy foreign currencies to limit volatility, Governor Darmin Nasution said today. Bank Negara Malaysia Governor Zeti Akhtar Aziz told Bloomberg Television yesterday she favors a gradual strengthening of the ringgit.

Ideas are more powerful than guns. We would not let our enemies have guns, why should we let them have ideas.


At the Comex silver depositories Wednesday, final figures were: Registered 51.92 Moz, Eligible 58.87 Moz, Total 110.79 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

Below, Ebenezer Squid wants his day in court, but you’re not invited. Do the Great Vampire Squids rule America, or what? We can’t let the public know just how crooked America’s stock markets have become. “Flash crash? What flash crash? Lock that man up and throw away the key”. Goldman’s High Frequency Trading program is apparently so powerful and destructive, that it’s not even shared with God.

"It's morally wrong to allow a sucker to keep his liberty."

WC Fields. With apologies to Ebenezer Squid.

OCTOBER 27, 2010

U.S. Seeks to Shield Goldman Secrets

Goldman Sachs Group Inc. has always closely guarded the secrets of its lucrative high-speed trading system. Now the securities firm is getting a help from an unusual source: federal prosecutors.

Federal prosecutors in Manhattan this week asked a federal district judge to seal the courtroom at the forthcoming trial of a former Goldman computer programmer accused of stealing the firm's computer code. The move was a formal request to empty the courtroom of the general public when details of Goldman's trade secrets are being discussed. The trial is set to start to late November.

Prosecutors also asked that any documents related to Goldman's trading strategies remain under seal.

Such requests are common when proprietary corporate information could be exposed in a trial, lawyers say. This case is unusual in that it involves secrets about a potentially lucrative trading system, rather than, say, ingredients in a soda formula.

Sergey Aleynikov, 40 years old, was arrested by Federal Bureau of Investigation agents in Newark Liberty International Airport on July 3, 2009, and charged with the theft of computer code behind Goldman's high-frequency trading platform. The programmer was indicted in February and has pleaded not guilty.

Motions filed this week by the government and the defense offer a window into arguments that will decide Mr. Aleynikov's fate. Prosecutors are expected to argue that his actions could have harmed Goldman Sachs. A spokesman for the bank declined to comment.

Lawyers for Mr. Aleynikov, whom the indictment alleges uploaded Goldman code to a server in Germany and then downloaded it to his home computers, are expected to contend that the code he took only represented a fraction of the broader strategy and couldn't be used to hurt Goldman's business, court documents suggest.

Earlier this year, Mr. Aleynikov's defense team sought details from the government and Goldman Sachs regarding the bank's high-frequency computer systems. The court denied those requests.

Lead defense attorney Kevin Marino, of the Chatham, N.J., law firm Marino, Tortorella & Boyle, argued in his motion this week that the defense requires access to information about Goldman's trading system to prove Mr. Aleynikov "could not have intended to injure Goldman" by taking the firm's trading code.

The bar for clearing a courtroom can be high, said Sandra McCallion, a lawyer specializing in trade-secret cases for the New York law firm Cohen & Gresser LLP. The government has to show that "this is something that is so secret that it will cause harm to [Goldman] if it were made public," she said.

The arrest of the Goldman programmer helped put high-frequency trading into the spotlight last year. The strategy, in which powerful computers buy and sell securities at ultrafast speeds, has proved lucrative for many traders.

The indictment said Goldman's high-frequency trading operation generated "many millions of dollars in profits per year."

The strategy also has come under heightened scrutiny amid concerns that some high-frequency traders were gaining unfair advantages in the market. The Securities and Exchange Commission has launched an in-depth study of issues surrounding high-speed trading and is considering several proposals to monitor it.

This year, regulators have focused on the role high-frequency traders played in the May 6 "flash crash," when some of the fast-moving firms stepped away from the market during the height of the turmoil.

Court documents filed by the government in July 2009, soon after Mr. Aleynikov's arrest, state that Goldman's strategies involve "sophisticated, high-speed and high-volume trades on various stock and commodities markets."

Prosecutors allege that Mr. Aleynikov transferred a substantial portion of that code to a computer server in Germany. He then downloaded the code to his personal laptop, which he allegedly brought to Chicago, where he had a meeting a firm that had hired him, start-up trading shop Teza Technologies LLC.

Teza became embroiled in its own legal battle following Mr. Aleynikov's arrest. Founder Mikhail "Misha" Malyshev and Teza employees were sued by their former employer, Chicago hedge fund Citadel LLC, for violating agreements not to work for a competitive firm. In mid-October 2009, a Chicago court granted sanctions against Teza.

The Teza case showed how details surrounding a trading strategy can emerge during the course of a trial, including disclosures that the Citadel high-frequency unit pulled in about $1 billion in 2008.

Sometimes I wonder whether the world is being run by smart people who are putting us on or by imbeciles who really mean it.

Mark Twain.

The monthly Coppock Indicators finished September:

DJIA: +227 Down. NASDAQ: +321 Down. SP500: +221 Down.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. September is the fourth down month in a row.


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