Friday, June 13th, 2014 - Infallible Source Predicts Economic Collapse!

Infallible Source Predicts Economic Collapse!
by Sinclair Noe

DOW + 41 = 16,775
SPX + 6 = 1936
NAS + 13 = 4310
10 YRYLD + .02 = 2.60%
OIL + .38 = 106.91
GOLD + 2.80 = 1276.90
SILV + .15 = 19.77

For the week, the Dow was down 0.9%, the S&P fell 0.7 percent and the Nasdaq was down 0.25%. The week's decline was the first after three weeks of consecutive gains on the S&P 500. For the year, the broad market index is up about 4.8%. So, it was a rough week, but a good Friday the 13^th.

The Producer Price Index measures prices at the wholesale level; the PPI was down 0.2% in May. The decline was driven lower by cheaper food and gas, and follows two months of strong gains. In the past 12 months, producer prices have risen 2%, matching the Federal Reserve's inflation target. That's down from an annual gain of 2.1% in April. Excluding the volatile food, energy and profit margin categories, (for all you people who don’t eat food or drive in cars) core producer prices were unchanged in May. Inflation, as measured by the consumer price index, has been mostly below 2% for the past two years.

Of course, that might change, at least for people who eat and drive cars. The price of oil has jumped the past few days, now standing at $106.91 a barrel, mainly on fears of a civil war in Iraq. The International Energy Agency played down fears over the possible loss of oil exports from Iraq in its monthly Oil Market Report, writing: "Concerning as the latest events in Iraq may be, they might not for now, if the conflict does not spread further, put additional Iraqi oil supplies immediately at risk." Oil futures in New York rose 4.1% this week.

A very nasty group of rebels known as ISIS is closing in on Baghdad. ISIS stands for the Islamic State of Iraq and Syria, or the Islamic State of Iraq and Levant, and they are made of Sunnis. The government of Iraq is controlled by Shi’ites. ISIS has taken over the second largest city of Mosul; they have surrounded the largest oil refinery in the country, and they are moving to the capitol of Baghdad. So far, the Iraqi soldiers have been running away, but today a message from the Grand Ayatollah Ali al-Sistani, who is the highest religious authority for Shi'ites in Iraq, said people should unite to fight back.

In an interesting twist, before ISIS started ramping up the fight in Iraq, they were fighting in Syria, against the government of Bashar al Assad.

President Obama told reporters at the White House he would not send US troops back into combat in Iraq but had asked his national security team to prepare "a range of other options" to help Iraqi security forces. He specifically did not rule out the use of military action, which might include the possibility of air attacks to slow the rebel advance.

Pope Francis says the global economic system is near collapse. In an interview with la Vanguardia, the Pope said he was especially concerned about youth unemployment, and he denounced the influence of war and the military on the global economy, saying: “We discard a whole generation to maintain an economic system that no longer endures, a system that to survive has to make war, as the big empires have always done. Since we cannot wage the Third World War, we make regional wars. And what does that mean? That we make and sell arms. And with that the balance sheets of the idolatrous economies -- the big world economies that sacrifice man at the feet of the idol of money -- are obviously cleaned up."

The pope said there was enough food to feed all the world's hungry, and people’s needs should be at the heart of the economic system.

Following the elections in the European Union, France issued a report on debt, which contained several key findings, including the idea that the rise in the state’s debt in the past decades cannot be explained by an increase in public spending. The report also says that no one actually knows who holds the French debt. And the big conclusion of the report is that some 60% of the French public debt is illegitimate. An illegitimate debt is one that grew in the service of private interests, and not the wellbeing of the people. Therefore the French people have a right to demand a moratorium on the payment of the debt, and the cancellation of at least part of it.

Goldman Sachs and Bain Capital have agreed to pay a combined $121 million to settle a lawsuit that accused them and other firms of colluding to drive down the prices of takeovers before the financial crisis, according to a court filing on Wednesday. The deal, if approved by the court, would bring closure for Goldman and Bain of a seven-year-old lawsuit filed by former shareholders of the acquired companies, who claimed that private equity firms teaming up to do deals were partners in an illegal conspiracy to reduce competition.

The settlement deal also raises the stakes for the remaining defendants, which include some of private equity’s biggest firms. The Blackstone Group, Kohlberg Kravis Roberts, TPG Capital, Silver Lake and the Carlyle Group are scheduled to head to trial in November. Now the $121 million dollar settlement is fairly small, but now that Goldman and Bains have broken ranks with the other defendants, the lawyers for the plaintiffs may gain additional bargaining power. The plaintiffs are seeking billions of dollars in damages, but because of the mechanics of antitrust law, the defendants could be liable for a multiple of that amount if they lose at trial.

The Justice Department has asked Citigroup for more than $10 billion to settle a probe into the bank’s sale of mortgage-backed bonds before the 2008 financial crisis. Prosecutors broke off talks with Citigroup earlier this week and are preparing to sue the bank after it offered less than $4 billion ($1 billion cash and the rest in consumer relief) to resolve the matter. The Justice Department could file a lawsuit as early as next week.

The department is taking a similar approach with Bank of America. Prosecutors also halted talks with the bank June 9 after it offered to pay more than $12 billion, short of the department’s $17 billion request. And then there is the outstanding case against BNP Paribas, where prosecutors are believed to be calling for more than $10 billion in fines for money laundering and sanctions violations. And this all follows on the heels of the Credit Suisse $2.6 billion fine and criminal guilty plea in a tax evasion case. No word whether prosecutors are looking at criminal charges against BofA or Citigroup. What we are seeing is that the fines are getting larger, but somehow with billions of dollars of penalties and multiple billions of dollars of wrongdoing, nobody ever goes to jail.

If you wonder why the prisons aren't filled with banksters, just follow the money from Wall Street to Capitol Hill. Earlier this week we saw one of Wall Street's favorite politicians of the decade, Eric Cantor, destroyed by a random teabagger who railed against him endlessly for pushing through Bush's TARP bailout of the big banks. Just this cycle, the financial sector had contributed $1,396,450 to Cantor's campaign coffers. And Cantor was just one of the politicians getting their wallets fluffed by Wall Street, a quick list of Wall Street favorites includes John Boehner, Spencer Bachus, Jeb Hensarling, and Democrats including Charlie Rangel, and Heny Stoyer. We have finally found one thing in Washington that is bipartisan – bribery, or should I say campaign finance…no, it’s bribery.

Elon Musk has announced that Tesla will let other companies use its inventions under an open-source-inspired agenda at the company. Here’s how Musk put it in a blog post:”Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”

Tesla has hundreds of approved patents, and many pending applications, for all manner of inventions tied to electric-vehicle technology. Tesla pioneered innovations that lowered the cost and increased the safety of battery packs. Its cars recharge much faster than others on the market, thanks to connector, software, and power-management advances. Now this public company will offer these smarts up to its rivals and ask nothing but goodwill in return.

And while it sounds like a radical idea, it might be a very smart business move. One thing that is required for electric cars is charging stations, as ubiquitous as gas stations. And even though Tesla has patents on battery technology, and they have some of the best batteries around with longer range and faster recharging, they still need to improve the technology. And Musk apparently isn’t concerned with the competition, saying: “You want to be innovating so fast that you invalidate your prior patents, in terms of what really matters. It’s the velocity of innovation that matters.”

Here’s an amazing statistic, compliments of a Tweet from Bill Gates. From 1901 to 2000, the United States built millions of miles of roads and interstate highways, plus Hoover Dam, plus many other damns, plus an incredible number of building; and during that 100 year period, we used 4.5 gigatons of concrete. In the past 3 ½ years, China has been on a building boom that has consumed 6.6 gigatons of concrete.

Tuesday, September 03, 2013 - Welcome to September

Welcome to September

by Sinclair Noe

DOW + 23 = 14,833
SPX + 6 = 1639
NAS + 22 = 3612
10 YR YLD + .10 = 2.85%
OIL + .89 = 108.54
GOLD + 15.70 = 1413.20
SILV + .75 = 24.38

Well, we still haven't started the war, yet. Congressional leaders from both sides of the aisle lined up in support of military intervention. The Senate Foreign Relations Committee opened a hearing and grilled Secretaries Kerry and Hagel. Tomorrow, Kerry and Hagel are scheduled to appear before the House Foreign Affairs Committee. The debate is shifting away from “Did Assad use chemical weapons?” to “What should be done about it?”

Clarity of objectives seems to be a work in progress. Maybe all the talk will eventually consider the possible consequences of a military attack on Syria. Is it really possible to bomb a country and avoid deeper involvement? So far, the politicians are trying to work it out in a logical progression; if A, then B. That's not always how it happens in war. Logic gets thrown out the window.

At this time of crisis, it is worth remembering another time, 30 years ago in October, 1983 when US warships bombarded Lebanon, the country located next to Syria. Within weeks, the US Marine barracks in Beirut was blown up by a massive truck bomb that killed 241 American servicemen: 220 Marines, 18 sailors and three soldiers. The truck driver/suicide bomber was an Iranian national whose truck contained explosives that were the equivalent of 21,000 pounds of TNT. Two minutes later a second suicide bomber drove a truck filled with explosives into the French military compound in Beirut killing 58 French paratroopers. France is the only country standing with the Obama administration on a military strike on Syria, and they might put that support to a vote of parliament.

Mr. Obama has invited the Republican and Democratic leaders of the House and Senate defense, foreign affairs and intelligence committees to the White House this afternoon. Later, he'll fly to Russia for the previously scheduled G-20 economic summit, a forum that will put him across the table from Vladimir Putin of Russia.

August is finally behind us. No more excuses for the market. No more low-volume rallies and corrections. The Dow was red-hot at the beginning of the year. Its components were easily besting the broad market, delivering gains usually reserved for popular growth stocks. However, the summer was far from kind to the Dow. It began to slip in early July relative to the S&P 500. As of right now, the Dow has yet to find its footing. Even today's modest gains were well off session highs.

So, we head into September to the rhythm of the war drums. It promises to be an interesting month. If the major market indices can't catch a meaningful rally now, it is hard to imagine how the indices could sustain a meaningful rally later in the month. September has earned its reputation as the worst month of the year for the broader market, with the S&P down an average of 0.5% over the past 70 years. Not every year is negative; seven of the past ten years have seen positive September returns.

This Friday we get the monthly jobs report. Expectations are for a slight uptick from July's 162,000 headline result with no change to the unemployment rate from the prior reading of 7.4%. Remember good news is bad news for the markets, fearful of losing their spot at the trough of the Fed's easy money. This morning, the ISM report popped up to 55.7 as the manufacturing sector continued to expand for a third straight month; and the yield on the 10-year Treasuries popped to 2.88% In two weeks, the Fed FOMC will meet and consider slowing the flow of easy money, a cutback or taper of QE3. Toss in ongoing speculation about a replacement for Bernanke, and let the fireworks begin.

Congress will officially reconvene next Monday and they will be focused on the Syrian war, but don't forget the battles over taxes and spending, regulations and safety nets, and how to get the economy out of first gear. Which means more gridlock and continual showdowns over budget resolutions and the debt ceiling. They still haven't figured out exactly what is being cut as part of the sequester. Earlier this year, the House and the Senate passed spending bills for the 2014 fiscal year, which begins on Oct. 1, that were about $90 billion apart, but never settled on a final figure. Congress is expected to pass another stopgap bill, known as a continuing resolution, financing the government for a few more months, but it is unclear whether such funding will stay at current levels or shrink. This is actually important because if they fail to come to a deal before October, many parts of the federal government could shut down. Not a complete government shutdown, but death by a thousand cuts.

We're emerging from the depths of the worst downturn since the Great Depression but nothing fundamentally has changed. Corporate profits are up largely because payrolls are down. Cost cutting has limits, and we've started to see those limits in the revenue numbers from second quarter earnings reports. Businesses need customers, and the customers are holding tight to the purse.

While the debate rages over Syria, American workers have been taking to the streets to demand a bit more pay. So as Congress reconvenes and the battles resume, be clear about what's at stake. The only way back to a buoyant economy is through a productive system whose gains are more widely shared. One of the totally unanswered questions about Syrian military intervention is how we're going to pay for it. It's not cheap to park five destroyers in the Mediterranean; it's not cheap to lob a few hundred cruise missiles over the waves; it gets real expensive, real fast if anything goes slightly askew.

Where does the money come from? It won't be coming Detroit or San Bernardino. In July, Detroit filed for bankruptcy. Last week, San Bernardino filed for BK. Two of the biggest municipal bankruptcies in US history.

After kicking the can down the road, with increasing desperation, for many years, the end of the line has been reached. The city is finally admitting that far too many financial promises have been made, and that the majority of these simply cannot be kept. It does not matter whether the promise-holders have a good case for receiving services or needing payments, or even if they have legal protections. If the promises can be broken, they will.

Strange as it may seem, the bankruptcy filings don’t appear to have unnerved the $3.7 trillion municipal bond market. The momentum defies predictions that the muni market would go into a deep freeze following the Motor City’s financial collapse and Detroit Emergency Manager Kevyn Orr’s plan to impose losses on some bondholders. There’s not a lot of evidence to show this has been the death knell for GO [general obligation] bonds.

Everyone thinks it’s just Detroit, but Detroit is not unique. It’s the same in Chicago and New York and San Diego, San Jose, Stockton, and San Bernardino. It’s a lot of major cities in this country. They may not be as extreme as Detroit, but a lot of them face the same problems. Detroit is merely the first of many municipalities to hit the wall, where the realization dawns that far too many promises have been made, and nowhere near all of them can be kept. Different classes of stakeholders are still assuming that their claims will somehow be protected. They are typically thinking of those claims in isolation, without considering the implications for other groups whose rival claims would have to be subordinated. It has been clear for a long time that we would reach this crunch point

Investors in municipal bonds are typically looking for a dependable income, stable bond prices and shelter from taxes. They have generally come to regard these investments as risk-free, even as the obvious problems faced by municipalities have been mounting. The bankruptcy of three cities in California last year seems not to have been interpreted as the warning signs that they were, and so far, relatively speaking, neither does the bankruptcy of Detroit. This complacency is highly unlikely to last, however, as the extent of the inevitable losses in Detroit becomes clear. The clear risk is that bond prices will crash on spiking yield, and that this will precipitate a rush for the exits. A move in this direction has begun, and concern is rising, but as yet it remains a muted response.

Public pensions are also a major stumbling block; supposedly protected by Michigan state law; the law might not protect retirees. What and who will be protected by the law? Under both the Dodd-Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured. In a major derivatives fiasco, derivative claimants could well grab all the collateral, leaving other claimants, public and private, holding the bag.

Welcome to September.