Musings

Gee, who would have thought a communist dictatorship would pull something like President Obama has, but on a grander scale?

March 8 (Bloomberg) -- China plans to nullify all guarantees local governments have provided for loans taken by their financing vehicles as concerns about credit risks on such debt surges.

Ain't it grand to run a dictatorship?  You can take a legal guarantee and nullify if with the wave of a hand.

Oh wait - Obama did that with GM and Chrysler too, didn't he?  Hmm....

The Ministry of Finance will also ban all future guarantees by local governments and legislatures in rules that may be issued as soon as this month, Yan Qingmin, head of the banking regulator’s Shanghai branch, said in an interview. The ministry held meetings on the rules on Feb. 25 with regulators including the China Banking Regulatory Commission and the People’s Bank of China, Yan said March 5.

You mean "the great Chinese recovery" has been a scam?  It was nothing of the sort, but instead was simple papering over the economic collapse with government-sanctioned borrow-and-spend without regard to ability to pay?

China’s local governments are raising funds through investment vehicles to circumvent regulations that prevent them from borrowing directly. A crackdown on local-government borrowing, estimated at about 24 trillion yuan ($3.5 trillion) by Northwestern University Professor Victor Shih, could trigger a “gigantic wave” of bad loans as projects are left without funding, Shih said this month.

$3.5 trillion of trash eh?  Why that's about equal to our government's entire budget for a year, isn't it?

Wen also warned of “latent risks” in China’s banking system as he pledged to continue a moderately loose monetary policy and a proactive fiscal stance.

Moderately loose?  You mean outright fraudulent lending is now "moderately loose"?  Well then I guess our housing bubble and the bogus creation of securities wasn't loose at all, and China won't mind one bit if we tell them to stick their Fannie and Freddie paper (if they still have any) right up their tail.

See, the fraudulent credit creation isn't just a "capitalist" thing.  It extends to communist dictatorships too.

Or is it that we're getting closer to them than they are to us in terms of how our governments actually operate?

One wonders.

Hmmmm....

Resentment of the U.S. government and suspicions over the 9/11 attacks have surfaced in writings by the Californian identified as the gunman who shot two Pentagon police officers before he was mortally wounded in a hail of return fire.

Oh, that's not a right-wing thing - that's a lefty paradise!  Specifically:

Signs emerged that Bedell harbored ill feelings toward the government and the armed forces, and had questioned the circumstances behind the Sept. 11, 2001, terrorist attacks.

The user named JPatrickBedell wrote the Sabow case was "a step toward establishing the truth of events such as the September 11 demolitions."

Demolitions eh?

Ah, a 9/11 Troofer.  Got it.

The mark of the hard left, who are convinced that Dick Cheney ordered the towers blown up with explosives as a way to goad the United States into invading Iraq - all for that evil Texas Tea, of course.

I wonder how long it will be before we see the bastions of the left in the mainstream media call this what it is - home-grown terrorism conducted under the banner of the "troofer" who are convinced that our government killed 3,000 of our own citizens on 9/11.

"What is never, Alex."

Such intellectual honesty you have, Mr. Media Man.

From Rasmussen:

The founding document of the United States, the Declaration of Independence, states that governments derive “their just powers from the consent of the governed.” Today, however, just 21% of voters nationwide believe that the federal government enjoys the consent of the governed.

A new Rasmussen Reports national telephone survey finds that 61% disagree and say the government does not have the necessary consent. Eighteen percent (18%) of voters are not sure.

Uh, there is no way for Washington DC to force people to believe they have given consent.  They can only act in a fashion that engenders willfully-given consent.

In light of what happened today in Austin TX, this ought to be resulting in sobering reflection among the "political class."  It won't, but it should.

Why?

Historians have estimated that between 15 and 20 percent of the white population of the colonies were Loyalists.^[2] Historian Robert Middlekauff estimates that about 500,000 colonists, or 19 percent of the white population, remained loyal to Britain.^[3]

I had no idea the numbers were this bad at present, but I was aware that in 1776 about 20% of the population was in fact in support of Britain.

I think it's getting to be about time to.....

Or if you prefer....

To those who think that "it's all going to be ok" let me point out a few things I've said repeatedly since this entire mess began and The Ticker began publication.

• We're screwed - they're screwed worse.  Greece anyone?  Oops - it's not just Greece, it's also Spain and Portugal, and now we're seeing failed bond auctions.  Ka-Boom!
  
  
• China will save us.  Oh really?  Why is it that China's government is talking about bailing out their own banks?  What could possibly go wrong with average home prices in parts of China exceeding 80x average incomes?
  
  
• We fixed nothing with all the screwing around.  All we did is let the clowns steal more money.  There has been no cleaning out of the fraudulent securities.  Some have been transferred to your tax account - that is, you will be forced to pay for them in the future.  But even more remain out there.  Fannie/Freddie anyone?  FHA defaults?  CDOs, RMBS and others that continue to come under pressure and suffer downgrades?  Second mortgages (HELOCs and similar) that are functionally if not mathematically worthless?  Who's taken account of all these and written them off?  Nobody.  "Extend and pretend" only works until the cash flow dries up.  Then you're doubly-screwed because the value of what you hold has declined further.
  
  
• The economy is not improving.  No jobs, no economy.  We shipped all our good jobs overseas in the quest for $30 DVD players.  We got 'em - but we lost the ability to employ people in other than asset-stripping jobs for more than $50,000 a year.  We refused to address the currency and import/export imbalances and still are, despite all the jawboning.
  
  
• The book cooking continues.  CISCO comes out with "great" earnings but hidden in there is the fact that they're writing their own financing - and holding it off-book.  Banks are still carrying HELOCs behind underwater firsts at or near PAR, even when the first is non-performing.  Those loans have a literal zero recovery value.  What could possibly go wrong with hiding asset quality (or lack thereof) off balance sheet where nobody can see it?  Nobody remembers Lucent?  Enron?  It wasn't THAT long ago.  Will it get CISCO or these banks?  I have no clue but this much I do know - nobody ever hides good news, they sing from the rafters.  You judge what's going on here.
  
  
• We did not neuter the CDS monster and it is now threatening to stomp on more churches.  They're blowing out again - this time on sovereigns.  Greece, Spain, Portugal.  Don't worry, they'll be back on banks too, perhaps on Britain, and what's next?  The US, probably.  We had the opportunity to flat-out declare these things illegal gambling contracts and tear 'em up.  Yeah, it would have led to massive lawsuits.  And?  These damn things are toxic, they're an inherently fraudulent scheme in that nobody is being forced to hold margin against their exposure (and thus they cannot be paid as agreed) and they're a big cause of the mess snowballing, since they provide huge leverage and that can burn you just as badly as it "helps."  I've been warning for a good long time on this, but nobody wanted to listen.  Now we're seeing Round #2 over in Europe.  This is not over.
  
  
• We have foolishly tried to prevent home prices from contracting and in doing so have fueled even more trouble.  Now we've got people intentionally defaulting - following precisely the paths that banks are taking with places like the offices in California and the huge apartment complex in New York!  If it's good enough for them, it damn sure is good enough for me!  And why not?  Are there consequences?  Sure, in some cases you can get nailed with a deficiency judgment and your credit will be trashed in all cases.  But the banks are partly responsible for this push-back as well - many of them have gone so far as to push on debtors to raid 401k or IRA accounts, which is outrageous - those assets are protected in a bankruptcy.  That sort of pressure ought to be felonious (and prosecuted as extortion) - but of course it's not - if you're a debt collector.
  
  
• We claim that auto sales are "strong" but in fact they're down huge from where they were through 2006.  There's no "great" market there.  We're doing what - 10.5 million units?  That's a number last seen in the 1980s but we have how many more million people in the US today?  Truth: Auto sales are off 40% or more from the last decade's numbers - not just the "hayday" of 2006.
  
  
• We claim that the economy is "recovering" but consumers remain tapped out and continue to shed debt.  Instead of addressing this and dealing with the fact that we built too much capacity into the economy (all predicated on "pulled forward demand") we instead are trying to reinflate a popped bubble and are peddling false hope.  This in turn has led small businesspeople (especially) to make very bad decisions for which they will likely pay - instead of an orderly wind-up of their operations many have doubled down and will, in the next year or two, be financially destroyed.  Responsibility for this false hope rests solidly on the shoulders of the ToutMedia and government "pumpers."
  
  
• We have in fact pulled forward the disasters in Medicare and Social Security.  The Massachusetts Senate election didn't cause the selloff in the market because suddenly "health care wasn't going to be reformed." However, the federal budget now has a smoking hole in it where the fraudulent so-called "reform" was formerly going to provide hundreds of billions of dollars in additional tax money that was going to be literally stolen under the pretense of "health care" for the people later that was NEVER going to be delivered.  Social Security and Medicare are now both either in or close to going cash-flow negative.  These programs have been used for 20 years to lie about federal budgetary holes and now that chicken has come home to roost.  We don't have the money, we can't tax the money into existence and we can't pay.  We must have an honest discussion with the people of this nation regarding entitlements - the two-thirds of the budget that is currently "untouchable" - but we still refuse to do so.  I thought we had another 5-10 years before this bomb blew up in our face.  I was wrong - it's here and now.  This is going to be one of the most-difficult issues to face and solve - even more so than locking up all the fraudsters on Wall Street.  But this is a can that cannot be kicked any more.  (There's an extensive Ticker in the pipe on this very subject - watch for it.)

Might this selloff that we're into now be "a blip"?  Maybe.  But it doesn't change the trajectory, nor does it change the fact that we didn't get the sorts of valuations and metrics that come with durable Bear Market bottoms in early 2009.  As such we are vulnerable to not only a dive back down to those levels but materially below them if we do not deal with the underlying problems, and to date, there is no indication that our government or industry will do so.

Keep playing the Pax Americana theme folks.  Reality is coming and it's a clue-by-four aimed straight at your heads.

One has to wonder.....

We counted over 1,800 13Gs that Blackrock dumped on Friday, which explains why EDGAR might have been a tad bit pokey. The stream started at just after 2 p.m. est and didn’t let up until just after 4:30, when the last one, which reported a 6.5% stake in Vodafone came in. For those less familiar with the 13G, since we don’t often write about these filings, it’s a requirement when ownership exceeds 5% of the outstanding shares. With few rare exceptions, these filings represented new positions for Blackrock since we only counted 11 amended 13Gs, which in itself seems very surprising, given the long list of stocks.

Let me see if I get this right.  1,800 companies (remember, the Russell 2,000 has 2,000 companies in total in it, the S&P 500 has 500 in it, etc) would comprise a very significant chunk of the entirety of the US stock market.  Indeed, the Wilshire 5,000 is widely considered to be "the entire market" (and it more-or-less is.)

Blackrock took a position in that significant chunk to the tune of 5% or more, thus triggering the filing requirement for each of those firms.

Where did Blackrock get the money?

Blackrock has just $3.96 billion in cash on hand according to the most currently numbers on Yahoo Finance.  The S&P 500 alone has a market cap of some $13 trillion dollars.

To take a 5% stake in the S&P 500 alone would require $650 billion, or some one hundred and sixty-four times as much money as Blackrock possesses, and yet that would account for less than one third of the filings!

You can't margin (leverage) yourself 164 times legally in any form or fashion in The United States, and such a margin game, assuming you came up with some inventive way to do it, would make all of the firms that blew up in 2008 and 2009 look like pikers (Fannie/Freddie were 80:1 at the time they went boom, as was, roughly, AIG.)

Something "funny" is going on here folks, and it demands an inquiry - and answer.

UPDATE: It has been noted that they closed the acquisition of Barclay's Global Investors and this dump is a consequence of the update of that transaction.  Ok, well and good, but the point remains - they've got a book that is now trading against free cash of less than 1% of these disclosures alone.  Indeed, it's even worse - their total trading book, according to some sources, is approaching $4 trillion dollars, yet the firm has a market cap of $40 billion and less than $4 billion in actual cash.

The underlying question remains - if and when something goes wrong, what does Blackrock have available to them to deal with it when they're managing an asset base larger than that of The Federal Reserve?