Banks intentionally understating their cost of borrowing

Both Bloomberg and the WSJ are carrying out an interesting piece of information:

Libor, the benchmark for 6 million U.S. mortgages and more than $350 trillion of derivatives and corporate bonds, has been called into question since the Bank for International Settlements said in March some lenders may have understated borrowing costs to keep from appearing like they are in financial straits.
[...]
Rates quoted by Libor members show discrepancies and have little correlation with their costs of insuring debt from default. UBS AG, whose default-insurance costs rose 919 percent between July 2 and April 15 as it racked up $38 billion of writedowns and losses, quoted dollar-borrowing costs that were lower than its rivals on 85 percent of the days during that period, according to data compiled by Bloomberg.
[...]
Banks routinely misstated borrowing costs to the British Bankers' Association to avoid the perception they faced difficulty raising funds as credit markets seized up, said Tim Bond, a strategist at Barclays Capital.

WSJ:

The Journal analysis indicates that Citigroup Inc., WestLB, HBOS PLC, J.P. Morgan Chase & Co. and UBS AG are among the banks that have been reporting significantly lower borrowing costs for the London interbank offered rate, or Libor, than what another market measure suggests they should be. Those five banks are members of a 16-bank panel that reports rates used to calculate Libor in dollars.
[...]

CFTC intervention on commodities markets

According to Julian D.W. Phillips:

The chairman of a Senate oversight committee, Joseph Lieberman, has said he is considering legislation to place limits on large institutional investors in commodities markets, which have posted record prices this year in agricultural products and oil. The chairman of the Senate Homeland Security and Government Affairs Committee said that the legislation would be aimed at speculators and other investors who use commodities as a way to hedge against swings in other investment instruments like stocks and the dollar.

So all of the sudden, government intervention is rising everywhere, the market and there are new limits to what you can do with your money or not... All these because the Senate and other branches of the government just don't want to admit that it's no so much the commodities that are rising than the confidence in the USD and the actual value of the USD that are falling at an amazing pace.

Assessing US equities

MacroMan has an interesting read about US equities where he concludes:

On the basis of what's worked since 1988 (and indeed since 1970, on the basis of a stripped-down model that excludes analyst expectations), US stocks may be cheap, they may be expensive; but one thing they are clearly not is a buy.

Chief Economist of Ernst & Young Item Club going nuts

According to the Telegraph:

The Bank of England will "crucify" consumers unless the Treasury lets it abandon its inflation target, one of Britain's leading economic authorities has warned.

The Government must consider re-writing the Monetary Policy Committee's remit or leave the UK to face an unnecessarily deep and painful economic slump, according to Peter Spencer, chief economist of Ernst & Young Item Club.[...]

"The consumer will have to be crucified in order to meet the inflation target as it stands at the moment," he said.

I would say that Mr Spencer is right on the fact that consumer will be crucified. But let's not confuse everything Mr Spencer: It's one thing to crucify the consumer, but it's far different from crucifying the whole economy and destructing the GBP and wiping out all the savings in the country. What you actually mean Peter, is that you would rather crucify me as a citizen than the consumer in me. You are just hopeless and should get out of your golden office to see what the world actually looks like and how it works.

The Economic Effect of Inflation, Rothbard

In the section The Economic Effect of Inflation of his thesis What Has Government Done to Our Money, Murray Rothbard wrote:

As a result, business accounting will seriously overstate their profits during inflation — and even consume capital while presumably increasing their investments. Similarly, stockholders and real estate holders will acquire capital gains an inflation that are not really "gains" at all. But they may spend part of these gains without realizing that they are thereby consuming their original capital.

Does this ring any bell?? What happened in the whole world due to the "wealth effect" of the real estate bubble? And in the US and the UK mainly where people not only have negative saving rates but have been using their "equity release" schemes to spend the money they didn't have?

By creating illusory profits and distorting economic calculation, inflation will suspend the free market's penalizing of inefficient, and rewarding of efficient, firms. Almost all firms will seemingly prosper.

Remind you of anything? With almost no defaults for the past whole 2003-2006 period and until mid 2007, and CDS spreads close to 0 bps??

The general atmosphere of a "seller's market" will lead to a decline in the quality of the goods and of the services to consumers, since consumers often resist price increases less when they occur in the form of downgrading of quality. [...]

Interestingly, I believe this is the general idea most people have, specially in the UK, where nothing works correctly, and service is very poor, but everything is amazingly expensive.

Inflation also penalizes thrift and encourages debt[...] The incentive, then, is to borrow and repay later rather than save and lend. Inflation, therefore, lowers the general standard of living in the very course of creating a tinsel of atmosphere of "prosperity".

Feels like hitting a wall at 100 km/h?

Who can objectively deny that all the previous facts have been happening for the past 10-15 years? Who can believe in the tremendous "global growth" that has been spreading so much poverty and misery around the globe during that same period? Who can pretend that the Americans, the British, the Spanish are better off now sinking in depth and with no saving and no money in their account than they were 15 years ago? Who can pretend that the quality of life and of manufactured products or food has been increasing for the average people?

Interestingly, these are not several excerpts but a single one, from a single paragraph, which sums ups exactly what we have been going through since the start of the Internet bubble in late 1990's. Even more interesting is the fact that Rothbard passed away in 1995, so it's not like he was living it when trying to forecast it. This is just what happens when reckless and dangerous people get to make the policy of our nations.

Times blames Churchill for having returned the UK to the Gold Standard

In a post where the Times Online list Britain's 10 most Outrageous Chancellors, Churchill is blamed for returning Britain to the Gold Standard. Will they soon celebrate Gordon Brown, the man who has a major responsibility in creating the biggest bubble in UK's history as one of the Greatest Chancellors?

I personally was considering Churchill as being one of the most important figures of the 20th century before even knowing about this act, but now, it seems like I should redefine my scale. And once again, MassMedia shows that they really don't get it...

Winston Churchill (1924 – 1929)

Although Churchill is celebrated for his leadership during World War II, his stint as Chancellor was altogether less successful. Churchill announced in his 1924 Budget that Britain would return to the Gold Standard – a decision that resulted in deflation, unemployment, and the miners' strike. The return to the pre-war exchange increased costs to Britain’s coal and cotton industries by about 10 per cent.

Freddie Mac Accounting Changes Cut Losses By $2.6 Billion

From Bloomberg:

May 14 (Bloomberg) -- Freddie Mac, the second-largest U.S. mortgage-finance company, reported a smaller loss than analysts estimated after accounting changes reduced charges by at least $2.6 billion.

Without the use of two new accounting rules, Freddie Mac would have posted a loss of at least $1.7 billion, analysts said.

Freddie Mac also announced that it would raise $5.5 billion in capital with common and preferred stock, which represents at today's market cap about 30% of dilution for the shareholders.

The stock price ended up +9.17%, showing how good these news were.

Gordon Brown's reform is quite the opposite of what you would expect.

According to reuters:

The proposed banking reform bill will allow short-term non-disclosure of liquidity assistance by the Bank of England[...]

It's official, there is no inflation in the US

Core CPI rose 0.1% in April 2008 while the CPI rose 0.2%.
I am happy to see that everything is going just fine in a perfect world. Or is it?

Looks like I am not the only one believing that all the figures are false

In his editorial titled Opportunity on a Silver Platter Jim Willie explains why he believes most the figures including GDP and unemployment rate have been manipulated and why the current recovery is a "sucker's recovery" (the new buzz word I am hearing everywhere for the past few days).

Historical PER of the S&P 500

The S&P 500 hundred has been quite expensive for the past 10 years according to the data found on the S&P web site. However, we are now entering a period of declining growth at the very best (or diving in decline if we are realistic).


Anyway, the S&P 500 is reaching historical high levels, if we exclude the Internet Bubble.

Employment figures in the US manipulated as well?

According to Karl Denninger from Market Ticker, last week's employment figures in the US could also have been manipulated to look better than the actual ones:

The employment number (which The Fed had, by the way) came out and its better than expected - but negative.

Why not down huge? Government hiring. Lots of it. Oh, and a "Birth/Death" adjustment of over a quarter of a million jobs - fictional jobs, I argue.

"Birth/Death" is a model attempt to count small businesses that otherwise don't get counted, and either die or are born. Let me ask you - drive around your town - are small businesses going under or starting up? On balance.

Well, the BLS says they are starting up to the tune of over 250,000 jobs in the last month alone. Do you believe it?

Then let's add that we now have 306,000 people who are now working part-time for "economic reasons." This, by the way, are people who were full-time employed and are now part-time. 306,000. Oh, and that's 849,000 people more than the same time last year. And average weekly earnings were down.

And also, according to Anthony Cherniawski from The Practical Investor, LLC

The press headline reads, “ Nonfarm payrolls down 20,000; unemployment rate unexpectedly falls.” Folks, these numbers have been massaged to get the “right” outcome.

For example, in April, the number of persons working part time for economic reasons increased by 306,000 to 5.2 million. This level was 849,000 higher than in April 2007. These individuals indicated that they were working part time because their hours had been cut back or because they were unable to find a full-time job. 5.2 million workers comprise 3.8% of the alleged workforce.

Another example is the CES Birth/Death Model, which added 267.000 fictitious jobs to the employment data. The reason I say fictitious is the way they are distributed. For example, the model suggests that 83,000 jobs were added in Leisure and Hospitality, 72,000 jobs were added to Professional and Business Services and 45,000 jobs were added to the Construction Sector.

What has the Governement done to our Money?

In his book What has the Governement done to our Money? (first edition in 1963), Murray N. Rothbard writes:

Fractional reserve banks, therefore, are inherently inflationary institutions. (page 56)

-> I am not necesseraly agreeing with this. I would say that the excess brought by the fractional reserve banks make them inflationary. It would be more like a consequence of greed and excess.

And, in a truley free society, those who know the truth about the real insolvency of the banking system will be able to form the AntiBank Leagues to urge clients to get their money out before it is too late. In short, leagues to urge bank runs, or the threat of their formation, will be able to stop and reverse the monetary expansion.

-> I think this is the conclusion of many of those who understand what is going on already... Unfortunately, there isn't much you can do with your money, since the currencies are falling in real terms, the stock markets and real estate markets are already in bubble. Remains gold as the only choice left. But that's the King of the Currencies we are talking about, so that's the best choice anyway.

Roubini: US GDP widely overstated?

"The official headline for U.S. Q1 GDP growth says a positive 0.6% growth but the details are ugly and confirm that we are in a recession."

The details on the link...

Manipulated figures coming from official US governement offices

For quite some time now, the US government has been manipulating its official figures in order to make them look as good as possible and bypass the limits of its actions. For example, why not provide a wrong figure for inflation in order to be able to lower interest rate? Money Supply is increasing at in astronomical rate and there's actually a formula that cannot be manipulated in order to provide a lower figure? Well, let's just stop providing it!

The good news is that Shadow Stats has been calculating and providing alternate data for the unemployment rate, GDP growth and inflation as well as continuing to build the M3 for Money Supply:

• M3 would be growing at 18% a year this rate is going up, which means that money supply is growing exponentially
• Official unemployment rate of 5% is actually well below the 9% provided by the broadest definition of the BLS and still well below the 13% as reported by Shadow Stats
• Shadow Stats shows that YoY change in the GDP of the USA have been flat or negative since 1990, and is now shriking at a rate of -2.xx %. I am not a subscriber so I don't know how they calculate those figures, but I guess they take into consideration the huge amount of dept that has been financing the "growth" of the US and by discounting the dept, you get a nice and unpleasant surprise.
• The most important figure and the most open to tinkering is the CPI which includes a huge amount of "hedonism" in it. So official figures tell us that the CPI has been moving in the 2-4% band since 1991 while the alternate CPI provided by Shadow Stats shows that the CPI as been steadily growing from 5% in 1992 to about 12% now. Again, this figure being a rate of change, its raise means that prices are growing exponentially.

Bear Lane, SE1

It's a been a while that I wanted to take that picture, since I walk that street everyday to get to the office and that I turned definitely bear since August 2007. So just a few minutes away from the City you can find Bear Lane !

What is the Matrix?

MORPHEUS: Welcome, Neo. As you no doubt have guessed, I am Morpheus.
NEO: It's an honor.
MORPHEUS: Please. Come. Sit.
MORPHEUS: I imagine, right now, you must be feeling a bit like Alice, tumbling down the rabbit hole?
NEO: You could say that.
MORPHEUS: I can see it in your eyes. You have the look of a man who accepts what he sees because he is expecting to wake up.
MORPHEUS: Ironically, this is not far from the truth. But I'm getting ahead of myself. Can you tell me, Neo, why are you here?
NEO: You're Morpheus, you're a legend. Most hackers would die to meet you.
MORPHEUS: Yes. Thank you. But I think we both know there's more to it than that. Do you believe in fate, Neo?
NEO: No.
MORPHEUS: Why not?
NEO: Because I don't like the idea that I'm not in control of my life.
MORPHEUS: I know exactly what you mean. Let me tell you why you are here. You are here because you have the gift.
[...]
MORPHEUS: We are trained in this world to accept only what is rational and logical. Have you ever wondered why? As children, we do not separate the possible from the impossible which is why the younger a mind is the easier it is to free while a mind like yours can be very difficult.
NEO: Free from what?
MORPHEUS: From the Matrix.
MORPHEUS: Do you want to know what it is, Neo?
MORPHEUS: It's that feeling you have had all your life. That feeling that something was wrong with the world. You don't know what it is but it's there, like a splinter in your mind, driving you mad, driving you to me. But what is it?
MORPHEUS: The Matrix is everywhere, it's all around us, here even in this room. You can see it out your window, or on your television. You feel it when you go to work, or go to church or pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth.
NEO: What truth?
MORPHEUS: That you are a slave, Neo. That you, like everyone else, was born into bondage... kept inside a prison that you cannot smell, taste, or touch. A prison for your mind.
MORPHEUS: Unfortunately, no one can be told what the Matrix is. You have to see it for yourself.
NEO: How?
MORPHEUS: This is your last chance. After this, there is no going back.
You take the blue pill and the story ends. You wake in your bed and you believe whatever you want to believe.
You take the red pill and you stay in Wonderland and I show you how deep the rabbit-hole goes.
MORPHEUS: Remember that all I am offering is the truth. Nothing more.