The Pentagong Show

The Pentagong Show
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Friday, May 31, 2013

Live Richly, Citi never sleeps; Live Richly, While banks' Depositors Weep.

"I speak of peace,
while covert enmity
under the smile of safety
wounds the world."

~~ William Shakespeare

IN an article on Daily, entitled, "Banking Profits in a Beaten-Down Market", Chris Mayers exhorts readers to buy into the banking sector, and profit from its privileged Federal government-protected position of ascendancy within the Free-for-all market place in which Laissez-faire, the devil's philosophy, has been replaced with, 'Where's my share?'  governance. Whereas the former was simply a way of saying that those put in positions of authority in order to govern, instead do nothing, the distress their constituents thereby suffer need not bother them but can be completely disregarded, the latter demands a cut in order to get the favors Corporations need from  government in the form of decreased regulation, bought judges, or Title Deeds reshuffled (leaving us at their MERSy).

Asking such questions as, "Should we  write off an entire industry because of bad things that happened to it five years ago?", and,  "Are we interested in making money? Or do we want to assemble prettily wrapped portfolios of stuff other people will like??"

 Really? Bad things? And these bad things just happened to it?

Of course, what he means is, given free rein to run amok with scads of free money and allowed to practice Enron-style accounting tricks of fraud whereby enormous sums were expended on risky ventures for which the banks' liability  (they thought, but, ohhh, were they wrong) was shoved off its books onto SIV's, and miraculously turned into assets so that the price of the stock would, by design (hence the fraud, this was not merely rehypothecation, (a term used by bankers to hide the fact that the basis of their earnings' model is basically embezzlement), but planned deception of not only its investors and regulators, but its depositors, as to the relative safety, and therefore, enhanced or diminished interest/dividend payments expected), enable them to pour money into their own pockets by keeping it out of yours. They were so clever, however, and their chicanery, woven like a fine tapestry of spun glass, its opaque secrets delicately obscured behind such beautiful arabesques of  stunning complexity, was so breathtakingly intricate, that they felt they had the right to simply take whatever they quanted to. And they did.

And hence, they brought the economic system crashing down to its knees. They grabbed so greedily and feasted so avidly on the combined labor of the proles they despised that in all their gluttony, in their wolfish feeding frenzy, they forgot that the system they were gaming was no game. Simply because they had no principles, they forgot that real principles exist, and to ignore them is to flirt with disaster.  But they didn't care. They were hedged. At a time when "You're either with us or against us" was the overriding mood of the Bush at the center of the very government they were milking, they straddled both sides, with hedging contrived such that, should the system fail, they, at least, would profit while all their customers and fellow citizens would suffer the consequences and pay and pay and pay, the price. And all this, all the criminality, conspiracy to defraud, and bribery of politicians on every level of government, all transpired during the creation of the most rapid and costliest growth in the financial crimes division of the US federal government in history.

But, because the return on equity for the whole industry in 2012 was about 9%, while the return to the depositors of the same institutions is basically zero, and less if your bank charges you extraneous 'fees', why not put your money into bank stock where it's safer?, Chris asks. And this is what the site "Daily Reckoning" for which he writes, calls, the 'Free Market'. Where they exhort you to put your cash into stocks  not because they have value or are good for the economy or the quality of life, but for the simple reason, that, since they're buoyed up with a government-guaranteed TBTF life preserver, the in-crowd crows, put your money where the Fed is.

Sounds reasonable, in a scary sort of way. But remember. FDIC insurance is real and the Fed is a duplicitous organisation, founded to protect those with capital from the consequences of their folly by using the reins of power to change rules on a whim and enforce those they choose to and ignore those they dislike. And, as pointed out by Ambrose-Evans Pritchard, not exactly a firebrand, in his post in the Telegraph:

"After almost five years we are still in a contained global depression, struggling with a world record saving rate of 25pc, and a chronic shortage of demand. The US has kept the world afloat by running down its own saving rate to 2.7pc this year. This is not a remotely tenable equilibrium. Hang on to your seats when that snaps back."

In such a world, bank stocks seem a very dubious investment indeed. If you decide to do so, though, take care you don't get trampled when the rush to the exit ensues.

Monday, May 27, 2013

The Liquidity Slap.

Hapless Stock Analyst and Trader.

I'm always reluctant to start a new post these days, as my screen quite regularly fades to black leaving me looking like one of those old-fashioned photographers, with drapery covering me and the screen to enable me to read the fading pixillation. Right now it's bright as day though, and I can't resist making an attempt to write something about the controversy (well, it's not really, just another in a long list of phony ones) about the bubble nature of the stock market.

What got me interested in the subject again wasn't only Doug Nolan's reference to Galbraith's wonderful little book, "A Short History of Financial Euphoria", (which I have here, together with Shiller's "Irrational Exuberance" and Kindleberger's "Manias, Panics, and Crashes"), but an article written and posted by Agora Financial's "Trend Playbook" that's entitled, as if they know, "Popping the Bubble Myth", written by Greg Guenthner, CMT (What's that pseudo title? Certifiably Mad Trader?).

The first indication that his article was going to be pure nonsense was, of course, the title. If something's a myth, then there's absolutely no reason in the world to 'pop' it. Myth's are, by definition, well, myths. But Greg doesn't care about that, he's upset because, "Look, I’m sick of reading about bubbles—no matter what the conversation (Really? Even if your talking about laundry soap?). It’s clear that the 2008 crash remains a psychological burden to most investors. So they continue to categorize any rising asset price as a bubble".

Any rising asset Class? You mean asset classes, such as bank stocks, or the entire stock market, or housing, all of which are elevated, not by myth, but by the fact that the Fed, the most powerful Central Bank in the world, is unabashedly manipulating the monetary system for the STATED purpose of elevating those very asset classes? This in the most vociferously Capitalistic country in the world, that is so encumbered with bad debt that none of its banks can afford to pay their depositors a nickel for the use of their money, never mind that the banks have a monopoly on money in what's a purportedly free enterprise system.  The housing market's defunct and would collapse into ruin if it weren't for the deductibility of mortgage interest, it is only by the actions of the insolvent institutions at the center of our government, the FHA, Fannie and Freddie, buying up all the mortgages that the banks issue because, after more than five years since the crash, there's no private market for them, and there's no way banks can make money at the ridiculously low interest rate being charged, once again to people who, per the Feds own estimation, would be unable to afford to buy a house otherwise, and yet, unless deflation's what the Fed's expecting, what institution would lend out money for a period of 30 years at less than 3%? Never mind general inflation, that won't even cover the rise in their own healthcare expenses.

So the largest part of the economy is not only moribund, but, despite unprecedented prodding, refuses to budge, indicating that the prospective buyers of said properties are already up to their eyeballs in unpayable debt, burdened by healthcare insurance costs that are rising far faster than their paychecks can keep up with, employed at industries that simply can't, as evidenced by their own (income) statements (Apple, perhaps?), afford to pay them , nor even their taxes.

Now, in a system where Corporations pay for none of their externalities, those externalities, such as disposal of their toxic products, and the education of the work force they need, and the infrastructure over which their products are delivered to vendors, are paid indirectly via Corporate taxation, but when the only entities in an economy capable of charging a price based on production costs and all these other factors, can't afford to pay their taxes, it is quite obvious that they are extremely overvalued, can't afford to pay their workers, and in this case, the most successful company in the country, perhaps even in the world, can't afford to pay, never mind their fair share, but any share of the costs associated with their stellar profits, how can workers, who have NO voice in determining the amount of their paycheck, be expected to buy property, which at least gives them a roof over their head when its price collapses, or stocks either, which don't. All that money that represents the saved energy derived from years, and even decades, of  hard labor so that it can be used to cover those times when earning tumble, and that they, understandably, don't trust the rickety roller coaster referred to as "The Market" to return at all, never mind all the attention, anxiety, and outlandish fees paid to traders to try and 'grow' it on the toxic fumes emanating from the pile of toxic debt with which it's fueled.

But Greg goes on with one nonsensical statement after another, however the real point is made by Upton Sinclair's observation that, "You can't explain something to someone if his livelihood depends on his not understanding it". And traders are dependent on your not understanding that the stock market is so rigged, so unreflective of the economic condition of the US economy, that it is a very dangerous place for retail investors to put their cash. Yes it may grow faster than it would in a CD, but then it will be vaporized faster as well. For a good example, that's more timely than 2008, we need only look across the Pacific @ the Nissei, which, even as Greg  was penning his absurd article, was already plunging, from a recent, all-time high, to which it was  propelled by JCB-manipulated euphoria, to a 14% correction, demonstrating more than anything I can further elaborate, the rapidity with which 'money' can be vaporized in our new world of e-cash.

Yes, your cash is having its valued siphoned off as it sits in a bank account, but when you 'invest' it in the stock market, the destruction it's prone to there is always considered to be of your own making. You made bad investments, so it's because of your lack of investing acumen and your failure to perform due diligence that's responsible for your deserved, it's always deserved, penury.

It is always and everywhere only to hide the fact that money is not a store of value in any fiat monetary system that those in power push people into investing in the stock market. From there, they can clean you out, and put the cash they've hoovered from your pockets into government-insured FDIC-like accounts in other currencies that DO pay interest, while you languish in your trailer, if your lucky enough to have one.

Money has been debauched to such an extreme that it is useful, for now, only as a means of exchange; it's use as a store of value hijacked by fraud and electronic simulation. Because, the cost of energy and the enormous wastefulness inherent in the internet infrastructure is what money is now, not what it represents. Electronic transfer and instantaneous monetary creation can only occur via an unwieldy, constantly attacked, via cyber-pirates, enormously energy-intensive, power-sucking whore whose costs and complexity grows at a far more rapid rate than the value of the money which supposedly undergirds it. That is why the precarious situation in which it's balanced can never improve, because its value is constantly eroded by the costs of the electronic cloud in which its ensconced. This is a fact known to every banker, politician , and market trader pushing buttons and e-trading your assets from their comfortable pad: it's all magic, a conjuring trick creating vortexes into which first your money disappears, after which, so do you.

Friday, May 17, 2013

The World in 3-D: Depression, Deflation, Devaluation.

There's gotta be a better way to take a haircut.
Although it's never discussed by economists (nothing ever really is) what if the very stratagem, currency devaluation, that 's used to fight the Global Depression, is not only the cause, but the re-enforcement for, deflation. If you think about it, it makes sense. As you devalue your currency to boost exports, giving your citizens, without them changing a thing, an advantage over other countries' citizens, by cheapening your currency, that means not only are products cheaper, so your citizens are getting less money for their work, but your currency can now afford less of those things from your competitors that your citizens want, ie, imports. But of course, that's the very reason that you wished to increase the economy's output in the first place: by halting the downward spiral of deflation, via currency debauchery. The problem is, speaking from observation as opposed to dogmatic Free-market (no one has any idea what that means, BTW) ideology, currency debauchery IS deflation, because  although it doesn't satisfy the definition of declining prices in your economy, it perfectly defines it in the Global economy. And in a globalized world, you can do all you want to your own economy, but it's the general sea in which you swim that has the greater effect.

Let's take the main cause of Climate change, the automobile, which just coincidentally (yah, right), is also the main factor in the 'productivity' of economies in most OECD countries, as an example. As the devaluation of the yen floods the markets with cheap Toyotas, Hondas, and Nissans, the response of the competition will be (has been, as this dynamic has been going on for a generation now) to lower the wages of their workers so as to compete on price, and the economic yardstick for cutting costs is always and everywhere to reduce employees wages, followed by their numbers. This means that, unless those people are re-employed at jobs offering higher wages, that you've just lost the customers you gained, and many of them, now not being able to fuel their vehicles, will be forced to sell them, thereby putting your used cars in direct competition with your new products that are coming fresh off the line. In other words, your currency devaluation has the same effect as a pre-announced sales tax
increase. It'll juice your sales in the short term but the downward slide will continue once the spike in sales wears off: you've not increased demand, simply pulled it forward.

Now, one could argue convincingly that all of one's customers are not countries where autos are manufactured, so the ones that don't roll their own, so to speak, will keep buying. However, the economies of your competitors, with their sales crashing, will have their currencies following the same downward trajectory as the plunge in sales, making their products competitive again, as the currency follows the initial devalued currency into the toilet, causing  a worldwide deflation that the actions of no single player can halt, unless they were to close down their factory.

So, without a 'Foundation Trilogy' scenario, whereas certain products are manufactured where the expertise and resources for it abound, instead of every nation trying to manufacture the same high-margin product (that's why everyone tries to jump on the auto manufacture bandwagon), prices would be controlled by that sector of the world economy that has to do with auto manufacturing, for example, whereas PC manufacturing would be under the auspices of a different regime, the only other alternative being protectionism, that bane of globalization that globalization has forced onto us.

The solution is, of course, more complex than that, but until we stop pretending that individual nations can repair a global problem by taking steps to put their own sovereign nations at a competitive advantage, having nothing to do with the quality or desirability of the products they're trying to sell, the world economy will follow Poe's Pit and the Pendulum: pitting each nation against one another until the very 3-D pendulum of Devaluation, Deflation and Depression swings in an arc so low it cuts down all the economies at the knees. We all can see that this is where we are heading. As warned at the end of Shakespeare's Romeo and Juliet, "All are Punished", when for no other reason than that's the way it's always been, we continue to snipe at one another and wish for nothing more than the demise of our 'enemies', even at the price of the lives and prosperity of our own progeny. This is no more than madness writ large.

Tuesday, May 7, 2013

Maiden America: Some Antics with Semantics.

Fooling fools.

On a news report recently, the announcer was extolling the resurgence of America's manufacturing prowess by holding up products labeled "Made in America", as proofs that the US, was 'back' (where it had gone was not discussed). I was soon embroiled in an argument over being nit-picking about language, finding fault where there was none, by pointing out the clever ploy the manufacturing industry had devised in order to deceive US citizens into thinking that they were purchasing products that were made in their own country, when in fact they were manufactured in Mexico, or Canada, for that matter.

By exploiting the deep-seated belief of US citizens that America and the USA are synonymous, they have changed the usual "Made in USA" to "Made in America", thereby allowing the tag to be sewn or stamped on anything made within NAFTA borders, and still be telling the truth while propagating a lie: this, I insisted, is the way Corporatism works. Those who conceived of the plan considered themselves 'brilliant', because, next to the dullness of those the label's intended to deceive, they shine.

As for the accusation of being 'nit-picking', I can only refer to the same accusation being leveled when I brought up a point at a sales meeting held when I was still a Network Consultant  helping design and implement what was at that time referred to as WAN's (Wide Area Networks - as opposed to LAN's and MAN's (Metropolitan Area Networks)), that spanned the country, and (sometimes) the globe and included backup, not only for the devises the customer owned and configured, but even planned for the outage of an entire Telco, by using OSPF routing to redirect customer's internal traffic over links leased from MCI instead of ATT. But the accusation was then, and is now, based on a complete misunderstanding of how the modern world works. Nit-picking is exactly the type of skill needed in consulting in an industry where a comma instead of a period means that the configuration you just downloaded is not going to work, because a comma tells the compiler to take an entirely different action with the text you've submitted than what a period would have it do.

In a similar vein, and to help point out that I am not just bloviating, I recall seeing a sign posted on a garage door that warned against parking in the driveway, stating that the vehicle would be towed "At Owner's expense", and joking that the implication was the property owner would pay for the towing, as it didn't stipulate the owner of What: the car, or the driveway? The person to whom I made the quip scoffed at me, as I'd meant him to, although I knew I was, technically speaking, correct. Now, years later, sure enough, there on a person's garage I saw the same warning, but the sign was now modified to stipulate just which owner was liable for the towing expenses.

What this tells me is that some one, before a court of law, used the completely valid argument that the sign was in fact ambiguous and suggested to the parker exactly what I said it suggested. To avoid further confusion, the sign was reworded, marketed and sold in the new version I saw the other day.

In a similar vein, America Manufacturing did not decide to go to all the trouble and expense of designing new labels and stamps and go through the silkscreen process of  changing their labeling from "Made in USA" to "Made in America" for nothing. Far from it. They had a very good reason for doing so, and that reason was the opposite of the 'No Parking" example, where the sign was altered in order to decrease confusion. The label was changed in order to give corporations the latitude to have their products manufactured in the least expensive locale, but to then confuse the public and allow the industries to market their products anywhere in the USA, while deceptively assuring their customers that the product they were buying was "Made in America", which in fact, it was, it just wasn't "Made in USA", which, legally, they never claimed it to be. You assumed that's what they meant, because you equate America with the United States thereof, but the United States isn't America, it's IN America.

The fact that I was set upon for seeing deception where supposedly none existed shows the sad state of affairs in a country that should be completely aware, from political campaigns,  government program slogans and other 'spin-machine' fabrications that what they're being told has always gone through a very expensive vetting process so that what it purports to say and what it really says are, more often than not, completely different. The citizenry is awash in advertisements that costs the manufacturing industry billions and billions every year, yet which tells the potential consumer of that product as little as possible about it. Cars are the easiest example to illustrate this: with their "completely redesigned" models, such as Subaru offers, assuring its customers that 'Love' is one of, in fact, THE most essential, ingredient in their new model. So, as per their own ads, the old model, into which just as much 'love' was poured, is a failure, (why else would it have to be "completely redesigned"?), yet used the exact same main ingredient. Absolute nonsense spewed out and ingested (Subaru has used the insulting "love" machine garbage for years now, so it must work on their intellectually and emotionally blighted customers), not for a purchase as trivial as laundry soap, but for one of the most important and expensive purchases the customer will make in years, with no more info than deceitful lies to go on. That this is the paradigm that advertising uses is more of a comment on ourselves than on the industry is apparent from the fact that, if it didn't work, they'd change it; but we're such easily manipulated lame-brains that it works every time.

Yet, to point out the fact that such practices should give a healthy amount of skepticism about what's said is to be an obstructionist of some sort. Whatever. Well, the good news is that whereas you used to be warned to read the fine print, as that's where the deception was hidden, this being a good example that purposeful deceit is, and has historically been, the norm, not the exception, now the lies are full in the face, only they've been obfuscated with double meaning and take full advantage of what should be obvious to us all, but isn't: in English, you can not make an unequivocal statement. And I say that unequivocally.

Monday, May 6, 2013

Banking on your Demise.

Animal Farm spirits display Irrational Exuberance as Currency War Generals, Crash-and-Bernanke, Kuroda currency and Draghi it into the gutter, bloviate about all men being created equal, but some, Central Bankers decide who, are more equal than others.

With the ascendancy of Central Bankers to the position of Central Planners, a usurped position, since they've attained it with no vote or approval from any of the citizens over whose lives they've assumed control, the Volk no longer has any method of  securing their future, a fact overshadowed by the growing legions of those unable to secure their present and those still endeavoring to pay for their past.

Since savings are mere fodder for Central Bank debasement, (what floor's the bank on? Look in debasement) stocks over-valued assets whose real worth is no longer discernible,  their companies' books so cooked that even they don't know their real revenue stream, profits or tax liabilities, making every Corporations' projections of future growth pure hokum, based on conjecture and hopium, if not downright lies.
Is that engaging in hyperbole? Well, perhaps, but there's several items on which I have lingering questions, the longest lasting one having to do with Japan's "lost Decade" that  has morphed in to Japan's "Lost Generation". My question being, how can a small island nation that has been in a virtual depression for a generation still have an economy that is neck and neck with the 2'nd largest, that being China, although some say China's slipped back to number 3, after a generation of economic stagnation still be ranked the same as it was before its plunge over the fiscal cliff?

In a related query, how can China, an economy that's of such resilience and productivity that it powered the economic growth engine of the world following the collapse of life as we knew it in 2008, be nothing more than a 'developing economy', which it is referred to as to this day. An economic engine so powerful as to take over from Japan, however briefly  its position as 2'nd economy in the world, after only the US, be a developing economy? What's the symptom that one's economy is fully developed then? Collapse?

Which, its being the 3'rd/4'th largest economy in the world, depending on where China stands, brings us to Germany, and from there to the Euro. How can a currency that has for five years been on the ropes, skittering on the brink of collapse, with the fact that its banks are on the brink of insolvency, saved from that fate merely by financial legerdemain and accounting trickery, maintain its exchange rate, vis-a-vis the reserve currency of the world, and even become more expensive? Even as the dollar index sits at higher levels than it ever did during the Bush Regime, the Euro, a made-up currency based on little more than a dream, is even higher? How is that possible?

Now, whereas I naturally have other questions regarding energy and economics, such as how does a country decide to burn their food to ashes in order to power automobiles for drives to the beach, when it is well on its way to energy independence, and the area where the crops are being grown is in the midst of the worst drought in decades, causing them to suck the Oglalla aquifer dry? But questions such as this have to do with policy decisions that, even though we're in a Demockracy, get calcified into practice no matter that changing circumstances might warrant reconsideration of such folly. But the others are economic measurements, which are supposedly 'scientific', and undoctored (Nurse!).

And since every Central Bank on the globe is forcing, by policy, savers out of safety and into risky assets, the value of which depends on constant manipulation upward by a financial elite determined to impoverish huge swathes of the population and enrich their co-conspirators via insider trading, non-prosecution for the most outrageous defalcations, and outright fraud, what criteria is left for investors to use when making decisions as to how to allocate their assets when the Fed's determined to keep their property underwater, their savings under siege, and their pensions underfunded?

Well, the simple answer to that is staring us right in the face, but we're hell-bent on ignoring it: Capitalism, American-style, has no room for elderly, for the sick, nor the destitute, therefore, by forcing all of us into that situation, it follows the Stalinist path of social control via mass annihilation without the need for expensive bullets, firing squads or unsightly holes filled with bloody corpses. Merely embalm them with programs promising help to prepare for life's exigencies, tax them for them, then steal all the money and pull the rug out from under them once it's too late for them to change course. You'll be amazed how many simply slink quietly into the grave without a whimper, unless its to bless America for granting them the freedom to die.

Personally, I think it's all the world can ever offer. Looking around the globe, there's really not a better deal offered anywhere else, so, America, Come Clean! Let's face it, all you offer is basically better than a bullet in the back, but come on, Freedom? Equality? Privacy? Bunk! All the nonsense you spout about Democracy and 'rights' just put you in the same boat as Stalin and the rest of them, but there is a real difference.  USA, where you have the freedom to die the Kervorkian Way: Suicide. Your thanatron awaits you. Massive waves of suicide, jump on board the rising tide.