Saturday, October 31, 2009

Britain to Break up Banks - Now Why Can't We do the Same Thing Here?

Our British friends across the pond, seem to have a much more sensible head screwed on their shoulders. The Telegraph is reporting that Alistair Darling, the Chancellor, will soon announce the breakup of the British versions of Citigroup and Bank of America  a.k.a. RBS, Lloyds and Northern Rock. In a note titled "High street banks to be broken up", the Telegraph reports that:
Treasury sources have told The Sunday Telegraph that the move (to break up the banks) will be announced to the House of Commons after the European Union made it clear that the state aid pumped into Lloyds Banking Group and RBS meant that they had to be reduced in size.
Officials said the move would increase competition on the high street and would mean a better deal for customers looking for mortgages or current accounts which did not charge fees.
Under the deal, the new institutions will not be allowed to be taken over by any purchaser which currently owns a British retail bank. Ministers will stop this happening using their powers as controlling shareholders in Lloyds, RBS and Northern Rock, rather than by new regulations. Instead, likely purchasers will come in from the US, Australia or the Middle East.
 Which means that established British banks like HSBC, Barclays and Santander will not be able to buy these assets and get even more bloated. That way you don't have another financial blackout when your too-big-to-fail monster gets indigestion.
"What we are talking about here is basically three new banks," a senior Treasury source said. "We want a better deal for the taxpayer after all the investment that they have made."
Now if only Bernanke and Geithner possessed the good sense to "bail-out" the taxpayer by breaking up the too-big-to-fail U.S. banks and restoring the Glass-Stegall act (prohibiting investment banking and trading from accessing consumer deposits and Fed liquidity for their gambling pursuits).
Alas the U.S. taxpayer has no such luck.

Friday, October 30, 2009

Oil Tycoon: Our Troops Died ... We're "Entitled" to Sweet Contracts in Iraq!

Author: Joshua Holland of AlterNet
After all that, it looks like the Iraqis are cutting some big deals to develop their massive oil wealth -- but with the mushy Europeans and the damn Chi-coms! Iraq's Oil Minister Hussain al-Shahristani told a Washington conference on Wednesday that his government was happy with the energy auction it held earlier this year. The auction was the first chance for foreign oil firms to compete for Iraqi oil since the U.S.-led invasion in 2003.
BP and the Chinese oil company CNPC were the only firms to win a contract in Iraq's bid round this summer, the first chance for foreign oil firms to compete for Iraqi oil since the U.S.-led invasion in 2003. Seven other oil and gas fields failed to attract bidders on the terms Iraq offered.
Read the entire article here

Food for Thought: Hyperinflation Nation

Thursday, October 29, 2009

The Real Threat Facing America

There is a must read piece by Eric Sprott and David Franklin at Sprott Asset Management (link below) about the real existential threat facing America - the fact that our government is broke and we are nowhere close to being able to pay for all the liabilities that are piling up. As has came up in our discussions with a very enlightened reader - the threat to America's security and existence is not external (terrorists) but internal. We as a nation will destroy ourselves, if we do not get our house in order. Americans can no longer afford to finance huge wars, unprecedented bank bailouts, skyrocketing healthcare costs etc. and expect our freedom, liberties and way of life to stay intact. There is a HUGE iceberg (in the shape of our colossal liabilities) that we are going to hit unless we as a nation agree to change course.

"Michael Moore's Action Plan: 15 Things Every American Can Do Right Now"

Author: Michael Moore

It's the #1 question I'm constantly asked after people see my movie: "OK -- so NOW what can I DO?!"
You want something to do? Well, you've come to the right place! 'Cause I got 15 things you and I can do right now to fight back and try to fix this very broken system.
Here they are:
Read Michael Moore's entire newsletter here

Wednesday, October 28, 2009

Additional Thoughts on "Is a Stock Market Correction and Dollar Rally on the Horizon?"

Today Eric Sprott came out with a newsletter titled "Dead Government Walking", where he confirmed what we alluded to yesterday in our post "Is a Stock Market Correction and a Dollar Rally on the Horizon?": that once the Fed end its program to buy back USTs in October, there will be a huge vacuum to fill. As Eric Sprott highlights, Fed repurchases accounted for as much as 50% of new treasury issuances:
"The Q2 Flow of Funds Report published by the Federal Reserve revealed that the Federal Reserve purchased as much as half of the newly issued treasuries in the second quarter. This means that the Federal Reserve isn’t merely supporting the market for US treasuries…it is the market for US treasuries".
 With ~$9 trillion in new Treasury issuances over the next 10 years, it is no wonder the Fed is panicked enough about long term rates rising, to send in PIMCO (the world's biggest bond fund) to plead its case. In his newsletter today Bill Gross made 2 key points:
1. That the Fed and the U.S. Treasury have supported prices in asset markets such as equity and housing through their various programs (covert and overt we might add, and quite the opposite in spirit to the widely propagated "free market ideology").
2. The six-month rally in risk assets (equity, high yield debt and commodities) is likely at its pinnacle.
So we would once again like to remind our readers, that rest assured, the Fed will try its best to keep long term treasury bond interest rates low, either through:
1) Engineering another flight to safety trade (money moves out of risk assets such as equities, high yield and commodities, into safe assets such as USTs)
2) Continue to buy USTs by subterfuge (enter into currency swaps with foreign governments and ask them to use dollars to buy USTs).

Seymour Hersh: Military is Waging a War Against the White House

We have been wondering for sometime now, on how General McChrystal was able to give a speech asking for more troops without getting approval from the White House? How is it that McChrystal felt it ok to side-step the chain of command and highlight an issue of such national significance on a public platform without the President's blessing? Which begs the question, who exactly is in charge of the United States?
An article by Neil Offen in the Hearld Sun titled Military waging a war against the White House gives us some answers. The article cites a recent speech at Duke University, by Seymour Hersh the Pulitzer-prize winning investigative journalist, who had this to say:
"The U.S. military is not just fighting wars in Iraq and Afghanistan, it is also in a war against the White House -- and they feel they have Obama boxed in. They think he's weak and the wrong color. Yes, there's racism in the Pentagon. We may not like to think that, but it's true and we all know it. A lot of people in the Pentagon would like to see him get into trouble. By leaking information that the commanding officer in Afghanistan, Gen. Stanley McChrystal, says the war would be lost without an additional 40,000 American troops, top brass have put Obama in a no-win situation". Hersh goes on to contend that “He’s either going to let the Pentagon run him or he has to run the Pentagon. If he doesn’t, this stuff is going to be the ruin of his presidency".

Tuesday, October 27, 2009

Thousands Protest Against Bankers Looting the Public Purse

Chicagoans came out in thousands today to protest against banks at the American Bankers Association meeting. At this point we need several such peaceful protests between now and December, if we are to expect some "real" change in the banks behavior. Given that the tax payer just rescued several of the too-big-to-fail institutions from going over the cliff, the banks attitude towards granting yet bigger bonuses to their employees while at the same time denying loans to small businesses and consumers is simply outrageous.

Is a Stock Market Correction and a Dollar Rally on the Horizon?

With the Fed's $300 bn quantitative easing program for Treasuries coming to an end in October, there is a real risk that Treasury yields will increase (and their prices will fall), choking any nascent recovery in the U.S. economy. So is the Fed about to engineer an equity market correction and generate a fligh-to-safety trade in treasuries? We certainly think so.
Is an Equity Correction and Dollar Rally Looming? Bill Gross Thinks So...

Monday, October 26, 2009

Must Read: When the Media Is a Big Part of the Problem

"If you want to know why President Obama has not fought for a public option for health care reform; why he has caved to Wall Street on financial reform; why he has been AWOL on the most important labor law reform legislation in 75 years (despite his campaign promises) – just look at the major media. President Obama’s whole political persona is based on media strategy, and on not taking any risk that the major media would turn against him. That is how he got where he is today, and how he hopes to be re-elected."

Author: Mark Weisbrot in The Guardian Unlimited
What kind of a public debate can we have on the most vital issues of the day in the United States? A lot depends on the media, which determines how these issues are framed for most people. Take the war in Afghanistan, which has been subject to major debate here lately, as President Obama has to decide whether to take the advice of his commanding officer in Afghanistan, General Stanley McChrystal, to send tens of thousands more troops there; or whether to heed public opinion, which actually favors an end to the war. This month, one of America’s most important and most-watched TV news programs, NBC’s Meet the Press, took up the issue.
The lineup:
Retired General Barry McCaffrey, former Army General and Drug Czar (under President Clinton) turned defense industry lobbyist. In a news article on McCaffrey entitled “One Man’s Military-Industrial-Media Complex, the New York Times reported that McCaffrey had “earned at least $500,000 from his work for Veritas Capital, a private equity firm in New York that has grown into a defense industry powerhouse by buying contractors whose profits soared from the wars in Afghanistan and Iraq.” McCaffrey has appeared on NBC more than 1000 times since 9/11/2001.
Read the entire article here.

Sunday, October 25, 2009

Balloon Boy, Meet the Balloon Bank

Huffington Post: Why Billionaires Should Pay for the Jobless Recovery

Author: Les Leopold in the Huffington Post
We are entering the billionaire bailout society. For the past thirty years we have minted billionaires, and we have created the most unequal distribution of wealth since 1928-29. This didn't happen by accident. We deliberately deregulated the financial sector and we deliberately eliminated the steep progressive taxes on the super-rich that had kept in check our income distribution.
By unleashing capital and finance we were supposed to get an enormous investment boom in real goods and services. Instead we got a fantasy finance boom as Wall Street marketed derivatives to those with excess capital.
We also got the biggest crash since the Great Depression.
Perhaps the most dramatic measure of our emerging billionaire bailout society is seen by comparing compensation for the top 100 CEOs and to that of average workers (the 100 million or so non-supervisory production workers). In 1970 the ratio was 45 to 1. By 2006 it was 1,723 to one.
Read the entire article here

Thursday, October 22, 2009

Cheney Goads Obama into Escalating War in Afghanistan

Dick Cheney has once again crawled out from under the rock, this time to project President Obama as a dithering world leader. (Now we at the Firecracker Report don't always agree with Obama, BUT we would pick him any day, over the Bush-Cheney-McCain-Ann Coulter cabal). Our favorite candidate remains Ron Paul, but there are practical limitations to his becoming President.
Coming back to Cheney, it seems like his delusional thinking has only gotten stronger since he left office. A Bloomberg news report titled Cheney Afghanistan Barb Draws White House Rebuttal, highlights his school-boy bully-like ideas:
Cheney said President Barack Obama “seems afraid to make a decision” about sending more troops to the conflict. Obama seems “unable to provide his commander on the ground with the troops he needs to complete his mission,” Cheney said last night to the Center for Security Policy in Washington.
Since when did making harebrained decisions without weighing the consequences become the mark of a great leader? Isn’t it the job of a President to make decisions carefully with due deliberation and a comprehensive evaluation of the ramifications? Does Cheney not understand that he and his party were voted out of the office precisely because they plunged the United States into an un-winable war in Iraq without due though-process.
Mr. Cheney we are tired of you war-mongering ideas, which is why we voted you out of office. Can you please crawl back under your rock?

The Pharmaceutical Industrial Complex: A Deadly Fairy Tale

Authors: Dr. Doug Henderson and Dr. Gary Null
Article published on the Global Research Website
It has been a particularly bad month for the pharmaceutical industrial complex in its ongoing litigations in American courts. Among the main pharmaceutical headlines, Merck’s Gardasil vaccine for HPV, now being widely administered to pre-teens, was found to be linked to amyltrophic lateral sclerosis, commonly known as Lou Gehrig’s disease; following a $1.4 billion fine in promoting one of its blockbuster drugs Zyprexa off-label, deceptive correspondence was uncovered by Eli Lilly gaming the system again by promoting another one of its drugs, Cymbalta, off-label for fibromyalgia; AstraZeneca was fined $160 million for scamming the Medicaid system in Kentucky after being fined $215 million for ripping off Alabama; Glaxo lost a Pennsylvania trial for failing to warn doctors and pregnant women of the dangers of its antidepressant drug Paxil related to birth defects; and Pfizer scored a record-breaking fine of $2.3 billion for illegally marketing several drugs over the years: Bextra, Zyvox, Geodon and Lyrica. These kinds of charges, among the many others, have become a habit for drug makers for the past dozen years.

Read the entire article here

Andy Xie: Chinese Government Inflating Property Bubble Again

We are getting a déjà vu feeling all over again, except this time the location is China. Andy Xie, the ex-Morgan Stanley economist and a seriously smart guy was on Bloomberg sounding the alarm for a Chinese property bubble and a brewing Chinese subprime crisis. Check out his excellent interview here.

Paul Volcker Silenced; Larry the Bozo and Clueless Timmy Dominate

The New York Times today came out with a story verifying what we at The Firecracker Report had highlighted earlier, that the administration has effectively silenced Paul Volcker. In our report titled “Paul Volcker: Obama does NOT listen to my advice anymore” we had pointed out that Obama merely used Volcker as a pawn to win the election and has now shoved him in the corner cabinet.
According to the New York Times reporter Louis Uchitelle, the situation is so bad that Paul Volcker rarely ever shows up in D.C, instead choosing to operate via telephone out of his New York office. Asked if he had been sidelined, Volcker replied “I did not have influence to start with.”
The Obama administration’s banking reform is just hogwash aimed at placating the public. The very choice of Larry Summers and Tim Geithner to head critical government functions, speaks volumes of the administrations disingenuity towards change. If they wanted real banking reform they would heed to Volcker. Here is a list of crucial reforms that Volcker backs as highlighted in the NYT’s article:
1. Restore the Glass- Steagall Act that separated commercial and investment banking: “Commercial banks would take deposits, manage the nation’s payments system, make standard loans and even trade securities for their customers — BUT not for themselves. Being separated from banks, the investment houses would no longer have access to federally insured deposits to finance this trading”.
2. “Before the credit crisis, the big institutions earned most of their profits from proprietary trading, and those profits led to giant bonuses. Splitting commercial and investment banking would put a damper on both pay and risky trading practices”.
Heeding to Volcker would be real banking reform that we could believe in.

F. W. Engdahl: America's Phoney War in Afghanistan

Author: F.W. Engdahl
One of the most remarkable aspects of the Obama Presidential agenda is how little anyone has questioned in the media or elsewhere why at all the United States Pentagon is committed to a military occupation of Afghanistan. There are two basic reasons, neither one of which can be admitted openly to the public at large.
Behind all the deceptive official debate over how many troops are needed to “win” the war in Afghanistan, whether another 30,000 is sufficient, or whether at least 200000 are needed, the real purpose of US military presence in that pivotal Central Asian country is obscured.
Even during the 2008 Presidential campaign candidate Obama argued that Afghanistan not Iraq was where the US must wage war. His reason? Because he claimed, that was where the Al Qaeda organization was holed up and that was the “real” threat to US national security. The reasons behind US involvement in Afghanistan is quite another one.

Wednesday, October 21, 2009

Goldman Sachs Vice-Chairman says: 'Learn to Tolerate Inequality'

Michael Moore describes in his film "Capitalism a Love Story", that the American economy is a  fascist plutonomy, where the merger of state and corporate interests dominate public policy, and where the wealthy benefit disproportionately. Wikkipedia defines a plutonomy as "an economy where the degree of economic inequality is high, while the level of social mobility is "low". So the only way for rich to keep democracy from spoiling their party, is for them to convince the rest of the people that "they too could become wealthy one day". Of course that opportunity seldom arrives, but the HOPE keeps people from questioning the system.
This is exactly what is happening today, and in a staggering display of arrogance, a Goldman Sachs Vice-Chairman publicly touted such a system.  The Telegraph reports "Goldman Sachs vice-chairman says: 'Learn to tolerate inequality'". Some excerpts from this:
One of Goldman Sachs’s senior advisers in London has said that British taxpayers should “tolerate the inequality” stemming from the investment bank’s plans to dole out a record $22bn (£13.4bn) in pay and bonuses this year for the sake of the “common good”. Lord Griffiths of Fforestfach, vice-chairman of Goldman Sachs said he was “not ashamed” of the bank’s compensation plans.
 The comments, made during a public debate on ethics and the economics crisis at St Paul’s Cathedral, are likely to further deepen the debate about bank bonuses.
As he defended the bank’s lavish bonuses, Lord Griffiths said the general public should “tolerate the inequality as a way to achieve greater prosperity for all”.
 Well Mr. Griffiths we the taxpayer would certainly have tolerated letting Goldman Sachs go under last year, had it not been for the fact that your esteemed company had rigged the entire financial system with derivative bombs (such as AIG), that would have caused the financial system to collapse.
Now we would like to point out that we would not be against Goldman Sachs' bonuses had they used their own capital and generated that return for themselves. But when they make unlimited borrowings from the Fed and have the power to create money by classifying themselves as a "bank", and then proceed to gamble with taxpayer funds, we call that stealing.  As a very astute reader of ours (Josephine) wrote today:
Mirror Mirror on the Wall
Wall Street is the greediest of all....
Taxpayer money they love to burn
Money rightfully they never learned to earn!

Goldman’s “Shock and Awe” Campaign to Rebuild America: “Bringing Fresh Produce to a San Francisco neighborhood”

The venerable Goldman Sachs, a highly successful marketing machine that has the entire world convinced that their "brightest of the bright" workforce need ever larger sacks of money to keep on glowing brightly, has finally managed to get tripped up. So what could possibly have short-circuited our brightest bulbs?
How about trying to answer a simple question, “what has been Goldman's contribution to rebuilding America?" (This of course, after they played a critical role in bringing the country down on its knees).
Now this is a question that the goldies are attempting to answer on their own website, in a bid to convince the public that they deserve their bonuses. One click on the loudly displayed banner "Rebuilding Together" on Goldman's front page, and you are presented with…(hold your breath)…a largely blank page where the goldie light bulbs have posted their pathetic answers. We copy paste from their website with our responses below:
Restoring our capital markets; rebuilding our national infrastructure
Bridges, schools, highways, public power and mass transit. During 2009, Goldman Sachs has been involved in numerous Build America Bonds transactions. We’re proud to play a role in rebuilding our nation’s capital markets and its infrastructure, while bringing much-needed jobs to local communities.
Ahem, what can we say - we are SPEECHLESS at your generosity for DOING your job as an investment bank. While underwriting the bonds to rebuild America, you did not by any chance contemplate WAIVING the millions in fees that you collected, did ya? You did not sit back for a minute and say “Hey the American tax payers saved our behinds, so could we perhaps help municipalities and states governments issue debt for FREE as a thank you?” No you did NOT. Generosity as far as you are considered is a one way street…our pockets to yours.
Helping to provide funds to build and revitalize schools.
Goldman Sachs structured and brought the first Qualified School Construction Bonds (QSCBs) financing to market in April, 2009, establishing the market standard for QSCB financings.
We all know that Goldman in reality is a hedge fund masquerading as a bank. So we understand that for Goldman to do its mundane investment banking duties is a huge stretch…but humor us will ya? We aren’t that stupid you know.
Some investment returns can’t be measured in numbers
Building affordable “green” design apartments in New York City. Bringing fresh produce to a San Francisco neighborhood.
Bringing fresh produce”…THIS is Goldman’s CONTRIBUTION?? We are BEYOND outraged. What are farmers for? And pray, who exactly has the money these days to buy a “green” apartment in NYC? The Goldie geniuses of else do they spend their sacks of money that they looted from the taxpayer?
Some investment returns can’t be measured in numbers” Now this one is PRICELESS fit to be in a MasterCard ad. Yeah, masquerading as a bank sure has its perks. How else would you get 1) access to 10-100x leverage 2)$10bn TARP bailout 3)$30bn in FDIC subsidized dirt cheap debt 4)$13bn from AIG, 5) unlimited access to the Fed’s liquidity and 6) “if-you-fail-we’ll catch ya”, too big to fail taxpayer rescue guarantee.
The freedom to borrow billions of taxpayer capital to freely gamble with, and THEN keep ALL the profits for yourself is truly PRICELESS. Only a genius THIEF, like Goldman could pull such a stunt.

Tuesday, October 20, 2009

Wage Deflation Sets in Everywhere except on Wall Street

A survey of chief financial officers and senior comptrollers, conducted by Grant Thorton, has revealed  that approximately 50% of those surveyed are considering cutting bonuses and scaling back raises. A Reuters article carried by CNBC, titled Many US Companies Cutting Bonuses, cites:
55% of U.S. companies are reducing bonuses, and 42% are scaling back on raises in an effort to cut costs in a tough recession, according to research released on Monday. A third of companies are cutting back on employee health care benefits, and a third also are cutting back on stock options and other equity-based compensation to trim costs.
Even Santa will have to layoff workers this year, since they have only 1 place on earth to drop off the goody bags - Wall Street.

David Tice: A Funding Crisis Could Be Imminent; Currency Controls Down the Road are a given

The highly respected David Tice of Federated Investors recently gave an interview on King World News, where he made some excellent points which we paraphrase here:
  • A funding crisis could be weeks away as the Fed ends repurchases of U.S. Treasuries (quantitative easing (QE)) in October. Given that the U.S. government needs trillions of dollars to fund its deficits over the next couple of years, without the Fed stepping in to buy Treasuries there could be a funding shortfall. The only way to postpone the crisis would be if Bernanke somehow surreptitiously continued QE in US Treasuries (e.g. via currency swaps with other governments who then used the Fed given dollars to buy US Treasuries).
  • If a funding crisis emerges Bernanke will be forced to raise rates, crushing the economy.
  • As the dollar breaks down as the world’s reserve currency, the U.S. government will be forced to impose currency controls to prevent capital from fleeing the country.
Listen to the entire interview here.

Monday, October 19, 2009

We the Taxpayer Deserve 80% of Goldman’s Profits

Since Goldman Sachs' is really a hedge fund masquerading as a bank, we suggest that they start being treated like one. For starters they should pony over 80% of their earnings to their real investors - the taxpayer, with whose money and guarantees they have been so conveniently gambling.

Sunday, October 18, 2009

Gerald Celente: U.S. turning into a Fascist State

We chanced upon this excellent interview of Gerald Celente describing the current U.S. state as a Fascist one where the merger of state and corporate interests dominate public policy. Although the interview is slightly dated (July 2009), all the points he makes are worth reviewing again.

Saturday, October 17, 2009

Ex-FSA Chief Says British Folks Living in "A Fool's Paradise"

In a recent report titled  Ex-FSA chief Sir Howard Davies sees 'dramatic’ risks for Britain, the Telegraph cites the ex-FSA chief as saying that "the British people are living in a fool's paradise and have yet to understand the gravity of the economic crisis". The Telegraph reports:
Sir Howard Davies, said Britain faces a dangerous rise in the levels of public debt – even taking into account tax increases planned for coming years. "The next six months are going to be extremely delicate in the UK", he told a gathering of HSBC clients in London. "It is very clear that something dramatic has to happen to control spending: but is the economy robust enough to survive fiscal tightening?"
The Government is already running out of weapons to fight the crisis. While the fall in the pound has helped boost exports and proved benign so far, Sir Howard said that past experience handling sterling crises had taught him that the matters can turn ugly fast once confidence is lost. "The pound never stops where you want it to," he said.
What is disturbing is that the British people seem unwilling to face minimal belt-tightening. Even professors in higher education are balloting to strike, demanding a continuation of boom-time pay raises. Polling data shows that 48pc of the public are against any spending cuts and only 20pc see the need for retrenchment.
To this we would add that the British people are not alone in their delusion, they have the entire U.S. Congress, CNBC's "I want Lower Taxes" Larry Kudlow, and the Fed in that camp as well. What is happening in Britain is just the preview for what is to follow in the United States. As Congress fails to reign spending (especially on wars) and lets U.S. budget deficits spiral out of control, it is inevitable that the government will have to raise taxes here in the U.S. as well. Coupled with this, the Fed will soon have to raise rates to prevent the U.S. dollar from going in an unending nosedive. So whatever "green shoots" mirage folks have been dreaming of is going to wither away and there is going to be no economic recovery for a long, long time to come.

Jon Stewart Exposes Glenn Beck's Hypocrisy

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Doubt Break '09
Daily Show
Full Episodes
Political HumorRon Paul Interview

Great Depression Tent Cities in the US

Thursday, October 15, 2009

The Government Boils in Fake Pay Fury

The U.S. Treasury Department has decided to make a case out of the departing Bank of America CEO Ken Lewis. In a show of fake anger and outrage, designed to placate the angry public, the pay czar today decreed that Ken Lewis will receive no salary or bonus for 2009; in fact he will return the $1 million salary that he has received YTD. Of course the headlines failed to mention the colossal $69.3 million retirement package that he still gets to keep.
More importantly, in creating a successful public diversion out of Bank of America, the Treasury has cleared the way for their golden child Goldman Sachs to dispense a vulgar $20 billion bonus to its employees. After all they can point to Ken Lewis, and show the American public that they were indeed guarding the hen house. Meanwhile the real fox, Goldman Sachs makes away with billions, all the while sweeping the colossal billions of government assistance they continue to receive in the form of FDIC guaranteed debt, under the carpet.
Its a wonderful world we live in folks!

Is Shortage of Physical Bullion the Real Reason for the Recent Sharp Rally in Gold?

Although we here at The Firecracker Report have been gold bugs (especially of physical gold) for quite some time, we however are puzzled by the sudden and sharp rally in physical gold prices that occurred over the last several weeks (September-October time frame). Most of the media reports have ascribed the probable cause as seasonal demand from India and the gold-dollar inverse relationship (gold rises as the dollar weakens). While both these points are true they do not give a full explanation as to why gold rallied so spectacularly, breaking through the $1000 ceiling in September.
Instead we believe that a more likely cause is a developing shortage in the physical bullion market. In the paper below we present evidence to support our thesis. If our scarcity thesis is true, then the gold market is setting up for a short squeeze of historic proportions. Which is why we strongly urge investors to get their share of physical gold bullion sooner rather than later.

Must Read: Adrian Douglas on The Dynamics of the Gold & Silver Markets

Author: Adrian Douglas of Market Force Analysis.
This week gold closed above $1000/oz for the fourth consecutive week and made another all time weekly high close. But the top-callers have come out in their droves declaring that gold is in a bubble that is about to burst, and because the recession has been declared as over there is no reason to hold such a safehaven asset. All that is nonsense and I will explain why. The dynamics unfolding in the gold and silver markets are nothing short of explosive. The dynamics are different for gold and silver so I will start by discussing gold.
Gold is a unique substance. It is about the only thing on the planet that is bought and stored and never consumed. Almost all the gold ever mined in history still exists above ground. The purpose of gold is to act as a store of wealth. This singularity of gold makes it susceptible to a scam that was first perpetrated by the goldsmiths in the 16th century. The goldsmiths realized that customers would buy gold and leave it for safe keeping in their vault. This meant that they could show the same gold bar to many customers and sell the same gold bar many times over. This was the early form of the concept of fractional reserve banking where banks only retain 10% of the money on deposit gambling that no more than 10% of the money will ever be called upon to be paid out.

Tuesday, October 13, 2009

Iceland the Best Example of Inflation Amidst Deflation

Over the past year or so, economists have been tying themselves into knots trying to figure out whether the U.S. economy is headed towards inflation or deflation. Our thesis is that the U.S. economy will see BOTH. Some assets/sectors will inflate while others like real estate/housing will deflate. (More on this to follow in our upcoming article)
As evidence look no further than Iceland - Bloomberg News recently carried an article titled Iceland Shrinks 8% as Prices Increase 11% in Deepest Recession , from which we quote below:
  1. Economy shrinks, while prices rise: "Iceland’s economy will shrink 8.5 percent this year and consumer prices will climb 11.7 percent".
  2. Stock market collapses: "The stock market has lost 97 percent of its value, and more than 780 companies have buckled under the weight of foreign currency loans as the krona plunged".
  3. Currency collapses causing interest rates to skyrocket: "The krona’s official exchange rate has declined 53 percent against the dollar since Nov. 2, 2007. The central bank left its benchmark rate unchanged last month at 12 percent, the highest in Europe. Consumers refuse to borrow at Europe’s highest interest rates, and international banks reject requests for new financing".
  4. High unemployment persists as industry crumbles: "Unemployment will rise to 8.6 percent this year, from less than 1 percent in December 2007, the IMF estimates.One of the hardest-hit industries has been construction, where 202 companies filed for bankruptcy in the 11 months after the crash, 67 percent more than in the same period a year earlier".
  5. Even though demand has collapsed, inflation is high due to high cost of imports: "Companies are struggling as the krona’s decline and high interest rates wipe out consumer demand on the North Atlantic island, which imports about 70 percent of the products it uses, including raw materials such as lumber and oil. “People aren’t buying flat screens, they aren’t buying furniture, they aren’t traveling abroad or buying luxury goods,” said Bogi Thor Siguroddsson, owner of Johan Roenning hf, an importer and retailer, who says his sales volume has dropped 50 percent. “What is selling now is food, drugs and gasoline.” "
  6. Car sales collapse, but prices soar: "Standing in Hekla’s showroom, marketing manager Brynjar Oskarsson is surrounded by new Volkswagens and Audis. There are no customers, and Oskarsson doesn’t expect any. People aren’t buying cars because prices have risen 66 percent in the past two years as the krona slumped in value, Oskarsson said. He estimates that just 2,100 vehicles will be sold this year in Iceland, down from a peak of 18,058 in 2005. Hekla has cut its staff to 160 workers from a high of 250".
  7. The lucky few, who still have a job: "The only winners in Iceland’s collapse are companies paid in foreign currency. Along the waterfront, the smell of fish pervades the headquarters of HB Grandi hf, Iceland’s largest fishing company. Grandi hauls in 12 percent of the island’s annual catch, including cod, halibut and haddock, and exports all of its fish. The company hasn’t laid off any of its 650 workers and employees received a raise this year".

Bill Fleckenstein: Your Dollars Are Just Monopoly Money

Author: Bill Fleckenstein in MSN Money
Since Nixon severed gold from the greenback in 1971, the dollar's comparative value has fallen 97%. Money printing today will only hasten the currency's destruction.
This week's column is going to be a little different, as I'd like to discuss human nature and the paper we call money from a slightly different perspective. I was recently thinking about what has transpired in this country in the past decade: first the equity bubble, then the real estate/credit bubble and the steady debasement of the dollar (where a trickle of trouble threatens to turn into a flood).
I have been struck by how few people seem to understand how all these events are related -- in that, at the root, they each have the irresponsible printing of money as the cause. (The sociological and psychological phenomena that go with that -- e.g., the regulators not doing their job -- are just part of the process.)
Each problem led to the next, and one year ago the financial system was bailed out at the risk of the country ultimately enduring a funding crisis.
One fact that strikes me is how few people seem to have been able to protect themselves from the first two (even though they were so obvious) and how so few will be able to save themselves from this third, huge problem.
Read the entire article here

Sunday, October 11, 2009

Dylan Ratigan: The Cost of Corporate Communism

Author: Dylan Ratigan Host of "Morning Meeting" on MSNBC
Published in the Huffington Post

Lately I have been using the phrase "Corporate Communism" on my television show. I think it is an especially fitting term when discussing the current landscape in both our banking and health care systems.
As Americans, I believe we reject communism because it historically has allowed a tiny group of people to consolidate complete control over national resources (including people), in the process stifling competition, freedom and choice. It leaves its citizens stagnating under the perpetual broken systems with no natural motivation to innovate, improve services or reduce costs.
Lack of choice, lazy, unresponsive customer service, a culture of exploitation and a small powerbase formed by cronyism and nepotism are the hallmarks of a communist system that steals from its citizenry and a major reason why America spent half a century fighting a Cold War with the U.S.S.R.
And yet today we find ourselves as a country in two distinctly different categories: those who are forced to compete tooth and nail each day to provide value to society in return for income for ourselves and our families and those who would instead use our lawmaking apparatus to help themselves to our tax money and/or to protect themselves from true competition.

Read the entire article here

Saturday, October 10, 2009

Did the Nobel Prize Committee Just Try to Checkmate Obama?

The news of President Obama receiving the Nobel Peace Prize caught most of the world off guard. Even Obama looked surprised, acknowledging that the prize was not a recognition of his accomplishments, but a "call to action."
In awarding the Prize, the Committee expressed ‘hope’ that Obama will continue down the path of world peace and international co-operation and reasoned:
“Obama has as President, created a new climate in international politics. Dialogue and negotiations (emphasis ours) are preferred as instruments for resolving even the most difficult international conflicts”.
It would be really ironic now, if Obama’s “call to action” is to allow for an escalation of troops in Afghanistan, expanded operations in Pakistan and most importantly a military strike against Iran. Does the world really believe that India, China and Russia are going to sit back and enjoy a massive military buildup in their backyard? Would they take kindly to the U.S. controlling important gas pipelines, oil complexes and trade routes to Europe? Would the Middle East and Asia be more stable and peaceful, with a massive U.S. military presence encompassing Iran, Afghanistan, Pakistan, Iraq and Saudi Arabia? Obviously not.
It is no wonder that the chatter about diversifying away from the dollar (as a trading and reserve currency) has been increasingly coming from the Middle East and Asia. It is their weapon against further subsidization of U.S. military actions in the region.
So perhaps the Peace Prize was the Committee’s attempt at pre-empting further military escalation by check-mating Team Obama. Given the timing of the announcement, coming before a decision to increase troops in Afghanistan, this seems plausible.
But despite altruistic motivations, this attempt is sure to fizzle out. So far, President Obama has displayed no ability or willingness to stand up to the corporate interests (military, financial, energy, healthcare to name a few) that control American policy. War has always been America’s way of distracting the public from the economic crisis at home, and this time will be no different. President Obama’s “peaceful” reputation is probably at its peak. He should take a moment and bask in its glow, because it is soon going to ride off into the sunset, without him in tow.
As for the Committee, we suggest it refrain from using the Peace Prize as a tool to influence world politics. Their past track record (awarding the prize to likes of Arafat and Kissinger) has been poor at best. All it does is dilute the value of the prize. They would better serve humanity if they award the Prize for ‘actual’ rather than ‘potential’ achievements.

Thursday, October 8, 2009

The Telegraph: China Calls Time on Dollar Hegemony

Author: Ambrose Evans-Pritchard of The Telegraph
You can date the end of dollar hegemony from China's decision last month to sell its first batch of sovereign bonds in Chinese yuan to foreigners.
Beijing does not need to raise money abroad since it has $2 trillion (£1.26 trillion) in reserves. The sole purpose is to prepare the way for the emergence of the yuan as a full-fledged global currency. "It's the tolling of the bell," said Michael Power from Investec Asset Management. "We are only beginning to grasp the enormity and historical significance of what has happened."
It is this shift in China and other parts of rising Asia and Latin America that threatens dollar domination, not the pricing of oil contracts. The markets were rattled yesterday by reports – since denied – that China, France, Japan, Russia, and Gulf states were plotting to replace the Greenback as the currency for commodity sales, but it makes little difference whether crude is sold in dollars, euros, or Venetian Ducats.
What matters is where OPEC oil producers and rising export powers choose to invest their surpluses. If they cease to rotate this wealth into US Treasuries, mortgage bonds, and other US assets, the dollar must weaken over time.
"Everybody in the world is massively overweight the US dollar," said David Bloom, currency chief at HSBC. "As they invest a little here and little there in other currencies, or gold, it slowly erodes the dollar. It is like sterling after World War One. Everybody can see it's happening."

Wednesday, October 7, 2009

Consumer Deleveraging Continues...This Train Ain't Stopping Anytime Soon

Data released by the Fed today showed that consumer deleveraging continued in August, with seasonally adjusted consumer credit outstanding contracting by $12 billion. This would be the seventh straight month of decline since January 2009. The Consumer Credit number which represents all short to intermediate term borrowings such a credit cards, auto loans and education loans (excluding mortgage debt), has contracted by $113 billion since the crisis hit in August 2008.
According to a CNN Money report by Hibah Yousuf :
Consumer credit pulled back in August, led by a steep decline in credit card usage, a government report said Wednesday, as unemployment soared and cash-strapped consumers continued to limit spending. The total amount of credit outstanding fell by $12 billion, or a 5.8% annual rate, to $2.463 trillion in August, according to the Federal Reserve.
"Credit is being squeezed on both sides," said economist Sean Maher of Moody's, adding that lending standards at banks remain tight and consumers are pulling back on their debt. "But at the same time, unemployment is rising and people are weary of using credit cards as a stopgap measure," Maher said. "If they don't think they can find another job quickly, they won't run up a debt burden and pay interest on it."
Looks like the Grinch will definitely be stealing Christmas this year...and the next 10 years.

John Paulson on Why He is Bullish on Gold

In his newsletter today, Bill Fleckenstein quotes John Paulson the hedge fund manager, on the reasons why he is bullish on gold. John Paulson was speaking at the Grant's Interest Rate Observer conference.  Here is what John Paulson had to say:
"What I'm looking at is not where gold is going to be tomorrow, one week from now, one month from now, three months from now. What I'm looking at is where is gold going to be vis-a-vis the dollar one year from now, three years from now, five years from now. And I think, with a high probability at each of those points, gold will be higher than it is relative to the dollar today. That probability increases the further out you go. So when I look at what the risk is, the risk to me is far more staying in dollars than it is in gold at this point."

Tuesday, October 6, 2009

The Real Reason Behind the Drum Beats for War with Iran and Expanded Military Presence in Afghanistan

Today's article titled "The Demise of the Dollar" which we posted earlier provides a reminder as to the real reason why America and Britain are increasing hostilities towards Iran, and looking for increased military presence in Afghanistan. The article by Robert Fisk which appeared in The Independent states:

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.
Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."
So the real reason Iran and Afghanistan have suddenly moved center-stage is not to clean up the "nuclear threat" or the “Al Qaeda/Taliban threat”, but to have a military base in the oil rich Middle East. That way, the U.S. keeps a hold on oil (critical to maintaining the USD as a reserve currency, as we explore in our upcoming article) and to counter the growing influence of China, Russia and India.
After the Iraq war became too much of a quagmire and the U.S. was forced to retreat, the army need a new military base...and it found one conveniently next door in Afghanistan. President Obama has already proclaimed that the U.S. is not leaving Afghanistan. This means that despite Obama playing up appearances of deep thought and deliberation, an increased troop presence there is only a matter of time.

The Independent: The Demise of the Dollar

Author: Robert Fisk of the Independent
In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading.

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

Sunday, October 4, 2009

Fortune: BofA CEO: $53 million Retirement Score

Author: Colin Barr of Fortune
NEW YORK (Fortune) -- Ken Lewis doesn't have a golden parachute, but he's all set for a comfortable landing -- unlike his long-suffering shareholders. The Bank of America (BAC, Fortune 500) chief executive officer said Wednesday he'll step aside at year-end after eight years at the helm.
Based on the company's most recent proxy statement, he will have $53 million in pension benefits waiting for him when he leaves. That should give him about $3.5 million a year in pension payouts for the rest of his life - at a time when people who bought the stock when he took the reins in 2001 are underwater on their investments.
Although the bank swore off employment contracts and eliminated golden parachutes seven years ago, Lewis can thank a pension plan that dates back decades for his rich retirement rewards.

New York Post: The Dead End Kids

Author: Richard Wilner of the New York Post
The number of young Americans without a job has exploded to 53.4 percent — a post-World War II high, according to the Labor Dept. — meaning millions of Americans are staring at the likelihood that their lifetime earning potential will be diminished and, combined with the predicted slow economic recovery, their transition into productive members of society could be put on hold for an extended period of time.
The number represents the flip-side to the Labor Dept.'s report that the employment rate of 16-to-24 year olds has eroded to 46.6 percent -- the lowest ratio of working young Americans in that age group, including all but those in the military, since WWII.
And worse, without a clear economic recovery plan aimed at creating entry-level jobs, the odds of many of these young adults -- aged 16 to 24, excluding students -- getting a job and moving out of their parents' houses are long.

Déjà Vu: Ron Paul on the Rising Drum Beats for a War with Iran

In an enlightening video discourse, U.S. Congressman Ron Paul explains what the Iranian nuclear program hype is all about. In addition, there is a very interesting article titled The U.S. and Iran: A Manufactured Crisis by Jack Smith, posted on the Global Research website.

Both men make 2 very important points:
  1. The current war mongering hysteria surrounding Iran is very similar to what preceded the Iraq war.
  2. The U.S. intelligence agencies have been aware of the nuclear facility at Qom since 2006 and had even briefed President Obama on it when he took office.
  3. The Qom facility had been under construction but was not operational. As per the IAEA mandate, Iran is required to inform the agency 6 months before the facility goes into operation, which is exactly what they did.
  4. And as Jack Smith writes "According to the Associated Press, Teheran’s notice to the IAEA specified that the enrichment level would be up to 5%, suitable only for peaceful purposes. Weapons-grade material is more than 90% enriched".

So why the fake outrage by Obama that Iran swung this “new” nuclear site on the world?
The answer is best stated by William Buckler in his excellent Australian newsletter The Privateer: "The manufactured Iranian nuclear “crisis” has been held in “reserve” for at least three years by the U.S. government. Iran stands in the wings as the next US government “bogeyman” to replace Iraq and Afghanistan, should another distraction from domestic economic issues become “necessary”.

Note: The following Ron Paul video has been borrowed from its initial posting on the Future Fastforward website.

Friday, October 2, 2009

Accounting at its Finest: $17 Million 'Gem of Tanzania' Actually Worth $160

Looks like U.S. banks are not the only ones cooking their books these days. Banks penchant for holding assets at valuations far exceeding their market value has just traveled across the pond to the U.K.
CNBC is reporting that a now bankrupt U.K. company, called Wrekin Construction, has been holding a $160 ruby on its books at $17 million.
An enormous precious stone listed on a now bankrupt company's books for the value of 11 million pounds ($17.4 million) is probably not worth more than 100 pounds, British media reported Friday.
The "Gem of Tanzania," once believed to be a huge uncut ruby that one of its owners declared as cursed, was listed on the balance sheet of now bankrupt UK company Wrekin Construction as its most valuable asset and had been keeping the firm alive for years.
Valuation documents at the time stated that it was worth 300,000 pounds, but when Unwin's company Wrekin Construction went bankrupt in March, its accounts listed the gem as being worth 11 million pounds, the paper said.
But now the rock is believed to be just a large lump of anyolite, a low-grade form of ruby.
"A two kilo lump of anyolite is probably worth about 100 pounds. A valuation of 11 million pounds would be utterly bonkers," Marcus McCallum, a jewel dealer from Hatton Garden in London, told the Financial Times.
Wow! Talk about stuffing it to the creditors! And what in the world is a construction company doing buying gems? That itself should have set off auditor alarm bells.

Citadel’s $1 billion High Frequency Trading (HFT) Heist

Move over Maria Bartiromo; make way for Ken Griffin the newest money honey in town. And all you quant people out there watch out, coz queen bee Ken Griffin has his stinger out. The WSJ is reporting that Citadel is suing former employees for allegedly stealing their lucrative high frequency trading formula. And how lucrative was this jackpot you might ask? does earning $1 billion churning garbage stocks in 2008 sound to you? Pretty good yeah…we thought so.
Oh and talk about growth in this business! As the WSJ reports:
Mr. Malyshev in testimony Thursday detailed the Citadel unit's growth in recent years. It posted returns of $892 million in 2007, up from $75 million in 2005 and about $3 million in 2004, according to Mr. Malyshev.
Yeah Ken Griffin is a true American Capitalist. He knows not to waste time 'investing capital', which would involve taking some risk while lending money out to seed businesses which can create jobs in this country. Nope that ain’t a worthy enough cause Sir. He would be Stupid to do that...that is what ordinary mom and pop investors are for: those who have been sold the "invest for the long term" bed-time story.
Our money honey is way smarter than that. You see he does not believe in taking any risk. Why do that when you can make free money front running mutual fund investors and churning garbage stocks like AIG and Citigroup? As Joe Saluzzi the High Frequency Trading whistleblower points out - the stock exchanges are only too happy to pay Citadel a fee for bringing much needed liquidity to garbage stocks. And once you have run them up far enough, all you need is for some gullible mom and pop investor to provide the ‘much needed liquidity’ so that Citadel can offload its crap.
As Louis Armstrong would remind us “And I think to myself…Oh What a Wonderful World”.

The Daily Show Explains High Frequency Trading

Joe Saluzzi of Themis Trading who has done an absolutely brilliant job highlighting how high frequency trading (HFT) by the likes of Citadel, Goldman Sachs and Renaissance Technologies is distorting equity markets, has this must watch video posted on their blog. As usual the Daily Show does a brilliant job capturing the essence of HFT.
And for all you folks who would like to know more about how you are losing your money to HFT please read Joe Saluzzi’s spectacular piece Toxic Equity Trading Order Flow on Wall Street.

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Cash Cow - High-Frequency Trading
Daily Show
Full Episodes
Political HumorRon Paul Interview

Thursday, October 1, 2009

Paul Volcker: Obama Does NOT Rely on My Advice Anymore

Paul Volcker was being interviewed on Charlie Rose on Tuesday where he uttered something that made us literally hop off the couch. The exchange occurs towards the end of the interview around the 43.49 min mark. Here is the transcript:

Charlie: So you walk into the President's office and he says 'Paul great to see you, certainly relied on your advice...'
Volcker: Maybe NOT ANYMORE!
Charlie: Oh you THINK that? You think they listen to you less now because you know... they don't like their guy going out there… saying he doesn’t like everything we are trying to do. The one area where we were depending on his credibility to help us, he is drawing divisions within us.
Volcker: no no...Short that conversation...the President was aware that I had one or two problems.
Freudian slip or just jest? We think not. Given Charlie's strong line of questioning, he obviously knew more about Volcker’s rocky relationship with the administration and wanted to delve deeper.
Volcker has been pretty vocal about not towing the administration's propaganda: of a V-shaped economic recovery and green shoots sprouting all across the American heartland. And off late there have been many reports circulating in the media that the Obama-Larry-Timmy trio has sidelined Volcker.
Looks like Obama used Volcker to get past the election bump and then said Hasta La Vista Baby. We expected nothing less.
Both Democrats and Republicans bring nothing new to the table. Underneath all the ‘we are different parties’ rhetoric their policies and modus operandi remain the same. What America needs is REAL CHANGE, a brand new set of of good honest people entering politics. Until then we have no hope.

Why the U.S. Govt. Wants You to Buy Stocks While China Tells Its People to Buy Gold

This video has been borrowed from its posting on Future FastForward.