Sunday, March 17, 2013

Marked and Pitted…how to use LIESman and a Nuclear Bomb in afairytale...

Theory has it that if you tell someone stupid enough to believe that you will insure their deposits that you actually will. Theory has it that if you can hold positions indefinitely or till maturity everything will be fine. Theory has it that if you lie to your depositors, manipulate your customers and falsify your balance sheet you will get very large bonuses…Theory has it that if you are a little island, that takes in lots and lots of deposits for safekeeping because you are willing to skirt some of the rules…you will be rich and prosperous. Certainly for a time, that has occurred, however, the enticement of leverage is the theme that all of these actors have in common. And then the implicit question is WHY? Why does everyone need all this leverage?

JPMorgan, Goldman Sachs and Cyprus are symbols of the nature of theoretical finance…inthis fairy tale you will want to keep your nuclear bomb close by and try to camouflage it each of these participants have their own nuclear bombs that regulators, finance ministers and employees themselves are or will likely fire off under the pretence of calming/managing stresses, their customers, business partners and the markets.

We have had two nuclear bombs go off last week:
  • JPMorgan’s clear deception and mismanagement of risk and derivatives positions that they are supposed to be the AXE of…
  • IMF, ECB, EU and German complicity in destroying the only thing keeping the financial system from imploding…the theory of deposit insurance, official contracts and sanctity of asset and property rights. 
This indeed has been sold as a fairy tale, Steve LIESman will be conferencing with officials at the FED any minute to begin spinning the tale even further, one in which the realities of increasing leverage that increases wealth disproportionately and creates gargantuan catastrophes that just keep getting bigger and bigger - does not EVER happen. The reason we need all this leverage is to enable Steve LIESman to tell his fairy tales and more practially for the theoretical payment of interest on debts where the money to pay said interest has not been created yet. This is certainly a Nuclear Bomb painted into an Easter egg just waiting for the kids to find. The sad thing is that the kids are going to find it…its the legacy fools like GreenSPIN, BURNanke, DRUGhi, Larry SUMTimers, Robert RUBin etc have specially engineered for them. Its the legacy that KRUDMan so desperately wants to believe and spread. 

The funny thing about all this is: the leverage junkie is nowhere near dead. The ECB and FED are pushing their drugs apparently till they not only kill the patient but also themselves. Perhaps this is by design and deliberate, or perhaps they are just outrageous narcissists and have lost all touch. However, there are strange things going on as we all will be required to suffer the withdrawal effects. 

Certainly, the last place I would want to invest after a bank, central bank and international arbiter bank outright stole my money…would be into a bank that covered up using my money to trade without permission and lie about its books for the benefit of corporate bonuses - especially said bank. But the possibility is significant that after the desire for US treasuries wears off,  people will become very generic in their view and preference of holding assets as opposed to bank deposits and could feel required to pay higher and higher prices for desperately overvalued assets in the U.S. because it is clearly NOT the ECB, EU, Europe, Russia etc. and espeically if rates on US Treasuries go negative. Though this is certainly not the highest probability outcome, when and if people end up resigning themselves to the concept that they may only get a portion of their assets back no matter where or how they hold them, they may just decide certain US assets (such as stocks and real-estate) are not that different of a risk…until of course it is and in which case they will likely see almost all of the asset fail to hold tolerable purchasing power.

All in all, the threat of deflation is the greatest reaction to this kind of nuclear bomb. If you had $100,000 in a bank account you may choose instead to hold that purchasing power in treasuries and only deposit funds as needed into your bank account to pay bills. On its face, if people reduce the cash held in banks, that head wind is enormous for all companies - let alone the constrained spending because cash is less accessible. All arrows point to deflation…is the US really is the last bastion?
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