Wednesday, December 29, 2010
Many factors can determine the ascent of gas prices, and this is where confusion arises in today’s market, and propaganda begins to take root. In 2008, the historic march of oil costs was blamed primarily on “speculators”, commodity investors who buy up petroleum with no intention of actually using it, thereby creating a false sense of scarcity in the market and driving up prices artificially. This was, for the most part, what really happened.
Another cause of oil increases is the natural reduction of global supply in the face of rising demand. An American economy running on all cylinders would necessitate greater supply and a higher price if that supply is insufficient.
Essentially both triggers are dependent on the fact of scarcity, engineered or legitimate, in order to cause price spikes. Neither trigger is applicable in today’s market, where currency weakness is the central determinant, yet these are the arguments we are hearing and will hear more of as we are fleeced at the pump through dollar devaluation.
From: Oil Juggernaut Unleashed
Wednesday, September 29, 2010
On the one hand the markets are rallying, companies are earning record profits while sitting on nearly two trillion dollars in cash. Ninety percent of people who want to work have a job. Nearly eighty-six percent of Americans live above the poverty line. Eighty-three percent of Americans are covered by health insurance. Household income is up seven percent amongst our oldest citizens - those over 65 years of age. The top one percent of earners are accumulating wealth at unprecedented rates, amassing fortunes the likes of which have not been seen since the blossoming of the industrial age.
Looked at this way, the evidence suggests the economy is on the rebound - the economic engine is rumbling to life. However, there is another perspective.
Household income is falling for every age group, except those over 65 - the median annual household income is hovering below $50,000.00 and has not increased in inflation adjusted dollars in decades. The number of Americans without health insurance has reached an all-time high of over fifty million men, women and children. Over forty-three million mothers, fathers, sons and daughters live in poverty. Tens of millions are unemployed, while millions more have given up looking for gainful employment altogether. Families are struggling with record levels of personal debt while corporations and state and federal governments plumb new depths - borrowing from foreign powers to sustain untenable entitlement growth, fuel a culture of consumption and finance foreign wars.
It seems from this latter perspective our economy still remains stalled.
We have had lots of tinkering under the hood - financial bailouts, corporate bailouts, a massive stimulus package and the loosest monetary policy possible. The master mechanics cannot seem to clearly diagnose the problem nor can they determine a viable way to reignite the engine. Though the motor may not have completely seized, the reality is - the economic engine is idle. We are broken down at a crossroads.
The choices before us are to repair the motor as best we can and attempt to squeeze every last gasp of performance out of the dated design, or we can begin anew and rethink and retool the engine that drives prosperity - rebuild the economy from the ground up.
A new design is needed for America to return to prosperity. It is time to reengineer our economic engine to perform better - to produce results for more people with greater efficiency and increased effectiveness. Oil, consumerism, and finance are spent fuels. We need to realign our priorities and slow down. We must envision a new future - dream a grander dream. We must test and challenge ourselves to achieve greatness. Success is not a spectator sport. Do your part, contribute to the redesign - start your engine.
About the Author
Scott F. Paradis, author of "Promise and Potential: A Life of Wisdom, Courage, Strength and Will" http://www.promiseandpotential.com publishes "Insights" and a free weekly ezine, "Money, Power and the True Path to Prosperity". Subscribe now at http://www.c-achieve.com
Thursday, June 24, 2010
The big global credit rating agencies (or CRAs, ie S&P, Moody's,
Fitch) originated in America a century ago to help investors
evaluate creditworthiness of bonds, issued by entities from
railways to governments to industrial firms. Over time CRAs grew
internationally, now assessing all kinds of debt. They have
enhanced transparency around a broad credit spectrum. Their
contribution to market discipline has been positive overall,
giving basis to sound credit pricing using default statistics
dating back decades.
With proliferating exotic instruments, securitizations and
manifold debt classes, CRAs have continued investor education.
Yet in recent years they've been swept up with investors in new
product momentum (and generous rating fees). In assigning top
ratings to structured products, particularly in US residential
mortgages, critical analysis was lacking; many deals originally
accorded highest creditworthiness fell drastically, to the
credit spectrum's bottom. A March Moody's study shows that 41%
of structured deals rated Aaa in 2007, and 39% in 2006, fell to
Caa by end-2009 (12 notch drop!). Before 2005, this figure was
1%. Moody's corporates experienced 2-notch average downgrades
over the last decade, versus 7.3 for structured in 2009.1 The
credit crisis should have affected all rating classes similarly;
CRAs seek consistency across sectors. This clearly shows flaws
in structured ratings, provoking international outcry during the
Criticism also stems from profits oligopolistic CRAs enjoy,
enhanced by increased debt issuance volume. Moody's 2007 ratings
profit margin (ebitda before restructuring) was 59%. Close to
half that year's revenue came from structured products.
CRAs first responded with self-regulation, appointing dedicated
compliance personnel, enhancing transparency, and rotating
analysts. In 2004, after failures of Enron and Parmalat
(carrying investment grade ratings - implying low default risk -
just before they went bust), CRAs began conforming to IOSCO's
Code, a voluntary regime built around International Organization
of Securities Commissions standards. This hasn't precluded
tighter regulation, in America and Europe. Last year the EU
approved European Regulation on Credit Rating Agencies, to set
CRA standards, improve transparency and governance, and
introduce regulation and supervision.2 America's financial
reform bill includes a new rating board, regulating CRA
interaction with rating clients.3
This legislation is not a cure-all. CRAs don't have to conduct
diligence on complex securitizations they rate, in contrast to
rating corporates. Since the US bill does require structured
methodology disclosure, which lacked transparency, this should
reduce CRAs' reliance on mathematical models (largely developed
by intermediaries). Excessive confidence in statistical analysis
accompanied insufficient acknowledgement of its limitations.
Direct contact of credit analysts with issuers in structuring
products also represented a conflict.
A fundamental anomaly remains: CRAs earn most of their income
from rated borrowers, not investors. CRAs' market share
ambitions result in incentives for issuers and intermediaries to
"shop" for high ratings. In my investment banking experience,
one public rating usually sufficed for an issue, which naturally
was the highest.
The debate has become more political, as sovereign downgrades
(eg, Greece) have led policy-makers to question CRA power,
including more calls for regulation and a "European" rating
agency. Value of the latter could be dubious, based on Japan's
experience, where JCR, a domestic agency, consistently awards
high ratings to domestic borrowers that global CRAs rate much
lower. For example, JCR rates Bridgestone AA, which Moody's
rates A3, 4 notches lower. JCR's extensive corporate ratings
list reveals just 2 sub-investment-grade firms, aside from
defaulted issuers (like JAL).4
Following are proposals to limit potential negative CRA
Regulated and sophisticated investors should rely more on own
Market participants should reduce ratings reliance in investment
CRAs should make available further information free to access.
Effective self-regulation is preferable to government
regulation, offering greater flexibility, expertise, acceptance,
higher standards, and more competition.
Above all, investors' interests should come first.
1. Tung, J. and Weill, N. (2010), "Structured Finance Rating
Transitions: 1983-2009," Moody's Investors Service: 9. 2.
Parker, E. and Bake, M. (2009), "Regulation of Credit Rating
Agencies in Europe," Butterworths Journal of International
Banking and Financial Law: 401-403. 3. Dodd, C., Chairman
(2010), "Summary: Restoring American Financial Stability,"
Senate Committee on Banking, Housing and Urban Affairs: 8. 4.
JCR.co.jp website. 5. Pizzani, L. (2008), "(Dis)Credit Ratings,"
CFA Magazine: 14-15.
About the author:
This article was written by Edward Bace a lecturer at BPP
Business School London.
BPP Business School is a leading provider of postgraduate
education with an excellent range of courses including the
MSc Finance and MSc Management degrees.
Tuesday, June 22, 2010
rolling, even though the good times were questionable.
2) Productivity was already being impacted by poor allocation of
resources, wars not going well.
3) Financial oligarchs effectively took over the government,
existing laws were not enforced, and as thing came to a head in
2006 and 2007 the big brokers (deal makers, IPO, LBO's) were
hiring specialists in bankruptcy reorganization. They were
poised to buy stuff up on the cheap when things blew up.
4) The recent "recovery" is really just the same recession, but
given a hit of crack so it can party on a little longer. Many
trillions were spent, but it mostly benefiting big business, big
banks/brokers. Long term benefits to the economy are
5) Government workers have increased their pay like 30% to 40%
whilst non-gov workers have treaded water, even if they have a
job at all.
6) Government is expanding it's powers and owning businesses.
Whilst theoretically, expanded powers could be useful, why we
anyone assume so, given that existing laws and oversight were
already so poorly performed.
7) Lobbying, campaign contributions, and restrictions on how any
Gov official could migrate from an oversight of an industry to
an executive or lobbying position must be instituted.
8) Deflation is likely to be the near term hobgoblin.
9) The Gov can literally just print money, seriously. They can
hand out that paper money to pay off debts. They do not have to
roll over every debt. All the governments with soveriegn
currencies can do this. The Euro cannot. This is called
10) Inflation can take hold someday. You best not have all your
assets in paper money or equivalents. These changes may happen
relatively quickly, like by 2012.
11) The US has plenty of military muscle, expect it to be used
more, especially as things go bad.
12) If anyone owes you money, get it now.
13) Very few, maybe 1% of the population learned anything from
the greatest financial crisis in a century. Or they "learned"
that the Gov can indeed save us by strong Gov intervention in
free markets. This makes the next crisis more dangerous.
14) Very few of the problems of the crisis were solved by those
trillions of dollars thrown at the situation. It was more just a
transfer of wealth from a captive audience to the ogliarchs. The
bad debts, bad assets are still on the books, they have just
been covered up. Those in the know, know it, and they are
pulling out all the stops to "get theirs" before round 2.
14) There may be a QE2 (Quantitative Easing, money printing,
throwing money at large banks/brokers), or the USA could follow
the austerity trend that is all the rage (pun intended).
15) Reviewed Conquer the Crash by Big Daddy Pretcher. We all
love Pretcher, he is a free thinker, like Armstrong, but he has
been so wrong for so long, he is not infalliable. His view on
Gold is wrong, it is not just a commodity that reacts like
16) Gold is a currency. Paper gold is a speculation device,
owning gold ETFs and even gold miners is not the same as owning
physical gold. Silver is good for making change, buying a tank
of gas, bag of rice, etc.
17) We are not at the precipice of Primary 3 wave down, we could
be near the end of the 1st 5 waves down (completion of wave 1).
Wave 2 could slog sideways for years, like a zombie propped up
18) Most people have lived beyond their means for a long time.
Most "young people" say 35 and younger, have only lived in a
19) In order for any chance of moving forward with positive
results a few things must happen--banks and investment
advisers/brokers/deal makers must be separated by a firewall,
not a just a company division name, lobbying must be curtailed,
contract law including making bondholders take their lumps, must
20) Never has the world been so intertwined. Never has the
situation for competitive devaluation of every countries
currency been so nicely setup.
21) There is still something like $600T of notional value of
derivatives floating around out there, and apparently no one
even knows where they are or how to track them. This is many
multiples of the world GDP. This can't be good for the common
About the author:
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Wednesday, April 28, 2010
Allegations of fraud brought last week by the Securities and Exchange Commission is a shocking departure from the culture of collusion among the U.S. government and the nation's top banks. That despite the position of this publication and myriad others broadly categorized as "fringe" who have consistently and vociferously objected to the two or more standards applied to organizations and individuals by a corrupt legal system.
Throughout the 200 year-or-so history of linked financial markets, the name of J.P. Morgan has almost always been dominant. Goldman Sachs, though newer in terms of participatory history, has quickly risen to join J.P. Morgan at the forefront of the only industry that credibly dictates to government.
To many, the scandal surrounding Goldman Sachs apparent rigging of the craps tables in the house's favour comes as no surprise. The Gold Antitrust Action Committee has been stridently demanding an investigation into the concentrated short positions that plague the gold and silver markets to no avail. They've suffered from an absence of public concern or support for their position because the relationship between gold and silver markets and personal finance is not intellectually accessible for the majority of people. So the press, absent public interest, generally passes up GATA coverage, even though the implications for the citizens of the United States and the world include constitutioality and civil rights.
That may be changing.
The excesses of the personalities attracted to such an industry demands that episodes of gross rapaciousness should regularly come to light in the press, and such incidents are generally followed closely by censureship by government, a distancing between banking and government, vigorous regulation, and public revulsion.
Is it conceivable that an independent wind is blowing through the halls of justice? Or is this merely the set stage for the sacrifice of a few lambs to render complete the getaway of the real culprits higher up the food chain?
Speculation aside, one of the unavoidable results of this first volley across the hallowed bows of Big Banking is the focus that is now being directed to the futures and derivatives business, which is where the accumulated real losses of these institutions is perrenially stored as liabilities so they can be booked as profit on their balance sheets. The figure, according to the Commodities and Futures Trading Commission own numbers, of $600 trillion is the amount which lurks under the auspices of "notional" value in unwound transactions encumbering the heretofore dark and mostly unregulated market.
If the CFTC and SEC are genuinely determined to rectify the now public disgrace of such nepotistic administration, we could be on the verge of a major re-ordering of the financial industry landscape world wide.
The manipulation long present in this market according to the allegations of organizations such as the Gold Anti Trust Action Committee (GATA) has been responsible for the depressed price of precious metals, and outside of GATA, the super-inflated price of oil which peaked in July of 2008 at $148 a barrel.
Now they're coming out of the woodwork in Goldman's defense, thought the defenders are hardly credible and without bias. Warren Buffett today said he has "full confidence" in Goldman Sachs, while private equity firm Blackstone came out with a more forceful endorsement.
Blackstone CEO Stephen Schwarzman is quoted as saying, "We have been working with Goldman Sachs for the 25 years since Blackstone was formed and we never had any circumstance where there was any question about ethical character or behaviour. We are a major client of Goldman's and we will continue to remain a major client."
A week after the first allegations, we are now seeing the predictable flood of corrobaratory evidence unearthed by the press that suggests the moral decay among the foot soldiers now receiving blame originates at the top. (Emails show Goldman Sachs execs boasting about the profit they were making from horribly misappropriated lending.)
Goldman Sachs though isn't going to lay down like Lehman Brothers was forced to. The tentacles of the Goldman monster penetrate global governments on every level that matters, as many of the Treasury and Federal Reserve alumni identities prove. Goldman is certainly at the forefront of the "Too Big to Fail" propaganda, which is true only if caveated with "because that would bring down the government".
We reiterate the position "Too big to fail means too big too exist". If institutions that can deflect any responsibility for their actions to junior scapegoats are permitted to run amok with their massively influential capital concentrations, we are institutionalizing criminal destructive forces and protecting them. Its like breeding giant elephants in your living room. Sure, they're big and healthy, but look at the state of your house!
Among the many lessons we should be learning in this era of daylight robbery by our institutional and individual pillars of society is the obvious reality that people only aspire to be bankers because they feel entitled to a greater share of personal wealth, and not just despite the impoverishment of a broad social group to accommodate such plunder, but that is precisely how they demand it is done. This is morally reprehensible. In 200 years, if we survive, these bankers and that mentality will be deemed criminal, and those crooks will go to jail.
Through our evolution in the developed world over the last thousand years, there was a long-running battle between those who would let the church govern, and those who, successfully, argued for the separation of church and state. A democratic government is obliged to refrain from permitting special interest groups from influencing and especially infiltrating policy. The current practice of recruiting treasury and government financial advisors from the top personnel of banking is a despicable and blatant conflict of interest.
What these elitists perennially fail to recognize is it is precisely this smug refusal to eliinate such glaring abdications of government responsibility that incites riots and revolutions. When the financial misery inflicted by these institutions begins to affect even its middle and upper middle classes, rebellious organization and literature manifests.
At some point, the unemployed will see that there is an emergent moral obligation to correct such injustice, rather than seek employment or financial assitance. The United States is right now failing to make that distinction, and at its own peril.
I am Canadian with a long family history of intermarriage and American - Canadian residence and business. With a thoroughly bi-national perspective, it is now abundantly clear to me that one of the greatest distinctions between Canadians and Americans is that the Canadian business elite don't underestimate the importance of a more-or-less uniform standard of living for all citizens - even at their own expense. Consumer rights are defended, sure, but we don't have to worry about predatory lending by financial institutions against the credit-unworthy because it runs contrary to Canadian ethical thinking. Bad loans are bad business, and the integrity of the Canadian economy throughout the crisis is testimony to Canadian ethical and business fortitude.
This is why Goldman Sachs should be the first domino to fall. The United States government needs to stop shielding the super elite and thinking that they're getting away with it. They are not. There will be a day of comeuppance, and its likely not that far off.
The opportunity for President Barack Obama is to now demonstrate genuine leadership by attacking the corruption that continues to aid and abet the illegal manipulation of markets through excessivley large and influential institutions. Corporations can't go to jail, but their charters can be revoked for cause. If the government of the United States doesn't act decisively and meaningfully, the people eventually will.
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