Category Archives: Economy and Meltdown

No. 461: July Employment and Unemployment

(SGS Subscription required) • Nixonian Unemployment Reporting
• July Household-Survey Employment Plunged by 195,000
• Annual Add-Factors in Birth-Death Model Upped to 548,000 Jobs
• July Unemployment: 8.3% (U.3), 15.0% (U.6), 22.9% (Shadow Stats)
• Shadow Stats Unemployment Within 0.1 Percentage Point of Cycle-High
• Year-to-Year July M3 Money Supply Growth Even with June

Powered by WPeMatico

The Con Game Of Writing Up Assets

Wolf Richter

Normally we see the gory details only after a firm collapses, like Enron or Lehman, when vultures tear open its guts to fight over shriveled assets that had appeared fat and healthy on paper, and some of them had been written up repeatedly to create—which our accounting system encourages us to do—paper income.

Other outfits get bailed out. JPMorgan among them. A distinction made behind closed doors. They still have hollowed-out balance sheets … and the certainty, if they’re large enough, that the Fed and the Treasury, or central banks and government agencies around the world, will prop them up at a moment’s notice. Confidence is required to keep the scheme going. Once confidence fades, the scheme collapses, and central banks have to print trillions and hand them to the industry so that confidence will reassert itself, and so that the scheme can be driven to the next level. And yet, it’s all about prosaic accounting.

Accounting rules allow the use of estimates to value many assets. And estimates can be written up. If a trader or an executive imagines that an asset has increased in value, he’ll set in motion a chain reaction that will cause the company to make the adjustments, increasing the value of the asset with one entry and increasing by the same amount an income account. It’s all good. Asset value goes up, profit goes up. Trader bonus goes up. Manager bonus goes up. CEO bonus goes up. Investors froth at the mouth. Earnings per share beat analysts’ expectations. A money machine. Everyone is happy. Even regulators, their banks being strong and profitable. Halleluiah.

Until it blows up. So, the revelation that the “London whale”—as JPMorgan trader Bruno Iksil was known due to his enormous positions—had been prodded by his boss to jack up the valuations of his trades comes as no surprise. But this time, the system got snared and exposed live. Iksil had been trading credit-default swaps in amounts so huge that they were budging the index. He lived in Paris and commuted to his office in London, on the Eurostar presumably. What is it with these French guys that are accused of gouging deep holes into the balance sheets of their mega banks?

Before him, there was Jérôme Kerviel who became famous in 2008 as the junior trader who’d lost $6 billion at French mega-bank Société Générale. Accused of a litany of shenanigans, he was condemned to five years in the hoosegow, though he claimed he was innocent and was being scapegoated. He just couldn’t prove it. Until now. And he’s fighting back. Read…. David and Société Générale.

It has been quite a ride for JPMorgan. At first, it was a loss of $2 billion, a “tempest in a teapot,” as CEO Jamie Dimon said. Then more truth seeped out, and it was suddenly $5.8 billion. And now it looks like it might spiral past $7 billion. Citing unnamed sources, the Wall Street Journal reported on the internal investigation that reviewed emails and voice communications. And these people were doing what nearly everyone is doing, nudging up asset values. With a host of beneficial side effects: increase capital ratios, boost income, goose bonuses.

The internal investigators determined that credit-trading chief Javier Martin-Artajo, who was working at the Chief Investment Office (CIO), had pushed Iksil to jack up the values of his trades—not just once, but repeatedly. And Iksil complied. Normally, this would have been no big deal, and future losses could have been swept under the complex rug of the mega bank. They tried. The called it $2 billion and a tempest in a teapot. No big deal really, just some hedging, all by the book. “The CIO balances our risks,” said CFO Doug Braunstein back when the scandal broke. It was about “protecting the balance sheet.” But it turned out to be too big to be swept under the rug.

There will be some housecleaning. And leaks to the Wall Street Journal to make clear to the world that this was a one-time event that won’t repeat itself, the handy-work of a couple of guys—who, through their lawyers, have denied any wrongdoing. New procedures would nip this sort of thing in the bud. These leaks and assorted dog-and-pony shows are part of the campaign to re-inflate the bubble of confidence without which the financial markets—and the valuations of stocks, bonds, and other instruments—would take a big hit.

And here is an issue that has been blissfully ignored or underplayed by the mainstream media though it has a profound impact on the US…. Mexico Dissolves Their FBI And Moves To Legalize Drugs, by hard-hitting Chriss Street.

Powered by WPeMatico

Friday Humor: "I Am Pledging To Cut The Deficit We Inherited By Half By The End Of My First Term In Office"

President Obama, February 2009

We can not and will not sustain deficits like these without end. Contrary to the prevailing wisdom in Washington these past few years, we can not simply spend as we please and defer the consequences to the next budget, the next administration or the next generation. We are paying the price for these deficits right now. In 2008 alone we paid $250 billion in interest on our debt, that is more than three times what we spent on education that year, more than seven times what we spent on VA healthcare. So if we confront this crisis without also confronting the deficits that helped cause it, we risk sinking into another crisis down the road as our interest payments rise, our obligations come due, confidence in our economy erodes and our children and grandchildren are unable to pursue their dreams because they are saddled with our debts. That’s why today I am pledging to cut the deficit we inherited by half by the end of my first term in office. This will not be easy – it will require us to make difficult decisions and face challenges we have long neglected but i refuse to leave our children with a debt they can not repay. And that means taking responsibility right now in this administration, for getting our spending under control.”

Less than archive footage:

US deficit:

US debt:

Powered by WPeMatico

Fascination With Triple Levered ETFs Ends: Direxion Closing Nine 3x ETFs Due To Lack Of Interest

It was fun (not really) while it lasted, but America’s habitual gamblers have finally grown tired of the theta sucking monsters known as uber-levered ETFs. End result: Direxion is announcing it is closing nine 3X levered ETFs.

From Direxion:

The Board of Trustees of the Direxion Shares ETF Trust has decided to liquidate and shutter nine exchange-traded funds (“Funds”) based on the recommendation of Rafferty Asset Management, LLC, the Trust’s advisor.


Due to the Funds’ inability to attract sufficient investment assets, Rafferty believes they cannot continue to conduct their business and operations in an economically efficient manner. As a result, the Board concluded that liquidating and shuttering the Funds would be in the best interests of the Funds and their shareholders.


The Trust will close the following Funds: Direxion Daily Agribusiness Bull 3X Shares (COWL), Direxion Daily Agribusiness Bear 3X Shares (COWS), Direxion Daily Basic Materials Bear 3X Shares (MATS), Direxion Daily BRIC Bull 3X Shares (BRIL), Direxion Daily BRIC Bear 3X Shares (BRIS), Direxion Daily Healthcare Bear 3X Shares (SICK), Direxion Daily India Bear 3X Shares (INDZ), Direxion Daily Latin America Bear 3X Shares (LHB) and Direxion Daily Retail Bear 3X Shares (RETS).

And to think they all had such memorable names…

What happens next:

Shares of the Funds will stop trading on the NYSE Arca, Inc., and will no longer be open to purchase by investors, at the close of regular trading on September 5, 2012. Shareholders may sell their holdings in the Funds prior to the closing date, and those transactions are subject to customary brokerage charges. Between the closing date and the liquidation date, shareholders may only be able to sell their shares to certain broker-dealers and there is no assurance that there will be a market for the Funds during that time period.


On September 12, 2012, the Funds will liquidate their assets and distribute cash pro rata to shareholders who have not previously redeemed or exchanged their shares. These payments are taxable and will include any accrued capital gains and dividends. Each Fund’s net asset value will reflect the costs of closing the Fund as calculated on the liquidation date. The Funds will close when the distributions are complete.


The process of closing down and liquidating the Funds’ portfolios, scheduled to take place between September 5, 2012 and September 12, 2012, will result in the Funds not tracking their underlying indexes and experiencing an increase in cash holdings. These developments may not be consistent with each Fund’s investment objective and strategy.

Following the disappearance of 3x ETFs as an asset class we will see the exit stage left of 2x levered ETFs, then unlevered ETFs, especially if key ETF market maker Knight folds, then finally single name stocks, as nobody is left to trade anything or hold the bag, and as no incremental capital remains to be “invested” into the stock market by the greater fool.

Powered by WPeMatico


The Gold Anti-Trust Action Committee has held four international gold conferences to expose the manipulation of the gold and silver markets. The last one was held in August 2011 at The Savoy Hotel in London. A number of the speakers presented evidence of exactly what The Gold Cartel does to manipulate the markets.

One of the speakers was James McShirley who has documented numerous repetitive market activities which could never occur time and time again in a freely traded market. Just this past week gold completed its 2% up, 1% up, sideways, down hard pattern, which is only one of many trading anomalies James has tracked.


On Thursday he contributed the following to my daily PM markets commentary:

Divining… with 80% guidance


Reading the cartel tea leaves, and divining the near-future as it relates to 80% probabilities leads us to the following:

  1. If gold recovers mildly tomorrow the rally will stop somewhere around $1,606.50, which is +1% of the (unofficial) Comex pit close.

  2. If gold recovers nicely tomorrow the rally will stop somewhere around $1,622.40, which is +2% of the (unofficial) Comex pit close.

  3. If they pressure gold in the access trade today the employment report tomorrow will be gold-friendly.

  4. If they also pressure gold tomorrow the employment report will be very gold-friendly.

  5. Regardless of the outcome gold has the best chance of rising from the Friday PM fix to the Monday AM fix.

Who needs Carnac the Magnificent when you have a totally manipulated, and likely predetermined outcome?



"May the fleas of a thousand camels nest in the cartel's shorts".

This latest cartel operation is feeling more and more like smoke and mirrors. The relentless attacks have a smell of desperation. It feels like they're firing all of their pea shooters at once hoping to stop a charging rhinoceros Maybe like the newly "discovered" WH covert ops in Syria there is also a heightened covert state of aggression towards gold. Keeping gold contained until November might be EVERYTHING

This is what he wrote today after The Gold Cartel’s 1% Rule was initiated despite the DOW, oil, and the euro soaring…


Winning predertermined outcome was….



In the category of the "80% probability rule" the winning predetermined cartel outcome was, drum roll, : Both "A". and "E". Gold recovered mildly, and was capped at 1%, and also rises immediately after the PM fix. As most here remember reading yesterday I wrote:

Reading the cartel tea leaves, and divining the near-future as it relates to 80% probabilities leads us to the following:

A. If gold recovers mildly tomorrow the rally will stop somewhere around $1,606.50, which is +1% of the (unofficial) Comex pit close.

B. If gold recovers nicely tomorrow the rally will stop somewhere around $1,622.40, which is +2% of the (unofficial) Comex pit close.

C. If they pressure gold in the access trade today the employment report tomorrow will be gold-friendly.

D. If they also pressure gold tomorrow the employment report will be very gold-friendly.

E. Regardless of the outcome gold has the best chance of rising from the Friday PM fix to the Monday AM fix.

The high tick today up until the London PM fix was $1,606.80, which adjusting for yesterday's official Comex pit close was to the exact tick what I predicted. Gold then surged $12 after the PM fix to briefly trade slightly above +1%, but quickly fell back into the +1% rut. There can be no earthly reason for such uncanny predictions that happen with such regularity other than official, or coordinated price capping. This goes SO beyond the realm of even standard deviations. It would be impossible to claim profit as a motive when normal markets would kick anybody's ass that attempted such stupidity. The only answer lies in the deep pockets of a surreptitious cartel bent on illegally manipulating gold to serve their MOPE interests.

Signing off here at 12:00 EST with gold dead in the water at $1,606.80, or +1.00%. Nothing to see here. Everybody go home for the weekend and watch Olympic athletes get fake-gold medals. Even the best athletes in the world get swindled when it comes to owning gold.

James Mc


And yes, gold finished up 1% on the Comex.


YEP, you can’t make it up!


right now.
James Mc

Powered by WPeMatico