Hat Trick Letter – září 2011

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Komentář k projevu B. Bernankeho v Jackson Hole

BERNANKE LAID AN EGG AT JACKSON HOLE. ON A GLOBAL STAGE, HE ESSENTIALLY ADMITTED THE USFED HAS NO EFFECTIVE WORKING TOOLS REMAINING. THEY HAVE EXHAUSTED THEIR TOOLBAG, MADE THE SITUATION WORSE, AND NOW HOPE FOR THE BEST LIKE ALCOHOLIC PYROMANIACS. HE DID SIGNIFICANT PUBLIC HAND WAVING AND HAND WRINGING. IF HE IS AWARE OF THE DIRE RISK OF SYTEMIC BREAKDOWN, HE DID NOT SHOW IT. HIS ARROGANCE SURELY LEADS HIM TO BELIEVE OMNIPOTENCE. MUCH REVERENCE IS STILL SHOWN TO THE USFED & CHAIRMAN DESPITE THEIR FAR-REACHING FAILURE.

Never in modern history has a central bank from a major industrialized nation admitted helplessness and futility in monetary policy capability until late August when USFed Chairman Bernanke did so in full view on stage. He might as well have admitted that the fiat currency system and its attendant central bank franchise have been a gross failure. Systemic failure is next, a process well along. In a pathetic display that lacked any details whatsoever, Bernanke delivered a grand bluff, claiming at the Jackson Hole Meeting of bankers and economists that the USFed still has tools to stimulate the USEconomy. He has leggo and tinkertoy tools, some Beanie Babies, bailing wire and duct tape, nothing more, maybe some strong language. To think that the USFed can halt interest paid on Excess Reserves is laughable, since the central bank needs the assets to conceal its grotesque insolvency. The ZIRP (0% rate) and QE (debt monetization) have been tried, with no economic recovery at all and a cost increase to aggravate the situation.

Before an admiring crowd, shamelessly Bernanke said „In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. Although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years. It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals. The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability. [He called for the USCongress to adopt a] credible plan for reducing future deficits over the longer term. The extraordinarily high level of long-term unemployment adds urgency to the need to boost job growth. Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank. Financial stress has been and continues to be a significant drag on growth. Given the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low levels for at least two more years.“

The denial by Bernanke was dressed up within a fantasy perspective that fails to detect a recession, again. He cannot address the bank insolvency either. Never has the USFed neglected from offering details on tools to use. What a bluff!! He essentially raised a white flag of defeat and punted to theUSCongress, a den of polarized compromised nitwits and snakes. A second day has been added to the next FOMC meeting in late September to allow a fuller discussion of the economy and potential response. He fell short of promising a QE3, acting coy. My belief is that debt monetization that is QE has never stopped, and has actually accelerated, with more global participation by other almost equally desperate central bankers.

In a grand concession, and veiled billboard of defeat, Bernanke pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013. No central banker in history has ever made such a promise. He put blame on the housing market as interrupting the natural recovery process, without realizing that the fostered dependence upon home equity withdrawals and mortgage bond trading was the twin stake through the USEconomy’s heart that the USFed endorsed. He called it a former significant driver of growth, without acknowledging a deadly dependence that has resulted in systemic failure. A housing and mortgage bubble cannot substitute for industry, even if risk is offloaded in a shadowy system with full praise and blessing. He made general brush stroke comments about the European sovereign debt crisis, the volatility of financial markets, and the frustrating developments related to the USGovt fiscal situation. This chairman is as much an embarrassment to economists as he is a willing harlot servant to the bankers. The nation awaits his helicopter drops, but so far only gigantic shipments have come to the loyal big banks, via dump trucks in the US and shipping containers overseas.

Jak je na tom skutečně Bank of America?

BANK OF AMERICA IS DEAD. ITS INSOLVENCY IS REVEALED EVEN IN THE VISIBLE REALM. IT HAS BEEN WALKING LIKE A ZOMBIE FOR THREE YEARS. FINALLY IT IS READY TO KEEL OVER. THE TIPPING POINT IS SALE OF ITS VIABLE ASSETS, LEAVING THE ROTTEN RANCID FETID CORE TO REMAIN, A WEAK TREE STANDING BEFORE A STORM. THE PRESSURED NEED FOR YET ANOTHER T.A.R.P. FUND RESCUE FUND FOR THE BIG BANKS IS COMING INTO VIEW. IF THE USGOVT CANNOT PERFORM THE TASK, THE USFED MUST DO IT.

Even compromised bank analysts can see the obvious, that the US banking system has come full circle since 2008. It is in big trouble again. The banking system is at high risk of seizure. Nothing has been fixed. Housing prices continue down, including commercial properties. Bank balance sheets suffer from a new rotten element in accumulating REO homes seized in foreclosures. So the external seizures (foreclosures) ironically have transformed into internal seizures that include absent inter-bank lending due to intense distrust within the industry. Bank of America is on the verge of failure, dealing with a dire cash shortage, its insolvency becoming visible. A bank run by depositors could seal its fate with the liquidator. The big US bank serves as a great symbol of the banking industry, since BOA is involved in every type of bank operation across the nation. The rumor mill has that JPMorgan may be circling around BOA like a vulture looking for an angle to the meat. Leaked news from consulting service firms working on the BOA carcass report that internally the big bank has slashed expenses and procurement budgets to the bone. The non-core businesses are being auctioned off to raise urgently needed cash. They are selling the businesses that have a value bid in the market. Conversely, the majority of BOA core assets are commercial and residential mortgages, goodwill (extravagant sums paid on acquisitions), and other exotic toxic accounting kept off the balance sheet such as variable interest entities. The core contains only rot, a pruned tree missing its viable branches and fruit. Harken back to Enron days with such specialty rot. Hence, what remains in the BOA business is pure toxic waste. The big US bank is finally ready to drop dead. Not even narcotics money can keep it afloat. BOA has become a hollow tree facing a storm, without reinforced structure, only rot and putrid paper bark coverings.

Make a quick look at BOA financials. They have $2.2 trillion in assets. It reports an absurd $222 billion in book value, of which $80 billion comes under goodwill and intangibles. In other words nothing of any value. Henry Blodget asserted that the $80 billion is worthless. With the stroke of a pen, adjust the book value down to $140 billion. When confronted by the Blodget analysis, a BOA spokesman distracted attention from the topic at hand, and instead attacked the analyst’s legal problems from the internet bubble era. Take their response as a off-handed confirmation of a correct analysis. BOA owns $139 billion is home equity loans, a troubled niche. Given the non-senior position of such loans, one can safely assume they are worthless. Bank analysts commonly regard home equity and second mortgages both to be total 100% losses. Nearly half of their remaining asset base is commercial & residential mortgage paper. BOA self-administered estimates on value probably involve an over-estimation of such assets by at least 15% to 20%. That is another $200 billion of impairment. By the time the dust clears on a rational realistic accounting analysis, Bank of America is technically insolvent even in the visible realm. The real rub comes from accounting off the balance sheet. The actual balance sheet value is at least negative $300 billion and probably 2x to 4x that amount, as in minus $1 trillion. BOA is the poster boy for the basement toxic swill beset by profound embedded fraud, corruption, and USGovt sponsored theft, at an order of magnitude worse than in 2008. The USEconomy has returned to recession mode in a gallop, which will compound the bank insolvency and topple the dead rotten trunk and limbs in full view.

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