Zero Hedge

The SSTF has (finally) released its June trading results. June is a big
month for the Fund. Every June they aggregate all of their cash
positions and reinvest the proceeds in newly issued securities with
maturities from one to fifteen-years. There a few observations I would
like to make regarding these results. First a look at the trading
blotter. I will reuse sections of this report later on so don’t get hung
up now on these big numbers.

There were a total of 36 separate transactions during the month. Not a
big deal for your average day trader. But consider the size of these
deals. The total turnover for the month was $612 Billion. That ain’t
hay. The total assets held by the Fund were about $2.6 T so SS turned
over the equivalent of 25% of its book in just one month. Two
observations:

-I constantly see reports in the media on SS that argue that there is no
money in the TF. That the assets are not real. That there is no
liquidity in the securities held by the Fund. That it is a Ponzi
accounting scam. A look at the June results prove that those claims are
all false. The extreme naysayers of SS should look at this and wake up.
These are very real assets. They are liquid.

-From the CBO to other government officials to Wall Street and most
other economists we are getting a measure of the nations debt that is a
function of the Debt Held by the Public. The CBO thinks our debt is 53%
of GDP because they conveniently forget about the intergovernmental
accounts (where SS fits in). The total IG account is $4.5T and has trust
funds that are comprised substantially of special issue treasury
securities.

Both sides of this need to wake up and smell the coffee. These debts are
very real. They are legally as binding as those securities held by the
Chinese Central Bank. When we talk about our debt these should be
included. Our debt is not 53% of GDP. It is 92%. Debate over.

The Fund acquired a strip of newly issues securities with its excess
cash. The maturities range from 1-15 years. As you can see from the
following the entire $270 billion of new investments was set at one
common rate of 2-7/8%. This is the arithmetic average of all Treasury
maturities beyond four years. What this means is that the TF is immune
from the investment death trap of ZIRP. Consider the first investment of
$14.996 billion with a maturity of one year. The fund gets a return of
2-7/8 on that. The fair market rate was just 25bb. The difference on
this one transaction? It comes to a tidy $395mm. Who would not like a
risk free investment and earn 2-5/8 over market? I would love to buy
into that. But this “special deal” is only available to the TFs. Why is
it that they get such a good return?

-I conclude that the TF is costing us much more than just the payroll
taxes that are collected. To get a real sense of the cost you have to
add in the interest. Our economy has to pay that as well. The total
interest tab in 2010 will be ~$118 billion. The average yield on the
portfolio is 4.7%. The recent fair market rate on an eight-year average
life Treasury investment would be about 2.2%. The Fund is enjoying an
above market yield of 2.5% currently. That comes to $63 billion a year.
The formula that sets the interest rates is now 50 years old. It should
be reviewed. It is no longer a viable methodology. Our short term
financial position is being impaired so that SS can “look better” long
term. We are kidding ourselves.

The flip side of this is that the Fund’s % income is declining even with
the formula that beefs up its results. Look at all the high coupon
stuff that has rolled off. The folks at the TF must be sad to see these
bonds mature. They have been living off of this fat income for years.
Consider the $29.7b of 5.5% bonds the Fund has been holding for
fifteen-years. That money was re-invested at 2-7/8%. The difference over
the next 15 years comes to a whopping $800mm per year or a total loss
of revenue of $11 billion. And that is just one small portion. The bonds
that came due and a graph of the interest rates the fund has realized
in the past:

The Fund has projected that this rate will return to 6% on average. I
don’t think they consulted with Ben Bernanke on this. Ben is going to
keep rates at artificially low levels for years. Even though the Fund
benefits from a dumb 50-year old formula their revenues are going down.
In a few years the numbers will be off “plan” and people will be
scratching their heads wondering why.

The TF receives interest from Treasury in December and June. For June it
was $59B. They will get a similar number in December. So for the full
year % will be $118b. The assets of the Fund will rise in the year by
about $80b. This is the fundamental problem with the Fund. They are
losing money in their operations, but still show a growing surplus due
to interest income. But we know that the interest is (A) declining and
(B) it is artificially supported by a half century old methodology.

In June the Fund took in $56.8 billion in payroll taxes. They paid out
$63.1 billion in benefits (includes $4.4 B of RR benefits). This is the
only number you need to know. On a cash basis the Fund is losing
billions every month. For June it was $6.3b. The interest income that
hides this problem is just noise.

For the record; my numbers for July, August and September. It comes to a
shortfall of $21 for the Q. By way of comparison Q3 2007 was in surplus
by $10.6B. And some say the Fund has not “turned the corner”. Another
thing we are kidding ourselves about.

July: +50.9 (PR), -58.7 (benefits). Net: -7.8B
August: +50.9 (PR), -58.6 (benefits). Net: -7.7B
September: +53 (PR), 58.8 (benefits). Net: -5.8B

More articles from Zero Hedge….

Interview with Michael Smith (Part 2 of 2)

I feel the peak/plateau period is much delayed because of the recession. Currently I am looking at around 2020 – perhaps as late as 2025. But of course it is dependent on what happens to the global economy (and the environment) between now and then. When I first started forecasting in the late 1990s, I had a production plateau beginning around 2016. Over time, supplies got tighter and tighter and oil prices started to rise, and the plateau moved nearer to around 2012. Now it has moved out to 2020, showing how uncertain this modeling can be because so many technological, financial, political and social variables are at work. The fluctuation points to volatility of course which is a signal of tight energy supply. If there is a new surge in economic growth and China and India continue to grow and mop up oil supplies, then it will move back to 2016 very quickly.

Pemex Plans to Invest $269 Billion in Next 10 Years to Increase Oil Output

Petroleos Mexicanos, the state-owned oil company, plans to invest $269 billion by 2019 to increase production, the company’s chief executive officer said.

Pemex, as the company is known, should not have trouble having its planned investments approved by Congress and will spend about $27 billion a year over the next decade, CEO Juan Jose Suarez Coppel, said today at a conference in Mexico City.

Mexico sees big potential near Tsimin oil find

MEXICO CITY (Reuters) – Mexico’s state oil company Pemex is increasingly optimistic about the potential of what appears to be a new cluster of light crude oil fields around its Tsimin discovery, according to company executives.

The side-by-side Tsimin and Xux discoveries are believed to hold the equivalent of 1.5 billion barrels of proved, probable and possible oil reserves said Manuel Teran, a Pemex engineer working on the discoveries, at a petroleum engineering conference this weekend.

For BP, post-spill advertising comes at an unknown cost

FORTUNE — The coverage of BP’s Deepwater Horizon spill is teaching the typically secretive oil industry something about life in the limelight. Now, the company has to account for every cent it spends.

Bahamas Bans Offshore Drilling

The Public is advised that The Ministry of The Environment has suspended consideration of all applications for oil exploration and drilling in the waters of The Bahamas. The Ministry seeks, by this decision, to maintain and safeguard an unpolluted marine environment for The Bahamas, notwithstanding the potential financial benefits of oil explorations.

Additionally all existing licenses will be reviewed to ascertain any legal entitlement for renewal.

Coal India May Set Up Power Plants Because of Shortfall in Rolling Stock

Coal India Ltd., the world’s largest producer of the fuel, said it may be forced to set up power plants to use coal that’s piling up because there aren’t enough railway wagons to carry supplies to utilities.

“It’s not a business we would naturally like to be in because there are already so many players,” Chairman Partha Bhattacharyya said in New Delhi today. “If stocks keep building up, we may not have an option.”

Russia to protect domestic car makers with higher import duty

Russia will gradually raise the import taxes for the foreign-made cars, Russian Prime Minister Vladimir Putin said Monday.

Putin noted this would be done to stimulate foreign companies to build their production facilities in Russia.

Electricity and climate change

Also as a result of global warming, the countries of this region are witnessing dramatic increases in the demand for electric power, as the use of air-conditioning increases in households, shops, places of worship, offices, hotels and factories. And as a result of the exceptional hot weather, the sale of all types of air-conditioning devices flourished, and their stocks were effectively depleted in Lebanon, Jordan, Syria, Egypt and other countries, while their retailers achieved exceptional profits, after taking advantage of the circumstances.

Why “green wizards” get us nowhere new…

So, first question, what is a ‘green wizard’? Greer defines green wizards thus, “individuals who are willing to take on the responsibility to learn, practice and thoroughly master a set of unpopular but valuable skills – the skills of the old appropriate technology movement – and share them with their neighbours when the day comes that neighbours are willing to learn”. The idea, as I read it, is that any notion of a co-ordinated response, a la Heinberg’s ‘Powerdown’, a scenario where communities self-organise and work with, or without, their local authorities, to start the rebuilding of that settlement’s resilience, reduce its oil dependency and carbon footprint, is now for the bin, condemned as impractical and unrealistic. Greer appears to have given up any notion that such a thing might be possible, stating “a movement is a great thing if you want to hang out with congenial people and do interesting things together. It’s just not usually a good way to make change happen”.

Are People Smarter Than Chipmunks?

After witnessing this eccentric behavior, I began wondering why the chipmunk would behave so illogically. It didn’t take too long to realize that it simply doesn’t possess the right equipment to understand the threat posed by a car. A chipmunk’s brain and the behavior produced by it are the result of ages of natural selection – a process that took place in the absence of roads and cars. The mind of a chipmunk, therefore, is incapable of properly interpreting the data coming its way, especially when it’s coming at 60 miles per hour.

The chipmunk’s maladaptive behavior has some prominent parallels with our own predicament. The data are approaching us at a fast and furious clip. We have ample and disturbing evidence about climate destabilization, dwindling energy resources, social breakdowns, and a host of environmental maladies. We know that the economy is a subsystem of the finite planet, and that increasing the scale of the economy impinges on the earth’s ecosystems. In an age of biodiversity die-offs and political buy-offs, however, we don’t seem to possess the wherewithal to interpret the data correctly.

Lenders Back Off of Environmental Risks

Blasting off mountaintops to reach coal in Appalachia or churning out millions of tons of carbon dioxide to extract oil from sand in Alberta are among environmentalists’ biggest industrial irritants. But they are also legal and lucrative.

For a growing number of banks, however, that does not seem to matter.

After years of legal entanglements arising from environmental messes and increased scrutiny of banks that finance the dirtiest industries, several large commercial lenders are taking a stand on industry practices that they regard as risky to their reputations and bottom lines.

New Study Links Toxic Pollutants to Canadian Oil Sands Mining

Native Canadians living downstream from the oil sands mines in Alberta have long contended that their high cancer rates were related to the expanding excavation of bitumen for the production of synthetic crude. Their assertions have been disputed by the reports of a joint oil industry-government research panel that concluded that natural causes — and not mining — were responsible for the high levels of various metals in the sub-Arctic Athabasca River.

But now a new study in the journal Proceedings of the National Academy of Sciences is backing the position of the Native Canadians. Led by several University of Alberta researchers, the study found that unusual levels of lead, mercury, zinc, cadmium and other toxic pollutants were found near oil sands mining sites or downstream from them. The levels exceeded federal and provincial government guidelines.

Crude Oil Heads for First Monthly Slide Since May on Slowing Global Growth

Oil fell, headed for its first monthly decline since May, before a report forecast to show U.S. crude inventories increased to the most in a month.

Futures dropped as much as 1.7 percent, extending their decline from the highest level in a week reached on Aug. 27, after the Commerce Department said incomes rose 0.2 percent, less than the 0.3 percent estimate by economists surveyed by Bloomberg News. An Energy Department report tomorrow may show crude stockpiles gained 1.55 million barrels last week.

Oil Supply Climbing to One-Month High in Bloomberg Survey

U.S. crude oil inventories probably increased to a one-month high last week amid signs that U.S. economic growth is slowing, a Bloomberg News survey showed.

Supplies rose 1.55 million barrels, or 0.4 percent, in the seven days ended Aug. 27 from 358.3 million a week earlier, according to the median of 12 analyst estimates before an Energy Department report tomorrow. The gain would leave stockpiles at the highest level since July 23.

OPEC Oil Output Declined on Iraqi Pipeline Bombing, Bloomberg Survey Shows

The Organization of Petroleum Exporting Countries’ crude-oil output fell in August to a seven- month low, led by Iraq, where production was hobbled by a pipeline bombing, a Bloomberg News survey showed.

Production slipped 75,000 barrels, or 0.3 percent, to an average 29.15 million barrels a day, the lowest level since January, according to the survey. Output by members with quotas, all except Iraq, dropped 5,000 barrels to 26.805 million, 1.96 million above their target.

Japan Issues Storm Warnings, Cancels Okinawa Flights as Typhoon Approaches

Typhoon Kompasu slammed Japan’s southern island of Okinawa, causing the country’s two biggest airlines to cancel flights, disrupting some shipping and closing an oil refinery owned by Brazil’s Petroleo Brasileiro SA.

Ras al Khaimah seeking electricity for growth

Ras al Khaimah’s Government is in talks with the Federal Electricity and Water Authority (FEWA) to boost power supplies to the emirate as it attracts more businesses to its industrial zones and completes development projects.

Russia eyes Rosneft sale

Russia may consider selling a stake in state-controlled oil producer Rosneft in 2011 to 2013, Economy Minister Elvira Nabiullina said today.

LUKOIL to get tax breaks for Caspian oil fields

(Reuters) – Russia’s No.2 oil firm LUKOIL’s CEO said on Tuesday that the government is ready to introduce tax breaks for oil extracted from the company’s Korchagin fields on the Caspian Sea.

‘Fracking’ fractures N.Y. county

A controversial method of natural gas drilling — known as “fracking” — has begun to tap the energy-rich Marcellus Shale, a huge geological formation that underlies much of New York, Pennsylvania, Ohio and West Virginia. In New York, fracking has been stalled by opposition from environmental groups, legislators and people such as the Diehls.

Bad weather delays BP bid to recover blowout preventer

WASHINGTON (AFP) – A bid to recover a key valve that failed to prevent the blowout of the BP well in the Gulf of Mexico has been delayed because of bad weather, the pointman for the US response to the oil spill said Monday.

“We are in a hold pending calming of the current weather,” retired coast guard admiral Thad Allen told reporters, adding that it would be two or three days before the operation could begin.

No gas concerns Memphis officials (Michigan)

Two gas stations in the city but no gas to be pumped has prompted Memphis Mayor Dan Weaver to explore strategies for getting a station open to serve residents.

“I’ve been spinning my wheels talking to people trying to get us a gas station in town,” he said at a recent City Council meeting where he asked officials to consider options such as asking the city’s attorney to advise on issues such as eminent domain.

Stickers would help auto buyers compare fuel economy

DETROIT — In its first major overhaul of fuel-economy ratings in 30 years, the Environmental Protection Agency and the Department of Transportation on Monday released two proposed window stickers designed to make it easier for consumers to compare vehicles.

One version gives cars and trucks a grade from A+ to a D, compares vehicles with three sliding scales and gives an estimated annual fuel cost. The other version omits the grade. At first, only electric vehicles would rate an A+.

Toyota Prius May Lead Japan Car Sale Collapse as Subsidies End

The Prius hybrid has spearheaded sales growth for Toyota Motor Corp. in Japan for more than a year, helped by government subsidies. The model will likely bear the brunt of plunging demand as the support ends.

“A collapse in sales is unavoidable,” said Hiromi Inoue, the new-car sales chief for Tokyo Toyopet Motor Sales Co. “The daily pace of orders for the Prius is already dropping. We are bracing ourselves for the coming crisis.”

Russian billionaire Prokhorov to roll out hybrid car models in December

Russian billionaire Mikhail Prokhorov will present three electric vehicle models in December for public approval, he said on Tuesday.

“If they don’t like them, they can say ‘we don’t want these cars.’ We will hold a vote on the Internet,” said Prokhorov, an active blogger.

Prokhorov said he will decide where to produce the cars after the presentation.

The Biking Boom Breeds Discontent

Mayor Michael R. Bloomberg and other city leaders have praised the increase in cycling for reducing congestion and pollution and making the city streets safer overall. To accommodate the surge in bike commuters, the city has installed hundreds of bike racks and roughly 200 miles of new bike lanes in the past three years, with plans for future expansion.

Yet according to a recent weeklong investigative series by Tony Aiello, a reporter with New York City’s WCBS-TV (Channel 2), the cycling boom is breeding discontent. Titled “Bike Bedlam,” the segments turned a critical eye on reckless riders who flouted traffic laws, and profiled a young father who was killed by a cyclist riding the wrong way on a one-way street in Midtown Manhattan. A former bike shop owner declared that cyclists were “way out of control.”

Blowin’ in the Wind

Pattern Energy wants to do what T. Boone Pickens couldn’t: deliver Texas’ overabundance of wind power to less-windy states.

The wind and transmission line developer aims to build a $1 billion, 400-mile transmission line to carry electricity generated by Texas wind turbines to Mississippi where it could be distributed across existing lines to Georgia, Alabama, Tennessee, and other states in the South.

Red Books And Yellowcake – The Permanent Quest For Uranium

Only taking the world’s present 439 civil reactors and ignoring the 200-plus reactors called “research and military”, these civil reactors will need about 68 000 tonnes of uranium in 2010, but world mine output will be less than 55 000 tonnes. If the vaunted “Nuclear Renaissance” takes place as planned by the industry and about 200 – 225 new reactors are added in 2010-2020, world uranium fuel needs will grow to about 125 000 tonnes a year by 2020.

And You Thought Radiation Was a Problem for Nuclear Plants?

A power plant has overexposed its workers to radiation, and the Nuclear Regulatory Commission is proposing a fine. The plant, though, is not a reactor; it runs on coal.

E.P.A. Turns Down Request to Ban Lead Bullets

The Environmental Protection Agency on Friday rejected a request that it ban lead bullets, saying it does not have the legal authority to do so. The American Bird Conservancy and the Center for Biological Diversity had petitioned for the ban.

To Win, the Green Movement Needs to Understand Leverage, not Just Footprints

A few years ago I got into a heated debate about Al Gore’s Inconvenient Truth with a green-minded friend of mine. My hippy friend couldn’t stand the movie—not because of anything it said, but because of the ‘hypocrisy’ of flying around the world to preach about climate change. “Doesn’t he know this sends his carbon footprint through the roof?!” exclaimed my irate drinking buddy.

“He probably doesn’t care.” replied I. “Nor should he.”

I’ve wondered before why so much of the environmental movement is focused on individual virtue instead of collective success. Yet I’m increasingly realizing that that’s just one part of a broader issue I have with greens—we spend too much time talking about impact, and not enough talking about leverage.

Greenpeace claims to have shut down Greenland oil well

Greenpeace claims its activists have shut down a ”dangerous” oil drilling operation by a British energy company in the Arctic.

Author Simon Singh Puts Up a Fight in the War on Science

The British Chiropractic Association sued Singh, hoping to use Britain’s draconian libel laws to force him to withdraw his statements and issue an apology. Losing the case would have cost Singh both his reputation and a substantial amount of his personal wealth. Such is the state of science, where sometimes even stating simple truths (like the fact that there’s no reliable evidence chiropractic can alleviate asthma in children) can bring the wrath of the antiscience crowd. What the British chiropractors didn’t count on, however, was Singh himself. Having earned a PhD from Cambridge for his work at the Swiss particle physics lab CERN, he wasn’t about to back down from a scientific gunfight. Singh spent more than two years and well over $200,000 of his own money battling the case in court, and this past April he finally prevailed. In the process, he became a hero to those challenging the pseudoscience surrounding everything from global warming to vaccines to evolution.

Three degrees is at least one too many

It is fittingly ominous that 2010, year of the next big climate change conference, has been the hottest in recorded history. The heat rises inexorably yet the world dithers and looks away. None of the excitement that surrounded the opening stages of the climate summit at Copenhagen last year looks like materialising this November at Cancú*in Mexico.

Japan Forsees Starting Carbon-Emissions Trading in 2013, Panel Reports

Japan plans to start emissions trading in 2013, as the government revived a climate-protection draft law that was scrapped earlier this year when then Prime Minister Yukio Hatoyama resigned.

Cap-and-Trade Is Beginning to Raise Some Concerns

Critics have warned for years that this form of offsetting would encourage profiteering, with little or no value in efforts to curb climate change.

More recently, opponents of offsetting have likened the system to the kind of financial engineering on Wall Street that helped precipitate the recent banking crisis.

Review Finds Flaws in U.N. Climate Panel Structure

UNITED NATIONS — The United Nations needs to revise the way it manages its assessments of climate change, with the scientists involved more open to alternative views, more transparent about possible conflicts of interest and more careful to avoid making policy prescriptions, an independent review panel said Monday.

The review panel also recommended that the senior officials involved in producing the periodic assessments serve in their voluntary positions for only one report — a statement interpreted to suggest that the current chairman of the climate panel, Rajendra K. Pachauri, step down.

Virginia Case Against Climate Researcher Is Rejected

RICHMOND, Va. (AP) — The state attorney general has failed to back up accusations that a former University of Virginia climate change researcher defrauded state taxpayers in obtaining government grants, a judge ruled Monday.

Climate Change and the Wealth of Nations

Professor Kahn isn’t skeptical about global warming, but he is (quite reasonably) skeptical about our ability individually and collectively to reduce carbon emissions: “attempts to reduce or reverse our carbon output — to mitigate the damage that we’ve already done — aren’t going so well” and “evidence shows that very few individuals have cut back on their carbon-producing activities at all.” Consequently, he predicts, “the world is going to get hotter.”

But while this would lead many people to doomsday scenarios, Professor Kahn is an optimist who believes “that we will save ourselves by adapting to our ever-changing circumstances.” He says this salvation will come from “a multitude of self-interested people armed only with their wits and access to capital markets.” In short, the same economic system that led to global warming will rescue us from it.

Climate ‘sceptic’ Bjørn Lomborg now believes global warming is one of world’s greatest threats

One of the world’s most prominent climate change sceptics has called for a $100bn fund to fight the effects of global warning, after rethinking his views on the severity of the threat.

Atlantic Rising: sea level rise threatens the Orinoco Delta in Venezuela

Rising sea levels are forcing the migration of indigenous peoples and threatening the freshwater ecosystem of catfish and piranha found in the Orinoco Delta near the coast of Venezuela.

Arctic ice: Less than meets the eye

Barber, an environmental scientist at the University of Manitoba in Winnipeg, Canada, went to sleep one night at midnight, just before the ship was due to reach a region of very thick sea ice. The Amundsen is only capable of breaking solid ice about a metre thick, so according to the ice forecasts for ships, the region should have been impassable.

Yet when Barber woke up early the next morning, the ship was still cruising along almost as fast as usual. Either someone had made a mistake and the ship was headed for catastrophe, or there was something very wrong with the ice, he thought, as he rushed to the bridge in his pyjamas.

by reader Ilsm

American Empire and “exert upon the world the full impact of our influence for such purposes as we see fit and by such means as we see fit” (Henry R. Luce); why the generals push back on Gates’ minimal 3% increase in their war machine, disguised as cuts. Generals push back on GAT

Andrew Bacevich on the New American Century: Empire
“Global Leadership: Empire:

“Henry R. Luce made the case for this specious conception of global leadership. Writing in Life magazine in early 1941, the influential publisher exhorted his fellow citizens to “accept wholeheartedly our duty to exert upon the world the full impact of our influence for such purposes as we see fit and by such means as we see fit.” Luce thereby captured what remains even today the credo’s essence.”
…
“Along with respectful allusions to God and “the troops,” adherence to Luce’s credo has become a de facto prerequisite for high office.”
…
“Note, however, that the duty Luce ascribed to Americans has two components. It is not only up to Americans, he wrote, to choose the purposes for which they would bring their influence to bear, but to choose the means as well.”

Militarism to provide the means for empire:

“With regard to means, that tradition has emphasized activism over example, hard power over soft, and coercion (often styled “negotiating from a position of strength”) over suasion. Above all, the exercise of global leadership as prescribed by the credo obliges the United States to maintain military capabilities staggeringly in excess of those required for self-defense.”

The philosophy that sustains the Military Industrial Complex, top cover for war profits:

“By the midpoint of the twentieth century, “the Pentagon” had ceased to be merely a gigantic five-sided building. Like “Wall Street” at the end of the nineteenth century, it had become Leviathan, its actions veiled in secrecy, its reach extending around the world. Yet while the concentration of power in Wall Street had once evoked deep fear and suspicion, Americans by and large saw the concentration of power in the Pentagon as benign. Most found it reassuring.”

Numbed population forgets its roots:

“A people who had long seen standing armies as a threat to liberty now came to believe that the preservation of liberty required them to lavish resources on the armed forces.”

Noble Lie: Perpetual Mobilization and Militarism, Why have forces to deploy and sustain in remote areas of the world with no threats to the “common defense”:

“Yet an examination of the past 60 years of U.S. military policy and practice does reveal important elements of continuity. Call them the sacred trinity: an abiding conviction that the minimum essentials of international peace and order require the United States to maintain a global military presence, to configure its forces for global power projection, and to counter existing or anticipated threats by relying on a policy of global interventionism.”
…
“Together, credo and trinity — the one defining purpose, the other practice — constitute the essence of the way that Washington has attempted to govern and police the American Century.”

Full read here

The US has a sacred duty to squander its treasure and institutions on the Military Industrial Complex for American Empire. What steps make re-directing this energy and treasure to productive economy possible?

Read more….

Wall Street began the day with a soft as driven by weakness in Asian and European bourses. However, prices rebounded as economic data released appeared stronger than expected. DJIA and S&P 500 Indices ended the day flat. In the commodity sector, crude oil price tumbled as Chicago PMI missed consensus. Slowdown in the manufacturing sector could dampen oil demand.

Read more….

The Daily Reckoning

There is lots of ugly economic news out there, but one key bright spot is world trade. In the US, one particular industry will enjoy windfall profits from exports this year. That industry is agriculture.

In 2009, world trade took a big hit in the wake of the financial crisis. Global exports fell 12%. Governments tried to protect their home teams and a wave of tariffs and other protectionist measures followed. This was what happened during the Great Depression, too, as the Smoot-Hawley Tariff Act raised tariffs on more than 900 goods.

As a result, world trade sank by 25% during the early years of the Great Depression. But that hasn’t happened this time around. In fact, the emerging economies of the world are already exporting and importing more than they were before the 2008 crisis.

In the US, a big winner is agriculture. US farmers are looking at record exports of $14 billion this year. The heat wave frying European crops (in particular Russian crops) helps that. But even before the drought, in just the first four months of the year, the US enjoyed a $4 billion trade surplus in agriculture. For years, the US has been the world’s largest exporter of corn, wheat and soybeans. It is a leading exporter of many other agricultural goods.

Today, US farmers are cashing in on demand from emerging markets, particularly Asia. China has been trying to build self-sufficiency in food. But it has a long list of hurdles, chiefly a shrinking supply of arable land and water shortages. Also, the median Chinese farm is less than one acre. This hinders the economies of scale that come from big farms.

In any event, US farmers are sending more and more goods to the Far East. So perhaps it is no surprise that first US grain export depot built in 25 years is not on the rim of the Gulf of Mexico, but on the Columbus River in Washington state, about 60 miles from the Pacific Ocean. The new Port of Longview grain terminal will handle 8 million tonnes a year. (The Port of Louisiana is the still the top grain export hub in North America, although California recently passed Louisiana as the top point of departure for US cotton.)

We’ll need more depots like the new Port of Longview. American infrastructure has had a hard time keeping up with surging ag exports. Outside of Seattle, for instance, 80 rail cars filled with dried peas sat for three weeks on the train tracks waiting for a ship to unload them.

It’s not an isolated example. A soybean exporter in, say, Minnesota, could normally ship 40 tons of beans to Malaysia in 15-20 days. With recent bottlenecks, it took 60 days. There are plenty of stories of everything from hazelnuts to soybeans tied up in shipping bottlenecks for weeks.

The US isn’t used to such export strength. As The Wall Street Journal noted, “America’s trading infrastructure grew imbalanced, with a huge capacity to import goods but an attenuated capacity to export them. Loads of grain or corrugated paper leaving the US took a back seat to the DVDs and toys coming in.”

That’s the problem. For too long, the US economy has been all about overindulged consumers. There were too many stores selling too much junk, too many houses people couldn’t afford and too much debt on all of it. This part of the economy grew to grotesque proportions, stimulated by easy credit.

But underneath it all, there is still the old world of making things. In my last issue of Capital & Crisis, I wrote about the surprising strength of American manufacturing. American agriculture is also a bright star in the US firmament and an appealing place to invest.

The future of American agriculture is very bright indeed, as a recent report from the FAO makes very clear. You can find the report, entitled “How to Feed the World in 2050,” right here.

This excerpt from the report sums up the investment case:

Even if total demand for food and feed grows more slowly [over the next 40 years], just satisfying the expected food and feed demand will require a substantial increase of global food production of 70% by 2050, involving an additional quantity of nearly 1 billion tonnes of cereals and 200 million tons of meat.

In addition to the usual assortment of resource issues such as water and soil and climate change, there are some topics you wouldn’t think of otherwise, such as biodiversity. Take a look at this:

The gene pool in plant and animal genetic resources and in the natural ecosystems which breeders need as options for future selection is diminishing rapidly. A dozen species of animals provide 90% of the animal protein consumed globally and just four crop species provide half of plant-based calories in the human diet.

I won’t highlight too much of this report, because I’d be repeating myself. If you’ve read my observations for the last year or so, you know all you need to know about what’s happening in the world’s market for food. Still, if you need an overview, the FAO’s report covers most of the issues.

Farmers with windfall profits will have more money to expand production next year. That’s more money for things such as seed and tractors and fertilizers. As long as its export markets remain open, US farmers should have a great year.

As a long-term investment, Lindsay (NYSE:LNN) should benefit as farmers spend some of that money on irrigation equipment. The economics are attractive, as the machinery significantly boosts yields and makes more efficient use of water.

I also like the non-US ag plays, because high crop prices and the rising demand for food bode well for agriculture around the globe. In Canada, Viterra (TSX:VT) is a good long-term holding. It should rebound after excessive rains in Western Canada hurt grain production. In China, Migao (TSX:MGO), makes fertilizers for high-end crops such as fruits, vegetables and tobacco. It’s growing capacity, and as the financials reflect the additions, it should report good earnings.

Those are just a few. There are plenty more. The business of producing food should continue be a good one.

Chris Mayer
for The Daily Reckoning Australia

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More articles from The Daily Reckoning….

WASHINGTON — House investigators have recommended that three lawmakers be further investigated to determine whether political contributions were improperly linked to votes on the huge financial overhaul bill.

The independent House Office of Congressional Ethics recommended that the member-run House ethics committee pursue potential rules violations by Republicans John Campbell of California and Tom Price of Georgia and Democrat Joseph Crowley of New York.

The ethics office recommended no further investigation of five other lawmakers in the same probe: Democratic Reps. Earl Pomeroy of North Dakota and Mel Watt of North Carolina, and Republicans Jeb Hensarling of Texas, Chris Lee of New York, and Frank Lucas of Oklahoma.

All offices of the lawmakers had received letters from the OCE by Tuesday and made the conclusions public.

President Barack Obama signed the financial overhaul bill into law July 21. It aims to restrain Wall Street excesses with the most sweeping overhaul of financial rules since the Great Depression, clamping down on lending practices and expanding consumer protections to address failures that precipitated the 2008 meltdown that knocked the economy to its knees.

The Democrats – Crowley, Pomeroy and Watt – voted for the final bill. The Republicans – Campbell, Price, Hensarling, Lee and Lucas – voted against it.

Campbell said he was “perplexed by OCE’s decision, as they have presented no evidence that would suggest wrongdoing.”

Campbell added that he “always complied with the letter and the spirit of the law. To suggest otherwise is unfounded and untrue. In addition, my voting record and opposition to a culture of taxpayer-funded bailouts has been and always will be unshakable.”

Price said it was “truly a mystery” that his case was referred for further investigation.

“There being no evidence of any wrongdoing or any inconsistency in my policy position, one can only guess as to the motive behind their decision or even why they chose to initiate a review in the first place,” he said. “My constant allegiance to a transparent and conscious divide between my official duties as a member of Congress and my actions as a candidate is without question.”

Crowley’s office said in a statement that he “has always complied with the letter and spirit of all rules regarding fundraising and standards of conduct.”

All three lawmakers referred for further investigation had fundraisers last December, around the time of crucial House votes.

Price had two fundraisers, including a breakfast on Dec. 2 and a luncheon Dec. 10 billed as a financial services event. A special guest was Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee.

Crowley had a cocktail reception Dec. 10.

Campbell had fundraisers Dec. 8 and Dec. 9.

Campbell and Price consistently opposed the regulation legislation. Crowley, after attending his fundraiser, returned to the House and voted against Democratic amendments aimed at toughening some financial regulations.

In each case he joined more than 100 Democrats, including fellow New Yorkers, to vote against the proposed changes.

___

Associated Press writer Jim Kuhnhenn contributed to this report.

Read more….

By Robert Reich, Robert Reich

I have the questionable distinction of appearing on Larry Kudlow’s CNBC program several times a week, arguing with people whose positions under normal circumstances would get no serious attention, and defending policies I would have thought so clearly and obviously defensible they should need no justification. But we are living through strange times. The economy is so bad that the social fabric is coming undone, and what used to be merely weird economic theories have become debatable public policies.

Tonight it was Harvard Professor Robert Barro, who opined in today’s Wall Street Journal that America’s high rate of long-term unemployment is the consequence rather than the cause of today’s extended unemployment insurance benefits.

In theory, Barro is correct. If people who lose their jobs receive generous unemployment benefits they might stay unemployed longer than if they got nothing. But that’s hardly a reason to jettison unemployment benefits or turn our backs on millions of Americans who through no fault of their own remain jobless in the worst economy since the Great Depression.

Yet moral hazard lurks in every conservative brain. It’s also true that if we got rid of lifeguards and let more swimmers drown, fewer people would venture into the water. And if we got rid of fire departments and more houses burnt to the ground, fewer people would use stoves. A civil society is not based on the principle of tough love.

In point of fact, most states provide unemployment benefits that are only a fraction of the wages and benefits people lost when their jobs disappeared. Indeed, fewer than 40 percent of the unemployed in most states are even eligible for benefits, because states require applicants have been in full-time jobs for at least three to five years. This often rules out a majority of those who are jobless – because they’ve moved from job to job, or have held a number of part-time jobs.

So it’s hard to make the case that many of the unemployed have chosen to remain jobless and collect unemployment benefits rather than work.

Anyone who bothered to step into the real world would see the absurdity of Barro’s position. Right now, there are roughly five applicants for every job opening in America. If the job requires relatively few skills, hundreds of applicants line up for it. The Bureau of Labor Statistics says 15 percent of people without college degrees are jobless today; that’s not counting large numbers too discouraged even to look for work.

Barro argues the rate of unemployment in this Great Jobs Recession is comparable to what it was in the 1981-82 recession, but the rate of long-term unemployed then was nowhere as high as it is now. He concludes this is because unemployment benefits didn’t last nearly as long in 1981 and 82 as it they do now.

He fails to see – or disclose – that the 81-82 recession was far more benign than this one, and over far sooner. It was caused by Paul Volcker and the Fed yanking up interest rates to break the back of inflation – and overshooting. When they pulled interest rates down again, the economy shot back to life.

The Great Jobs Recession is far more severe. It’s continuing far longer. It was caused by the bursting of a giant housing bubble, abetted by the excesses of Wall Street. Home values are still 20 to 30 percent below where they were in 1997. The Fed is powerless because consumers cannot and will not buy enough to bring the economy back to life.

A record number of Americans is unemployed for a record length of time. This is a national tragedy. It is to the nation’s credit that many are receiving unemployment benefits. This is good not only for them and their families but also for the economy as a whole, because it allows them to spend and thereby keep others in jobs. That a noted professor would argue against this is obscene.

More articles from Robert Reich….

By Karl Denninger, The Market Ticker

I love this guy….

McCain was poorly positioned to counter Isaacs arguments because McCain had proposed the same accounting gimmicks Isaac was proposing. The defeat of TARP I embarrassed McCain and Senator Obamas lead over Senator McCain in the polls increased substantially.

Right.  McCain was and still is today all for accounting fraud.  In the summer of 2008 I had several "conversations" (more like talking to a brick wall) with his campaign manager Kevin Daucher, some of them in writing and thus documented.  I pointed out at the time that McCain had to get in front of this or he was going to lose.  I went so far as to attend (as a private, concerned citizen, not as a lobbyist or corporate "hack") one of his campaign events in Washington DC, at which time Tom Ridge told me while smiling for my picture with him that he, and thus I presume the McCain campaign, was fully aware of the scams – in somewhat-"sideways" language.

Senator Obama, as a candidate, and his administration after the election did not take a public position on covering up the losses. The Chamber of Commerce and bank lobbyists made the cover up of bank losses their top regulatory goal. Their strategy was to get Congress to extort the Financial Accounting Standards Board (FASB) to force a change in the accounting rules so that banks did not have to recognize loan losses. House Financial Services Capital Markets Subcommittee Chairman Paul Kanjorski (D., Pa.) held a hearing in March 2008. The hearing was a bipartisan assault on FASB. Kanjorski demanded the prompt adoption of the cover up. Otherwise, he promised the prompt passage of legislation to remove the FASBs power to set accounting rules.

Exactly.  Gee, we’ve documented that here too.  Kanjorski is a traitor to his oath to uphold the Constitution, which incidentally demands equality before the law.  This duty is something that CONgress conveniently forgets whenever it thinks it can find a "free lunch", especially when the consequences of not doing so are that it’s 20-year history of suborning fraud would otherwise come crashing down upon their heads.

Instead of holding oversight hearings that exposed the Bush and Obama administrations evasion of the PCA and demanded compliance, prominent members of Congress encouraged it. House Financial Services Chairman Barney Frank (D., Ma.) said:

"This is important for all regulators. We need to give you some discretion in how you react to these things. I am asking everyone — the Office of the Comptroller of the Currency and others — if anything in the existing legislation deprives you of discretion in how you react … I insist that you tell us."

Fraud is fraud.  PCA is black-letter law.  Evading it by lying is still fraudulent activity.  Whether you make it "legal" ex-post-facto (as was done in 2009 by Kanjorski’s threats) or not is immaterial.  A thing is either wrong or it is not.  In this case it’s not only wrong, it’s crippling our economy and financial system.

The premise of this scam was that if we just "overlooked" the problem the banks would "earn their way out."  This was bogus from the start, because the underlying problem isn’t just the BS accounting, it’s the fact that the BS accounting allowed leverage (debt) to be cranked to unsustainable levels.  You can’t fix this without taking that leverage out, and yet doing so requires recognition that the alleged "assets" aren’t worth what they are claimed at.

We see the depths of this every Friday when banks are closed and magically when the FDIC swoops in we have an institution that allegedly had more assets than liabilities is deemed insolvent and millions of dollars of losses are absorbed by the FDIC.  How is this possible?  There is only one way: The "assets" are being reported at FICTITIOUS values – we always know what the liabilities (in the case of a bank, these are the deposits) are to the penny!

For a banker, whats not to love about the right not to recognize even massive losses on assets? He gets to keep his job, reputation, and obtain bonuses for blowing up the bank. For a senior regulator whose failures allowed the bankers to cause the epidemic of mortgage fraud (FBI 2004), the mother of all bubbles, and the Great Recession a cover up is ideal. Bank failures are supposed to lead to investigations by the Inspector General and can lead to embarrassing congressional oversight hearings.

Even worse than congressional hearings are 20-year dates with a guy named "Bubba."  Mr. Wall Street no like that – most of them aren’t gay, for openers, not to mention that the caviar, blow, limousines and expensive hookers they’re accustomed to aren’t available in prison.

There’s only one small problem with all the lies about asset valuations: The fundamental truth about those values doesn’t change no matter how much you lie about it.  Therefore, those who are lying have two choices: either go under anyway, or start stealing literally everything in sight down to the carpet on the floor, fencing it to keep ahead of ever-increasing cash-flow demands that can’t be met by these impaired assets.

This is the black-hole vortex into which our economy is now spiraling.  It is, in fact, the precise same mistake that was made by FDR.  Instead of forcing those who did the evil things to admit their insolvency and be resolved, wiping out the imprudent (including those who invested in them) we are instead caught in the vortex and are unable to truly recover in our economy and markets.

Last time we "got out of it" by destroying the production facilities of essentially the entire developed world (except us, of course.)  This time such a "fix" would entail irradiating that entire developed world, and thus one would hope that nobody is that dumb.  Of course with the record we’ve seen thus far of "intelligence" coming out of DC…..

We’re headed for at best a Japan-style scenario and at worst something akin to the 1930s – if we’re lucky.  We have dramatically increased the pain level that has to be absorbed by blowing $4.5 trillion in the last three years for one purpose above all others – covering up the fraud and scams through government spending. 

It won’t work, as is now being documented as sector-by-sector fails as soon as the government tit stops dispensing "free" (really borrowed from China) milk.  Housing is just the most-recent example; as soon as the "tax credit" expired home sales cratered – right into the summer selling season, prompting panicked Administration Officials to start muttering about "re-enacting" the homebuyer handout.

While Washington continues to play this game it might want to gaze toward the East, where there are rumors that the Chinese have taken a huge loss on their foreign bond holdings, and their Central Banker is rumored to have defected (to the US!) – a rumor that, thus far, I give little credibility to.

Of course should he suddenly be found to have suffered a "heart attack"…….

More articles from the Market Ticker….

By Larry Rubinoff, GoldmanSachs666

Axa cuts stake in Goldman Sachs: documents
AFP
Axa reduces stake in Goldman
Financial Times
AXA Halves Its Goldman Holdings in Quarter
New York Times (blog)
EconomicPolicyJournal.com: Axa Reduces Stake in Goldman Sachs
By Robert Wenzel
Ex-Goldman Execs to Invest in Warehouse Fund
New York Times (blog)Ex-Goldman Executives May Raise $350 Million for Warehouses Fund in India
Bloomberg
Get Briefed: George Walker
Forbes
Prior to working at Neuberger Berman, Walker was a partner at Goldman Sachs ( GS – news – people ) and part of the company’s partnership committee
New Trailer Release for “INSIDE JOB”

More articles from Larry Rubinoff….

Trader Tracks Editor Roger Wiegand reckons Wall Street sells the public a “bill of goods” and that carefully selected gold and silver stocks could see great gains. Gold Report interview.

Read more….