Economy, Banks, Gold, and other stuff.

[cyppok]

Bank Earnings Taxed by QE2, Massive Regulation | Zero Hedge

Some background to my thoughts I remember reading stuff about banks in 2006-2007 and watching a youtube with Chris Whalen giving a presentation. I kinda realized the banks were having more and more crap on their balance sheets if you looked at quarterlies or annuals, hell they even presented the new and improved model where no need for reserves was necessary. We all know how that ended...

Welcome to the repeat. Basel III and the imaginary capital ratios. In essence banks are not holding actual capital against all their assets equally *which they should* but capital against risk-weighted assets (less of capital needed since "risk is evaluated and weighed against asset probabilities" which is bsht)

FDIC: Speeches & Testimony - 04/09/2013

http://www.aei.org/files/2013/04/08/-whalen-presentation-bubble-bubble_141325940605.pdf

The fdic presentation by a diff guy gives scope on how leverage ratios are manipulated etc...

Three very important things that I take away from all this.

1)Page 12 from Whalen's presentation is the delinquency rates. They weren't cleared up they were massaged and reset by banks some was eaten through but very little.
2)[page 3]QE provides a funding subsidy of about 80 billion dollars for banks which is a very very very big amount, when QE is slowly curtailed their net interest margin snaps back faster and more violently than it would have (ergo repeat of what happened before to a degree)
3)The amount of capital by big US banks held against assets is crappy even though its better than in Europe, a material increase in delinquencies, slowing of earnings, funding cost increases or a fluctuations of any of these factors sinks the battleship somewhat.

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The economy is doing horrible. Jobs are scarce and simply put 88k jobs for March was very bad. It seems we are practicing stifling the price competitive curve by ramping up fees and other crap. Ergo stuff has to get cheaper during downturns for you to try it but asset ramps keep efficiency at bay for the sake of improved income. Sales are collapsing and so is the general ability of people to attempt to produce stuff (legally) but slowly but surely we are growing a nice dark economy. I am sure just a few more barriers to entry will improve the growth of the shadow economy.
Retail Sales in U.S. Dropped in March by Most in Nine Months - Bloomberg

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Gold, been following it for a month or so. First it seemed to stabilize then something happened. It collapsed very severely you got a suckers rally and now it continues to implode.
Why???


If we get a deflationary crash/collapse cash will be the best overall investment it seems. If we consider things like Cyprus those people who held cash had real returns exceeding 50% on it sitting somewhere in their house instead of a bank. (if you consider access then returns were over 100% since most are limited to 300 eur and no idea of the horizon for the unfreeze and ability to move it)

What is odd is we have inflation still sort of lingering in food, real estate, etc even though the amount of bidders and their willingness to bid decreased somewhat, even for gasoline. We are consuming 90s levels of oil products!!!
These Charts Better Not Reflect The True State Of The US Economy | Zero Hedge

Getting back to gold. Gold is very geopolitical in settlement permeability that's why Iran is using it and Turkey uses it to pay Iran to evade sanctions via 3rd country to buy oil/gas it needs. South African production dropping like a rock but elsewhere its been going up so overall not so much a supply/demand problem. We have no idea what the central banks, imf etc are doing nor the big traders.
You also have to consider that a lot of production is "hedged" through banks and those same banks will play in the market knowing and controlling the supply since they get the deliveries.
There are lots of ways to think about it, even if we get a deflationary collapse and an asset that falls least compared to others is still providing real returns above every other asset (except cash I guess).
Margin requirements going up and cash settlement are the unknown impacts. Cash settlement is a joke if you think about it, ergo you have a contract to buy something but instead you get dollar equivalency so why did you buy the contract in the first place? The problem with both is that it reduces volume and thus price swings seem to have been a partial result, the other thing is if you can't get the actual product you wanted to buy once your market is sidelined and another one takes over the reality could be very harsh.

Imagine two markets, one in Singapore and one in New York, both with different gold prices per oz. That would be very scary. Now imagine if this seeps into other markets and you realize how big of a problem this could become. Continuum of global markets would be broken.

best wishes.

[cyppok]

lol gold fell almost 89 today which is very heavy.

[snapper]

I notice this from Obama's Budget:

"Over the past few years, Democrats and Republicans have cut the deficit by more than $2.5 trillion through a mix of spending cuts and tax reform, including more than $1.4 trillion in spending cuts…and over $600 billion in new revenue in the American Taxpayer Relief Act (ATRA) from raising income tax rates on the highest income Americans."

American Taxpayer Relief Act??? How can you tax people 'over $600 billion' and call it 'relief'? The only thing they been relieved of is their money.

[astralis]

snapper,

American Taxpayer Relief Act??? How can you tax people 'over $600 billion' and call it 'relief'?

the alternative was for -everyone- to have their taxes increased as the supposedly temporary bush tax cuts expired.

[snapper]

So what you're saying is that if I were one these people I should be grateful I haven't had to pay more? You are giving with one hand - and distorting the market thereby - and taking with the other. Everything has to go through the State, which then charges it's own costs for administration and whatever else, before it goes back to another - and possibly even some of the same people it claims to have 'relieved' when collecting the tax - lot of people. So let's say I am one of those who has contributed to this 'relief' (I mean Orwellian or what?) and Obama or whoever decides I am also 'entitled' to some program whether it student subsidy or Obamacare such that the money I contributed comes directly back to me. Well not all of it will... I've payed for all the costs of taking it and then giving it back... I lose and only Government administrators win. Of course if I am not so lucky as to be 'entitled' to some scheme to which I have been relieved of my money being one of the "highest income Americans" I can probably afford to employ less people and I may well think I am better off doing business elsewhere, upping sticks and leaving (as in France). You wish to take from those who can create wealth to help the needy? The best way to the needy is by allowing profitable business's to employ them - hand outs create dependency slaves - you will have a food stamp economy. This is precisely the opposite what ANY country needs to do if it wishes to help the less well off.

As for tax evasion the higher you raise taxes the more people will avoid it whether by 'cash in hand' or by clever accountants or by going somewhere else. My family is reasonably wealthy though not 'mega rich' and indirectly employ (large shareholders in companies) getting on for 900 people. We also naturally employ people ourselves - spent alot of money on builders and architects etc restoring our family home. We also employ stock brokers and accountants etc as well as some domestic staff. But if you think we're going to invest in a country that uses Orwellian speak to make slaves of it's poor in a form of 'wealth distribution' you're having a laugh.

As for the recent stock market highs I expect a 're-adjustment' but not a crash toward the end of this month so if you're into shorting probably some good opportunities coming up. The history shows that once a new high is reached it falls and then tries to recapture the high, fails then drops 15-30%.

[dalem]

snapper,



the alternative was for -everyone- to have their taxes increased as the supposedly temporary bush tax cuts expired.

No, that was AN alternative. AnOTHER alternative would have been to keep all of the Bush rates in place.

-dale

[cyppok]

Btw gold is down almost a 100 today (before open in U.S. it touched 1385 in Asia)

I wonder what happens when U.S. opens for the day.

A few more days and most of the miners are underwater cost-wise.
Which makes me feel that the gold shake up is pressuring producers to establish contracts in adverse conditions. Imagine you are the CEO of some mining company and every day your margin contracts and your viability is in question. Makes you hedge production at lower and lower amounts as the price goes under. If there is ever a recovery any upside is "hedged" away. Brilliant kinda from an asymmetric perspective.



Snapper to be quiet honest I thought we would crash a while ago but if you look through companies. I mean that make things or services that generate stuff it doesn't seem that bad. Bubble territory is definitely present, it may get worse before it gets better though.

[astralis]

dale,

No, that was AN alternative. AnOTHER alternative would have been to keep all of the Bush rates in place.

but that was not the default setting. plus, elections have consequences...

[astralis]

snapper,

You wish to take from those who can create wealth to help the needy? The best way to the needy is by allowing profitable business's to employ them - hand outs create dependency slaves - you will have a food stamp economy. This is precisely the opposite what ANY country needs to do if it wishes to help the less well off.

As for tax evasion the higher you raise taxes the more people will avoid it whether by 'cash in hand' or by clever accountants or by going somewhere else.

yes yes, which was why america was an absolute sh*thole filled with dependent people and tax evaders when the top marginal tax rates were at 94%...

please leave the conservative pablum to dale, he does it with rather more style...;) you're rather more convincing when it comes to being anti-EU.

We also employ stock brokers and accountants etc as well as some domestic staff. But if you think we're going to invest in a country that uses Orwellian speak to make slaves of it's poor in a form of 'wealth distribution' you're having a laugh.

orwellian, is it. pray tell, where did THAT particular phrase came from, and which country the author of that phrase was from? :)

in any case, certainly it's you and your family's decision where to invest, but not investing in the nation with the largest, most diversified economy with the best demographics of the Western world...hey, go right ahead.

As for the recent stock market highs I expect a 're-adjustment' but not a crash toward the end of this month so if you're into shorting probably some good opportunities coming up. The history shows that once a new high is reached it falls and then tries to recapture the high, fails then drops 15-30%.

finally something that makes a bit better sense. i too expect a minor correction relatively soon, but afterwards a period of steady growth. US fundamentals are strong-- considerably better than any other western country in the short-medium term, with the possible exception of Germany; and in the long-term, better than Germany.

[USSWisconsin]

So what you're saying is that if I were one these people I should be grateful I haven't had to pay more? You are giving with one hand - and distorting the market thereby - and taking with the other. Everything has to go through the State, which then charges it's own costs for administration and whatever else, before it goes back to another - and possibly even some of the same people it claims to have 'relieved' when collecting the tax - lot of people. So let's say I am one of those who has contributed to this 'relief' (I mean Orwellian or what?) and Obama or whoever decides I am also 'entitled' to some program whether it student subsidy or Obamacare such that the money I contributed comes directly back to me. Well not all of it will... I've payed for all the costs of taking it and then giving it back... I lose and only Government administrators win. Of course if I am not so lucky as to be 'entitled' to some scheme to which I have been relieved of my money being one of the "highest income Americans" I can probably afford to employ less people and I may well think I am better off doing business elsewhere, upping sticks and leaving (as in France). You wish to take from those who can create wealth to help the needy? The best way to the needy is by allowing profitable business's to employ them - hand outs create dependency slaves - you will have a food stamp economy. This is precisely the opposite what ANY country needs to do if it wishes to help the less well off.

As for tax evasion the higher you raise taxes the more people will avoid it whether by 'cash in hand' or by clever accountants or by going somewhere else. My family is reasonably wealthy though not 'mega rich' and indirectly employ (large shareholders in companies) getting on for 900 people. We also naturally employ people ourselves - spent alot of money on builders and architects etc restoring our family home. We also employ stock brokers and accountants etc as well as some domestic staff. But if you think we're going to invest in a country that uses Orwellian speak to make slaves of it's poor in a form of 'wealth distribution' you're having a laugh.

As for the recent stock market highs I expect a 're-adjustment' but not a crash toward the end of this month so if you're into shorting probably some good opportunities coming up. The history shows that once a new high is reached it falls and then tries to recapture the high, fails then drops 15-30%.

People could be pleased that we didn't return to earlier tax rates, like Reagan era or Nixon era. US tax rates used to be progressive, asking more from those who benefit the most, asking less from those who don't have enough. This isn't something "new" or unheard of in the US- it might be viewed as trying to get things back to a state where they worked well. Stopping the SSI loophole, where most Americans pay on all their income, but the top earners get a break at $110K, yet still get to collect the same benefits - that would be new. Having a stable economy benefits the wealthy as well as to the poor and middle class.

[cyppok]

People could be pleased that we didn't return to earlier tax rates, like Reagan era or Nixon era. US tax rates used to be progressive, asking more from those who benefit the most, asking less from those who don't have enough. This isn't something "new" or unheard of in the US- it might be viewed as trying to get things back to a state where they worked well. Stopping the SSI loophole, where most Americans pay on all their income, but the top earners get a break at $110K, yet still get to collect the same benefits - that would be new. Having a stable economy benefits the wealthy as well as to the poor and middle class.

You have to remember that no matter the rate 80% or 20% the U.S. never collected more than 20% of gdp. Ergo once you go above a certain rate the amount you collect drops no matter how you swing it. People won't pay it it goes either into shadow economy or they stop participating and reduce their spending. You basically take out the working capital out of your business by not reinvesting and go on a long vacation.
W. Kurt Hauser: There's No Escaping Hauser's Law - WSJ.com

Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this "Hauser's Law."

http://en.wikipedia.org/wiki/Hauser%27s_Law

(picture from article below)
http://taxprof.typepad.com/taxprof_b...users-law.html


Gold Crush Started With 400 Ton Friday Forced Sale On COMEX | Zero Hedge
Very cool article about gold.
Its mid day and its down -111 dollars around 1390 basically down around 200 bucks over two days.

P.S. my personal opinion is we go below a thousand. I am the most cynical person ever. I figure whatever or whomever is selling is going to actually deliver all that and if that happens you just had a monster demand/supply disruption. Could be anyone we will find out eventually. Someone wanted to cash out and get currency...

[astralis]

cryppok,

You have to remember that no matter the rate 80% or 20% the U.S. never collected more than 20% of gdp. Ergo once you go above a certain rate the amount you collect drops no matter how you swing it. People won't pay it it goes either into shadow economy or they stop participating and reduce their spending. You basically take out the working capital out of your business by not reinvesting and go on a long vacation.

however, with an insanely high top marginal tax rate, that made the taxation system very progressive. in short, wealthy people paid quite heavily from the 1940s-80s.

Ergo once you go above a certain rate the amount you collect drops no matter how you swing it.

laffer curve does not begin to apply until after the 60-70% taxation rate.

moreover, it's a CHOICE by the US to have revenue roughly at 20% of GDP (it's actually close to 24% once you factor in state/local taxes). places like canada and switzerland and norway, not exactly the worst-functioning economies on earth, have revenues at 30-40% of GDP without noticeable decreases in economic efficiency.

so the 20% figure, or "law", is political in nature, not an economic one.

[cyppok]

cryppok,

however, with an insanely high top marginal tax rate, that made the taxation system very progressive. in short, wealthy people paid quite heavily from the 1940s-80s.

You are ignoring the evidence! No matter how high the marginal rates go the payments top out at 1/5th of GDP. Rates were fluctuating from very high to moderate and it still was 1/5th of GDP. That is precisely the point. You can pretend it's not true. But multiple research papers, history, and reality say otherwise.

This is not about Laffer Curve, this is about getting more money, Laffer Curve says gov't gets more money at optimally efficient tax rates.
This is different, this say no matter how much the government tries to take it won't be given more than what the economy can sustain. Ergo 20%. I specifically included the wiki link... You can read it. AGAIN!!!
http://en.wikipedia.org/wiki/Hauser%27s_Law

[astralis]

cyppok,

You are ignoring the evidence! No matter how high the marginal rates go the payments top out at 1/5th of GDP. Rates were fluctuating from very high to moderate and it still was 1/5th of GDP. That is precisely the point. You can pretend it's not true. But multiple research papers, history, and reality say otherwise.

use of bold and underline and !!! doesn't cut any ice with me.

i fully understand that the US revenue per GDP has remained fairly stable over the last half-century. but it makes a -huge- difference HOW that revenue is divvied up.

and my second part shows nations whose governments take a significantly greater share of the economy than the US, without noticeably poor economic performance. so your "law" is NOT an economic law; it simply demonstrates that in modern US politics, there's no real political interest in expanding taxation to higher levels across the board.

[JAD_333]

Getting back to the glittery topic. I believe the main reason gold is down because stocks have become more attractive. Afterall, gold had been run up by speculators who had no where else to go the past few years. Now there's a new game in town. Also, Cypus dopped...what? --20 tons on the market in the last week or so, at least that is how I read it. They didn't just transfer it to another sovereign entity or the ECB which would have had little impact on the gold exchanges.