The Financial Times Man of the Year - Lloyd Blankfein

How fitting, to mark the high tide of the will to power of the Anglo-American banking cartel. No better symbol of hubris, of the overreach driven by obdurate insensitivity and sociopathic greed, of the cult of ego and the darker impulses of the human heart, that creates nothing.

Honoring the man as the epitome of 2009, a man whose bank helped to precipitate one of the greatest financial crises, if not crimes, of the century, and used it as a means of profit for their own ends. No matter what damage was caused in the process, what corruption was required to undermine the nation's well-being, thereby sowing the seeds of their own eventual destruction.

And no better day for it, than on the eve of the commemoration of the renewal of life, of genuine value, of the perennial yearning of the human spirit from within the images and the shadows, a turning away from the stench of corruption and decay, and into the light.

"For what shall it profit a man, if he gains the whole world, but loses himself?

Not even the whole world, but bragging rights, a false bravado, and a bonus.

The man of the year indeed. King of the ash heap, almost universally held in contempt. And in the end, alone. Not even rising to the level of high tragedy, but merely furtive, grasping, manipulative, pathetic. A monument to banality, and the hollowness of Western materialism.


NY Times
Financial Times Names Blankfein Person of the Year
December 24, 2009, 2:37

The Financial Times has chosen Lloyd C. Blankfein as its person of the year. The Goldman Sachs chief has become the public face of Wall Street during its most testing period since the 1930s, the newspaper said, and Mr. Blankfein’s position and his personality were the basis of his selection.

Goldman Sachs, said the newspaper, “navigated the 2008 global financial crisis better than others,” and is about to make record profits while paying up to $23 billion in bonuses to its 31,700 staff.

The newspaper called Mr. Blankfein “a tough, bright, funny financier who reoriented Goldman. Under his leadership, trading and risk-taking have pushed to the fore, reducing the influence of its investment banking advisers.”

Facing public anger in 2009 — as taxpayers raged at having to bail out the big Wall Street banks — Goldman’s profitability, and suspicions that its ties to governments around the world give it unfair advantages, made it a symbol of greed and excess.

But Mr. Blankfein has rebutted the criticism effectively, the newspaper wrote, “shifting from insisting that it would probably have survived the crisis without help from the U.S. Treasury, to apologizing for its conduct,” and finally, the newspaper noted, in an interview with the Sunday Times of London, asserting that Goldman was “doing God’s work”.

Who Is Buying All These US Treasuries (And Can They Keep It Up in 2010)?

Earlier this evening I was reading the latest issue of TheContraryInvestor "Quite The Personal Bond," and was puzzled by his account of the Treasury market.

As shown in this chart, the foreign sector has begun to reduce their exposure to US sovereign debt, just as they were sellers of Agency debt in 2008.



So who is buying Treasuries according to the latest government data?

"US households purchased $529 billion of US Treasuries in the first nine months of 2009, accounting for 45% of total new Treasury issuance. And you have been wondering just how Treasury yields have stayed so low for so long? Wonder no more. US households have done the heavy lifting unlike any other buyer this year. And as we have stated in the past, this decision by households has been driven by two very strong human emotions- fear and greed. Fear of losing money in what is a once in a generation credit bust environment. And greed from the standpoint that the Fed has made money funds completely unpalatable in terms of nominal yield prospects. Of course Treasury yields are not much higher by any means."

So far this year the Fed has purchased $293.3 Billion of Treasury Debt, and is by far the largest purchaser of Agency Debt at $803.8 Billion.

Foreign entities bought $373.3 billion of Treasury debt, and were net sellers again of $110.3 billion of Agency debt and $73.1 of US corporate debt.

"US households purchased $529 billion of US Treasuries in the first nine months of 2009, accounting for 45% of total new Treasury issuance. And you have been wondering just how Treasury yields have stayed so low for so long? Wonder no more. US households have done the heavy lifting unlike any other buyer this year. And as we have stated in the past, this decision by households has been driven by two very strong human emotions- fear and greed. Fear of losing money in what is a once in a generation credit bust environment. And greed from the standpoint that the Fed has made money funds completely unpalatable in terms of nominal yield prospects. Of course Treasury yields are not much higher by any means."

So, according to the government, US households are absolutely piling into US sovereign and corporate debt at record levels, and at record low interest rates.

And almost no one but the Fed is buying Agency Debt.

Bill Gross of Pimco has the largest mutual fund ever, compliments of the bond stampede. The prior record was in 2007 with a growth fund that was decimated by the market crash of that year. And this is why I think we might see quite a bloodbath in the bonds in 2010, as mom and pop get skinned by the Street for weighing in so heavily on this one sided trade in US sovereign debt. The US household sector is a slow moving convoy, presenting a traditional and tempting target for the Wall Street wolf packs.

Here is another viewpoint on essentially the same data that I was just reading this evening at Trader's Narrative titled, Is It All Just a Ponzi Scheme? His take on this is a little less sanguine than the ContraryInvestor.

"At first it seems that the common US household is stepping up and lending Uncle Sam the almost $2 billion. We’ve discussed at length the stampede of retail investors into bond funds this year. But as Sprott [Asset Management] details below, according to the Fed’s own disclosures, this is not what is happening. No wonder then that the US dollar has cratered and gold is the best performing asset this decade..."

Sprott Asset Management says:

"Our concern now is that this is all starting to resemble one giant Ponzi scheme. We all know that the Fed has been active in the market for T-bills. As you can see from Table A, under the auspices of Quantitative Easing, they bought almost 50% of the new Treasury issues in Q2 and almost 30% in Q3. It serves to remember that the whole point of selling new US Treasury bonds is to attract outside capital to finance deficits or to pay off existing debts that are maturing. We are now in a situation, however, where the Fed is printing dollars to buy Treasuries as a means of faking the Treasury’s ability to attract outside capital. If our research proves anything, it’s that the regular buyers of US debt are no longer buying, and it amazes us that the US can successfully issue a record number Treasuries in this environment without the slightest hiccup in the market."

So what does all this mean?

The bottom line is that the data seems to indicate that the foreign sector traditional buyers (at least for the past 20 years or so) of US sovereign debt are walking away from the market as they had said they would do, and are moving their reserves into other instruments.

This may not be such a great problem if the US trade balance continues to narrow, but it certainly is not healthy to see the Fed and the US household sector as the major markets for US sovereign debt.

If 2010 is not a year of recovery for the average American, the ability of the Treasury and Fannie/Freddie to keep expanding their debt offerings is going to become quickly constrained. How can Joe Sixpack keep saving and buying Treasuries, and at the same time consume at a rate sufficient to grow GDP? All on a stagnant median wage and a contracting housing market? Think the rest of the world is suddenly going to grow a taste for US exports? Will the US retreat into isolationism and trade barriers? That might not be Price Index friendly.

The US is marshaling its ratings agencies and multinationals to cast doubt on the European union, their currency, and their solvency, and threaten to take them down first to maintain an equilibrium of failures.

But in fact, the US is much closer to the point of a serious debt crisis than one might imagine from what is being put out by most US based financial analysts. There is a nasty convergence of constraints bearing down on the Fed and the Treasury that look to push the ability to market dollar debt to the breaking point. If a couple big States go under next year, the dominoes may start falling very quickly.

I see the problem, but I have to confess that I do not yet see how the Bernanke Fed intends to dodge this collision. And I know that they must see this as well, and have a game plan. Could counting on an exogenous event that would provoke an artificial demand and neo-isolationism (something like a regional war, or at least a trade war) be called a plan? Can they possibly be in denial, and just looting the capital before the Empire falls? It is hard to see how the resolution of this will unfold just yet, but I am pretty sure that many of the simple scenarios that people are laying out so nicely with such fine rhetoric are more fantasy than probable outcomes. This is going to knock our socks off default-wise.

If you think that this crisis will be deflationary, then you might be a bit surprised to see what happens if and when a US sovereign debt offering fails in the market. It will not be pretty. And it will not be dollar friendly in the longer term. But who can say what will happen, when there are so many possibilities.

The market may likely reveal to us what is coming, if we are observant, and lucky, and have the willingness to listen to what we may not wish to hear.

There are some definite gaps and assumptions in the case that Sprott makes, raising more questions than providing answers. It is possible that Americans have shifted an enormous amount of capital out of consumption and stocks into Treasuries. It is also possible that this is just masking something else, as Sprott suggests. But this does not affect the argument we make, that something has got to give, as the US consumer is tapped, and cannot sustain this type of sovereign debt purchasing given the offerings that the Treasury must make in 2010. And if it is something else, then that will be revealed 'when the tide goes out' next year. The Fed and its enablers are the buyers of last resort, increasingly so. And that means increasing monetization, and a stretching of the value basis of the bonds and the dollars.

Read the full analysis from Sprott Asset Management here.

Tech Leadership in US Equities Looks Extended

We have not seen much profit taking yet into year end despite a spectacular rally from the market bottom.

Wait for it. This may be a nascent asset bubble being created to offset the coming writedowns in Commercial Real Estate and the bad debt remaining on the books of the banks.

The US Bull Market in Smoke, Mirrors and Gullible Investors

We have given quite a bit of coverage to the somewhat 'thin' veneer of recovery being spun by misleading government econmic statistics in the US.

And we have certainly noted the almost blatant manipulation in many US markets, including stocks and commodities where the banks and hedge funds have been pushing prices around, sometimes with the help of the government, in a disgraceful repudiation of any notion of reform.

Thanks to the Tylers at ZeroHedge we have two very nice charts to present the case that the recent continuation of the US stock market rally is attributable to price manipulation largely in the after hours markets when trading is thin.

After Hours Verus Prime Hours Cumulative Trading Gains from September 2009



After Hours Versus Prime Hours Cumulative Trading Gains from March 2009



And a Ballooning Price-to-Earnings Ratio as a Result



Its pretty much a Ponzi scheme, and not all that well hidden. This is probably why insiders continue to sell in large numbers.

If the US market breaks it will go badly for many average people who do not understand how their government has failed to protect them.

But do not underestimate the power of the Bernanke Fed and its enablers in the central banks to continue printing enormous amounts of unfunded dollars and hiding the effects. This may buoy the US markets for longer than we might think, as it did in 2003 to 2007.

But at some point the payments will come due, value will be revealed, price discovery will assert itself, the US dollar and the bond will fail, and then comes the deluge.

Watch what India and China do with their reserves. They know full well what is coming and unlike the US are seeking to protect their people.