Gasparino on "The Sellout"

RealClearMarkets has an interesting interview with Charlie Gasparino regarding his new book "The Sellout." There seems to be a consensus forming that something has gone seriously wrong with the US republic, and that the Obama administration is failing to address it, failing badly.

One has to wonder what it will take to give Washington a wakeup call. It seems that, when confronted by white collar crime, people lose all the perspective which they have when it comes to fighting crime and injustice. "It won't work, it can't be done, they will just come back and do it again."

Well, duh. If you make it worth their while, administer wristslap justice at worst, and let all the top dogs openly flout the law, of course they will be back. What the US needs is the reincarnation of Melvin Purvis with a minor in finance. I would put Eliot Spitzer in charge of the SEC with the right resources and let him rip through Wall Street like the wrath of God, and make the bankers howl.

But that probably won't happen, because there is too much dirt, too many scandals on both sides of the aisle for this crew to administer its oath to uphold the Constitution.

Here is an excerpt from the interview:

"I don't know when it's going to happen, but if history is any guide, it has to happen again--the "it" being another financial crash. Of course, it won't happen tomorrow or next week, or maybe not even two years from now. But when the memory of 2008 wears off, and mark my words it will wear off, excessive risk taking will be back in a form that evades all these alleged regulatory controls that have been established. Regulation can never cure the disease of excessive risk.

The only thing that can cure it is tough love--allowing firms to fail. That doesn't mean I wanted the Fed and the Treasury to walk away last year. That would have meant Armageddon. But they should have walked away before that, when the systemic risk was smaller and the damage would have been limited. 1998 would have been a great place to start. Let Long Term Capital Management fail; let Lehman, and as I show in my book, possibly Merrill to fail, because the trades were the most vulnerable to LTCM's bad bond market bets.

Instead, by arranging a bailout, and by using free money to juice up the markets, policy makers emboldened Wall Street to take even more risk. That's what they did then, and that's what I fear is happening all over again...

Now I'm not in the Goldman is the center of all evil camp. But I know a lot of really smart people who believe that Goldman's bankers and traders virtually control the federal government in order to advance their own notorious agenda.

In fact, as I show in The Sellout, there were far worse players whose risk taking led to last year's meltdown, starting with Merrill Lynch and Citigroup. They were equally powerful from a policy making standpoint.

Remember, after Robert Rubin fought to end Glass-Steagall's separation of investment and commercial banking, he didn't go back to his old firm, Goldman Sachs, he went to work for the firm that benefited the most from the law's demise, Citigroup.

But Goldman in many ways crystallizes all that is wrong with the financial bailout, started by the Bush Administration, but carried on and expanded by Obama's. Goldman has been declared a bank, not much different than the old Bailey Building and Loan, and yet they don't take deposits or offer checking accounts. So what do they do? They trade, and they are trading as a federally protected bank, meaning they get to borrow at cheaper rates and they are Too Big To Fail."

Read the full interview here.

Tomorrow's Non-Farm Payrolls Consensus of -175,000 Looks "Do-able"

Tomorrow the Bureau of Labor Statistics will be reporting its October non-farm payrolls number. The consensus of economists is for a job loss of only 175,000 which is an improvement over the prior month loss, but more importantly maintains a steady uptrend as shown in the chart below.



The BLS almost always revises the prior two months, in this case August and September. They tend to 'borrow' from good results and smooth out the trend, or at least they did under the Bush Administration. We will have to wait and see what happens.

The BLS will also have their Birth-Death Model at their backs helping to lift the number with a projected 100k imaginary jobs.



The BLS number will further have the wind at its back because this is a month which the actual number traditionally comes in high, and is seasonally adjusted lower for the 'headline number.'



The good news is that the 12 month moving average of jobs is starting to show a bottoming process IF this number comes in as expected.



We can be sure that the government is looking over these results, keenly. Lyndon Johnson famously pre-approved the number before its release, often sending it back for revision when he did not care for the implied headlines.

We cannot say if that practice still exists, or is handled by lower level functionaries on the Council of Economic Advisors. Who knows, it might even be a relatively honest number by Washington standards.

Watch the Birth Death model and the revisions to September and August in particular. If they 'borrow forward' from August this will be a sign of statistical manipulation in our minds at least.

We do have an open mind, and assume that an improvement in job losses is possible, even likely perhaps. If one throws several trillion dollars at a problem in a short timeframe some result is likely to be produced for it, although in this case it will not most likely last without some fundamental reforms and restructuring.

And it goes without saying that if the number misses by noticeable degree, with all this going for it, then any talk of even a short term recovery is placed on hold.

Governments lie, and people of privilege lie and cheat readily when their results do not match their expectations, on their taxes, in their relationships, in school, at work, all most of all to themselves.

Some of them 'bend the rules' so well that they can go through months without more than one or two losing days of trading in volatile markets, in defiance of all probability and the principle of a symmetrical dissemination of information.

NAV Premiums of Certain Precious Metal Funds and ETFs

Note: the way I use this information is not so much to compare the premiums with each other, although there are some relationships there and significant deviations are of interest. Each of them is different from the others. CEF and GTU are funds holding physical gold and/or silver, and the amounts of metal they hold varies infrequently in well advertised step-wise changes.

GLD and SLV are ETFs, somewhat artificial constructs, in which the amount of metal they hold varies considerably, and intends to track the relationship with spot prices on a somewhat fixed basis.

Rather it serves to compare with data on the premiums of the same fund or ETF over time. One would do this by using the subject category at the bottom of this post, or perhaps doing it for yourself. The premiums expand and contract, excepting GLD and SLV which are control stable, being largely a discount for a management fee. A significant deviation there would be possible evidence of shorting or a paired trade.

How Can You Tell When Gold Is In a Bubble?

When the junior miners start showing these kinds of returns, you might be in a bubble.

We're nowhere near that point yet.