GOVERNMENT BANKING - Bigger than Commerical Banks in Non-Revolving Credit Creation

The Government Holds More Non-Revolving Consumer Debt Than Banks For The First Time Ever 03-08-13 BI

For the first time in history, the federal government holds more nonrevolving consumer debt than commercial banks in the United States, thanks to a surge in government-issued student loans since 2009. (Nonrevolving consumer credit includes loans with fixed repayment plans, like student loans and auto loans, as opposed to revolving credit, which includes things like credit cards.)

This little detail from yesterday's monthly consumer credit release was pointed out by NBF Chief Economist Stéfane Marion in a note to clients following the release. According to the latest data, the government now holds $552.69 billion in student loan debt –versus commercial banking institutions' holdings of all nonrevolving consumer credit, which only amounts to $545.7 billion.

Check out the chart below:

CORPORATIONS - Dividends and Buybacks Signal Earnings Problems Ahead

Firms Send Record Cash Back to Investors 03-07-13 WSJ

DIVIDENDS	BUYBACKS
2013 $300B 2012 $282B	$117.8 billion in Feb
CASH The Federal Reserve's latest quarterly "Flow of Funds" report, released on Thursday, said that cash and cash-equivalents held by U.S. corporations, excluding financial companies, stood at	$1.79 trillion in the fourth quarter of 2012, up from $1.77 trillion the previous quarter.

DIVIDENDS

U.S. companies are showering investors with a record windfall in the form of dividends and share buybacks, helping to propel the stock market's rally. Companies in the S&P 500 index are expected to pay at least $300 billion in dividends in 2013, according to S&P Dow Jones Indices, which would top last year's $282 billion.

Analysts say this year's number could go even higher. Apple Inc., for example, stands to pay out about $10 billion this year in a dividend policy initiated last year. Exxon Mobil Corp. and AT&T Inc. are each also set to pay dividends around $10 billion.

BUYBACKS

American corporations also announced plans to buy back $117.8 billion of their own shares in February, the highest monthly total in records dating back to 1985, according to Birinyi Associates Inc. a Westport, Conn.-based market research firm. Home Depot Inc., General Electric Co. and PepsiCo Inc. are among a number of large companies that announced plans last month to scoop up large amounts of their own shares.

The Federal Reserve on Thursday paved the way for more activity. In its "stress tests" of banks' financial health, the Fed said 17 of the largest U.S. financial groups have enough capital to keep lending even if the economy were to take a sharp downturn. Several banks are now expected to boost dividends and share buybacks.

The large payouts are boosting investors' confidence in a stock-market rally that has pushed the Dow Jones Industrial Average to a record. Buybacks have an even more direct effect than dividends on companies' share prices because they can boost earnings-per-share, a closely watched measure of profitability, by reducing shares outstanding, although some companies use the stock they buy to deliver shares to executives who exercise stock options. On Thursday, the Dow notched its third consecutive record close, ending at 14329.49.

"We are starting to get out of hunker-down mode, so what you have now is a bunch of cash-hoarders who have decided to take that cash out of their balance sheets," said David Ikenberry, dean of the University of Colorado's business school. "Is that a good thing? It probably is. They're liberating capital and putting it back out into the capital markets, and letting that multiplier effect kick in."

One other possible effect: higher tax revenues for the government.

On Jan. 1, the top rate on capital gains and dividends for most top-bracket taxpayers jumped by two-thirds, to nearly 25% from 15%, counting surtaxes. Others will pay from 15% to about 20%, while some will continue to pay zero.

It is difficult to gauge the exact effect but federal revenues appear to have increased already because of the bump in investment-tax rates. A new estimate Thursday by the Congressional Budget Office suggests that taxpayers have made significantly higher tax payments in recent weeks, as a result of shifting income such as dividends into 2012, in order to avoid the 2013 rate increases.

The CBO said in a monthly budget analysis that tax receipts in the category that includes capital gains and dividends since Oct. 1 have climbed by about $15 billion, or 16%, from the comparable period last year.

In returning money to shareholders, companies by and large are tapping into cash piles they have accumulated in the past few years by cutting costs or taking advantage of low interest rates to borrow funds.

CASH

The Federal Reserve's latest quarterly "Flow of Funds" report, released on Thursday, said that cash and cash-equivalents held by U.S. corporations, excluding financial companies, stood at

• $1.79 trillion in the fourth quarter of 2012, up from
• $1.77 trillion the previous quarter.

"Corporations are flush with cash and that cash sitting in the corporate coffers is earning next to nothing," said Rob Leiphart, an analyst at Birinyi. "Companies have to do something with it." A number of investors, eager to beat the meager returns offered by Treasury bonds have poured money into funds that buy only stocks that pay out big dividends. Funds in the U.S. that focus on dividend-paying stocks have seen $17 billion in inflows each of the past two years, according to the corporate finance advisory group at J.P. Morgan Chase & Co., while broader funds saw outflows of $80 billion the last two years. Others have targeted companies that have large cash piles that could be returned to investors in the form of buybacks—even Apple is under fire from activist investor David Einhorn to return to shareholders more of the $137 billion in cash the company holds on its balance sheet.

Some investors, however, warn that buybacks and dividends aren't the best use of company cash. They argue that companies may be returning too much cash as stocks reach record price levels, and instead should begin to consider acquisitions or other investments in growth. "Companies call it returning value to shareholders," said Greg Milano, chief executive of Fortuna Advisors LLC, a corporate-advisory firm. "They're saying 'I don't know what to do with this. You take it.' It's not something to be proud of."

Last month, 130 companies authorized buybacks, compared with 68 a month earlier.

Studies of whether buyback announcements presage long-term stock gains have produced mixed results. In 1995, Mr. Ikenberry found that companies announcing share repurchases, on average, had a compound return 12 percentage points higher than peers that didn't after four years.

"You're telling the market your stock is undervalued and that is, on average, right," said Michael Weisbach, a finance professor at Ohio State University who has researched corporate stock-buyback activity. If companies are snapping up their own shares, he said, "things must be looking rosy for the companies and their balance sheets."

Similar buyback activity occurred the last time stocks hit record highs. During the housing boom that ended in 2007, S&P 500 companies ramped up their share buybacks to what were the highest levels in history.

One study suggested that companies are better off buying stock when stocks are undervalued. In a study by Citigroup's Financial Strategy & Solutions Group of more than 10,000 buybacks from 2005 to 2013, companies that were trading below their five-year median price-to-earnings ratios saw an average share price bump of 2.7% from 20 days before to 60 days after an announcement. Companies above that level saw only a 1.3% average jump.

UNLOADING SHARES - Private Equity & Venture Capital Comapnies Exiting

Firms Race to Raise Cash 03-09-13 WSJ

Companies are taking advantage of the stock market's record-breaking rally to raise funds. The rush to sell shares is a sign of U.S. corporations' desire to boost growth by investing and acquiring rivals after years spent licking the wounds inflicted by the financial crisis. As the Dow Jones Industrial Average climbed toward its peak, which it reached on Tuesday and topped again on Wednesday, companies ranging from home builders to seed growers have tapped into investors' appetite for shares.

Public companies have raised

• $35.1 billion in secondary offerings of stock in the U.S. since the beginning of the year, according to data provider Dealogic,
• the most-robust start to any year since 2000.

Both buyers and sellers say the trend is another bullish sign for an already roaring market: Many companies are tapping investors to fund growth or make acquisitions, which could in turn fuel another bump in stock prices.

"It shows that companies have access to capital, and it reflects an improving economic environment," said Mark Freeman, chief investment officer at Westwood Holdings Group Inc. WHG -0.54%a Dallas mutual-fund manager with some $14 billion under management. "They're thinking they can raise capital and earn an attractive rate of return."

Home builder KB Home KBH +2.44%raised $115 million in a January common stock offering. It was KB's first common stock offering since its IPO in 1986, though it has recently sold bonds and convertible securities. The company has said it is "going on offense" to take advantage of a recovering housing market and said the proceeds of the sale would go in part toward "land acquisition and development." It announced the offering when its stock was trading at about its 52-week high, and the stock has since risen 14%.

• For large companies, stock sales, which typically take place at a discount to the market price, can be viewed as a sign of weakness. Shareholders generally don't like to see those companies issue more stock as doing so dilutes the value of their shares. They prefer companies to raise debt or use their own stock as a currency if the company is pursuing an acquisition.
• But for some companies that either don't have access to debt markets, perhaps because they already have raised a significant amount of debt, or have small amounts of shares on the market, the issuance of stock can be a sign of growth and can enable investors to take bigger positions.

S&W Seed Co., a small producer of agricultural seeds, raised $11 million in a January offering. The company has been acquiring farmland over the past year. Since the offering was announced, the stock has risen 16% and hit a 52-week high.

"That's really going to enable us to continue to be proactive in our pursuit of agricultural companies and farmlands to expand upon the S&W platform," said Matt Szot, chief financial officer, on a conference call with investors after the sale.

Data on the performance of companies that sell stock vary. Jay Ritter, a professor of finance at the University of Florida, studied secondary offerings from 1970 to 2000 and found that shares of these companies on average slightly outperform peers of a similar size over the next six months. The study also found that three years after a secondary offering, the sellers tended to underperform slightly.

There are two main types of secondary deals, depending on whether the company or one of its main shareholders, such as private-equity or venture-capital firms, sells stock.

In the most recent bout of selling, about a quarter of the sales by dollar volume have been private-equity firms or founders selling down stakes in companies. That includes KKR KKR +1.22%& Co. and Bain Capital LLC selling stock in HCA Holdings Inc., HCA +0.57%the hospital chain that went public in 2011.

Similarly, Michael Kors, the fashion designer, sold additional shares in his apparel company, Michael Kors Holdings Ltd., KORS -0.03%which went public in 2011. These sales aren't strictly bullish, because they could indicate the firms believe the company's share price has reached a high.

Many private-equity or founder sales, known as "exits," last year were also motivated by a desire to turn paper profits into real gains before capital-gains tax rates increased in 2013.

But at about a quarter of share sales, private-equity sales represent the lowest percentage of such sales since 2010 even as secondary stock offerings are on the rise. In some cases, the proceeds are being used to finance new projects or acquisitions.

Last month, Canadian financial-services firm Great-West Lifeco Inc. said it would raise 1.25 billion Canadian dollars ($1.22 billion) of stock to pay for its purchase of Irish Life Group Ltd. That is among the biggest share sales to fund an acquisition outside of the banking sector in North America since the financial crisis. Apartment complex owner AvalonBay Communities Inc., raised $2.2 billion in November to buy a stake in competitor Archstone Inc., according to Dealogic. Since then the stock is down 4.2%.

This week, Trulia Inc., the developer of websites and mobile applications for home buyers, filed to make its first offering since its IPO last year. The offering will include shares being raised for the company itself, which it said will in part finance small acquisitions.

MILITARIZATION OF POLICE - Unwitting Building Blocks of Statism

How Cops Became Soldiers: An Interview with Police Militarization Expert Radley Balko 03-05-13 Motherboard

JAPAN - Yen Devaluation

Guide To Trading USDJPY 03-03-13 Zero Hedge

Having trouble deciding whether to join the herd? Unsure if Abe and Kuroda can unilaterally take on the world's central banks? Worried that surging inflation in energy and food costs in Japan will force the BoJ's inflationary resolve to crack? The following flow-chart from HSBC provides an at-a-glance decision-tree for whether JPY weakens to over 120 or strengthens back to 80...

Click to Enlarge

(h/t @JEliasof)

JAPAN - New Bank of Japan Policy - 2% Inflation in 2 Years

BOJ nominee Kuroda sets out aggressive policy ideas 03-04-13 Reuters

Haruhiko Kuroda - BOJ Nominee

NO MONEY INCREASE LIMITS

The Japan government's nominee to be the next central bank governor outlined more forceful policy prescriptions on Monday to finally defeat deflation, saying he

"would not set any limits on the amount of cash the Bank of Japan pumps into the economy"

INFLATION OF 2% IN 2 YEARS

Underlining expectations he would be an aggressive governor, Haruhiko Kuroda told lawmakers the BOJ's current policies were not powerful enough to boost inflation to 2 percent, a target he said the central bank should strive to achieve in two years.

Kuroda suggested the most natural way to ramp up the central bank's stimulus for the economy would be through

1. Huge purchases of longer-dated government bonds.
2. The BOJ should also consider kicking off its open-ended asset purchases early, rather than waiting until the scheduled start date of 2014.

"It would be natural for the BOJ to buy longer-dated government bonds in huge amounts," Kuroda said in a confirmation hearing in the lower house of parliament. "But the central bank also needs to scrutinize market developments at the time, as well as the potential drawbacks."

Prime Minister Shinzo Abe nominated Kuroda, president of the Asian Development Bank, to be the new governor in a push for bolder central bank efforts to end nearly two decades of debilitating deflation and revive the fortunes of an economy stuck in its fourth recession since 2000. His nomination is expected to be approved by parliament because opposition parties, whose support would be needed in the upper house, have indicated they would back him.

The prospect of BOJ buying longer-dated bonds prompted a market rally, led by the longer end. Yields on 20-year bonds dropped to a seven-month low of 1.550 percent. Yields on 5-year debt hit a record low of 0.110 percent.

Japan's former top currency diplomat, Kuroda, 68, would replace incumbent Masaaki Shirakawa, 63, who is due to leave office on March 19 along with his two deputy governors.

PRIOR POLICY

Under Shirakawa, the BOJ has agreed to

1. buy assets or make loans totaling 101 trillion yen by the end of this year, part of which includes buying government bonds with a maturity of up to three years.
2. It said in January it would switch to open-ended asset buying from 2014 to achieve the 2 percent inflation target.

ABE'S RESULTS

Abe's demands for bolder action has already

1. pushed the yen to a three-year low and
2. the stock market to a four-year high as investors anticipated much looser policies.
3. Sentiment in the government bond market reached a seven month high, a Thomson Reuters poll showed on Monday.

"Market expectations are high and it will be hard for the BOJ to do something to surpass such expectations," said Koichi Haji, chief economist at NLI Research Institute.

"You cannot deny the possibility that the central bank will ease before the scheduled first monetary policy meeting in early April to provide surprise."

If Kuroda's nomination is approved, his first regularly scheduled policy review would be on April 3-4.

Abe has also nominated academic Kikuo Iwata, who supports unconventional monetary policy, and BOJ official Hiroshi Nakaso, who has hands-on knowledge of the central bank's inner workings, as deputy governors.

Kuroda said that like other central banks, the BOJ should also focus on reducing long-term rates and risk premiums with the aim of increasing consumption and investment. The BOJ should not focus solely on the amount of money circulating through the economy, he said. "Simply expanding monetary base won't be too effective," he told lawmakers.

He acknowledged international concerns over Japan's monetary policy and worries a sliding yen could spark competitive currency devaluations.

"There's evidence that currencies tend to fall for countries that ease monetary policy on a large scale ... But the BOJ's policy is not targeting currencies,"

"The important thing is to ensure price stability and achieve the 2 percent price stability goal, although it could affect currencies in that process." Kuroda said currency levels should be determined by markets, but intervention was possible if markets greatly deviate from fundamentals.

It would be difficult for the BOJ to buy huge amounts of foreign currency bonds on its own, Kuroda said. The nominations must be approved by both houses of parliament to take effect. Abe's ruling camp controls the lower house but lacks a majority in the upper house, so needs the support of opposition parties to confirm the nomination.

GLOBAL MONETARY - Remember the 2nd Derivative

A 1994 Redux? 03-05-13 BOAML via ZH

A prevailing theme that the pundits are trying to furiously push onto hapless lemmings in hope of forcing them out of bonds and into stocks, is that the current capital market is somehow comparable to that of 1994 and that the Fed rate hike of 1994 is imminent in our day and age too. Aside from the fact that the economy, or the market, is nothing like 1994, the subliminal suggestion is that the Fed may just pull a Greenspan, and proceed to hike rates one clear day, in the process sending the long-end soaring, so please dear lemmings: rotate greatly. So if one were to ignore the fact that for the Fed to hike it would imply that the $14 trillion in global central bank support would immediately start being withdrawn, and thus sending the S&P lower by over 1000 points, how does this particular fable work? Here is how Bank of America spins it.

A small step for the Fed; a giant leap for the bond market: The economic recovery in the early 1990s was similar to today’s recovery. Growth rebounded slowly from the 1991 recession, so the Fed continued to cut rates and then went on hold with a 3% funds rate from October 1992 to January 1994. This caused a steady rally in the bond market, with monthly average 10-year yields bottoming at just 5.3% in October 1993. This was an extraordinarily low yield; coming just 10 years after yields had peaked at 13.4%.

Sure enough: a tidy little package. There is one problem: hiking rates means that the Central Banks admit their balance sheets are too big. Which means one simple thing: the $14 trillion orange bar will be "discounted" as going to zero asap. What happens next Bank of America can certainly tell us, but something tells us they won't.

GORDONTLONG.COM

"This is an Incredibly Valuable Chart

Remember your 2nd Derivative from Calculus?" - GTL

TOTAL FINANCIALIZATION - Versus Enterprise Value

Total Debt + Equity = USA Bubble #1 03-03-13 McKinsey via ZH

Most of the time, when economists or Wall Streeters present a continuum of who's worst (or best) in the world, they show just a part of the whole: whether it is total sovereign (public) bonds, total corporate bonds, securitized or non-securitized bank loans, or in some cases, equities, as a percentage of the host nation's economic output, or GDP. The reality is that all these are merely a part of the greater whole, and showing one independent of the others tells at best a small part of the story. For the full picture one always needs to show how all these add up combined to get what in corporate finance is known as "enterprise value", and what in economics McKinsey has dubbed "financial depth" or the value of the world's financial assets relative to GDP. It is here that it is clearest and most visible just how extensive the "bubblification" of the US capital markets - both debt and equity - has been, even despite the relative drop in consolidated "financial depth" in the past five years.

In short: think US is the biggest financial bubble in the world? You are right.

And for those who say there is still a long way to go before the global bubble - the consolidated global bubble, including equity and debt, is reflated back to 2007 levels, guess again - we are now at a new all time high of "financial depth."

Finally, while everyone is bombarded every single day with news that the global stock market is back to "all time highs", what virtually nobody knows is that when expressed as a percentage of global GDP, which in turn is driven entirely by new debt creation mostly by central banks, global equities as a % of global GDP are now 40% lower than their previous high achieved back in 2007!

Those who are familiar with the simplest concept in all of finance - Enterprise Value - will understand why in an environment of imploding free cash flow such as the current one, this is bad to quite bad.

US RECESSION - ECRI Says US in 'mild' Recession Since mid 2012

GORDONTLONG.COM

When Americans are told they are in a recession, expect confidence to then plummet. Americans are unable to believe what they see around them. Unless it appears on the evening news it isn't real to them. The government must stop them from being told. However, it is now unmistakeably clear.

ECRI Still Insists We’re In A Recession–We Just Don’t Know It Yet 03-07-13 The Daily Ticker

Eighteen months ago, in September 2011, the Economic Cycle Research Institute made a startling call:

"The U.S. economy is... tipping into a recession. And there's nothing that policy makers can do to head it off."

This call garnered a great deal of attention, in part because ECRI had made another startling call the year before. The earlier call came in the midst of a consensus that the U.S. was indeed headed into a recession. And ECRI's call, which proved to be correct, was that the U.S. was NOT headed for recession and that the consensus was wrong.

The accuracy of the bold 2010 "no recession" call, combined with ECRI's insistence that its economic forecasts have never been wrong, focused a lot of attention on the 2011 recession call.

And when the recession that the U.S. was supposedly "tipping into" did not materialize, many market observers wanted ECRI to acknowledge its mistake and eat some crow.

But ECRI did not do that.

The firm simply adjusted the time horizon for its recession call, saying that it would occur in the middle of 2012.

By the end of that year, when a recession still had not occurred--at least not a recession that was visible in the statistics that most people generally use to define recessions (most notably, a sustained downturn in GDP), the calls increased for ECRI to admit its mistake.

But ECRI has not admitted a mistake!

Instead, ECRI is simply insisting that the U.S. economy is mired in the middle of a mild recession that began in the middle of 2012... but we just don't know it yet.

In support of this position, ECRI Co-Founder and Chief Operations Officer Lakshman Achuthan points out correctly that the timing of recessions is often determined only with the benefit of hindsight--often through revisions of prior numbers that initially did not show a recession. Achuthan thinks that, when the final revisions are in, they will show a recession that began in mid-2012.

Achuthan also points to several other measures that he says are consistent with recessions. This data, in his opinion, illustrates that the economy is in fact in a recession. (See charts here).

Ultimately, the distinction between a "recession" and a "crappy economy" is only important in economic forecasting circles, and our economy is certainly crappy. So the key question that most Americans want answered is "When is it going to get better?"

Unfortunately, ECRI's Achuthan does not have an answer for that. All he can say is that he doesn't expect it to get better anytime soon.

The action of the stock market, for what it's worth, suggests that the worst is long over and that the economy is rapidly improving. But the fiscal squeeze of increased taxes and reduced government spending will almost certainly act as a drag on this year's growth.

ACHUTHAN: Look At These Charts And Tell Me We're Not In Recession 03-05-13 BI

GLOBAL RECESSION - In Process

World Is In a Recession 03-07-13 Barry Ritholtz

The current environment is a typical feeble post-credit crisis recover. Indeed, we are in a Fed driven economy, and but for their interventions, we in the USA would very likely already be in a recession. As I have have stated to many times, but for the Fed, equity markets would likely be 20-30% lower (and I may be too optimistic with those numbers). But the key takeaway, based on the chart above from Recession Alert, is that the rest of the world IS ALREADY IN a recession. Indeed, more than half of the 41 OECD member nations are in economic contractions — and have been since Q4 2012.

GLOBALIZATION CYCLES - Crisis and Conflict Prone

The Two Eras Of Financial Globalization: A Flashing Red Warning 03-04-13 Zero Hedge

The rise of cross-border investing in recent decades is not the first time the world has seen a significant burst of financial globalization. Indeed, the Second Industrial Revolution coincided with a new era of capital mobility that extended roughly from 1860 to 1915. Foreign investment assets rose to 55 percent of GDP in the major European economies.

This wave of financial globalization reflected European investment in colonies and former colonies. As the British Empire reached its peak, Great Britain alone accounted for half of the foreign assets of the period. These investments helped fund the industrialization and urbanization that transformed recipient nations such as Canada, Australia, and Argentina.

But the ending of the first age of financial globalization provides a cautionary tale. Two world wars and a global depression not only brought this period of integration to a halt but also ushered in six decades of tightly restricted capital flows and pegged foreign exchange rates. Foreign investment assets as a share of GDP in the major economies did not regain their earlier peak until 1990. Today it is unclear whether financial globalization will rebound or whether we will enter a similar period of more insular national financial markets.

WARNINGS - List of Worries Grows

12 Things That Just Happened That Show The Next Wave Of The Economic Collapse Is Almost Here 03-04-13 Michael Snyder of The Economic Collapse blog, via ZH

Are we running out of time?  For the last several years, we have been living in a false bubble of hope that has been fueled by massive amounts of debt and bailout money.  This illusion of economic stability has convinced most people that the great economic crisis of 2008 was just an "aberration" and that now things are back to normal.  Unfortunately, that is not the case at all.  The truth is that the financial crash of 2008 was just the first wave of our economic troubles.  We have not even come close to recovering from that wave, and the next wave of the economic collapse is rapidly approaching.  Our economy is like a giant sand castle that has been built on a foundation of debt and toilet paper currency.  As each wave of the crisis hits us, the solutions that our leaders will present to us will involve even more debt and even more money printing.  And each time, those "solutions" will only make our problems even worse.  Right now, events are unfolding in Europe and in the United States that are pushing us toward the next major crisis moment.  I sincerely hope that we have some more time before the next crisis overwhelms us, but as you will see, time is rapidly running out.

The following are 12 things that just happened that show the next wave of the economic collapse is almost here...

#1 According to TrimTab's CEO Charles Biderman, corporate insider purchases of stock have hit an all-time low, and the ratio of corporate insider selling to corporate insider buying has now reached an astounding 50 to 1....

While retail is being told to buy-buy-buy, Biderman exclaims that "insiders at U.S. companies have bought the least amount of shares in any one month," and that the ratio of insider selling to buying is now 50-to-1 - a monthly record.

#2 On Friday we learned that personal income in the United States experienced its largest one month decline in 20 years...

Personal income decreased by $505.5 billion in January, or 3.6%, compared to December (on a seasonally adjusted and annualized basis). That's the most dramatic decline since January 1993, according to the Commerce Department.

#3 In a stunning move, Michigan Governor Rick Snyder says that he will appoint an emergency financial manager to take care of Detroit's financial affairs...

Snyder, 54, took a step he avoided a year ago, empowering an emergency financial manager who can sweep aside union contracts, sell municipal assets, restructure services and reorder finances. He announced the move yesterday at a public meeting in Detroit.

If this does not work, Detroit will almost certainly have to declare bankruptcy.  If that happens, it will be the largest municipal bankruptcy in U.S. history.

#4 On Friday it was announced that the unemployment rate in Italy had risen to 11.7 percent.  That was a huge jump from 11.3 percent the previous month, and Italy now has the highest unemployment rate that it has experienced in 21 years.

#5 The youth unemployment rate in Italy has risen to a new all-time record high of 38.7 percent.

#6 On Friday it was announced that the unemployment rate in the eurozone as a whole had just hit a brand new record high of 11.9 percent.

#7 On Friday it was announced that the unemployment rate in Greece has now reached 27 percent, and it is being projected that it will reach 30 percent by the end of the year.

#8 The youth unemployment rate in Greece is now an almost unbelievable 59.4 percent.

#9 On Saturday, hundreds of thousands of protesters filled the streets of Lisbon and other Portuguese cities to protest the austerity measures that are being imposed upon them.  It was reportedly the largest protest in the history of Portugal.

#10 According to Goldman Sachs, bank deposits declined all over Europe during the month of January.

#11 Over the weekend, the deputy governor of China's central bank declared that China is prepared for a "currency war"...

A top Chinese banker said Beijing is "fully prepared" for a currency war as he urged the world to abide by a consensus reached by the G20 to avert confrontation, state media reported on Saturday.

Yi Gang, deputy governor of China's central bank, issued the call after G20 finance ministers last month moved to calm fears of a looming war on the currency markets at a meeting in Moscow.

Those fears have largely been fuelled by the recent steep decline in the Japanese yen, which critics have accused Tokyo of manipulating to give its manufacturers a competitive edge in key export markets over Asian rivals.

#12 Italy is an economic basket case at this point, and the political gridlock in Italy is certainly not helping matters.  Former comedian Beppe Grillo's party could potentially tip the balance of power one way or the other in Italy, and over the weekend he made some comments that are really shaking things up over in Europe.  For one thing, he is suggesting that Italy should hold a referendum on the euro...

"I am a strong advocate of Europe. I am in favor of an online referendum on the euro," Beppe Grillo told Bild am Sonntag.

Such a vote would not be legally binding in Italy, where referendums can only be used to repeal laws or parts of laws, but would carry political weight. Grillo has said in the past that membership of the euro should be up to the Italian people.

In addition, Grillo is also suggesting that Italy's debt has gotten so large that renegotiation is the only option...

The 64-year-old comic-turned-political activist also said Italy needs to renegotiate its €2 trillion debt.

At 127 per cent of gross domestic product (GDP), it is the highest in the euro zone after Greece.

UNCERTAINTY - Fed Governor Fisher Lays It Out

Proof the Fed is Juicing the Markets 03-04-13 Fox Business - Elizabeth MacDonald

VALUATIONS - Excessive

Buy-Or-Sell - The Only Chart You Need 03-07-13 Morgan Stanley via ZH

Earlier we noted the relative un-cheapness of the US equity market and its elevated expectations that seem just a little excessively hope-driven relative to any historical precedent. However, the decision still remains, do you buy moar here at the highs (as it's different this time) or cover/protect? The following chart, from Morgan Stanley, offers some insight into just how broadly 'expensive' this market is. Each time more than 45% of stocks have reached these valuation levels in the past 13 years, the market has decided enough is enough and shaken loose. But as we keep being told, it is different this time.

Chart: Morgan Stanley

PATTERNS - 6th Best Rally Since 1929

Current Market Rally is 6th Best Since 1929 03-07-13 Merrill Lynch via Barry Ritholtz

The S&P 500 rally dating back to March 2009 is the 6th best rally since 1929:

Click to Enlarge

2007 v 2013 - Why has the Market Reached a New Post 2007 High?

Markets Then & Now 03-06-13 Barry Ritholtz

Click to Enlarge

MARKET LEADERSHIP - The Generals Have Stalled (BuyBacks Now Needed With Excess Corporate Cash)

Drivers of the Dow 03-06-13 Barry Ritholtz

Nice graphic and article explaining how only 5 stocks (of 30) in the Dow are the prime drivers of the rally, responsible for one third of the gains.

Before you go Oooh, consider the simple math of this. If every stock contributed equally to the Dow’s rise, than 10 stocks would be worth a third of gains.  But as in typical collections of different items, there is a bell curve, a normal distribution.

Thus, it should come as no surprise that some stocks have contributed much more than others.

Point Contributions:

IBM     941.77
Catepillar 507.56
3M  4903.81
Chevron  456.63
United Technologies  413.32

The full distribution of winners is losers are at the article.

STOCK BUYBACKS - What is Driving This? It Is More than Just Easy Money

February the strongest month ever for US buybacks 03-06-13 FTAlphaville

That’s according to a note this morning by Birinyi Associates, which adds:

We recorded $117.8 billion in buyback authorizations during the month of February, representing a 103% gain over the same period in 2012 ($118 bln vs. $68 bln). February was the largest month, in dollar terms, on record.

We are currently on a run-rate to log $827 bln of authorizations in 2013 vs $477 bln in 2012. 2007 was the only year in our database where we recorded more ($863 bln).

As discussed on Tuesday in our wider discussion about de-equitisation, the pace of buybacks had levelled off and then fallen last year. This was somewhat befuddling given that low rates continued to make borrowing money to buy back shares, as Intel did, an attractive proposition.

Whatever the reason, it’s not always clear whether to interpret increased buybacks as a positive or negative signal for the economy generally.

A simple overview of the argument goes like this:

If a company is repurchasing its shares out of a genuine belief in the undervaluation of its share price, then obviously that can be taken as a sign of economic confidence. But the reverse is true if companies are buying back shares mainly because they lack productive uses for their cash and need to placate impatient investors. There’s the added worry that buybacks are being used to artificially juice EPS and thereby help managers reach their targets, or to offset the dilution that comes from managers exercising their stock options.

“All of the above” is also a valid answer, as naturally there will be variability in the motives behind the actions of individual companies.

But the sceptics might be comforted to know that each of the three biggest buyback authorisations this year — Home Depot, GE, and Pepsico — was also accompanied by a fairly meaningful dividend hike, typically a less ambiguously favourable sign. (Same with Qualcomm’s announcement on Tuesday.) And those are just the first three we checked.

That this is happening at the same time that M&A is picking up is perhaps also encouraging, though we’d caution that February’s record-setting buybacks followed an abysmal January and a disappointing 2012. Could just be some kind of post-earnings season aberration.

For those interested, here’s a list of the top ten repurchase authorisations through the end of last month:

Click to Enlarge

EMOTIONAL CYCLE - The Media Attention Stage of the Great Monetary Easing

"Enthusiasm", "Greed" Or "Delusion" Phase? 03-05-13 Zero Hedge

QE IV PRICED IN - The Great Monetary Easing Part III IS NOT!

Bernanke's S&P 500 Year-End Forecast: "Conviction Buy", $2000 Price Target 03-05-13 Zero Hedge

Given his reiteration last week that the Fed is here to stay - and his fellow dovish lapdogs' confirmation that we can all rest assured that our 'wealth' is being protected - we know that the Fed balance sheet will hit around $4 trillion by year-end. Given the hyper-correlation over the past three months between US equity performance and the daily pump of POMO, it appears clear that Bernanke's target for the S&P 500 by year-end is around 2000 (unless of course you think there is even a little bit of market efficiency and discounting left in the world).

Is this what the Princeton Professor is looking for?

Or did the market front-run as usual and has already priced it in?

and maybe the post 2010 valuation highs for the Dow will slow things down a little?

Charts: Bloomberg

EARNINGS - Classic Hockeystick of False Expectations

2013 Earnings: Just Insert Hockeystick 02-18-13 Goldman sachs via ZH

We have discussed various incarnations of market-reality separation from underlying-reality but none had quite the unbelievability of the following chart of earnings-growth expectations currently foreseen by the consensus of linear-extrapolaters and hockey-stickers known as the sell-side. Behold - hope, defined...

2013 Consensus earnings growth is +27% YoY...!

all done with 6% YoY top-line growth (which by itself is somewhat incredible given its triple GDP growth expectations for the year)...

and at the same time it appears pretty clear that EBIT Margins have rolled over...

Meanwhile, BTFD.

GOLD - Signalling Great Monetary Easing - Part III Ahead

Gold And The Next Great Monetary Easing 03-05-13 Morgan Stanley via ZH

SITUATIONAL ANALYSIS

Gold's rise over the past few years has been driven by a number of factors. Aside from the unprecedented monetary easing and skepticism over the global financial system in recent years, Morgan Stanley notes that

1) A persistent increase in investment demand,

2) Acceleration in producer de-hedging,

3) A decline in net official sector sales, and

4) A persistent failure on the part of the mining companies to respond to the incentive of a steadily rising price and materially lift production; all also impacted gold's premium.

 In 2012, gold’s investment premium was driven by investors seeking a safe haven from widespread fears of

• A hard landing in China,
• Systemic risk to the European single currency posed by the possibility of a Greek default and
• Risks to US recovery posed by the impending Fiscal Cliff and Debt Ceiling.

A re-evaluation of gold’s security premium followed from the various mitigations of the numerous risks to global growth.

THE GREAT MONETARY EASING - Part III

• About to witness the third installment of the Great Monetary Easing that started to play out when the credit bubble burst five years ago and that the gold bull market will enter its strongest phase.
• This third phase is being driven by
  • central bankers’ concerns over excessive non-yen currency appreciation as Japan works to fight deflation, and
  • worries about a further significant rise in bond yields and the implications for private and public sector debt sustainability.
• In this environment, the priority of monetary policy is to avoid excessive exchange rate appreciation as the yen continues to depreciate and alleviate the debt burden of the private and public sector.

The implicit continuation of low interest rates in an emerging cyclical recovery argues quite strongly, in our view, for a potential upside surprise in central bank liquidity creation, something that in the very recent past has been positive for gold prices.

GORDONTLONG.COM

In these circumstances, we believe that gold has demonstrated considerable technical strength, offers good value at current prices both as an entry level to the trading range between US$1,540/oz and US$1,800/oz and as an option on any remaining upside surprise above this range that might result from the third part of the Great Monetary Easing.

CORPORATOCRACY - The Core Issue

Corporatism: A System Of Control Designed By The Monopoly Men Of The Global Elite 03-06-13 The Economic Collapse Blog

The Dow is at a record high and so are corporate profits - so why does it feel like most of the country is deeply suffering right now?  Real household income is the lowest that it has been in a decade, poverty is absolutely soaring,47 million Americans are on food stamps and the middle class is being systematically destroyed.  How can big corporations be doing so well while most American families are having such a hard time?  Isn't their wealth supposed to "trickle down" to the rest of us?  Unfortunately, that is not how the real world works.  Today, most big corporations are trying to minimize the number of "expensive" American workers on their payrolls as much as they can.  If the big corporation that is employing you can figure out a way to replace you with a worker in China or with a robot, it will probably do it.  Corporations are in existence to maximize wealth for their shareholders, and most of the time the largest corporations are dominated by the monopoly men of the global elite.  Over the decades, the politicians that have their campaigns funded by these monopoly men have rigged the game so that the big corporations are able to easily dominate everything.  But this was never what those that founded this country intended.  America was supposed to be a place where the power of collectivist institutions would be greatly limited, and individuals and small businesses would be free to compete in a capitalist system that would reward anyone that had a good idea and that was willing to work hard.  But today, our economy is completely and totally dominated by a massively bloated federal government and by absolutely gigantic predator corporations that are greatly favored by our massively bloated federal government.  Our founders tried to warn us about the dangers of allowing government, banks and corporations to accumulate too much power, but we didn't listen.  Now they dominate everything, and the rest of us are fighting for table scraps.

In early America, most states had strict laws governing the size and scope of corporations.  Individuals and small businesses thrived in such an environment, and the United States experienced a period of explosive economic growth.  We showed the rest of the world that capitalism really works, and we eventually built the largest middle class that the world had ever seen.

But now we have replaced capitalism with something that I like to call "corporatism".  In many ways, it shares a lot of characteristics with communism, and that is why nations such as communist China have embraced it so readily.  Under "corporatism", monolithic predator corporations run around sucking up as much wealth and economic power as they possibly can.  Most individuals and small businesses cannot compete and end up getting absorbed by the corporations.  These mammoth collectivist institutions are in private hands rather than in government hands (as would be the case under a pure form of communism), but the results are pretty much the same either way.  A tiny elite at the top gets almost all of the economic rewards.

There are some out there that would suggest that the answer to our problems is to move more in the direction of "socialism", but to be honest that wouldn't be the solution to anything.  It would just change how the table scraps that the rest of us are getting are distributed.

If we truly wanted a return to prosperity, we need to dramatically shift the rules of the game so that they are tilted back in favor of individuals and small businesses.  A much more pure form of capitalism would mean more wealth, less poverty and a more equitable distribution of the economic rewards in this country.

But it will never happen.  Most of our politicians are married to the big corporations and the wealthy elitists that fund their campaigns.  And most Americans are so uneducated that they believe that what we actually have today is "capitalism" and that the only alternative is to go "to the left" toward socialism.

Very few people out there are suggesting that we need to greatly reduce the power of the federal government and greatly reduce the power of the big corporations, but that is exactly what we need to do.  We need to give individuals and small businesses room to breathe once again.

With each passing year, things get even worse.  In fact, the founder of Subway Restaurants recently said that the environment for small businesses is so toxic in America today that he never would have been able to start Subway if he had to do it today.

For much more on how small business is being strangled to death in the United States, please see my previous article entitled "We Are Witnessing The Death Of Small Business In America".

What I want to do now is to discuss some of the results that "corporatism" is producing in America.

First of all, we continue to see incomes go down even though we live in an inflationary economy.

As Time Magazine recently reported, personal incomes took a huge nosedive during the month of January...

Data released by the Commerce Department last week showed that personal income fell 3.6% in January, the biggest decline in 20 years. The drop was even bigger when taxes and inflation are taken into account. Real personal disposable income fell by 4%, the biggest monthly drop in half a century.

But this is part of a longer term trend.  Median household income in the U.S. has declined for four consecutive years, and it is now significantly lower than it was all the way back in 2001...

Real median US household income -- that's "real," as in "adjusted for inflation" -- was $50,054 in 2011, the most recent data available from the US Census Bureau. That's 8% lower than the 2007 peak of $54,489.

Meanwhile, big corporations are absolutely raking in the cash.  The following is from a recent New York Times article...

“So far in this recovery, corporations have captured an unusually high share of the income gains,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

The result has been a golden age for corporate profits, especially among multinational giants that are also benefiting from faster growth in emerging economies like China and India.

Today, corporate profits as a percentage of U.S. GDP are at an all-time high, but wages as a percentage of U.S. GDP are near an all-time low.

Just check out the following chart.  Corporate profits have absolutely exploded over the past decade...

Most of the jobs being created in America today are "low wage" jobs.  Tens of millions of Americans are working as hard as they can only to find that they can barely put food on the table and provide a roof over the heads of their children.  The ranks of the "working poor" are exploding and the middle class continues to shrink.

Many of you that are reading this article are members of the working poor.  You know what it is like to stare up at your ceiling at night wondering how you are going to pay the bills next month.

Today, most Americans are living very close to the edge financially.  A recent article by NBC News staff writer Allison Linn shared some of their stories.  The following is one example...

Crystal Dupont knows what it’s like to try to live on the federal minimum wage.

Dupont has no health insurance, so she hasn’t seen a doctor in two years. She’s behind on her car payments and has taken out pawn shop and payday loans to cover other monthly expenses. She eats beans and oatmeal when her food budget gets low.

When she got her tax refund recently, she used the money to get ahead on her light bill.

“I try to live within my means, but sometimes you just can’t,” said Dupont, 25. The Houston resident works 30 to 40 hours a week taking customer service calls, earning between $7.25 and $8 an hour. That came to about $15,000 last year.

It’s a wage she’s lived on for a while now, but just barely.

Sadly, the number of Americans that are "just barely" surviving continues to grow.

But if corporate profits are soaring to unprecedented heights, then who is getting all of those rewards?

The monopoly men of the global elite are.

Just check out the following video which does a great job of illustrating how corporatism has systematically funneled all of the economic rewards in our system to the very top...

Once again, I want to make it very clear that I am not advocating socialism as the answer in any way, shape or form.  Socialism takes away the incentive to create wealth and it almost always results in almost all of the economic rewards going to a very tiny elite anyway.

As I said earlier, what we need is a return to a much more pure form of capitalism, but this is so foreign to the way that most people think that most people will not be able to grasp this.

It certainly would be possible to greatly reduce the power of the federal government and greatly reduce the power of the big corporations at the same time, but this is so "outside the box" for most people that they cannot even conceive of doing such a thing.

We need to create an environment where individuals and small businesses can thrive once again.  But instead, most of us are content to continue "playing the game" and getting enslaved in even more debt.

For example, according to CNBC, auto loans just continue to get larger and continue to get stretched out for longer periods of time...

American car buyers, attracted by new models and cheap financing, are taking out bigger auto loans and stretching out the terms of those loans to a new record length.

New analysis from Experian Automotive shows the average new car loan in the fourth quarter of last year was $26,691 and stretched out over an average of 65 months. The length of the average loan is one month longer than the previous record set in the third quarter of last year.

What will they think of next?

Will we eventually have auto loans that get paid off over 10 years?

By the way, that is another way that the monopoly men of the global elite get all of our money.  They enslave us to debt, and we spend year after year of our lives slaving away to make them even wealthier.

They are very smart.  There is a reason why they have 32 TRILLION dollars stashed away in offshore tax havens.  They know how to play the game, and they are very happy that most of the rest of us are asleep.

Fortunately, it appears that an increasing number of Americans are waking up.

For example, I wanted to share with you all an excerpt from a comment that one of my readers left on one of my recent articles...

In the past year, I've been slowly but surely waking up to the nonsense happening around me. There's so many things I need to simply get off my chest, so excuse the length of this post. Recently in the past two years, I've gotten married and have been medically discharged from the Marines after being injured in Afghanistan. Being 23 years old and married, my goal is secure a secure a future for my family, but with the way things are going, I'm not exactly sure how much of a future we're going to have in 50 years. I can't explain it, but I've felt this need to change my attitude and motivations lately.

I started by turning off the garbage music, television and other mindless entertainment that seems to plague my generation. It was easier than it looked - I don't miss most of it really. The next order of business was to educate myself on world news, so that's what I did. Every day, like clockwork, I check all major mainstream news feeds (NBC, Fox, Abc, CNN, Reuters, BBC, etc.) as well as not-so-mainstream news sites - yours being one of them. It's incredible how fast our world changes and the manner in which it changes. The local 10 o'clock doesn't show anything but local news, sports, weather, lottery #'s and whatever else they decide to throw in. It's a night and day difference once you start to actually research and see what's happening all over the world. Look at the number of comments about a news story on the economy and then look at a celebrity story on the "news"....People are so blind, it truly amazes me. My friends, family and classmates at college seem to be under a spell of some sort. They're distracted - and it's contagious. Nobody I know gives a damn about global affairs/economics. They're more interested in the newest iPhone, cars, shows, movies, and just about anything else you can think of. I'm not saying there's anything wrong with these things, but my friends/family/peers are CONSUMED by these distractions. When the election was taking place in 2012, every Tom, Dick and Harry on Facebook had an opinion and rant. After the circus ended however, everyone simply went back to posting about parties, kittens, Farmville etc. It's a huge joke. For me, it's little terrifying and exciting to see history unfolding in front of our eyes. This country of ours is going through big changes now that will most certainly affect our future, so I strive to adapt and prepare myself and my family. I'm looking at buying my first home this summer. Right now I live in an apartment right outside Philly and spend more money on rent than most pay for a mortgage. I need a house with a little land to raise chickens, grow fruits/vegetables, store canned food - and to be as independent from the system as I can. For my job, I wanted a skill/trade that people would always need, so I picked the funeral business. On the side, I work in construction and have been learning everything there is to know about building with my own two hands. I feel as though these old forgotten skills are going to be handy in a short while.

Hopefully we can get a lot more people to wake up and start breaking out of "the matrix" of control that is all around us.

Right now, the system is designed to continually funnel more money and more power to the very top of the pyramid.  The global elite are becoming more dominant with each passing day.  Unless something dramatic happens, at some point the American people will become so powerless that they won't be able to do anything about it even if they wanted to.

The idea of a very tiny elite completely dominating all the rest of us goes against everything that America is supposed to stand for.  In the end, it will result in absolute tyranny if it is not stopped.