SnappedShot

REDMOND, Wash. — Apr. 18, 2013 — Microsoft Corp. today announced quarterly revenue of $20.49 billion for the quarter ended March 31, 2013. Operating income, net income, and diluted earnings per share for the quarter were $7.61 billion, $6.06 billion, and $0.72 per share. These financial results reflect the net recognition of revenue related to the Windows Upgrade Offer, Office Upgrade Offer and Pre-Sales, and the Entertainment and Devices Division Video Game Deferral, partially offset by the European Commission fine. The following table reconciles these financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. We have provided this non-GAAP financial information to aid investors in better understanding the company’s performance.           Download:          Web   “The bold bets we made on cloud services are paying off as people increasingly choose Microsoft services including Office 365, Windows Azure, Xbox LIVE, and Skype,” said Steve Ballmer, chief executive officer at Microsoft. “While there is still work to do, we are optimistic that the bets we’ve made on...

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The imperial tree falls not because the challenges are too great but because the core of the tree has been weakened by the gradual loss of surplus, purpose, institutional effectiveness, intellectual vigor and productive investment.

Comparing the American Empire with the Roman Empire in its terminal decline is a popular intellectual parlor game. The comparison is inexact on a number of fronts, starting with the nature of empire: Rome ruled a territorial empire, while the U.S. is a hegemony that doesn't need to hold territory (other than key overseas military bases); its dominance is based on the global projection of hard and soft power, diplomacy, finance and the monetary regime of the reserve currency.

Despite the apparent difference, the two empires share the key characteristic of all enduring empires: they extract the cost of maintaining the empire from client states and/or allies.

The mechanisms differ, but the results are the same: the empire's cost is distributed to those who benefit from its secure trade routes.

Two of the key characteristics of an empire in terminal decline are complacency and intellectual sclerosis, what I have termed a failure of imagination.

Michael Grant described these causes of decline in his excellent account The Fall of the Roman Empire, a short book I have been recommending since 2009:

There was no room at all, in these ways of thinking, for the novel, apocalyptic situation which had now arisen, a situation which needed solutions as radical as itself. (The Status Quo) attitude is a complacent acceptance of things as they are, without a single new idea.

This acceptance was accompanied by greatly excessive optimism about the present and future. Even when the end was only sixty years away, and the Empire was already crumbling fast, Rutilius continued to address the spirit of Rome with the same supreme assurance.

This blind adherence to the ideas of the past ranks high among the principal causes of the downfall of Rome. If you were sufficiently lulled by these traditional fictions, there was no call to take any practical first-aid measures at all.

In other words, if our idea of intellectual rigor and honesty is Paul Krugman dancing around the Neo-Keynesian Cargo Cult campfire waving dead chickens and mumbling nonsensical claims of grand success, we are well and truly doomed.

The chapter titles of the book give a precis of the other causes Grant identifies:

The Gulfs Between the Classes

The Credibility Gap

The Partnerships That Failed

The Groups That Opted Out

The Undermining of Effort

I recently read a lengthier book by Adrian Goldsworthy titled How Rome Fell: Death of a Superpower.

In Goldsworthy's view, a key driver of decline was the constant political struggle for power drained resources away from protecting the Imperial borders from barbarian incursions and addressing the long-term problems facing the Empire.

Such conflicts for the Imperial throne often led to outright civil war, with factions of the Roman army meeting on the field of battle.

In other words, Rome didn't fall so much as erode away, its many strengths squandered on in-fighting, mismanagement and personal aggrandizement/corruption.

More telling for the present is Goldsworthy's identification of expansive, sclerotic bureaucracies that lost sight of their purpose. The top leadership abandoned the pursuit of the common good for personal gain, wealth and power. This rot at the top soon spread down the chain of command to infect and corrupt the entire institutional culture.

As the empire shrank and lost tax revenues, the Imperial bureaucracies continued growing, much as parasites attach themselves to a weakened host.

Individual contributions and institutional success are both difficult to measure in large bureaucracies, and it is tempting to define success by easily achieved metrics that reflect positively on individual contributions and the institutional management.

As the organization loses focus on its original purpose, the core purpose of the institution is given lip service but is replaced with facsimiles of managerial effectiveness, bureaucratic infighting over resources and the targeting of easily gamed metrics as substitutes for actual success.

People who have no skin in the game behave quite differently from those who face consequences. This disconnection of risk from consequence is called moral hazard.

Bureaucracies tend to institutionalize moral hazard: those managing the institution’s departments rarely suffer any personal consequence when the institution fails to perform its function. Funds are placed at risk, but the individuals making the bets with the institution’s money suffer no losses should their policies result in failure.

By breaking the institutional purpose into small pieces whose success is measured by easily gamed targets, the institution can be failing its primary function even as every department reports continued success in meeting its goals. Repeated failure and loss of focus erode the institution even as those in charge advance up the administrative ladder.

In the final years of the Empire, in the 5th century A.D., this institutional failure led to the absurdity of detailed descriptions of army units being distributed within the Imperial bureaucracy, while the actual units themselves--the troops, the officers and the equipment--had ceased to exist. In some cases, it appears bureaucrats and officers collected pay for supplying and commanding completely phantom legions.

The disconnect between the failure to fulfill the institution’s original function and the leadership’s rise feeds cynicism in the institution’s employees and erodes their purpose and initiative. Soon the institutional culture is one of self-aggrandizement, gaming of departmental targets, protection of budgets and a collapse of the work ethic to the minimum level needed to avoid dismissal. Personal responsibility for institutional failure is lost.

Does this describe the vast state fiefdoms and state-protected cartels of America's military-industrial complex, sickcare and the education industry? I think the answer is self-evident: yes. While there are still hard-working, competent people within these sprawling empires of moral hazard, these few are not enough to wring long-term success from negligence, friction and incompetence. All they can do is stave off implosion for a time.

There are many other causes for Rome's decline, including epidemics of plague, military over-reach, chronic deficits, debasement of the currency, a parasitic Elite that was immune to what was left of the rule of law, weak leadership, and rising dependence on the Central State for bread and circuses.

America is not Rome, just as the immensely successful Tang Empire in China (700-900 A.D.) was neither Rome nor America. These dissimilarities should not blind us to the underlying dynamics in the decline and fall of all great powers, which can be summarized as the slow erosion of shared purpose, surplus and the productive investment of that surplus.

When a storm arises--a conflict with neighboring powers, an outbreak of plague, a disastrous drought--the imperial tree falls, not because the challenge was too great but because the core of the tree had been weakened by the gradual loss of surplus, purpose, institutional effectiveness, intellectual vigor and productive investment.

Demand for Japanese goods in China have plunged across the board since the Senkaku Islands dispute has led to widespread Chinese boycottts of Japanese products. As the FT reports, the last 12 months have seen shipments to China plunge over 9% to JPY11.3tn. But have no fear, the credit-loving, all-consuming US citizen stepped up to the plate (though we note not enough since Japan's trade balance has crashed anyway) buying cars, car parts, and electrical machinery. Exports to the US have risen over 10% in the last year to JPY11.4tn - now larger than China. This is the first time since May 2009. Clearly the slowdown in the Chinese economy is also exacerbating the problems for Japan but one analyst warns, "this weakness is structural, not cyclical." The IMF's chief economist was hardly optimistic, noting that the US overtaking China was a "big change" in light of a longer-term trend to deeper intra-Asia integration - "I hope the clouds clear soon." We are sure Abe is watching closely as the US economy also rolls over.

 

The USA overtakes China s Japan's Top Export Market...

 

As the two nations diverge dramatically...

 

It is worth noting that while the JPY has devalued 30% in the last 6 months, it has done little to spur significant shifts during that time - look at YoY changes which are pretty much flat (in second derivative terms) which is also reflected in the deterioration of Japan's trade balance overall...

 

Charts: Bloomberg

"Experts." Funny thing, when a lawyer wants to bring expert testimony to trial he expert-shops for someone willing to make his case for him. Everyone knows this is standard practice, but I'm sure the NYT would never stoop to such...

One of the unexpected consequences of the recent plunge in the price of gold (for whatever reason, and there are many proposed explanations for why gold has tumbled, none of them completely accurate or comprehensive) is that when the European Commission set the precedent with the forced sale of Cypriot sale for a total of €400 million "to cover ELA losses" as Mario Draghi dictated to the aptly named head of the Cyprus Central Bank, Panicos, he set a line in the sand especially when it comes to German expectations. Because while the size of the Cypriot bailout will likely keep expanding, the one fixed component is the €10 billion loan that Merkel has still to get approval for in parliament. This number is set in stone, and any additional bailout "funding" will have to come from either further depositor impairment (until eventually even the insured depositors become impaired, again) or as the case may be, the country is forced to sell all of its sovereign hard assets, like its gold. Which means that no matter what, Cyprus will have to sell enough gold to cover a €400MM shortfall, as point 29 of the Debt Sustainability Analysis demanded.

And therein lies the rub.

While a week ago, when gold was $1600/ounce the self-funded component (read "gold sale") of the Cypriot bailout amounted to just over 10 tons of gold, as of today's price and EURUSD rate, Cyprus would now have to sell 12 tons of gold to cover the gap, if it were to hit the sell button today (assuming a price of $1385/ounce and a 1.315 EURUSD exchange rate). As far as we know, Cyprus hasn't sold one ounce yet. But what if gold keeps tumbling as it has in the past three days? Well, the problem as most know, is that as of March based on IMF data, Cyprus only has 13.9 metric tons of "excess" (as the EC defined it) gold.

This means one can extrapolate below what price Cyrpus is out of luck and the proposed European Commission bailout fails as one of the key self-funded elements simply will not have enough cash to fill the €400 MM hold.  That price for gold, once again assuming a 1.315 EURUSD, is roughly $1175/ounce.

So if the coordinated selling (straight to Goldman's traders) were to continue, and gold did plunge to the threshold price, or even drop into triple digit territory, and Cyprus simply did not have enough gold to sell, what then?

Will the Cyprus rescue operation fail?

Will the European Commission make a market in spare body parts and demand every odd Cypriot sell an excess kidney?

Or will the ECB simply realize it is too much of a hassle, and instruct the BIS, which has so far been selling paper gold (on margin), to ramp the price higher?

Inquiring minds want to know, because with all the central planning out there, someone has to think outside the box.

For those flying in the northeast today, especially in and out of Boston, it is just not their day (all the more so if there are terroristy-looking, Arab-speaking passengers nearby). The day just got much worse for those flying American Airlines. Via BBG:

• FAA SAYS ALL AMERICAN FLIGHTS GROUNDED AT AIRLINE'S REQUEST
• FAA SAYS AMERICAN GROUNDINGS DUE TO AIRLINE COMPUTER PROBLEMS
• AMERICAN AIRLINES SAYS SABRE RESERVATION SYSTEM OFFLINE
• AMERICAN AIRLINES REPORTS RESERVATION SYSTEM OUTAGE ON TWITTER
• SABRE SAYS THERE ARE NO PROBLEMS WITH AIRLINE BOOKING SYSTEM

Must be the evil Chinese hackers' fault again, and it is about time the government stepped in and regulated the entire Internet, preferably with a kill switch to get rid of all the pesky, fringe elements.

Submitted by Michael Snyder of The Economic Collapse blog,

Did you know that the greatest period of economic growth in American history was during a time when there was absolutely no federal income tax?  Between the end of the Civil War and 1913, there was an explosion of economic activity in the United States unlike anything ever seen before or since.  Unfortunately, a federal income tax was instituted in 1913, and this year it turned 100 years old.  But there was no fanfare, was there?  There was no celebration because the federal income tax is universally hated. 

Sadly, most Americans just assume that there is no other option to an income tax.  Most Americans just assume that it has always been with us and that it will always be with us.  This year, the American people will shell out approximately $4.22 trillion in state and federal income taxes.  That amount is equivalent to approximately 29.4 percent of all income that Americans will bring in this year, and that does not even take into account the dozens of other taxes that Americans pay each year. 

At this point, the U.S. tax code is about 13 miles long, and those that are honest and pay their taxes every year are being absolutely shredded by this system.  But wouldn't the federal government go broke if we didn't have a federal income tax?  No, actually the truth is that the federal government did just fine before there was an income tax.  In fact, the U.S. national debt has gotten more than 5000 times larger since the federal income tax and the Federal Reserve were created by Congress back in 1913. 

As I have written about previously, the Federal Reserve system was actually designed to trap the United States in a debt spiral from which it could never possibly escape, and the federal income tax was needed to greatly expand the size of the federal government and to soak the American people of the funds necessary to service that debt.  But it doesn't have to be this way.  America was once much better off before the income tax and the Federal Reserve were created, and we could easily go to such a system again.

What we desperately need to do is to teach the American people a little history lesson.  The truth is that the greatest period of economic growth in U.S. history was between the Civil War and 1913 when there was no federal income tax at all.  The following is from Wikipedia...

The Gilded Age saw the greatest period of economic growth in American history. After the short-lived panic of 1873, the economy recovered with the advent of hard money policies and industrialization. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita, despite the panic of 1873.  The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled.

Sadly, most Americans cannot even conceive of an economy like that.  Most Americans cannot even imagine having a nation without a massively bloated federal government and without an unelected central bank centrally planning our financial system.

But you know what?

It worked.  In fact, it worked fantastically well.

The period between the Civil War and 1913 propelled the United States to greatness.  Just check out all of the good things that Wikipedia says happened for the U.S. economy during those years...

The rapid economic development following the Civil War laid the groundwork for the modern U.S. industrial economy. By 1890, the USA leaped ahead of Britain for first place in manufacturing output.

 

An explosion of new discoveries and inventions took place, a process called the "Second Industrial Revolution." Railroads greatly expanded the mileage and built stronger tracks and bridges that handled heavier cars and locomotives, carrying far more goods and people at lower rates. Refrigeration railroad cars came into use. The telephone, phonograph, typewriter and electric light were invented. By the dawn of the 20th century, cars had begun to replace horse-drawn carriages.

 

Parallel to these achievements was the development of the nation's industrial infrastructure. Coal was found in abundance in the Appalachian Mountains from Pennsylvania south to Kentucky. Oil was discovered in western Pennsylvania; it was mainly used for lubricants and for kerosene for lamps. Large iron ore mines opened in the Lake Superior region of the upper Midwest. Steel mills thrived in places where these coal and iron ore could be brought together to produce steel. Large copper and silver mines opened, followed by lead mines and cement factories.

 

In 1913 Henry Ford introduced the assembly line, a step in the process that became known as mass-production.

But if we didn't have an income tax, how did we fund the government?  Well, we mostly did it with tariffs and excise taxes.  The following is from a recent article by Thomas R. Eddlem...

Prior to ratification of the 16th (income tax) Amendment in February 1913, the federal government managed its few constitutional responsibilities without an income tax, except during the Civil War period. During peacetime, it did so largely — or even entirely — on import taxes called “tariffs.” Congress could afford to run the federal government on tariffs alone because federal responsibilities did not include welfare programs, agricultural subsidies, or social insurance programs like Social Security or Medicare. After the Civil War, tariff revenues sometimes suffered under a protectionist policy ushered in by the Republican Party that supplemented federal income via excises on alcohol, tobacco, and inheritances. But before the war, the need for tariff revenue to finance the federal government generally kept the tariff at reasonable levels. During wartime throughout early American history, the Founding Fathers were able to raise additional revenue employing a different method of direct taxation authorized by the U.S. Constitution prior to the 16th Amendment. These alternative taxing methods gave the young American nation embarrassing peacetime budget surpluses that several times came close to paying off the national debt.

So why didn't we stick with that system?

Well, early in the 20th century the "progressives" and the social planners started to take control in Washington.

And one of the things that "progressives" and social planners love is an income tax.  In fact, the second plank of the Communist Manifesto is a "heavy progressive or graduated income tax".

Of course they promised us that income tax rates would always remain low.  And at first they were quite low.  The following is from an article by Adam Young...

The presidential election of 1912 was contested between three advocates of an income tax. The winner, Woodrow Wilson, after the ratification of the Sixteenth Amendment, called a special session of Congress in April 1913, which proceeded to pass an income tax of 1% on incomes above $3,000 and applied surcharges between 2% and 7% on income from $20,000 to $500,000.

But once the "progressives" and the social planners get their feet in the door, they always want more.

And we have seen how things have worked out.  Today, the American people are being taxed into oblivion.

In a previous article entitled "Show This To Anyone That Believes That Taxes Are Too Low", I listed dozens of other taxes that the American people pay each year in addition to federal and state income taxes...

#1 Building Permit Taxes

#2 Capital Gains Taxes

#3 Cigarette Taxes

#4 Court Fines (indirect taxes)

#5 Dog License Taxes

#6 Drivers License Fees (another form of taxation)

#7 Federal Unemployment Taxes

#8 Fishing License Taxes

#9 Food License Taxes

#10 Gasoline Taxes

#11 Gift Taxes

#12 Hunting License Taxes

#13 Inheritance Taxes

#14 Inventory Taxes

#15 IRS Interest Charges (tax on top of tax)

#16 IRS Penalties (tax on top of tax)

#17 Liquor Taxes

#18 Luxury Taxes

#19 Marriage License Taxes

#20 Medicare Taxes

#21 Medicare Tax Surcharge On High Earning Americans Under Obamacare

#22 Obamacare Individual Mandate Excise Tax (if you don't buy "qualifying" health insurance under Obamacare you will have to pay an additional tax)

#23 Obamacare Surtax On Investment Income (a new 3.8% surtax on investment income that goes into effect next year)

#24 Property Taxes

#25 Recreational Vehicle Taxes

#26 Toll Booth Taxes

#27 Sales Taxes

#28 Self-Employment Taxes

#29 School Taxes

#30 Septic Permit Taxes

#31 Service Charge Taxes

#32 Social Security Taxes

#33 State Unemployment Taxes (SUTA)

#34 Tanning Tax (a new Obamacare tax on tanning services)

#35 Telephone Federal Excise Taxes

#36 Telephone Federal Universal Service Fee Taxes

#37 Telephone Minimum Usage Surcharge Taxes

#38 Telephone State And Local Taxes

#39 Tire Taxes

#40 Tolls (another form of taxation)

#41 Traffic Fines (indirect taxation)

#42 Utility Taxes

#43 Vehicle Registration Taxes

#44 Workers Compensation Taxes

Yet even with all of these taxes, our local governments, our state governments and our federal government are all absolutely drowning in debt.

In another previous article entitled "24 Outrageous Facts About Taxes In The United States That Will Blow Your Mind", I listed a number of reasons why our federal income tax system has become a complete and utter abomination that can never be fixed...

1 - The U.S. tax code is now 3.8 million words long.  If you took all of William Shakespeare's works and collected them together, the entire collection would only be about 900,000 words long.

2 - According to the National Taxpayers Union, U.S. taxpayers spend more than 7.6 billion hours complying with federal tax requirements.  Imagine what our society would look like if all that time was spent on more economically profitable activities.

3 - 75 years ago, the instructions for Form 1040 were two pages long.  Today, they are 189 pages long.

4 - There have been 4,428 changes to the tax code over the last decade.  It is incredibly costly to change tax software, tax manuals and tax instruction booklets for all of those changes.

5 - According to the National Taxpayers Union, the IRS currently has 1,999 different publications, forms, and instruction sheets that you can download from the IRS website.

6 - Our tax system has become so complicated that it is almost impossible to file your taxes correctly.  For example, back in 1998 Money Magazine had 46 different tax professionals complete a tax return for a hypothetical household.  All 46 of them came up with a different result.

7 - In 2009, PC World had five of the most popular tax preparation software websites prepare a tax return for a hypothetical household.  All five of them came up with a different result.

8 - The IRS spends $2.45 for every $100 that it collects in taxes.

9 - According to The Tax Foundation, the average American has to work until April 17th just to pay federal, state, and local taxes.  Back in 1900, "Tax Freedom Day" came on January 22nd.

10 - When the U.S. government first implemented a personal income tax back in 1913, the vast majority of the population paid a rate of just 1 percent, and the highest marginal tax rate was just 7 percent.

11 - Residents of New Jersey pay $1.64 in taxes for every $1.00 of federal spending that they get back.

12 - The United States is the only nation on the planet that tries to tax citizens on what they earn in foreign countries.

13 - According to Forbes, the 400 highest earning Americans pay an average federal income tax rate of just 18 percent.

14 - Warren Buffett had an effective tax rate of just 17.4 percent for 2010.

15 - The top 20 percent of all income earners in the United States pay approximately 86 percent of all federal income taxes.

16 - Sadly, as Bill Whittle has shown, you could take every single penny that every American earns above $250,000 and it would only fund about 38 percent of the federal budget.

17 - The United States has the highest corporate tax rate in the world (35 percent).  In Ireland, the corporate tax rate is only 12.5 percent.  This is causing thousands of corporations to move operations out of the United States and into other countries.

18 - Some tax havens are doing a booming business in setting up sham headquarters for U.S. corporations.  For example, the city of Zug, Switzerland only has a population of 26,000 people but it is the headquarters for 30,000 companies.

19 - In 1950, corporate taxes accounted for about 30 percent of all federal revenue.  In 2012, corporate taxes will account for less than 7 percent of all federal revenue.

The wealthy have become absolute masters at avoiding taxes, and the poor are not able to pay much.

So who always gets squeezed?

The middle class does.

No matter what our politicians promise us, the hammer is always brought down on the middle class.

And now, according to The Huffington Post, the IRS says that it can even read our old emails without a warrant to make sure that we are paying all of the taxes that we should be...

The IRS apparently interprets that authority very broadly, the documents show: as long as you've stored your email in a cloud service like Google Mail, and as long as those emails haven't been deleted after a few months, the agency thinks it doesn't need a warrant to read them.

 

The idea of IRS agents poking through your email account might sound at the very least creepy, and maybe unconstitutional. But the IRS does have a legal leg to stand on: the Electronic Communications Privacy Act of 1986 allows government agencies to in many cases obtain emails older than 180 days without a warrant.

 

That's why an internal 2009 IRS document claimed that "the government may obtain the contents of electronic communication that has been in storage for more than 180 days” without a warrant.

It should be noted that the IRS is claiming that it does not use emails "to target" specific taxpayers, but notice that they are not promising not to use old emails against taxpayers once they are officially being audited or investigated...

"Contrary to some suggestions, the IRS does not use emails to target taxpayers. Any suggestion to the contrary is wrong."

In any event, the truth is that we have one of the most complicated and one of the most intrusive tax systems in the history of the world.

Don't the American people deserve better?

What do you think?

Should America go back to a system where there is no income tax and no Federal Reserve?

 

Remember when the last time a cluster of Hindenburg Omens nearly toppled the market in August 2010 and the only saving grace was Ben Bernanke's QE2 announcement at Jackson Hole which sent risk soaring? Today, nearly three years later, we got the first instance of the Omen again. Will it be a one-off fluke, or a cluster, which is needed to confirm this dreaded technical formation? Stay tuned in the coming days to find out...

 

The last cluster was Aug 2010 (and was only saved by Bernanke), the previous cluster was Oct 2007 and we know what followed... (red bars are Hindenberg Omens)

 

Full details of construction here.

Anyone surprised, please raise your hands. And yes, it was fun when margin were hiked only on surges in the various futures contracts. Now, dumps works just as well. The logic, of course, is that gold shorts are also margined. However, judging by the immediate $15 drop in gold upon the announcement, those who are short the metals certainly have a much, much bigger balance sheet and cash hoard to satisfy any collateral requirements than those long. Next: expect the Shanghai Gold Exchange to hike margins in a few short hours once China wakes up and looks at overnight PM prices in horror.

Source: CME

Mention the Internet Archive, and our minds race back to the Wayback Machine, or its public domain treasure trove, or the broadcast news museum. Jason Scott, however, believes that we should be paying attention to what he thinks is now the biggest collection of software and software writing anywhere in the world. Thanks to the recent addition of collections like the Shareware CD Archive, FTP Site Boneyard, Classic PC Games and others, the site can now boast of some impressive exhibits, including an original Apple I manual. Scott now says he's considering improving the collection's metadata so that future generations of online treasure-hunters will actually be able to find stuff.

Filed under: Internet

Comments

Via: The Next Web

Source: Internet Archive, Jason Scott

For the past three years we have been pounding the table on one very simple fact: when it comes to jobs, there is a quantitative picture, which is often muddied by seasonal adjustments and political narrative but which the mainstream loves for the simply, clear plotline: "the US created [   ] jobs in the past month", and there is a qualitative one: one which takes into account the far more important quality of the jobs created in the US economy in whole or in part (such as in various states). It appears this simple logic has finally trickled down to those masters of the obvious at the San Fran Fed who have just released a paper titled "Job Growth and Economic Growth in California" whose summary is as follows: "California job growth over the past two decades has been relatively anemic compared with gains in the rest of the country. Nevertheless, economic output has grown faster in California than in the rest of the United States. One factor underlying this pattern may be the growth of higher-wage jobs in California, which has contributed more to output than to employment growth. This creates relatively few opportunities for low-skilled workers, which may help explain why poverty increased more in California than in most states over the period."

What this means in English, is that California businesses realized it's a buyers market, and hired exclusively "overly productive" workers, paying them bargain basement wages, as a result generating higher then normal economic output, while underqualified workers got the shaft, or extended benefits and disability as the case may be.

More from this profoundly, profound, and taxpayer-funded paper:

Evidence suggests that the reason California has experienced faster economic growth than job growth is that employment has shifted to high-wage industries. Slower job growth, particularly in low-wage industries, is a potentially important problem if it implies fewer opportunities for less-skilled workers.

 

A related concern is the growth in the poverty rate over this same period. California’s poverty rate adjusted for housing costs grew over five percentage points from 1990 to 2011, the third largest increase among all states (see Neumark and Muz 2013). Even excluding the Great Recession, California’s growth in the poverty rate still ranked 13th highest among states. This rise in poverty is consistent with relative declines in job opportunities for less-skilled workers. California’s relatively high economic growth combined with its relatively low job growth may have disadvantaged less-skilled workers, highlighting a key challenge facing policymakers. That is, the greater economic efficiency that helps spur economic growth sometimes comes at the cost of social equity.

In other words, the SF Fed has caught up not only with common sense, but with the flipside to what our argument from December 2010 implies: that in a world in which temp-workers comprise the bulk of the marginal hiring at the national level for purely optical and political purposes, the economy is doomed to stagnate and generate an ever lower standard of living for the average person.

This is delightful: it means that after a few hundred million more in taxpayer funded research, the Fed will, some time in 2025, realize that QE was counterproductive all along and that it was the Fed whose constantly central-planning, micromanagement interventions were the cause for all that is wrong and broken with the economy. Or something that has been clear to most with a frontal lobe since March of 2009 when the first monetization program was launched in earnest.

We jest of course: there will be no Fed in 2025.

Flash reports that a bomb has gone off near the finish line of the Boston Marathon.

Are you done telling me that "gun control" will stop homicidal and terroristic jackasses yet?  Obviously "bomb control" didn't prevent this incident -- right?

Remember how bent out of shape the Obama campaign was over Mitt Romney’s tax rate?  They presented him as an evil corporate vampire, sucking the life out of the American poor by “not paying his fair share.”  Well, guess who else...

Original post below the fold. New updates (Vinnie) Video of the bombings from different angles. They say "graphic" but I don't think the Weekly Standard knows what that word thinks they think it means. What would we do without Dianne...

The rapidity of gold's drop is impressive, concerning, and disorderly. We have seen two other such instances of disorderly 'hurried' selling in the last five years. In July 2008, gold quickly dropped 21% - seemingly pre-empting the Lehman debacle and the collapse of the western banking system. In September 2011, gold fell 20% in a short period - as Europe's risks exploded and stocks slumped prompting a globally co-ordinated central bank intervention the likes of which we have not seen before. Given the almost-record-breaking drop in gold in the last few days, we wonder what is coming?

 

 

This is what it looked like in Q3 2008...

 

and in 2011...

 

and now...

 

 

and it seems safety is bid dramatically elsewhere as 2Y Swiss rates plunge 4bps to -7bps - their lowest in 4 months...

Charts: Bloomberg

On The Forced Sale...

Via Ross Norman of Sharps Pixley,

The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract in what proved to be only an opening shot. The selling took gold to the technically very important level of $1540 which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level... the line in the sand.

Two hours later the initial selling, rumoured to have been routed through Merrill Lynch's floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market - it had the hallmarks of a concerted 'short sale', which by driving prices sharply lower in a display of 'shock & awe' - would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called 'stopped-out' in market parlance - probably hidden the unimpeachable (?) $1540 level.

The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production - too much for the market to readily absorb, especially with sentiment weak following gold's non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data. The assault to the short side was essentially saying "you are long... and wrong".

Futures trading is performed on a margined basis - that is to say you have to stump up about 5% of the actual cost of the gold itself making futures trades a highly geared 'opportunity' of about 20:1 - easy profit and also loss ! Futures trading is not a product for widows and orphans. The CME's 10% reduction in the required gold margins in November 2012 from $9133/contract to just $7425/contract made the market more accessible to those wishing both to go long or as it transpired, to go short. Soon after we saw the first serious assault to the downside in Dec 2012, followed by further bouts in January 2013 - modest in size compared to the recent shorting but effective - it laid the ground for what was to follow. One fund in particular, based in Stamford Connecticut, was identified as the previous shorter of gold and has a history of being caught on the wrong side of the law on a few occasions. As baddies go - they fit the bill nicely.

The value of the 400 tonnes of gold sold is approximately $20 billion but because it is margined, this short bet would require them to stump up just $1b. The rationale for the trade was clear - excessively bullish forecasts by many banks in Q4 seemed unsupported by follow through buying. The modest short selling in Jan 2013 had prompted little response from the longs - raising questions about their real commitment. By forcing the market lower the Fund sought to prompt a cascade or avalanche of additional selling, proving the lie ; predictably some newswires were premature in announcing the death of the gold bull run doing, in effect, the dirty work of the shorters in driving the market lower still.

This now leaves the gold market in an interesting conundrum - the shorter is now nursing a large gold position and, like the longs also exposed - that is to say the market is polarised between longs and shorts and they cannot both be right. Either the gold bulls - like in a game of tug-of-war - pull back and prompt the shorters to panic and buy back - or they do nothing, in which case the endless stories about the "end of gold" will see a steady further erosion in prices. At the end of the day it is a question of who has got the biggest guns - the shorts have made their play - let's see if there is any response from the longs to defend their position. 

 

On Inventories...

Via Mark O'Byrne of Goldcore,

Gold futures with a value of over 400 tonnes were sold in hours and this is equal to 15% of annual gold mine production. The scale of the selling was massive and again underlines how one or two large banks or hedge funds can completely distort the market by aggressive, concentrated leveraged short positions. 

It may again be the case that bullion banks with large concentrated short positions are manipulating the price lower as has long been alleged by the Gold Anti Trust Action Committee (GATA). The motive would be both to profit and also to allow them to close out their significant short positions at more advantageous prices and possibly even go long in anticipation of higher prices in the coming weeks.

Those with concentrated short positions may also have been concerned about the significant decline in COMEX gold inventories.

The plunge in New York Comex’s gold inventories since February is a reflection of increased demand for the physical metal and concerns about counter party risk with some hedge funds and institutions choosing to own gold in less risky allocated accounts.

Comex gold bullion inventories have slumped 17% already in 2013, falling to just 286.6 metric tons of actual metal on April 11, the lowest since September 2009. 

This means that futures speculators on Friday sold a significant amount of more paper gold, in an hour or two, then the entire COMEX physical gold bullion inventories.

Interestingly, the drop in Comex inventories would be the biggest for a whole year since 2001, when bullion began its secular bull market.

Absolutely nothing has changed regarding the fundamentals of the gold market and bullion owners are advised to again focus on the long term and the vital diversification benefits of owning gold over the long term.

Although some Federal Reserve policy makers said that they probably will end their $85 billion monthly U.S. bond purchases sometime in 2013. The key word is ‘probably’ and it remains unlikely that the Federal Reserve will stop their debt monetisation programmes any time in 2013 or even in 2014.

Even if the Fed did end them, ultra loose monetary policies and negative real interest rates are set to continue as are competitive currency devaluations and currency wars - two other fundamental pillars supporting the precious metal markets.

Buyers are now presented with another very attractive buying opportunity. We always caution against trying to “catch a falling knife” and buyers should hold off until we get a few days of higher closes or a weekly higher close. Alternatively, they should consider dollar, pound or euro cost averaging into a position at these levels.

Sellers should consider holding off as if contemplating selling they may have missed their opportunity and if they have to sell they may be best placed holding off until prices bounce or recover. Sellers are now disadvantaged both in terms of price but also in terms of premiums that have spread on some physical bars such as one kilo bars.

In the course of gold’s bull market, vicious sell offs like this have often presaged material weakness in stock markets and this may occur again. 

Gold’s ‘plunge’ is now headline news which is bullish from a contrarian perspective. Less informed money is again selling gold or proclaiming the end of gold’s bull market. 

The smart money such as certain hedge fund managers, high net worth individuals, pension funds, family offices, institutions and creditor nation central banks and will see this vicious sell off as an absolute gift and will accumulate again on this dip.

A long term allocation to physical gold bullion to hedge systemic and monetary risk remains vital.

As we have vociferously warned since September 2011, and most recently as the Cyprus debacle exploded explained why it is just beginning, Germany's Council of Economic Experts (or so-called 'Five Wise Men') just confirmed a wealth tax is coming. As the Telegraph reports, confirming our expectations, Germany warns that states in trouble must pay more for their own salvation, arguing that there is enough wealth in homes and private assets across the Mediterranean to cover bail-out costs. They further added that targeting deposit-holders is also a mistake, since the "resourceful rich just move their money to banks in northern Europe and avoid paying," preferring instead taxes on property or other less-mobile assets, "for example, over the next 10 years, the rich should give up a portion of their assets." As we noted here and here, the differences between mean and median wealth in the peripheral nations suggest that people in the bailed-out countries are often better-off than those in Germany - - "this shows that Germany has been right to take a tough line of euro rescue loans." However, the implications of a wealth tax - implicitly impacting the pro-euro Southern European uber-rich - raises the specter of EU breakup once again.

 

Via The Telegraph,

Any serious move to a wealth tax could the erode the pro-euro ardour of South Europe’s uber-rich. The ECB bond buying policy has largely rescued the wealthiest strata while the full brunt of EMU austerity has fallen on ordinary people and the unemployed.

 

The political debate on euro membership may change dramatically if rich Cypriots, Italians, Spaniards, and Portuguese start to see EMU as a threat to their property, rather than a defence.

Via Der Spiegel,

Prof Lars Feld, another “wise man”, highlighted a recent study by the European Central Bank, which Germans say show that the people in bailed-out countries are often better-off than those in Germany. Less than half of Germans own their own home, lower than the rate in many southern eurozone members.

 

The ECB study found that the “median” wealth in Cyprus is €267,000 (£227,600), compared to just €51,000 in Germany. The median or midpoint level – which strips out the distorting effect of the super-rich – was €183,000 for Spain, €172,000 for Italy, and €102,000 for Greece, and even €75,000 for Portugal. Average wealth in Cyprus is €671,000, far higher than in the four AAA creditor states: Austria (€265,000), Germany (€195,000), Holland (€170,000), Finland (€161,000).

 

Prof Feld said the report showed that people in the crisis countries are richer than the Germans. “This shows that Germany has been right to take a tough line of euro rescue loans,” he said.

As Mark Grant comments:

Here may be the next "one-off" and it is a frightening one. A tax on "wealth and property" would almost certainly include equities and bonds. This then would mean that dividends and fixed income coupons would be taxed. This would ostensibly mean that if you were a U.S. money manager and that you owned securities in any Eurozone debtor states that you could get taxed on your investments. Then go one step further because if the debtor nation got into trouble you could have your holdings expropriated just like the depositors in Cyprus. This is scary stuff in my opinion.