The Big Picture

---

• Spain’s Banks & Markets
• How Do You Say Rally in Spanish?
• U.S. Long-Term Budget Outlook Deteriorating as Fiscal Gridlock Looms
• Nonlinear Thinking: Perspective!
• How a Single Company Gained a Stranglehold over Online Shopping and the Future of Retail
• What Germans Own
• Alex Tanney Trick Shot Quarterback
• Missing: $496.5 Billion in Corporate Cash
• The Federal Deficit
• Clint Eastwood: 35 Years, 35 Films, 64 Bucks

Spain’s Banks & Markets Posted: 10 Jun 2012 10:00 PM PDT Spain's Banks & Markets David R. Kotok June 10, 2012       Eurozone leaders rose to the occasion. They had no choice. The Spanish bailout means Europe will not permit "runs" to sink their banking system. Notice how we have not seen TV coverage of a eurozone version of the "Northern Rock Affair." For those who do not remember that event, it was the run on a British bank that caused the bank to fail when depositors demanded their money. That triggered a panic. Disaster was averted by prompt action from the Bank of England. Think about it. Greek banks have lost tens of billions of euros in deposits and yet there have been no failures. Cyprus is bleeding deposits but no failures. Other countries, too. The Spanish deposit flight has been huge. Yet, there are no reported failures to pay euro depositors who demand their money. You cannot blame the depositors for seeking safety by moving their money to German, Dutch, or Finnish banks. I would. You would. We advised some clients to do so. Euros are euros regardless of which bank holds them for you. Why take a risk with your deposit under the present circumstances, when you can avoid it. The euro system leadership knows that bank runs can cause their 17-country, currency-zone system to collapse. All of banking history is supportive of this fact. Therefore, they faced the issue when their backs were to the wall. The fact is the absence of banking collapses is good news. That is correct. Good news! We establish that good news by what we DO NOT see on TV. We do not see banks collapsing and failing to pay depositors. This means we may not witness the euro system collapsing and failing. Bank runs and deposit failures are symptoms of liquidity constraints. Liquidity is not to be confused with solvency. A prime example: Greece is certainly insolvent. It cannot pay its debt or its governmental bills. Nevertheless, Greece's banks still have liquidity because of Emergency Liquidity Assistance (ELA) funding. ELA exists the euro system agents know that they cannot permit euro system banks to fail to pay their depositors. Therefore, our conclusion is that liquidity issues will be addressed in the euro zone. The Spanish banking chapter is unfolding before our eyes. Markets have been pricing in a fear of systemic failure on the liquidity side. Market bears will be disappointed, because the liquidity failure is not going to happen. Other market agents have priced the solvency issue correctly. That is why the Greek stock market has been decimated. That is why Greek bonds trade with astronomical yields. That is why Spanish stocks are down. That is why credit spreads are so wide. See www.cumber.com for updated spreads in Europe. Europe can fix or stopgap any illiquidity. They have the tools with the various funding sources like ESM, with the ELA and with the hands of the European Central Bank (ECB). The solvency issue requires governments with strong leadership and durable commitments to change behaviors. As we know from our own political experience in the US, this solvency/debt issue is much harder to tackle. Central bankers and institutions around the world have the ability to offset liquidity crunches. They know that another Lehman/AIG moment cannot be permitted. Do they have the ability to deal with insolvency? On that one, the jury is still out. We remain positive on markets; we are underweight Europe and we favor the US. We do not expect a market meltdown arising out of liquidity constraints. We remain nervously and fully invested in our US ETF accounts. We worry about solvency. That is the political side of the issue, and we are not in the least sanguine about politicians in any country, including our own. European politicians caused European government insolvency. Can they fix it? We shall find out in due time. The next test is coming on June 17, with French and Greek elections. ~~~ David R. Kotok, Chairman and Chief Investment Officer

How Do You Say Rally in Spanish? Posted: 10 Jun 2012 05:47 PM PDT click for updated futures   Tomorrow morning should be interesting.

U.S. Long-Term Budget Outlook Deteriorating as Fiscal Gridlock Looms Posted: 10 Jun 2012 05:00 PM PDT Fiscal gridlock in Washington has resulted in the deterioration of the nation's long term budget outlook. Based on data published by the Congressional Budget Office, should spending and revenues not be brought into alignment over the next several years, the fiscal drag on the economy will reach the point where it will become a long-term weight on overall growth, likely resulting in higher interest rates and funding problems for government-issued debt. While a U.S. funding crisis may be years away, the near-term inability of policy makers to agree on appropriate levels of spending and taxes is at the core of the dispute that has resulted in an unusual confluence of expiring policies on January 1, 2013. Unless an agreement to extend these policies is reached, the net impact on the economy will amount to a "fiscal cliff" of almost $560 billion, or 4 percent of gross domestic product. The ability, or lack thereof, of policy makers to arrive at a decision will shape the long-term budget picture of the U.S. Based on research by Carmen Reinhart and Kenneth Rogoff, once a nation's debtto-GDP ratio exceeds 90 percent, it exerts a drag of 1 percent on growth annually. Under the CBO's long-term baseline scenario, U.S. debt-to-GDP ratio will likely decline to 61 percent in 2022 from 73 percent currently, and to 53 percent in 2037. The alternative scenario – if the nation's fiscal path is not put on a more sustainable footing – the debt-to-GDP ratio will increase to 93 percent in 2022 and roughly 200 percent by 2037. To put this in perspective, the CBO's alternative scenario indicates that net interest on the federal debt will exceed spending on Social Security in as little as 12 years. That scenario is quite grim; the reality may be worse. The CBO assumes that the real annual interest rate on the 10-year Treasury note will be 3 percent, and the real annual interest rate on federal debt held by the public will be 2.7 percent. While those rates are well above the prevailing 1.63 percent, those assumptions are likely to prove optimistic given the current path of federal spending and the general inaction on the part of policy makers to increase revenues or pare back long-term spending commitments. The 40-year average national tax rate is a little more than 18 percent. While as recently as the mid 1990's it has been higher than that, the rapid expansion of spending in the wake of the Great Recession, and the subdued tax revenues that followed it, exacerbated the imbalance between revenues and spending. The result is government spending likely to exceed 25 percent of overall growth in fiscal year 2012. Based on the past two decades, the public has expressed a preference for lower taxation while simultaneously maintaining high levels of benefits. Unless that preference structure changes, it will necessitate reduced levels of entitlement spending which may exacerbate the sharp policy divide in Washington. That policy divide underlies the nearterm risks associated with the economy hitting the fiscal cliff in 2013, and the longterm damage to the economic outlook from the mis-alignment between revenues and federal spending. Click to enlarge: ˜˜˜ Source: Bloomberg BRIEF June 7, 2012

Nonlinear Thinking: Perspective! Posted: 10 Jun 2012 03:00 PM PDT One of our golf buddies, who is an engineer, sent this over today.  It really illustrates why we should think about the future with a nonlinear framework.  Simply amazing!   Hat tip to James M.!   (click here if photo is not observable)

How a Single Company Gained a Stranglehold over Online Shopping and the Future of Retail Posted: 10 Jun 2012 01:00 PM PDT Click to enlarge: Source: Institute For Self Reliance

What Germans Own Posted: 10 Jun 2012 11:00 AM PDT click for larger graphic > I mentioned this de Spiegel article in the reads, but I found this graphic quite fascinating, having nothing whatsoever to do with the fact my last name is Ritholtz or I have a business trip to Berlin next month. > Source: Crisis Pushes Down Returns Big Investors Don’t Know Where to Put Their Cash Sven Böll and Martin Hesse De Spiegel 06/05/2012 http://www.spiegel.de/international/business/institutional-investors-desperately-seek-investment-opportunities-a-836975.html

Alex Tanney Trick Shot Quarterback Posted: 10 Jun 2012 09:30 AM PDT Trick Shot Quarterback, Alex Tanney was signed yesterday by the KC Chiefs. Regardless of setting the NCAA Division III record for passing with 14,249 yards, the NCAA record for touchdowns with 157, and only throwing 30 interceptions in college, Tanney had gone undrafted Hat tip kottke

Missing: $496.5 Billion in Corporate Cash Posted: 10 Jun 2012 07:00 AM PDT You may have missed this fascinating Real Time Economics article (Corporations Not Hoarding Cash) buried at 5am Saturday morning in the WSJ, but here it is: In the Federal Reserve quarterly "Z1 flow of funds" report released late this past week, there was a slight discrepancy in the amount of corporate cash in Q1. It was “up to” $1.74 trillion dollars. And by up to, I mean down from $2.23 trillion dollars. Did this money actually go missing? From the Fed report, its not clear whether or not this based on a significant accounting revision from recent quarters — meaning it never was really there in the first place. Alternatively, the money actually was pent, and corporate America added an additional half a trillion dollars in economic activity. I suspect its the former . . . > Whoops! Where did I put that half trillion dollars? Chart courtesy of WSJ > Source: Number of the Week: Corporations Not Hoarding Cash Ben Casselman Real Time Economics, June 9, 2012 http://blogs.wsj.com/economics/2012/06/09/number-of-the-week-corporations-not-hoarding-cash/

The Federal Deficit Posted: 10 Jun 2012 05:30 AM PDT Click to enlarge: CNBC – US Could Be the Next Greece—in 2037: CBO Report For all of the hemming and hawing about spending cuts in Washington, the Congressional Budget Office's latest long-term budget forecast reflects two painful facts for Washington: How large the nation's problems remain, and how the GOP's 2010 surge into Washington has had only a limited impact in changing America's fiscal trajectory. The annual report, released on Tuesday by Capitol Hill's nonpartisan budget umpires, argues that if Congress's current policies continue – meaning that the Bush tax cuts are renewed at year's end and Medicare providers don't face drastic reductions in payments, among other issues – federal debt held by the public will reach 93 percent of gross-domestic product (GDP) by the year 2022. That's down about seven percentage points from CBO's 2011 forecast, which saw the nation's debt as a share of GDP rising to 100 percent by 2021. That's thanks in large part to the Budget Control Act of last summer – also known as the debt-ceiling deal – where Congress achieved more than $2 trillion in savings over the next decade through a combination of spending cuts and discretionary spending caps. AFP – Congressional study warns of dire US debt outlook US debt is on track to grow to twice the size of the entire economy in the next 25 years, the non-partisan Congressional Budget Office reported Tuesday in its grim view of America's fiscal future. The CBO said that under present policy, in which current tax rates are upheld and lawmakers do not curb entitlements, the portion of national debt held by the public would soar from 70 percent of GDP as forecast for the end of 2012 to 100 percent of GDP in just over a decade. "After that, the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels," the CBO said in its 2012 Long-term Budget Outlook. "Debt as a share of GDP would exceed its historical peak of 109 percent by 2026, and it would approach 200 percent in 2037."The campaign of Mitt Romney, the Republican challenging President Barack Obama for the White House in November's election, said the dire data confirmed the administration was taking the country down a "path to fiscal ruin."Democrats countered that it showed that revenue generation, and not just cuts to domestic spending, must be part of any broad plan to rein in debt.The economy is facing historic pressure in coming decades due to the aging of the US population: the demands of the large "baby-boom" generation — those born between the end of World War II and the early 1960s — will lead to a significant sustained increase in the share of people receiving benefits such as Social Security and Medicare. Source: Bianco Research

Clint Eastwood: 35 Years, 35 Films, 64 Bucks Posted: 10 Jun 2012 05:00 AM PDT Amazon is running another sale on an item we featured back in December: Clint Eastwood: 35 Films 35 Years at Warner Bros. I have been a huge Clint Eastwood fan — but those Spaghetti Westerns are part of this package. Note also that set is remastered DVDs — not BluRay. Still, at $63 bucks (list is $180), this is a whole lotta Clint for not a lot of money. I know quite a few people who would love this. Full list of 35 films after the jump. 1. Where Eagles Dare, 1968 2. Kelly’s Heroes, 1970 3. Dirty Harry, 1971 4. Magnum Force, 1973 5. The Enforcer, 1975 6. The Outlaw Josey Wales, 1976 7. The Gauntlet, 1977 8. Every Which Way but Loose 1978 9. Bronco Billy, 1980 10. Any Which Way You Can, 1980 11. Honkytonk Man, 1982 12. Firefox 1982 13. Sudden Impact 1983 14. City Heat 1984 15. Tightrope, 1984 16. Pale Rider 1985 17. Heartbreak Ridge, 1986 18. Bird, 1988 19. The Dead Pool, 1988 20. Pink Cadillac, 1989 21. White Hunter, Black Heart, 1990 22. The Rookie 1990 23. Unforgiven 1992 24. A Perfect World, 1993 25. The Bridges of Madison County 1995 26. Absolute Power, 1997 27. Midnight in the Garden of Good and Evil, 1997 28. True Crime, 1999 29. Space Cowboys, 2000 30. Blood Work, 2002 31. Mystic River, 2003 32. Million Dollar Baby, 2004 33. Letters from Iwo Jima, 2006 34. Gran Torino, 2008 35. Invictus plus The Eastwood Factor (2009 documentary).

You are subscribed to email updates from The Big Picture To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610

.