“You have to dance while the music is playing”- Chuck Prince, Citigroup mucky muck,  shortly before 2008 crisis Of late Zero Hedge has been mentioning the presence of one large JP Morgan trader nicknamed the whale (Bruno Iksil).  Tuesday ZH broached a question I myself have been wondering, is there a large whale trader (or traders)  price fixing the markets, or at least key inter-related markets. There certainly is precedent (LTCM for example) for large traders or speculators to get greatly overexposed,  but now I am taking about LTCM multiplied 100 fold. That would have the effect of temporarily price fixing in a thin market. It is not so far fetched or loony fringe as you might think, when you look a the extremely low volume and narrow market participation.  And money managers, at least the big ones, are frequently stooges of the sistema and TBTFs, or feel that can’t stray far from the conventional wisdom, no matter how absurd. Nor is it so far fetched when one sees that five too-big-to-fail banks: JPM, WFC, BAC, C, and GS now have assets (mostly fictitious)  equal to 56% of GDP, up from 44% during the financial crisis.  Add the City of London banksters and Deutsche Bank [...]

All day, the MSM trolled out all the dynamite talking heads types, saying that a 2-3% correction is healthy, blah, blah  and now the Fed can add stimulus.  All day, you see words like rescue, followed by some lobbyist functionary talking his trade.  This mantra has gone beyond merely obscene and feels like one of the greatest traps in market history.  Peter Atwater said the following about this give- a- dog -a -bone conventional wisdom.

My issue with all of this is not the truthfulness (or lack thereof) to the belief, but rather the certainty I see among money managers in this belief. Not only are money managers certain, they appear today to be certain of being certain.

I call this phenomena “self-assured certainty.”  I saw it in late 1999 among large growth stock managers.  I saw it among housing investors in 2005.  I saw it last summer among gold bugs, and even more recently among Apple  investors.  It is a level of certainty that is coupled with hubris-filled “you must be a f%*^ing  idiot if you don’t believe it” kinds of comments. It is a very black or white world in which I am right and you are a loser.

My comment, once  again, can’t be repeated enough:  ”The biggest hole in current paradigm is that when the central banks engage in this put behavior they end up holding huge portfolios of fictitious capital,  further bankrupting their sponsoring countries.  Part of the paradigm holds that when the  central bank takes a bunch of questionable collateral as in the LTRO there is no risk transference involved.  In the next sovereign default the loss will be taken by the central bank and on through the daisy chain.”

Back on Jan. 20, Israeli Prime Minister Binyamin Netanyahu advised the visiting chairman of the U.S. Joint Chiefs of Staff, Gen. Martin Dempsey [Debka], that the time for action against Iran was now. This week, the Israeli press (but not in the West) reported Netanyahu as saying that embargoes against Iran weren’t working. Debka, which is widely seen as a mouthpiece for Israeli views, has circulated the rhetoric, saying that Netanyahu feels cheated and betrayed by the U.S. [US-Israel Relations in Crisis]‘

This article was originally sent as a Wall Street Examiner Email Bulletin, yesterday.

The economic news has been better in recent days, that is if you confine yourself to reading the stories in the mainstream media. Beneath the surface, the data reveals a subtle, not so obvious deterioration. It can not be seen in the seasonally adjusted, manipulated, and massaged headline data, but it can in the annual rate of change in the raw, unadjusted data. I also like to call it “actual” data, as in: This is the reality. The seasonally adjusted numbers are figments of some statistician’s imagination. They often do not tell us a thing about what’s really going on.

Yesterday the trumpets were blaring for the good news on industrial production. Before we wet our pants over the good news, I should point out that industrial production represents around 22% of US GDP, according to data in the CIA World Factbook. Everybody knows that we are a service economy. That factoid just quantifies it for you. While industrial production may be a meter for the broader economy, it is not the whole enchilada. Certainly though, if industrial output is running strong, that bodes well for everything else.

Here’s how Marketwatch put it yesterday:

The output of the nation’s factories, mines and utilities surged 0.9% in July as auto assemblies rebounded and consumers turned on their air conditioners, the Federal Reserve said Tuesday.

I think that most readers seeing the word “surged” would infer, “Wow, that’s a really great report!” The article went on to quote an analyst who suggested that this should put fears of an economic “double dip” to rest. That attitude was repeated in other media reports. So there you have it–the conventional wisdom. Everything is hunky dory. No double dippers to be found on Wall Street.

The truth behind the government report is less clear in that regard. In actuality, industrial production fell 1.1% in July. It always falls in July, so whether it’s good or bad is a question of degree.

The seasonal adjustment attempts to account for that, but in so doing it often obscures the real trend. It is a fictitious number. In essence, it acts like a moving average, hopefully with less lag, but not always. The problem is that when real, and especially sudden, changes occur in the structure of the economy, the seasonally adjusted number either can’t keep up with the change, or it over or understates it. The historical factors used in computing the seasonal adjustment may no longer apply in today’s world of just in time inventory management and in view of other structural changes in the economy over the past few years. In this case, the reporting of a 0.9% gain probably overstates the improvement.

In fact, this year’s actual loss of 1.1% is just slightly better than last year’s decline of 1.3% but it looks downright awful versus 2009′s drop of just 0.7%. And 2009 was a terrible year. Oddly, the numbers are much better than in the expansionary years of 2000-2007, but the world has changed. Rapid overproduction and quick pullbacks, particularly in housing, made the industrial production numbers much more volatile then. Seasonal adjustments based on a high volatility environment will spit out meaningless data in a low volatility environment. That appears to be the case now.

The other not so great news is that the annual growth rate has been cut in half since peaking at 7.8% in June of 2010. It’s now down to 3.9%. That’s not bad, and it has stabilized since May, but growth momentum has been below its 12 month moving average since February of this year.

All in all, it’s not a bad report. Economists who cite it as indicating that the economy hasn’t fallen back into recession have some basis for saying that, but when they go further than that, stating that it isn’t likely that the economy will double dip, that’s a hypothesis without a basis. As long as industrial growth momentum is declining, negative growth could be just around the corner.

It might even be closer than that.

The Treasury publishes the Federal Government’s daily cash balances, tax receipts, and outlays with a 1-2 day lag. That’s as close as it gets to real time in the world of economic data. In reviewing that data, I reported in the Wall Street Examiner Professional Edition Treasury Update that the government was cutting it awfully close this week cash wise, and that the cash it was scheduled to raise at this week’s auctions might not be enough.

I projected that by the end of the week, if revenues fell short of the assumptions used by the Treasury Borrowing Advisory committee in estimating the auction sizes for this week, the government would have to sell a Cash Management Bill for the third time in the past 4 weeks. In its August 3 report to the Treasury Secretary, the TBAC boosted its estimate for the 4 week bill size by $12 billion versus what it has estimated in May. I had taken that into account in my analysis, and concluded that it still might not be enough depending on the pace of revenue collections.

Sure enough, on Monday the Treasury announced a 12 day, $20 billion CMB to tide the government over till the end of the month when the next big round of long term debt auctions will raise a giant wad of cash for Uncle Sam. The fact that the government needed a CMB was no surprise. But I was surprised that it was as large as it was. It suggests that revenues are falling even faster than they were in recent weeks when they dropped back to even with last year, in real terms. The $20 billion shortfall below what the government thought it would need, as estimated in the August 3rd TBAC report, suggests a rapid deterioration in the economy over just the past week. One week does not make a trend, but these numbers have been moving in this direction since May, thus it’s part of a trend.

So in spite of the fact that the industrial production data wasn’t very bearish, and the recent weekly jobless claims data hasn’t been too terrible either, the government’s day to day revenue picture indicates that the “not so bad” economic data is likely to get uglier in the near future. The next key data releases to watch for signs of this showing up will be tomorrow’s and next week’s Unemployment Claims, Personal Income and Spending on August 29, the ISM manufacturing index on September 1, and ISM Services Index on September 6.

In the meantime I will update the Government’s revenue picture in the weekly Treasury update in the Wall Street Examiner Professional Edition. If you aren’t already a subscriber, I invite you try it risk free for 30 days. It’s part of the Money, Liquidity, and Real Estate package.