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An all-out war has broken out between Citigroup CEO Vikram Pandit and a prominent securities analyst who is saying that the big bank may be cooking the books by inflating its earnings through an accounting gimmick, FOX Business Network has learned.

The analyst, Mike Mayo, of the securities firm CLSA, has been telling investors that Citigroup (C: 3.72 ,+0.02 ,+0.68%) should take a writedown, or a loss on some $50 billion of “deferred-tax assets,” or DTAs. That is a tax credit the firm has on its financial statement that Mayo says is inflating profits at the big bank by as much as $10 billion.  READ MORE

This is basically all you need to know. From Zero Hedge.

The latest anticipated weekly outflow from equity mutual funds just hit a one month high of $2.7 billion, as reported by ICI, and with that, YTD redemptions by equity investors have hit over $50 billion. Domestic equity mutual funds have not seen a net positive retail inflow since April 28, yet despite this the market has been substantially rangebound and until last week. What is notable is that even during times of relative stock outperformance, courtesy of whoever it is that is left buying stocks, be it HFT algos, or Primary Dealers pumped with cheap Fed liquidity (and don't forget today is another "free $2 billion courtesy of POMO" day), the investing public refuses to be drawn into owning stocks. CNBC has now failed to sucker its viewers into the stock ponzi for 16 weeks in a row and rising. The clear capital rotation winner- the bond bubble, but that is the topic for another week.

Submitted by Sherman Okst of Financial Sense

In a Nutshell: Our economy is really an insane asylum run by lunatics.

Common Sense: No problem can be fixed before a solution is formed. No solution can be formed until the underlying problems are clearly identified.

The officials in charge of fixing the economy have not articulated the underlying problems. Worse, many of these officials - directly or indirectly - created or contributed the underlying problems.

It is shear lunacy to expect that the people who screwed up the economy have any chance at fixing what they destroyed.

Identification of the  Underlying Problems

Income: Average Real Weekly Earnings, (read: incomes adjusted for inflation), are below what what what they were in 1973. Income wise the average American family is worse off now than they were 37 years (4 decades) ago.

The Dollar’s Value: And it isn’t like we have a stronger dollar now. If we did perhaps we could get buy with less money. No, Uncle Buck is worth 95% less than he was 84 years ago when the “Creature From Jeckyll Island” (read: the “Fed”) came into existence.

Money is supposed to be a store of value. When you boil economics down to it’s core you are left with one law: Supply and demand. Increase the supply of anything and it’s value goes down. Our monetary system is flawed because if it isn’t expanded it collapses and when it is expanded the store of value is obliterated. The Fractional Reserve System is another example of a moronic idea created by greedy lunatics, It was doomed to failure upon inception. Debasing a currency only creates an addiction to debt.

Employment: In 2008 there were about 150 million workers. Today (U3-U6) unemployment is at 22%. The largest problem plaguing unemployment is the fact that most of the jobs lost were jobs that were created because of consumers binging on credit. For instance, in 2008 Americans tapped their home equity for stupid purchases. The best example of this is from Jim Quinn's 2008 article: Consumers borrowed $9,000,000,000.00 (9 billion) dollars (from home equity loans) JUST to blow it on 4 dollar coffees at Starbucks, which has since closed 900 stores. Debt to expand a business or debt to purchase a home is sound debt for an economy. Debt to buy expensive coffees at “Fourbucks” won’t be economically sustainable (as proved by 900 closed stores). READ MORE

 

 

Months ago we wrote about the true causes of hyperinflation. We proceed to expand upon our views as we disagree with the views put forth by John Mauldin, Mike Shedlock and now Jim Rickards who all focus on velocity and/or bank lending as important causes of hyperinflation.

The reality is that hyperinflation is first and foremost set in motion and driven by a deteriorating fiscal situation. In fact, significant economic weakness and deflation is a precursor to hyperinflation. Too many analysts believe that there has to be some economic demand or some consumption to stimulate inflation or hyperinflation. Printing money to try and stimulate your economy or excessive credit growth is what leads to inflation. Printing money because you are broke and can’t service your debts is what leads to hyperinflation.

Recently Jim Rickards wrote about how a change in velocity can trigger hyperinflation or severe inflation.

Rosenberg is going bald from all the headscratching that is going on with equity valuations. And yes, we have dissected the 10 Year to Stock correlation before, and have concluded that the fair value of the S&P with the 10 Year here is in the mid-700 range:

The consensus has certainly taken down its numbers on profits and on the economy, but by not nearly enough. The consensus of equity analysts still sees 13% growth in operating S&P 500 EPS for the coming four quarters, even though the math does not work at all. For one, margins have already very rapidly expanded to cycle highs. This means that there is very low potential for profits to grow much in excess of nominal GDP growth, which, at best, will be low single digits. That would put EPS for the next year closer to $80 than the $88 consensus forecast and place the forward P/E closer to 13x than 12x (it is 12x on consensus view). Of course, if the economy does double-dip, then we are talking about EPS going down closer to $60 if the historical pattern during downturns reasserts itself, which then means the forward P/E multiple is really north of 17x.

This is why valuation is so tough — beauty is in the eyes of the beholder. Historically, the forward P/E with consensus estimates is 15.6x, and yet if you look at what we actually end up with, it is 19.2x. So the consensus is always publishing an earnings forecast that makes the market look cheap! And, this “bias” is close to 20%, on average. We still prefer the Shiller P/E, which uses the ‘bird-in-the-hand’ earnings, takes them in real terms, and cyclically-adjusts the earnings data, and the multiple here is 20.6x, which is 26% above the historical norm. So sorry, the only way you can get this market to show that it is “attractively” priced is to rely on consensus earnings projections, which by the way, are coming down but still too high.

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Read the article. Understand that 46 other states and thousands of communities and counties are having the same problem. Then think about what happens when they all see price levels tripped and they all attempt to hit the "sell" button a the same time.

Instead of just leaving you hanging.so what does this really mean?

Let's play a not so far fetched game of "what if"..

What if the Obama supporters and power brokers understand that their is not one single thing they can do to hold on to their majority in the House and possibly the Senate..

and

What if this pension crisis is the key they need to finish the goal of total control of the financial system within a centralized group of regulators under the Executive Branch in cooperation with the Federal Reserve..

and

What if they just stopped all market intervention from now until after the elections. The market corrects and despite reflex rallies is proceeds to a 40-50% correction after the Republican victory and the media plus administration convince enough idiots that the Republican victory is to blame.

and

What if they assembled a new law in the Lame Duck session which created a specific GSE which insured and backstopped all retirement plans, pensions (public or private), 401K's, IRA's, etc. and promised to reset the values of all of them to July 1, 2010 levels.

and

What if they took all of that money and invested it only the Primary Dealers of the Federal Reserve and into U.S. Treasury issues.

Sound far fetched? Think about who is in charge, read the various legislative acts that have been passed into law thus far, and consider that these people are playing for keeps. The winners? Bondholders of U.S. Treasury issues able to sell out at a profit, the Federal Reserve who can deleverage their balance sheet at taxpayer expense, and the Congress who will get credit for "reducing" the dependency on foreign purchasers of our crappy bonds and bills.

God help us, this is too logical and too obvious, thus I think it is a legitimate concern. Dow 4217 anyone?  John Galt

 

(Crain's) — Illinois Teachers' Retirement System, Springfield, plans to sell $3 billion in investments, or about 10% of its $33.1 billion in assets, in the current fiscal year to pay pension benefits, according to Dave Urbanek, public information officer.

The system is the fifth Illinois statewide defined benefit plan to sell off investments this fiscal year to pay benefits.

Illinois State Universities Retirement System, Champaign, expects to sell $1.2 billion in investments from its $12.2 billion defined benefit fund this fiscal year to raise liquidity to pay benefits to participants.

The Illinois State Board of Investment, Chicago, could sell $840 million investments from its $9.9 billion fund to pay benefits of the Illinois State Employees' Retirement System, Illinois Judges' Retirement System and Illinois General Assembly Retirement System. ISBI oversees the investments of the three systems.

READ MORE

We have worked our way into a beautiful triangle that has huge upside if we can breakout (on a closing basis). We may have one more pullback but we will let the market tell us when it is time.

Click on the image to the right to view the full-size chart.