Archive - Apr 8, 2011

When buying story stocks, one can believe the hype behind the story, or actually look at the facts. And when it comes to malls, and commercial real estate in general, the double dip, despite that whole consumer is recovering myth, is here. The WSJ report that "mall vacancies hit their highest level in at least 11 years in the first quarter, new figures from real-estate research company Reis Inc. showed. In the top 80 U.S. markets, the average vacancy rate was 9.1%, up from 8.7%." But wait: wasn't the resurging US consumer supposed to be able to carry the overbloated US retail front? That's part of the "story" - as for the "fact" Howard Davidowitz summarized it best: "We've got 21 square feet of selling space for every man, woman and child in this country." Perhaps it is time for the Fed to (again) start buying up empty retail boxes: because even the Fed knows what happens to equilibrium price when every bank is trying hard to reignite the CMBS market.

I don't know about you, every day one of the first items in my routine is to google the words "unusual event."

Discussion prompted by my recent commentary on hyperinflation continues to evolve and may yet enlighten us sufficiently to produce some useful conclusions about the banking system's looming endgame. Hyperinflation, or deflation? At this point, I'll concede that it could be either that brings us to economic ruin. But I will nonetheless argue in a forthcoming essay that the dollar could collapse without triggering a hyperinflation.

According to Jamie Dimon, he did America a favor when he agreed to take bailout money from taxpayers (and we didn’t even have the decency to thank him). Last week ,we learned that the JP Morgan CEO likes his catastrophe’s predictable, but as Mick Jagger once observed, “You can’t always get what you want.” So in case you’re wondering who might be stupid enough to buy silver at $40, chances are extremely high it’s going to be the guys who sold at $15, $20, $25, 30, 31, 32, 33….. On April 6, Bloomberg reported Comex Silver Stockpiles as of April 5, and if you scroll down through the report, you’ll notice that JP Morgan has enough silver to fill, wait for it, 6 contracts. Yep 30,844 troy ounces, that’s all.

As always happens following massive liquidity injections, there comes a time when the price of oil ends the party prematurely. And with localized Cushing issues preventing another 10% to be tacked on to the cost of gasoline for now, we once again look to Europe for the fair view of what is happening with the energy market. To our surprise we find that there is now only a 5% difference between the all time highs hit in 2008 and currently in the price of Brent expressed in euros. Yet what is of particular interest is that the liquidity induced rally may be about to fizzle: we have no experienced the same near-parabolic blow off top move that we saw at the end of the summer 2008 rally (which ended up with the market plunging over 50%), and the first QE1 which plateaued oil prices and only further hopes of more QE prevented the market from dropping. Is the same fate in store for crude if indeed the Fed is prepared to let the market find its natural clearing price without daily injections of billions.

Earlier this week I discussed the devolution of the consumer economy with a focus on the diminishing returns of consumption and the limits imposed by servicing ever-growing debts. Today I will address a series of other interconnected reasons why the consumer economy is devolving. The cost structure of the entire U.S. economy has bloated to unsustainable levels. Here's the basic mechanism: when money is "free," costs rise. If you had to explain why sickcare in the U.S. consumes 17% of our nation's GDP while other developed nations provide universal care for half that cost per capita (7-9% of their GDP), the answer boils down to "there's an unlimited amount of free money here for sickcare." There are no real limits on Medicaid or Medicare spending, and none on insurance cartels (it's a free market for health insurance, except there's only two providers in your area and their prices are the same--welcome to a "free market," hahahahaha).

Is it time to start quoting that famous William Butler Yeats poem yet?

Some stunning remarks from Dallas Fed's Dick Fisher: " Our duty is most distinctly not to monetize?or even
be perceived as monetizing?the debt of fiscally imprudent government.
Throughout the history of nations, monetizing the budgetary excesses of
governments has proven to be a direct path to economic perdition.
Having already peeked inside that door, I feel strongly that we must
now shut it, lock it and throw away the key." Well, thanks Dick. You are only $2.6 trillion dollars late.

Notorious contrarian Alfred Little, who recently made a splash in the alleged Chinese fraud basket, by issuing a scathing report against Deer Consumer Products (Nasdaq: DEER) which has since cut the price of the stock in half, yet gotten the author in hot trouble with the company which decided to sue both him and Seeking Alpha which hosted the report (even as shareholders of DEER should be thanking him for issuing the report when the stock was still at $11) is out with his latest report, taking on the next in a seemingly endless sequence of potential frauds (check the Nasdaq halt list and find the most recurring word): Puda Coal, Inc (NYSE: PUDA). Cutting to the chase: "Considering the 2009 and 2010 audited financials can no longer be relied upon, and  more importantly the complete lack of internal control that allowed Chairman Zhao to first steal the company, then sell half the company (pocketing the proceeds) and then pledge the other half of the company to a Chinese PE fund while piling on $530.3 million of 14.5% debt, I strongly believe $2.66 is the most this stock is worth today." Those buying puts are cautioned that the stock may halt and never reopen. Place your bets appropriately.

An intrepid Japanese duo has decided to do the reverse Fukushima commute and in a stunning filmed expose, drives through cracked roads, herds of animals in city streets and ghost towns to measure the radiation from 30 km out to 1.5 km away from Fukushima, where it hits 112 microsieverts, or roughly 350 times normal radiation. But don't worry. Everything is still under the recently updgraded (twice) legal limit.... for those clad in lead armor.

Confused why the dollar is getting destroyed, the EURUSD is at 1.44 and nothing makes sense in FX anymore? Here is Citi's Stephan Englander attempting to explain it all.

“Gold has gone up too fast too far” “Silver is in a bubble” We are starting to see more and more of these warning statements in the past couple of days. But sentiment and underlying indicators don’t point at major positivism in the segment at all, on the contrary, investors are still wary of this asset class.

Marc Faber was on CNBC earlier, once again discussing things so patently obvious only the Fed can not grasp them. Namely that as long as cheap money floods the system hard assets will continue rising in value, and gold will continue surging. Which is merely part of the bigger picture: nominal prices continue rising as real prices, denominated in paper and linen, continue to decline. But have no fear: Bernanke can fix everything in 15 minutes. Only that's total BS: "One day they will increase it by a quarter percent. But what does it mean when commodity prices are going through the roof, energy prices are going up, health care costs are going up, insurance premiums are going up?" Somehow, Bernanke believes, a hike will immediately undo months and years of downstream costs progressing through the system. And surely subprime is contained... As for the proverbial gold bubble: "If it were a bubble a lot of people would have gold. The whole world would be trading gold 24 hours a day. But I don't think it's really a bubble. I think gold is maybe cheaper today than it was in 1999, when it was $252." Oddly enough nobody mentions that gold is the only market that is now not part of the Fed's central planning "wealth effect" mandate (and the price suppression mandate is failing by the day): surging gold prices are an indication of one thing only: the market's desire to impose its own gold standard at a mark to market price equivalent for dollar destruction. It is this aspect of the metal: to correlate with Fed stupidity, that makes it such an attractive investment. And since Fed stupidity is endless, does it mean gold's fair value is infinite?

• Japan says economy in "severe" condition (Reuters)
• Time Running Out for US Budget Deal (FT)
• Dickering on Budget Goes Down to the Wire (WSJ)
• BOJ Puts Up $11.73 Billion for Rebuilding (WSJ)
• Libyan Rebels Blame Deadly Strike on NATO Mistake (Reuters)
• Egypt Protests Go On, Seeking New Beginning (NYT)
• As Standoff Continues, a Bleaker Outlook for Ivory Coast (NYT)
• Brazil Doubles Tax on Consumer Credit to 3% to Slow Inflation, Damp Demand (Bloomberg)