Archive - Dec 2013

“I wanted to take something that everybody had an idea of — ‘I’ve been there, I’ve seen the statue of liberty’ — but I wanted to show it to you in a way that you could never see it”   - Stephen Wilkes

The Turkish high-profile corruption scandal, whose fallout has so far resulted in the jailing of the sons of the Turkish minister of the interior Muammar Guler, just escalated sharply following the abrupt resignation of three key ministers from PM Erdogan's government. Earlier today, first Economy Minister Zafer Caglayan and then Interior Minister Muammer Guler submitted their resignations to Prime Minister Recep Tayyip Erdogan Wednesday morning. A few hours later, they were joined by Environment and Urban Planning Minister Erdogan Bayraktar who also tendered his resignation as a member of parliament, however instead of doing so in a complacent manner, he lashed out at the PM and called for his resignation which roiled markets following an earlier relief rally.

Edward Snowden's Christmas message, conveyed to the world courtesy of the UK's Channel 4, from his Russian exile is simple: "end mass surveillance." Alas, in a world in which social media exhibitionism is the norm, is his message increasingly falling on deaf ears? After all, there is a Duck Dynasty scandal, or a Justin Bieber retirement at any given moment, both of which are far more important than the loss of all personal privacy and the supreme reign of Big Brother.

When the first response taken by major banks such as JPMorgan, in the aftermath of the massive 40 million credit and debit card hack of the third largest US retailer Target, was to lower ATM withdrawal and purchase limits, it became clear that there was more here than simply a well-organized credit card number scrape. And indeed, as Reuters reports, the hackers who compromised up to 40 million credit cards and debit cards also managed to steal encrypted personal identification numbers (PINs) according to a senior payments executive familiar with the situation. And since from there to emptying bank accounts and saved deposits is only a keystroke away, with no credit card processor intermediate to offload liability to, banks had no choice but to immediately limit debit card access to as much 10% of their clients, in JPM's case, in an unprecedented first, which just may have shown the way of how to limit a cash withdrawal panic if and when the need to do so arises.

Many Ponzi schemes work for a while, but it is only a matter of time before the tide goes rolling out to Sea.

Over the past two weeks, Bloomberg anchor Matt Miller has been on a crusade to popularize Bitcoin, which intuitively makes sense: having risen ten-fold in the past year, the mainstream financial media is now paying attention and furthermore, is providing its audience the desired information about the hot meme du jour. To be sure, it is quite possible that his interest is sincere instead of merely the latest pageview-generating gimmick used by a majority of the other Series X preferred stock round media outlets.  Which is why it was ironic (and humorous) that in his quest to demonstrate just how "accessible" Bitcoin is on live TV, the anchor was "robbed" in broad daylight by an enterprising Reddit hacker named "milkywaymasta" who screengrabbed the QR code shown by Miller and promptly confiscated the $20 equivalent.

This morning we showed that new home prices in America have never been higher. This is great news, right? Well not if you are an average American looking to buy a new home. Based on the median real income, home prices have never been more unaffordable at a stunning 6.7x average salary. Moreover, for those unable to see the bubble (or unsustainability), it appears Bernanke learned well from his previous planner-in-chief, having manufactured a much more aggressive ramp in prices leaving the average American even further away from the American Dream.

In the "west", the higher the price of gold rose, the more demand there seemingly was by momentum-chasing gamblers investors, if only for paper certificates claiming to represent gold, or GLD as the case may be. Conversely, once the momentum turned, the same investors couldn't be bothered with gld (sic) even at 30% lower. At the same time, in the "east" the higher the price of gold rose, the lower the demand was for physical, which for that extinct breed of deranged gambler known as "value investor" is a familiar concept."  And now that gold's price is not only back to early 2011 levels, but is essentially below production costs, demand out of China is off the charts. Demand in India - traditionally the greatest in the world - continues to also at unprecedented levels, although now that official purchases of gold are regulated and limited through capital controls, it is forcing the local population to smuggle in gold through the most innovative of schemes.  But while the west is the west, and the east is the east, and no amount of adaptive behavioral modifications can change that, much to central bankers' chagrin, what lies in-between? Courtesy of the Saudi Gazette we learn that the uber-rich middle eastern kingdom, which floats on a sea of oil has picked its side... and it has chosen to take advantage of the ongoing paper-driven price collapse and load up on as much gold as possible.

The US economy is stabilizing, but it's not truly recovering. That's the view of Saxo Bank's Chief Investment Officer, Steen Jakobsen. Following the Fed's tapering news, Steen says the risk is that we trade on perception and not reality... "We're at the end of asset inflation," he says, and that "will dawn on the market very soon."

There can be little doubt that last week's Fed announcement was an epic attempt at rhetorical audacity. The message they hope to convey is that they are tightening monetary policy by loosening it. Based on the market reactions, the trick has seemed to work.  But we are still seeing much higher leverage than what would be expected in a healthy economy, and as a result, the gains in stocks, bonds and real estate markets are highly susceptible to rate spikes. If yields move much higher we feel that the Fed will have to intervene to bring them back down. In other words, the Fed will find it much harder to exit QE than it was to enter.

While some would argue (as they always do) that there are good reasons to be bullish going into 2014 (central bank liquidity provision being an obvious one); there are ample reasons to remain vigilant with respect to your investments. The stagnation of wage growth combined with higher costs leaves an already cash strapped consumer with few options.  It is likely that we will see a push by consumers to re-leverage their household balance sheet which will be hailed by the media as a return of consumer confidence.  However, one should not forget the last time a highly levered consumer ran into problems. Furthermore, there are three potential headwinds that are likely to weigh on the economy and the markets which are potentially being overlooked.

Since the President's Obamacare legislation became law, it has never had such widespread opposition according to CNN's latest poll with 62% of those polled "opposed" the law and only 35% were in favor. Results also indicated most Americans predict their medical care costs will increase under the ironically-titled "Affordable Care Act". As UPI reports, "opposition to Obamacare rose 6 [percentage] points among women, from 54% in November to 60% now, while opinion of the new law remained virtually unchanged among men," CNN Polling Director Keating Holland said. "That's bad news for an administration that is reaching out to moms across the country in an effort to make Obamacare a success." Maybe Americans just need another day to decide?

Following David Woo's initial $1300 fair-value price target for Bitcoin, the BofAML strategist has had to suffer through some significant changes; not the least of which is China's increasingly strict Bitcoin regulation. The shifts, he notes, raise key questions about the future of Bitcoin as he asks "is this the end of Bitcoin?"

We all know Apple’s greatest hits, but which products and services would Apple’s leaders rather forget?

A look ahead into 2014.