Archive - Dec 2013

We're baffled by the storyline portrayed by the dying legacy media, sponsored by Wall Street and the CEO executive suites of mega-corps, and supported by the propaganda data agencies of the U.S. government. The BLS, BEA,  CBO, CNBC, CNN, and a myriad of other government sponsored letters present supposedly accurate data that is designed to convince the ignorant masses everything is fine and their lives are improving. For anyone willing to uncover the facts and think critically about the storyline being presented, an entirely different reality is revealed. The simple chart below obliterates the “official” storyline. Do you have the uncomfortable feeling that your financial situation has been declining for the first 13 years of the 21st Century?

We had wondered what would happen once private equity players decided enough was enough and foreign oligarchs finished their real estate money laundering transactions. Well, we might be about to find out. According to RealtyTrac, foreclosures for homes worth $5 million or more are up 61% this year despite the fact that overall foreclosures are down 23%. The question is, does this merely represent holdouts from the prior housing bubble, or is it a sign of things to come? Only time will tell.

Judging by HuffPo's latest polls, the current administration is going to need a bigger boat (of vote-garnering transfer payments) to stand a chance in 2014... or, of course, we see another epic fail in January when the debt-ceiling debacle rears its (mostly ignored by the stock market) head and once again the Republicans are painted into an awkwardly responsible corner. One thing is clear, the voters are becoming less 'entrenched' in their faith in hope-and-change (or more distracted from their dismal reality).

They say those who forget the lessons of history are doomed to repeat them. We’ve seen that maxim made true time and again. The cycle swings fear back to greed. The overcautious become the overzealous. And at the top, the story is always the same: Too much credit, too much speculation, the suspension of disbelief, and the spread of the idea that this time is different. The weaknesses of the human heart and mind means the swings will always exist. Our rudimentary understanding of the forces of economics, which in turn, reflect ultimately reflect the fallacies of people making investing, purchasing, and saving decisions, means policymakers will never defeat the vagaries of the business cycle. So no, this time isn’t different. The specifics may have changed, but the themes remain the same.

“We need some recognition that we’re doing a service to the community. But we can’t do it for free. And we can’t do it at a loss. No other business would do that,” exclaims the president of the California Medical Association, as The Washington Examiner reports, independent insurance brokers estimate 70% of California's 104,000 licensed doctors are boycotting the exchange. “The Covered California board says we have plenty of doctors, and they allege they have 85 percent of doctors participating, but they’ve shown no numbers," and if a large number of doctors either balk at participating in the exchange or retire, the state’s medical system could be overwhelmed. “Enrollment doesn’t mean access, because there aren’t enough doctors to take the low rates of Medicaid,” warns one health director. “There aren’t enough primary care physicians, period.”

Does the FDA think you're too stupid to have access to your own genetic information? It sure seems so. On November 22, 2013, the FDA sent a warning letter to the well-known consumer genomics company 23andMe, ordering it to "immediately discontinue marketing" its only product. For those of you who are not familiar with 23andMe, the company provides a "DNA Spit Kit" and "Personal Genome Service" (PGS) that supposedly reports on 240+ health conditions and traits and helps clients track their ancestral lineage. 23andMe is information, not a medical device. This is really a first amendment issue, and the FDA should not be in the business of regulating freedom of speech and information.

As today's chart of the day shows, while the civilian noninstitutional population (i.e. employable Americans over the age of 16) grew by 2.4 million in the past year (from 244.2 million to 246.6 million), the US labor force somehow, very mysteriously, declined.

Japan is likely to launch even more QE in early 2014 and a much lower yen may result. That'll have dramatic consequences, perhaps greater than US tapering.

As the eurozone debt crisis has steadily widened the divide between Europe’s stronger northern economies and the weaker, more debt-laden economies in the south (with France a kind of no man’s land economy in between), one question is on everyone’s mind: Can Europe’s monetary union – indeed, the European Union itself – survive? Fiscal and financial measures aimed at strengthening eurozone governance have been inadequate to restore confidence in the euro. And Europe’s troubled economies have been slow to undertake structural reforms and by maintaining large trade surpluses, Germany is exporting unemployment and recession to its weaker neighbors. But how will Germany react when the north-south divide becomes large enough to threaten the euro’s survival? Two outcomes now seem possible. Europe’s north-south divide has become a time bomb lying at the foundations of the currency union.

Don`t fall in love with market exposure as even Wall Street Sharks get eaten alive in financial markets.  

It was inevitable that a few short days after Wall Street lovingly embraced Bitcoin as their own, with analysts from Bank of America, Citigroup and others, not to mention the peanut gallery vocally flipflopping on the currency after hating it at $200 only to love it at $1200 that Bitcoin... would promptly crash. And crash it did: overnight, following previously reported news that China's Baidu woild follow the PBOC in halting acceptance of Bitcoin payment, Bitcoin tumbled from a recent high of $1155 to an almost electronically destined "half-off" touching $576 hours ago, exactly 50% lower, on very heave volume, before a dead cat bounce levitated the currency back to the $800 range, where it may or may not stay much longer, especially if all those who jumped on the bandwagon at over $1000 on "get rich quick" hopes and dreams, only to see massive losses in their P&Ls. Which incidentally, like gold, is to be expected when one treats what is explicitly a currency, instead as an asset, with delusions of grandure that some greater fool will pay more for it tomorrow than it is worth today.

While the perma bears may find comfort in the dollar's decline, its weakness has not been very broad, but really limited to the euro, sterling and currencies that move in their orbit.  Still further dollar declines look likely near-term.  

Despite President Obama's claims that drone strikes do little damage to civilian populations, in July we discovered that “of the 746 people killed in drone strikes in Pakistan from 2006-2009, an incredible 20% were civilians and 94 (13% of the total) were children.” We suppose that number just isn’t good enough, because, as The Washington Post reports, "The Pentagon has loosened its guidelines on avoiding civilian casualties during drone strikes, modifying instructions from requiring military personnel to “ensure” civilians are not targeted to encouraging service members to “avoid targeting” civilians." Can’t. Make. This. Stuff. Up.

The stock market. Source of unknown riches - but not necessarily for investors. So-called "professional" investors offer to manage your money. However, their fees are based on the level of assets managed, not performance. Hence their goal is to maximize assets, not performance, and prey for markets to behave. You will never hear a bad word about stocks from a professional money manager. the by-laws of many mutual funds do not allow the manager to have cash levels above 5% of assets. He has to be invested at least 95% at all times. On one hand, it is probably right to force money managers to concentrate on stock picking, not market timing. On the other hand, this puts the onus of market timing onto the inidiviual investors. Lighthouse's Alex Gloy's excellent presentation below proves finance doesn't have to be complex (people make it complex). Gloy goes on to discuss the link between GDP and Profits, performance, valuation, inflation, and war and their effect on all markets.

As a distant but interested observer of history and investment markets, Marc Faber is fascinated how major events that arose from longer-term trends are often explained by short-term causes.; and more often than not, bailouts (short-term fixes) create larger problems down the road, and that the authorities should use them only very rarely and with great caution. Faber sides with J.R. Hicks, who maintained that “really catastrophic depression” is likely to occur “when there is profound monetary instability — when the rot in the monetary system goes very deep”. Simply put, a financial crisis doesn’t happen accidentally, but follows after a prolonged period of excesses (expansionary monetary policies and/or fiscal policies leading to excessive credit growth and excessive speculation). The problem lies in timing the onset of the crisis.