Archive - Apr 2013

• Police Searching for 19-Year-Old Boston Bombing Suspect (BBG)
• Mayhem Erupts in Boston After MIT Campus Officer Slain (BBG)
• Elvis Impersonator Accused of Ricin Letters Sowing Fear (BBG)
• Blackstone Pulls Out of Dell Bid on Rapidly Falling PC Sales (BBG)
• Before Texas plant exploded: What did regulators know? (Reuters)
• Aso Says Japan Policy Unopposed at G-20 Meeting as Yen Falls (BBG)
• Bipartisan pair target $2.5tn US savings (FT)
• Plan for new Cyprus vote casts uncertainty on bailout (Cyprus Mail)
• Ireland picks through debtors’ lifestyles (FT)

While one of the shootout suspects, who have turned out to be brothers of Chechen origin, has been killed, the other one is still on the loose, is said to have had military and weapons training, and is the reason for the lockdown of Watertown and increasingly bigger parts of Boston. His social webpage on the service VK.com has been revealed, where the last log in attempt was at 5:04 am. Hopefully this is Chechnya Standard Time.

With the entire world's attention focused on Boston, the FX carry pair traders knew they had a wide berth to push futures, courtesy of some EURUSD and USDJPY levitation overnight, which started following news out of Japan that the G-20 would have no objection to its big monetary stimulus - of course they don't: they encourage it: just look at the levitation in the global wealth effect stock markets since it started. The Friday humor started early: "Japan explained that its monetary policy is aimed at achieving price stability and economic recovery, and therefore is in line with the G20 agreement in February," Aso told reporters. "There was no objection to that at the meeting." "We explained (at the G20 meeting) that we're convinced that the measures we're taking will be good for the global economy as they will help revive Japanese growth," Aso said. And by global economy he of course means stocks. Shortly thereafter, when Europe opened, the real levitation started as someone, somewhere had to offset what would otherwise be a 100 point plunge in the DJIA just on IBM's miserable results alone. Sure enough what better way to do that than with a wholesale market "tide" offsetting one or two founder boats.

In a series of bizarre if morbid events, things in Boston have gone from bad to surreal. According to Reuters, police killed one suspect in the Boston Marathon bombing during a shootout and were engaged in a house-to-house search for the other on Friday in the Boston suburb of Watertown. The suspects, incidentally, as AP reports, are reportedly brothers and originally from the separatist Russian region of Chechnya, who lived in the US for at least 1 year and were Cambridge residents at the time of the incident. The night started off in a just as dramatic fashion, with the violence beginning around 10:30 p.m., with the robbery of a 7-11 in nearby Cambridge, authorities said. The two men then fatally shot an MIT campus police officer and carjacked a Mercedes sport-utility vehicle at gunpoint, keeping the vehicle's owner hostage for about a half-hour, police said. The owner was released at a gas station in Cambridge, authorities said. He wasn't injured. Police pursued that car to Watertown, where explosives were thrown from the car at police and gunfire was exchanged, the statement said. "During the exchange of the gunfire, we believe that one of the suspects was struck and ultimately taken into custody. A second suspect was able to flee from that car and there is an active search going on at this point in time," Colonel Timothy Alben, superintendent of the Massachusetts State Police, told a news conference.

Japan is not facing much criticism at the G20 meeting and this is encouraging fresh yen sales, which in turn is helping lift other currencies. We play down the speculation that China will widen its dollar-yuan band imminently.

Here is Part 2 of my article “The Argument of Bitcoins v. Gold Laid to Rest, originally released at my blog, www.theundergroundinvestor.com on April 9, 2013. Yes, money that is real and tangible is really better than money that is just a digital valuation backed by air.

Correlation is not causation; but coincidence means you're on the right path. Looking at the charts of Stocks, Commodities, and Precious Metals, we wonder just what it was that President Obama said at his 11amET White House meeting last Thursday...

In America, our cultural method of debate tends to divide individual issues into carefully separated spheres of discussion. This hyperfocus on single issues, from gun rights to illegal wars to invasion of privacy, draws us away from looking at the bigger interconnected picture, otherwise known as the “macro.” Each social or political conflict is compartmentalized by the mainstream, the dots are left isolated and the overwhelming overall threat to our foundational principles is marginalized. The problem with this civic philosophy is that the general public is left without peripheral vision and unequipped to comprehend that there is a process in motion, an overarching plan that is eating away at the edges of our liberty from every angle, one small piece at a time. That is to say, we have been conditioned to obsess over the pieces and ignore the plan.

As we have been warning for a while now, Japan wanted inflation and is certainly getting it, just in all the wrong places. While Abe has been desperate to transfer the collapse in the yen and the (transitory) surge in the Nikkei to the all important increase in wages, and the much sought-after wealth effect, the reality is that corporate input costs are rising far faster than revenues, and wages will be the last thing profit and earnings-conscious companies raise. As for the Japanese consumer, trained by 30 years of deflation, any profits in the stock market will be promptly converted to cold hard cash and bank deposits which represents that vast majority of Japanese financial assets, which means a double whammy for companies who will also see a drop in sales volumes, crushing margins even more as a result. One company which could no longer tolerate soaring energy and food costs (both of which we described previously here and here), is McDonalds, and as the FT reports, the fast-food chain announced today that the price of its entry-level hamburger would increase by 20% from ¥100 to ¥120, while a cheeseburger would now cost ¥150 instead of ¥120.

Get that “extra space” to move ready, Mr. Draghi. Your promise to provide unlimited buying of bonds might get put to the test!

The streets of Buenos Aires are full of revolting Argentinians this evening as they protest President Cristina Fernandez de Kirchner's (CFdK) plans to 'increase' state control of the court system. CFdK's proposal looks to limit the judicial system's ability to bring actions against the state, as Bloomberg reports, leaving citizens and companies unprotected against state actions affecting their finance or assets (i.e. mass nationalization or confiscation). As the images below show, the people are angry, exclaiming "No to impunity." CFdK's actions follow previous attempts to take action against companies have failed or taken too long; but acting behind a facade of "increasing democracy and transparency," it appears her intent is clear as the bankrupt nation struggles on. "The reform will do great damage," warned one business leader, adding that limiting these injunctions, "undermines individual's rights and freedom."

When the head of the IMF "thinks there is some good news," and applauds Japan for its "innovation," it is clear that Christine Lagarde is struggling for positives in this interview with Bloomberg TV. Though she says all the right things, dots-the-i's-and-crosses-the-t's off as a confidence-inspiring global elite should do, the lack of enthusiasm is clear. "I'm deliberately, decisively, desperately optimistic," she exclaims even as she admits that they just downgraded global growth expectations and somewhat slams the US for "blind and blunt" fiscal consolidation, preferring instead "austerity... but not front-loaded." All-in-all, "a bit of work needs to be done," is as good as it gets for now.

We all know that markets don’t always reflect the health of the economy. It is not unusual to experience stellar market returns in an otherwise mediocre economic backdrop – something that investors are currently experiencing. But future success in this investing climate is a greater challenge and requires a good hard look at how realistic earnings expectations are. The bottom line is that actual earnings growth will be substantially lower than what is currently built into stock prices. This view is contrary to current consensus expectations and could potentially serve as a major headwind for the market once investors begin to share it in coming months.

First CNN, then AP, now Reuters: the entire media is increasingly starting to look like amateur hour. Unless, of course, Soros is like Osama, and had several "reincarnated" body doubles, with the original specimen long gone. Here is our suggestion for another prepared article: "Today after XX centuries of monetizing debt, the Emperor of the Galactic Central Bank, Gaius Maximus Printius Bernankius the DCLXVI^th, ended QE in the year of the alien invasion, XXXXX. Bread costs XXXXXXXXXXX."