Archive - May 2, 2013

Whether this is just a 'misunderstanding' or a land-grab to make up for Japan's Senkaku actions, the Indians are claiming that a platoon of Chinese soldiers have crossed the so-called 'Line of Actual Control' in the Indian-held Ladakh region. They have remained there for two weeks and even as India complains, the Chinese deny, saying that they are "firmly opposed to any acts that involve crossing the Line of Actual Control and sabotaging the status quo." Indian officials fear that if they react with force, the face-off could escalate into a battle. But doing nothing would leave a Chinese outpost deep in territory India has ruled since independence. "If they have come 19 kilometers into India, it is not a minor LAC violation. It is a deliberate military operation. And even as India protests, more tents have come up," said one analyst but the Indians are rattling other sabres. China is India's biggest trading partner, with bilateral trade heavily skewed in China's favor, crossing $75 billion in 2011. Politicians are demanding Chinese imports are banned, "the Chinese have to learn that such aggression cannot be delinked from trade." Most are baffled by Beijing's motives, since its actions could force India to move closer to Beijing's biggest rival, the United States; though perhaps bringing that closer is just the point.

It's saddled with enough problems; in theory, it no longer needs to create new ones.

By now everyone, even CNBC, admits that the only reason stocks are where they are is due to the G-7 central banks. What many may not know, however, is how we got here, and where we will be at the end of this year. The answer, as provided by JPM Asset Management CIO Michael Cembalest in the chart below, is at the dot in the top right. This will represent the addition of $10 trillion in liquidity, or alternatively the conversion of the "planetary nebula" of central bank balance sheet expansion, in the past seven years. And considering that, as we explained yesterday, there is another $10-11 trillion in scarce "quality collateral" that has to be injected into the financial markets via central banks collateral transformations, the number in yet another 7 years will be at $20 trillion if not exponentially higher, or higher than where US GDP will be.

The mobile gold rush of Web 2.0 continues to attract thousands of techie fortune seekers to San Francisco. It's an old story, and a compelling one: there's gold in them thar hills, and I'm a-gonna git me some. The only thing that changes is the nature of the gold. The dot-com boom of the late 1990s created a new gold rush in San Francisco and Silicon Valley that fizzled in the early 2000s as the same old reality hit home: only the first few gold-seekers hit it big, and most of the late-comers trudge home empty-handed. Over 50,000 people left the San Francisco Bay Area as employment in dot-com technology imploded. The new gold rush is mobile--mobile apps, mobile services, mobile anything. All this overlooks the basic mobile gold rush model: poaching advert spending in a stagnant economy.

The Government – Which Has Taken Away Our Liberties and Destroyed Our Prosperity to Fight An Endless War On Terror – Has Been Arming, Funding and Otherwise Backing the Very Terrorists Who Are Carrying Out Most of the Attacks

More and More People Are Staring Into Our Fishbowl

Things in the 'economy' must be good - investors are nearing their most levered long to US equities ever. As Sean Corrigan notes, Net Margin (defined as NYSE Margin Debt minus Mutual Fund Liquid Assets) is within a hair of its all-time record high and relative to the March 2000 peak in the Wilshire 5000 (broadest US equity market cap), we are rapidly approaching 'peak' exuberance levels. Indicatively this should make sense since the market is at all time highs, but it is so because of central banks, not because of individual investors. So why would the investors themselves be just as stretched as the global central banks, and how does this leverage upon leverage unwind in the end?

Healthy female participation rates in the labor force and in leadership are a reflection of inclusiveness in countries and companies; and as Goldman Sachs recently noted, inclusive institutions lead to more innovation, more enduring competitive advantages and a more efficient use of available resources (capital, physical and people). The idea that empowering women employees and entrepreneurs contributes to a virtuous cycle as higher female disposable income trickles down to increased spending on education and healthcare, is not lost on Warren Buffett who writes at length in his latest Op-ed of the possibilities for America should the other 50% of America become productive, "women should never forget that it is common for powerful and seemingly self-assured males to have more than a bit of the Wizard of Oz in them. Pull the curtain aside, and you'll often discover they are not supermen after all." And with the oracular Omahan now on Twitter, can we expect more bitesize insights - perhaps the anti-Bill-Gross tweet.

Presenting the new Google ass...

Tuesday's Case Shiller update index showed something very troubling: as a whole, the US housing market in its broadest sense, has barely budged in the past four years (chart). And yet, what is unmistakable, and what has given many the impression that there is a "recovery" (despite clear recent signals to the contrary) are media attempts to spark a buying frenzy in several of the key markets that were responsible for the prior housing bubble, such as Florida, California, Nevada and Arizona. And how do we know they are succeeding, if only until the Bernanke liquidity bubble pops again? Courtesy of articles such as this: "25 markets where flipping homes is most profitable." Nuff said.

Presented with no comment...

With Lumber prices plunging to 5 month lows, we have just one question for those buying homebuilder stocks as they push new highs - what are they building houses in this new normal?

Gross: World awash in money. Fed buys 85 billion per month. BOJ 75 billion. ECB hints at neg interest rates. Don’t buy – sell risk assets.

— PIMCO (@PIMCO) May 2, 2013

There continues to be difficulty in securing physical bullion in large volumes, particularly in the small coin and bar market and particularly in the silver market. 

With the Bank of England cutting its wholesale interest (bank) rate to historic lows and now the ECB slashing 50bps off its key rate (as well as remonstrating on the reduction in fragmentation across European nations), it is perhaps perplexing (or simply too obvious) that a bank would raise its mortgage rates. As the Daily Mail reports, government-owned Bank of Ireland (BOI) doubled mortgage rates for 13,500 customers in the UK leaving homeowners with huge increases in their monthly payments. The bank, exploiting small print in the legacy mortgage contracts, will hike the interest cost for 1-in-14 homeowners from 2.25% to 4.99% (raising the spread over the bank rate on these loans from 1.75% to 4.49%). Anger is rife as customers complain "it's all very frustrating," adding that they thought this was a 'tracker' mortgage but BOI defends their massive rate hike on increased funding costs and the need to maintain higher levels of capital. The disconnect between wholesale gorging provided by the Central Bank and wholesale gouging of the real economy grows ever wider it seems.