Archive - Jun 15, 2013

Happy Father's Day 2013 on the QT...

If Obamacare's stated goal was to broaden the health insurance market, give more options to consumers, and generally lower the cost of health insurance, courtesy of the IRS' flawless execution of yet another unprecedented government expansion, it may be in for a tough time. Because while on paper every statist plan of centrally-planned ambitions looks good, in reality things usually don't work out quite as expected. Case in point the news that Aetna will stop selling health insurance to individual consumers in California at the end of 2013, in advance of Obamacare's complete transformation of the insurance market: a transformation which just incidentally may see most private health insurance firms follow in Aetna's steps and the emergence of a single-payer system along the lines of the British National Health Service. A government-mandated and funded system which, needless to say, crushes private enterprise, and ends up costing far more for all involved than an efficient market based on individual wants, needs and capabilities constantly in flux. But that's ok - there is an administration which is smarter than the entire market, and a Federal Reserve which will monetize any deficit funding, and the only trade off is making the already ridiculous US federal debt ridiculouser.

Whether as the basis for the monetary unit of a country, or in its role in comparison to the currency of other assets, the price of gold has long been a subject of great interest to both the scholar and the general public. MeasuringWorth has created a multi-century time series of the barbarous relic's USD price. From the penny, the crown, the rose ryal, the guinea and the sovereign coin, the question of "what was the price then" is answered combining a number of sources and Visualizing Economics compares the 'real' price of gold since 1791 to GDP, wars, US presidents, and inflation...

Things have been a little erratic lately here in US, but not really headline-worthy. The economy continues to grow, sort of, houses continue to sell and stock and bond prices fluctuate but can’t seem to follow through in either direction. We are not, in short, engulfed in any kind of crisis. But out in the world, especially in once-hot emerging markets like Brazil and China, the story is very different. So can the US stay placid when the rest of the world turns chaotic? Highly doubtful. There’s a market phenomenon in which one investment play blows up and forces those on the wrong side of the trade to dump their liquid assets to raise cash. Which causes the high-quality assets to fall as much or more than the junk. As Noland notes, the world’s premier liquid asset is the Treasury bond. If the developing world’s need to raise cash is a factor in the recent spike in US interest rates, this implies a feedback loop in which rising US rates further destabilize emerging markets, forcing the sale of more Treasuries, and so on.

In UBS' view, 1994 is critical for guiding investing today. The key point about 1994 was not that US bond yields rose during a global recovery. But that the leverage and positioning built up in previous years, on the assumption that yields would remain low, then got stressed. The central issue, they note, is that a long period of lacklustre growth, low rates and easy money induces individual investors, funds, non-financial corporates and banks to reach for yield. In many cases, they gear up to do it. And as Hyman Minsky warned; in this way, stability breeds leverage, and leverage breeds instability. It is much less likely that we see the US enter a ‘high plateau’ of growth as we saw from 1995-98, where the US saw a powerful productivity & credit fuelled boom while the emerging markets deflated. And it makes it more likely that the US stays on a lower trajectory, interspersed with periodic recessionary slowdowns in the years ahead. The point at which the market realises this would likely herald a significant risk-off event.

Americans who disapprove of the government reading their emails have more to worry about from a different and larger NSA effort. As the AP reports, the program, that snatches data as it passes through the fiber optic cables that make up the Internet's backbone, which has apparently been known for years, copies Internet traffic as it enters and leaves the United States, then routes it to the NSA for analysis. As the name suggests, Prism is merely the intelligent filter, finding discrete, manageable strands of information within this much more massive data stream that is being collected and stored. Prism makes sense of the cacophony of the Internet's raw feed. What is unclear, as more details, interviews and documents become available, is how Prism fits into a larger U.S. wiretapping program in place for years (know as 'Hoovering' at one major internet company). In the meantime, as one former NSA official noted, "You have to assume everything is being collected."

With the world seemingly of the belief that the US is the cleanest dirty (it is not), we thought it might be useful - should you have money burning a hole in your sidelines pocket that 'needs' to be invested in stocks - to at least comprehend how rich or cheap the rest of the world is. UBS global equity strategy heat-map below identifies the most expensive (red) and cheapest (blue) sectors across 20 regions (and the aggregate) in one easy pocket-size cocktail-party-usable cheat-sheet. The US currently is most expensive and intriguingly Australia the cheapest relative to their own historical valuations.

As we rapidly approach the 100 year anniversary of the Federal Reserve (signed into law on December 23, 1913) and the 16th amendment (ushering in that IRS favorite - the income tax) a question arises: what was life like a century ago? Conveniently, the following infographic breaks down some of the main ways in which life has changed in the past 100 years: from life expectancy, to marriage, education, employment, wages, entertainment, sport, and shopping (we finally find a time when JCPenney was actually popular), all the key ways in which the world and life in the US has changed in the past century are mapped out.

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Back in May 2012, when we were making fun at the latest iteration of the now fatally discredited European stress tests, we took the first of many jabs at the what may currently be the world's most systematically important, and undercapitalized, bank in the world, Deutsche Bank, which was so bad that it wasn't even allowed to appear on a screen of Europe's most undercapitalized banks - and we helpfully pointed out its true capital ratio of just under 2%, and an implied leverage of 60x! Fast forward 13 months to a Reuters interview with former Kansas City Fed president and FOMC dissenter and sole voice of reason at the Federal Reserve, and current FDIC Vice Chairman Tom Hoenig, who confirmed that once again Zero Hedge was just a year ahead of the curve: "It's horrible, I mean they're horribly undercapitalized," said Federal Deposit Insurance Corp Vice Chairman Thomas Hoenig in an interview. "They have no margin of error."

Bernanke claims the Fed can successfully exit its current strategy. He’s lying. Or he’s adhering too strongly to economics and ignoring human nature.

Since the topic of quantifying how big the sovereign assistance to assorted banks - both in Europe and the US (which Bloomberg calculated at $83 billion per year) - has become a daily talking point, we are happy to read that Harald Benink and Harry Huizinga have reached the same conclusion as us in their VOX analysis, and further have shown that in Europe the implicit banking sector guarantee by the state is a whopping €650 billion. "Europe has postponed the recapitalisation of its banking sector for far too long. And, without such a recapitalisation, the danger is that economic stagnation will continue for a long period, thereby putting Europe on a course towards Japanese-style inertia and the proliferation of zombie banks... Banks are already saddled with ample unrecognised losses on their assets, estimated by many observers to be at least several hundreds of billions of euros and mirrored by low share price valuations, and an additional loss of their present funding advantage will be crippling."

"This Administration also puts forward a false choice between the liberties we cherish and the security we demand. I will provide our intelligence and law enforcement agencies with the tools they need to track and take out the terrorists without undermining our Constitution and our freedom. That means no more illegal wiretapping of American citizens.... No more ignoring the law when it is inconvenient. That is not who we are. It's not what is necessary to defeat the terrorists... Our constitution works. We will again set an example for the world that the law is not subject to the whims of stubborn rulers and that justice is not arbitrary. This administration acts like violating civil liberties is the way to enhance our security. It is not."

This Friday's night tape bomb came not from the administration, which may have run out of scandals to reveal for the time being, but from FaceBook which late in the evening disclosed the extent to which it has been cooperating with the government on spying on its users. Which also changes the public narrative built upon a pyramid of lies and secrecy one more time - recall how one week ago the company tried to wash its hands one weeks ago when Mark Zuckerberg said that "Facebook is not and has never been part of any program to give the US or any other government direct access to our servers." Just indirect. So in what was spun to be a rebellious act by a private company, long-cooperating secretly with the government, FaceBook's general councel posted on the company's news blog that the company is releasing data "including all national security requests." In doing so FB became the first US internet company to reveal the extent of official US government demands to hand over information, including confidential, about its users.

Stock-market crashes saw the light of day more and more as the world became industrialized. The 19th century saw a rapid increase in their numbers.