Archive - Jul 15, 2013

In an effort to soften the blow to our American readers, here is an analogy: You know when you move out of your parents’ house and live on your own, how you start hanging out with your friends’ families and you realize that actually, your family was a little screwed up? Stuff you always assumed was normal your entire childhood, it turns out was pretty weird and may have actually screwed you up a little bit. The point is we don’t really get perspective on what’s close to us until we spend time away from it. Just like you didn’t realize the weird quirks and nuances of your family until you left and spent time with others, the same is true for country and culture. You often don’t see what’s messed up about your country and culture until you step outside of it. And to our foreign readers, get your necks ready, because this is going to be a nod-a-thon.

It is obvious that the oil market is out of touch with the fundamentals.  But this is just my analysis, let`s hear what Oil industry executives believe.

With the untapering due any minute, and cost of debt set to plunge to even lower record levels, one thing is certain: the private equity industry is about to be bathed with even more costless credit and, with a portfolio of companies already accounting for 8% of US GDP, is about to accelerate its "going private" take over of America's corporations. Of course, in the pursuit of the almighty cashflow driven IRR, all is fair in love and LBO wars, however, one group of people who may not like the outcome are America's workers especially following tonight's glimpse of the "cost-cutting" process that is about to be unleashed by the Fed-funded corner office on workers everywhere. A few hours ago First Data Corp., a KKR portfolio company, announced that it will suspend 401(k) contributions to employees and replace cash bonuses with stock "as part of its new chief executive's strategy to return the credit-card processor to profitability." The move was announced to all 24,000 employees of the Atlanta company in an internal memo Monday.

The prospect of financial sector deleveraging in China increases the risk of a hard landing - despite yesterday's goldilocks GDP print (and ugly miss in IP). Although the probability of the hard landing is still low, Morgan Stanley warns it’s not low enough to make hedging costs irrelevant: The new government's policy drive to deleverage the banking sector has become more apparent, and they think this deleveraging will likely continue to unfold in the next 6-12 months. In MS' Super-Bear scenario, they expect aggressive policy tightening to reduce 2H13 GDP growth to 5.5% YoY. In this scenario, policy-makers are also slow to respond to this deceleration, leading to more turmoil in the financial sector. Although a low probability event, this would have major implications for global markets. MS estimates that markets are pricing in a 1-in-10 chance of a Super-Bear scenario in China in the coming 12 months, more in equities, less in FX markets.

From George Washington to 1864, assassination attempts were made on 1 in 4 presidents and 1 in 16 presidents were killed. Since 1865, assassination attempts were made on 1 in 4 presidents and 1 in 7 have been killed. In the last 30 years, three attacks have been made on the presidents - none of these were successful. Overall, since 1864 the frequency of assassination attempts has remained the same while the success rate has nearly doubled.

What is so interesting about Montana’s House Bill 603, which passed overwhelmingly the state Senate by a 96-4 margin, is that it was passed in April, or several months before Edward Snowden’s NSA revelations. Talk about some foresight. Hopefully, we will see many more such bills sweep across the nation, as “change” will have to be done at the local level. The central government in D.C. is hopelessly corrupt and we don’t see that changing. We must just decentralize away from the District of Criminals on our own.

Former Goldman Sachs trader Fabrice Tourre goes on trial this week, accused by the Securities and Exchange Commission of willingly misleading investors while he was vice-president of the bank.

The global crisis is a financial crisis driven primarily by global trade and capital imbalances; and Hinde Capital believes the crisis is in full swing again and asset prices are in danger of falling globally. Money is less effective at catching the falling knife. Investors and policymakers do not believe this is the beginning of a major EM contagion crisis. They are lulling themselves into a false sense of security. They see the EM market tremors, and do not fear a re-run of the EM crises of old. They are right. This is not (just) going to be an EM crisis. The disproportionate reaction of central bankers and policymakers alike has merely succeeded in compounding and exacerbating the error of this highly imbalanced monetary system. Recent events in emerging countries are a manifestation of the continuing unravelling of our monetary order.

Shunichi Tanaka, the head of the Nuclear Regulation Authority in Japan, and the country’s chief nuclear regulator announced on Wednesday, that the nuclear power plant at Fukushima, has been leaking contaminated water into the ocean for the two years since the accident that saw three of the plants six reactors suffer a meltdown.

"It is not true that those who worried about the rise of consumer credit in the US in the mid 2000s were “wrong” until the stopped clock eventually was right," this strikes me as an incredibly superficial analysis, explained only by the fact that many of us expect economic analysis merely to predict whether the stock market will rise or fall this week. Those who worried about rising consumer credit in the US were not wrong every single year until 2007-8, when they accidentally became right. They were right every single year, and were proven right in 2007. Those who have been arguing that China is experiencing an unsustainable increase in debt have not been wrong every quarter that China has not collapsed. They are almost certainly right and it is hard even for the most foolish of bulls any longer to deny it."

Start Here If You’re Too Busy to Read Up on the Spying Scandal

A quick look at job creation on a state by state basis shows some very distinct losers, and one very obvious winner: Texas.

How do you change the direction of the country when power has been seized by the ultra-wealthy criminal class? When the financial, economic, political, military, judicial, and media organizations have been taken over by criminals who are looking out only for their financial interests, the few citizens who have the courage to speak the truth become enemies of the state. There is no non-violent solution to this state of affairs. This is what Fourth Turnings are all about. 

Thank to Boeing's 'recovery' - since there was no fire today - the Dow gained 20 points (of which 29 points were Boeing). The S&P managed new closing all-time highs on the lowest non-holiday volume day of the year. Bonds were well bid early in following the bad-is-better retail sales print (-7bps from early high yields). Commodities were leaking lower into the early macro data but as soon as it was confirmed that the US consumer is tapped out - gold, silver, copper, and WTI all started to surge higher. Homebuilders notably underperformed, Utilities significantly outperformed with the rest treading water. Early USD strength (on ripping JPY weakness) was removed rapidly following the 'yes, the US economy is dismal' confirming data and the slide continued all day - leaving the USD practically unchanged by the close. This is the 14th up-day in a row for the Nasdaq (longest streak since May 1990), the Russell is over 15% above its 200DMA (a multi-year record), and volume has cratered in the last 14 days.

It’s been said that goldfish have the shortest memory of any animal – only about three seconds. But a few years ago, scientists from Israel’s Technion Institute of Technology conducted an experiment which put to rest this erroneous myth. Based on their research, it turns out that goldfish have a memory closer to FIVE months... which seems to be quite a bit longer than most fund managers, bankers, and politicians. Their meme regarding crises, appears to be "but why should any of this matter? Those who control the system would never let things get bad." Pick up a book some time. History is full of examples of entire societies who thought the exact same thing. And yet, it happened. To throw caution to the wind and say, “In bankers we trust” is a foolish course of action… and presumes quite a bit upon the character of an entire industry that has consistently proven itself to be morally dysfunctional.