Archive - Jul 24, 2013

To understand Bitcoin’s role in the first half of 2013, one must understand the macro trends driving its recent more widespread adoption. From Capital Controls to Currency Wars and Monetary Easing, the 'freedom' offered by Bitcoin has garnered a great deal of attention as these topics have recently re-emerged to the forefront of global attention. The following in-depth review (and outlook) of the Bitcoin environment covers trading, exchanges, venture capital, mining, and regulatory developments of the crypto-currency. The past six months may one day prove to be among the most important in bitcoin’s history. As global events sparked increasing need for frictionless wealth transfers, Bitcoin’s popularity ballooned and ignited a conversation that will likely continue to flourish in the years to come.

We've covered food fraud, stealth inflation and related topics rather consistently for the past couple of years. As one might expect, China has been a hot spot for such activity, including the classic example of rat meat being served as lamb on the streets of Shanghai. Well here’s the latest controversy, ice cubes at KFC that are not just dirtier than toilet water, but 13x dirtier. YUM!

With the Limerick King

Lately, Fedspeak has plummeted to new depths of indecipherability as frantic Fed governors, terrified by the extent of the reaction to the slightest hint that the Free Money Express is pulling into the station, have scrambled to fine-tune the effects their hieroglyphics have had on markets. Dovish! No, hawkish! No, Dovish! Wait...  what was the question again? As Bill Fleckenstein noted, "...when I contemplate the amount of damage that will be done by four years (and counting) of QE, I really just shudder in wonder at how big the disaster might be, though there is no doubt it will be a disaster... Either it is going to continue to buy bonds forever, which is impossible, or there is going to be a massive dislocation at some moment in time because someone else is going to have to buy that debt when the Fed ultimately stops." The important point is that, ultimately, it won't be the Fed that decides where interest rates are, but rather the market.

Day after day we see stories of the dreadful acts that drones have been responsible for. But, apparently, they have a softer side. As The Shanghai Daily notes, a local cake factory has decided that the most efficient way to deliver their tasty treats across the Huangpu River to customers down town is via three re-fitted Chinese-made drones. The drone-delivered-cakes - which cost around $325 - have raised concerns though as "what if the cake or even the drone fell on a passer-by?" Local police and aviation authorities are investigating the issue, but for now it appears the Chinese can have their drones and eat from them too.

Yesterday, just as AAPL was plumbing its intraday lows ahead of its earnings announcement, and just as gold was about to break out to the upside (at least until Dennis Gartman turned bullish on the metal) we relayed a "rumor" suggesting that the most sturdy pair-trade of the past few months: the AAPL-Gold compression was Ben Bernanke's #timestamp for the day.

Rumor Bernanke is pitching the AAPL-gold compression trade

— zerohedge (@zerohedge) July 23, 2013

Sure enough, following yesterday's AAPL spike and today's gold take-down, Bernanke Asset Management can claim one more win in its impeccable recommendation track record.

Moments ago, an unlikely grouping between a 33-year old Republican, Rep-Justin Amash, and an 84-year old Democrat, Rep-John Conyers, resulted in a House vote, that if passed, would have suspended the NSA's "indiscriminate collection of phone records" and effectively ended the program's statutory authority. Yet despite significant lobbying by the White House, security experts and representative on both sides of the aisle, the vote came within a startlingly close 12 votes of passage. A majority of Democrats, 111, voted for Amash's amendment despite the full court press while 83 Democrats voted no. The GOP vote was 94-134. That the vote did not pass is not surprising. However, that it came to just 12 votes of passage is the stunning development and shows a sea change of how Congress approaches both personal privacy and the broader implications of the Patriot Act. All of it thanks to the action of one man who at last check was still stuck in the transit terminal in Moscow.

Today average Brazilians are having trouble making ends meet paying for everyday products or household goods. Riots erupted in Brazil against the Pope’s visit to Rio de Janeiro.

Presented with little comment aside to ask, rhetorically, when do our existing valuation methodologies fail and we shift to Price-to-Fed-Balance-Sheet metrics?

A troubling trend has emerged among Japan’s elderly – who represent around a quarter of its 128 million citizens – which is closely bound up with the nation’s greater demographic problems at hand. For the first time ever, Japanese aged 65 and up account for a higher percentage of shoplifting cases than do the country’s teens. Abe's upper-house election win this weekend makes the situation worse. Facing the reality of increasing strain on a shrinking workforce, Abe plans to cut welfare in August, rather than increase government help for the nation’s burgeoning elderly population. With this cut, theft among the elderly could very well increase.

When it comes to the conversion of the US into a totalitarian state, few things are quite as symbolic as the construction of the NSA's Bluffdale, Utah Data Canter, which was revealed last year by Wired, yet which did not get much prominence until June's revelations by Edward Snowden. Costing billions in taxpayer money, the facility is simply the largest hard disk ever built, designed to store every current and future electronic communication, both foreign and domestic, to be made available at a moment's notice following the "permission" of the secret FISA court. Which is why one would think that if there is one thing the NSA would excel in (and once can certainly not blame the NSA for being budget-friendly - recall that the The Pentagon has requested $4.7 billion for “cyberspace operations,” even as the budget of the CIA and other intelligence agencies could fall by $4.4 billion) is being able to identify and isolate any particular signal among a veritable mountain of noise. One would be very wrong.

The secular low in bond yields has yet to be recorded. This assessment for a continuing pattern of lower yields in the quarters ahead is clearly a minority view, as the recent selling of all types of bond products attest. The rise in long term yields over the last several months was accelerated by the recent Federal Reserve announcement that it would be “tapering” its purchases of Treasury and mortgage-backed securities. This has convinced many bond market participants that the low in long rates is in the past. The Treasury bond market’s short term fluctuations are a function of many factors, but its primary and most fundamental determinate is attitudes toward current and future inflation. From that perspective, the outlook for long term Treasury yields to fall is most favorable in light of: a) diminished inflation pressures; b) slowing GDP growth; c) weakening consumer fundamentals; and d) anti-growth monetary and fiscal policies.

When we recently described the case of the "monoderailed" Spanish "train to nowhere" we hardly had in mind just how sad and tragic this proposition would become in reality just two short weeks later. A high-speed train (traveling at 250kph) has derailed in Northwestern Spain - killing at least 35 people and injusred hundreds more. As CNN reports, the train crashed on a curve near the city of Santiago de Compostela - traveling from Madrid to the town of Ferrol. With China unveiling its plans to save the world's economy via a rail-road infrastructure fund, and Spain already neck-deep in funding rail-roads to nowhere, this evening's terrible disaster in Spain will surely provide some food for thought.

The rise of the surveillance state and the shifts in our daily usage of portable personal computers (smartphones) are likely to lead to some intriguing shifts in how we communicate and invest.