Archive - Jul 26, 2013

Based on media reports over the past few weeks, there are two clear front-runners in the competition to be named Ben Bernanke’s successor as Fed chairman. Current Vice Chair Janet Yellen sits in one corner, former Treasury Secretary and National Economic Council (NEC) Director Larry Summers in the other corner, and pundits are actively placing their bets. Yellen is "soft-spoken, even-tempered, 100% mainstream academic economist who boils the world down to simplistic concepts," so similarities between Bernanke and Yellen are far stronger than the differences. A hand off from one to the other would be about as eventful as a rainy day in Seattle. Compared to Yellen, Summers has a longer history as a heavyweight policymaker but as Charles Ferguson wrote, “rarely has one individual embodied so much of what is wrong with economics, with academe, and indeed with the American economy." And that’s what it seems to be coming down to: a choice between a yawn and a hiss. Why not appoint someone with a track record of getting things right, you ask? Well, that would require a culture of accountability in the White House. Does anyone remember when we last had that?

While this story is not Friday humor, it may explain the preponderance of "erect hockeystick" formations in IMF's legacy projection charts. Former IMF head Dominique Strauss-Kahn is no stranger to sexual scandal - in fact Anthony Weiner may learn a thing or two from the man who once upon a time was said would be France's next president. However, being charged with "aggravated pimping" may be a new low even for DSK, or new high if in the New Normal it is finally 50 Cent who sets ethical and moral standards. The reason for the lawsuit is that during numerous sex parties which DSK had attended in various cities over the years, there were prostitutes also present, often times in groups.

We've discussed Jiangsu before (dead pigs, TBTF Solar companies, and bird flu) but the Chinese province (that is big enough to be a Top 20 global economy with GDP greater than that of G-20 member Turkey and 79 million people) is on the brink of collapse under the weight of its own debt (cough Detroit cough). As China's leaders attempt to rein in over-capacity industries, tamp-down residential real-estate bubbles, and generally unwind "...the greatest misallocation of capital the world has ever seen, which was China’s 2009 stimulus," Jiangsu stands head-and-shoulders. With debt far higher than its peers, its mainstay industries (shipbuilding and solar panel manufacture) drowning in over-capacity, and massive 'empty' property developments now starved of funding, Jiangsu "can potentially pose a systemic and macro economic risk to the country."

NSA has free access to your passwords when you back up your account on Google’s ‘back up my data’ featured on Android

Over the past several decades, people around the world have become so brainwashed that few people really give much thought anymore to the safety of their currency. It’s not something people really understand... there’s apparently some Wizard of Oz type figure at the top of the hill pulling all the levers of the monetary system. And we just trust them to be good guys. This power rests primarily in the hands of four men who control roughly 75% of the entire world money supply. So, how are they doing?

Earlier this week we showed what happens when a momentum ignition algo goes berserk in microcap USEC Inc (USU). We are happy to announce that the stock which has become a microcosmic representation of all that is broken with emarket, is back at it, and the algo which doubled the stock in minutes on Monday, is back and desperate to ignite enough momentum to stop all out upside orders as well as all open shorts (the shorts in the name doubled in the week ended 7/15 to 25% of the float).

European financial stocks had their best week of the year - jumping an impressive 6.2% on the week and over 10% in the last two - as once again 'Europe is fixed' (except credit markets don't seem as enthused). At the same time as this exuberance is taking place, Germany's DAX and Switzerland's SMI saw almost their worst weeks of the year (down 1% and 1.7% respectively). The week was very oddly dispersed with Spain, Portugal, and Greece (up 5%, 4%, and 3%) having an incredible rip while the broad-based Bloomberg Europe 500 (Europe's S&P) dropping 0.25%. Bond markets were just as enthused with Portugal, Spain, and Italy continuing their un-Taper rallies (spreads down 49bps, 20bps, and 15bps respectively). All of this as the EUR strengthened, composite PMI peeked over the 50 mark, French unemployment hit a record high and Italian bad loans surged to a new record. Schrodinger has moved from China to Europe it would seem...

A dangerous thought...

Only a decade ago, drones were the purview of the military, but today we are realizing the commercial potential of this technology and the numerous cost-cutting applications for the oil and gas industry in the future. For everything from exploration and pipeline leak detection to oil spill clean-up assistance, drones are poised to become a necessity rather than luxury. First, let’s just clarify: Drone is just another name for robot, but what we’re talking about here is the Predator-style, unmanned aerial vehicle—maybe a bit smaller, and certainly not weaponized. It turns out that drones have a number of applications that don’t involve annoying Pakistan by launching bombing raids from across the border in Afghanistan, or sending them out to spy in Iranian airspace (and sometimes getting caught).

In a brief two-page letter (below) to Russia's Minister of Justice, AG Holder offers to graciously allow Edward Snowden to return to the US promising that he will be neither tortured ("Torture is unlawful in the US") nor put to death ("The charges he faces do not carry that possibility.") Holder's plea ends on a hopeful note that he believes "these assurances eliminated grounds for Mr. Snowden's asylum." We are sure Snowden (and the Russians) feel better already. On a sidenote, we were surprised a Dreamliner was not offered as means of transport just to ensure his safe arrival.

S&P 500 futures just lost the lows of yesterday's session on heavier than average volume. JPY is well bid breaking back under 98 against the USD. Despite USD weakness, gold and silver just got monkey-hammered down 1% in a minute. But US Treasuries are stoically rising above this tempest in a teapot and tracking sideways (for now). Oh, and AMZN is up 1% (makes perfect sense).

‘Vote For Gold’
"You have to choose, as a voter, between trusting to the natural stability of gold and the natural stability and intelligence of the members of the government. And with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold."

... Well, not today's Ben Bernanke of course - a far more honest version of the current Fed Chairman, one speaking before the New York Chapter of the National Association for Business Economics, on October 15, 2002.

"I worry about the effects on the long-run stability and efficiency of our financial system if the Fed attempts to substitute its judgments for those of the market."

So do we Ben.

As municipal bankruptcies become the New Normal, it's worth noting that litigation does not generate more wealth to distribute, it simply burns existing wealth, leaving less to distribute. Yes, this is stating the obvious, but what's obvious is precisely what's ignored when fantasy attempts to trump reality. Every constituency in every municipal bankruptcy believes they're the most deserving, and they believe that litigation will reveal the obvious truth of their claim. Unfortunately for those counting on the Grand Federal Bailout, the queue at the Federal bailout window is already long: $100+ billion bailout of FHA, which issued hundreds of billions of dollars of mortgages to unqualified buyers; $100+ billion in uncollectible student loans owned or guaranteed by Federal agencies, and of course the $1+ trillion annual deficits needed just to fill the massive feeding troughs of the Status Quo.