Archive - Aug 2013

If the following just released forecast of where the 10 Year is going, from Bank of America's chief technical strategist MacNeill Curry is accurate, not only is the bond bottom nowhere near but we sense a Tweetstorm is coming from Bill Gross.

For the past five years Greece, stuck in its worst depression in history with two-thirds of work eligible youths unemployed, has been actively blaming all of its problems on "(f)auxterity" even as we said all along that the Greek problems have nothing to do with how much money its government spends and everything to do with corrupt, complicit and frequently criminal politicians. Today we got the latest confirmation that we were correct after the Greek finance minister Stournaras asked for the resignation of the Greek privatisation agency chief, Stavridis, following a newspaper report that he traveled on the private plane of a businessman who just bought a state company with Stavridis' blessings.

If this latest dose of harsh language from Gollum and the Bazooko Circus doesn't end the Egyptian civil war, nothing will. Maybe Egypt should just take a hint from the ECB and issue forward guidance on domestic violence, saying it will do "whatever it takes" to crack down on future coups and countercoups, or else it will fire an imaginary bazooka at the bond vigilantes.

Depending on one's sources, the death toll since the start of the "Days of Wrath" in Egypt is anywhere between 800 and several thousand. What is worse, the situation is spiraling out of control as the west, plagued by America's failed attempt at diplomatic non-intervention to preserve its "democratic transition" narrative, is paralyzed while the death toll mounts and the country is gripped by civil war in all but name. Below, via AP, is a rundown of key events that have taken place in Egypt over the past week together with a photo album of Egypt's very own Dies Irae.

On the surface, there is nothing spectacular about the weekend news that JPMorgan is seeking to sell its 1 Chase Manhattan Plaza office building. After all, the former headquarters of Chase Manhattan Bank, located deep in the heart of the financial district and which was built by its then chairman David Rockefeller, is a remnant to another time - a time when banking was about providing loans, not about managing and trading assets which has become the realm of Midtown New York, and since JPM already has extensive Midtown exposure with its offices at 270, 270 and 245 Park, the 1 CMP building always stood out as a bit of a sore thumb. Of course, as Zero Hedge readers first learned, the big surprise is literally below the surface, some 90 feet below street level to be exact, where the formerly secret JPM gold vault is located, which also happens to be the biggest commercial gold vault in the world.

Over the last thirty some odd years, the world has seen an unprecedented level of economic growth and prosperity. That much is certain. However, things are not as they appear when the bullish rose-tinted glasses that most view the world through are removed.

And the issue is debt.

There was so much excitement generated last week over Elon Musk's hyperloop idea, that the world almost forgot that California already has a high-speed rail project in place. A very, very expensive project. And the problem with that particular $68 billion project, which is just as unrealistic, just as unprofitable, and just as hyper-pipedreamy, is that as the SacBee reports, is that it is on the verge of being shut down now that over 5 years since its launch someone actually did the math and found out that, oops, there is no money!

While hardly news to frequent visitors, especially those who recall the following list, anyone who needs a 7 minute refresher into why the US middle class is on collision course with extinction is urged to watch the following brief video which highlights all the salient facts such as:

• 76% of Americans live paycheck to paycheck
• 27% of American have no savings at all
• 46% of Americans have less than $800 in savings
• The conversion of America into a part-time working society and the country's second largest employer - a temp agency.
• The college trap and the student loan bubble
• And of course, foodstamps, foodstamps, foodstamps and the nearly 50 million poverty-level Americans who need them to survive

Why seven minutes? Because everyone knows that just like you can't get "six minute abs", so it is impossible to recap the doom of America's middle class in only six minutes (or, gasp, less).

Millions of Millennials (born 1982-2004) are pursuing high-cost university educations in the belief that multiple degrees are now essential to being offered a job. Even as evidence piles up that the economy has changed in fundamental ways such that even advanced degrees no longer inoculate the owner against financial insecurity, millions of young people feel they have no choice but to indebt themselves and spend scarce family resources on a questionable-value education. The underlying assumption here is the present will endure, and change will be marginal. The idea that the narrative of history suggests major disruptions of the status quo are cyclical and thus inevitable doesn't register. In this case, the fantasy is that the status quo won't change dramatically, even as it already has changed dramatically.

In lieu of the Japanese government doing the right thing and finally coming clean about the epic environmental catastrophe that is Fukushima, which it hopes to simply dig under the rug even as the inconvenient reality gets worse and thousands of tons of radioactive water make their way into the ocean, one is forced to rely on third-party sources for information on this tragedy. We present a useful primer from Scientific American on Fukushima "water retention" problem and "what you need to know about the radioactive water leaking from Japan’s Fukushima nuclear plant into the Pacific Ocean."

Want to throw the world into sheer panic and outright chaos? Then just take out Google. At least that is what a brief five minute outage of the world's favorite search engine on Friday night shows, when after all of Google's services were hit with unprecedented downtime from 3:52 pm until 3:57 pm Pacific Dauylight Time, some 40% of global internet traffic was lobbed off. According to Topsy analytics, tweets per minute skyrocketed around the point that Google went black, from an average of 200 tweets per minute about Google to more than 1,000. "For five freakin' minutes!" one Twitter user complained. Another wrote, "Google was down for five minutes… Is it a sign that the END OF THE WORLD has started?"

Years ago the poor people would have just got thrown to the lions and we would have watched as they got their limbs torn from them in a bloodbath. Today, things aren’t that much different.

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The latest default bull argument supporting higher levels of growth in China than I believe possible is the urbanization argument. Beijing is planning another major urbanization push, and according to this argument China can resolve the problem of wasted investment by investing in the urbanization process, that is it can engage in a massive investment program related to the need to build infrastructure for all the newly urbanized. Like so many of the earlier bull arguments, however, this new belief that urbanization is the answer to China’s growth slowdown is based on at least one fallacy and probably more - urbanization accommodates, it doesn‘t cause, growth. It is not the act of building all this stuff that creates wealth or real, long-term growth. It is only if building the stuff caused overall productivity to rise by more than the cost of capital and labor employed in building it that a society gets richer.

While bullish talking heads are quick to point out that corporate earnings have never been higher, they tend to get very quiet the second corporate cash flow generation is mentioned. The reason is simple: where non-GAAP earnings, much of which are vaporware such as exclusions and other adjustment involving addbacks for "non-recurring" events such as Cisco's now annual mass termination announcement are indeed at nosebleed levels, actual corporate cash generation is a shadow if its former self which peaked in 2007 and has never been retraced. The problem is that since corporations generate less cash, they also spend less cash. As the following chart confirms, corporate capital use which peaked at a little over $1.8 trillion in 2007 has yet to be surpassed.