Archive - Aug 2013

A question arises: how does one know they are living in an unmitigated disaster of a banana republic where not even an attempt at hiding the crime and corruption takes place? Well, we are not absolutely certain, but we have a distinct feeling that when the president appoints as his impartial "reviewer" of the ultra top secret NSA's policies and capabilities the one man who was caught and exposed and subsequently apologized for lying to Congress, that may be a pretty damn good sign. Sadly, that is precisely what just happened.

Are we going to see more leaks?

"Yes. A lot [of Anonymous members] are mid- to high-rank NCOs. They are well-respected, have connections, and overly large security clearances. A lot of people who are part of the [Anonymous] culture are just dying at this point for something to come across their table that isn’t already out there."

When the people within your own military don’t even trust you, you have a serious problem.

Most Americans are probably unaware that over the past two weeks the US has launched at least eight drone attacks in Yemen, in which dozens have been killed. It is the largest US escalation of attacks on Yemen in more than a decade. The US claims that everyone killed was a “suspected militant,” but Yemeni citizens have for a long time been outraged over the number of civilians killed in such strikes. The media has reported that of all those killed in these recent US strikes, only one of the dead was on the terrorist “most wanted” list. Far from solving the problem of extremists in Yemen, however, this US presence in the country seems to be creating more extremism. This cycle of intervention producing problems that require more intervention to “solve” impoverishes us and makes us more, not less, vulnerable. There is an alternative. It is called non-interventionism. We should try it. First step would be pulling out of Yemen.

Following this period of extraordinary monetary policy accommodation, Barclays Barry Knapp notes it stands to reason that, although there is some room for additional risk premium contraction (the aggregate measure for the S&P 500 remains above the long-term mean), the equity market on a stand-alone basis can hardly be considered cheap. In fact, looking across a broad range of balance sheet and income statement metrics over a period we would characterize as representative (albeit with a somewhat large dispersion of 1973-present), the equity market is above the long-term mean on every measure. But it gets better. There is little doubt that liquidity will prove challenged in coming weeks but market participants appear to be far too relaxed about events as equity market risk measures are close to the low risk point of their post-crisis range. So expensive valuations and risk complacency - BTFATH?

Abenomics was being hailed as the modern Japan’s answer to worries and woes, but it seems that Prime Minister Shinzo Abe will now most certainly have to put off dealing with Japan’s national debt as the economic outlook in the country looks decidedly compromised

The subject of ghost cities and real estate bubbles in China is not a new one (as we have discussed here, here and here). However, as this brief but devastatingly insightful clip from CBS 60 Minutes shows, "if you go to China, it's easy to see why there's all the talk of a bubble. We discovered that the most populated nation on Earth is building houses, districts and cities with no one in them - no residents, desolate condos and vacant subdivisions uninhabited for miles, and miles, and miles, and miles of empty apartments." But... "they've all been sold" to foreign liquidity and more worryingly, to the domestic Chinese middle class who have been 'repressed' into this speculation. The government's greatest fear remains - social unrest.

Renowned economist John Taylor believes children's author Richard Scarry brings basic economics - money, exchange, gains from trade, production, investment, saving, productivity, circular flow - into his stories in a way even preschoolers can understand. However, as Taylor notes, Scarry misses one important thing...

While there are a fair-share of descriptive statistics that show the USA is no longer the "Number 1" that so many believe it to be; Pando Daily put together the following infographic that reveals the Top Ten nations and Top Twenty states that serve up the most illicit content... and the winner is U-S-A! 66% of the pron hosted in the US comes from California and interestingly only 0.62% of all porn sites use the ".xxx" domain name. Of course, hard numbers are tough to come by, but as ExtremeTech illustrates, Xvideos - the largest porn site on the web - gets a stunning 4.4 billion page-views per month - 3x the size of CNN or ESPN. Ironically, the biggest difference is 'duration' - typical news sites are visited for 3 to 6 minutes; while the average time spent on a porn site is between 15 and 20 minutes... Overall, porn websites are estimated to receive a whopping 30% of total internet traffic around the world.

One of these things is an imaginary (but certainly money-losing) idea from a larger-than-life character who appears to live in an alternate fictional universe... the other is The Simpsons' take on 'The Monorail'.

First, it was JPM asking HSBC for assistance and getting a handout of over 6k ounces of gold.

The next day, following a shut out by HSBC, JPM had no choice but to go to the second largest vault, that of Scotia Mocatta and get more than triple times that, or just over 20k ounces.

Today, the Comex gold crunch has gotten so confusing, nothing short of a color-coded schematic can do it justice.

'Larry Summers for Fed Chair' proponents are working hard to reverse his generally poor reputation and seem to have gained some ground. They’ve tempted even Fed skeptics with reports that Summers doesn’t believe much in quantitative easing. But his supporters are also making claims that don’t stand up to the facts. Call us old-fashioned, but we think we should be wary of power-hungry egotists whose personal philosophy is to obscure the truth.

Aside from an opening short-squeeze that saw 'most-shorted' stocks surge 0.8% in the first 15 minutes of the day, stocks did very little for the rest of the day. Ranges were extremely narrow with whatever lift stocks got based on small AUDJPY (carry) sparks but the Dow and S&P end the day red (Nasdaq and Russell 2000 green). Nasdaq was driven by AAPL exuberance (what no a new iPhone model??) which grabbed the Tech sector to the best peformance on the day. Utes were the biggest losers as rates reversed early gains and Treasury yields (especially 30Y) surged 6-7 bps from their per-open low yields. The big story was precious metals as Silver and Gold surged on the day. Silver is now up over 9% in the last 3 days - its best run in 22 months. Interestingly, VIX was pushed notably lower on the day (but it appears investors are moving hedges further out in time - to September). Credit notably underperformed. Today was all about pre- and post-Europe (as normal).

The U.S. stock market’s return to nominal all-time highs amid artificial zero interest rates is sending yield-hungry investors down a dangerous path, one they hope will continue to lead to quick and easy returns. Such pursuits ignore a reality grounded in some of the oldest human wisdom, dating back 25 centuries to the Daoist sages of ancient China, who eschewed the direct in favor of the indirect - the roundabout that leads to better strategic advantage. No matter how appealing the direct path, it will likely not best take us where we want to go. Most often it leads only to loss - the hare ultimately loses to the accelerating, roundabout tortoise.

Perhaps the best source of real, actionable financial information, at least as sourced by Wall Street itself, comes in the form of the appendix to the quarterly Treasury Borrowing Advisory Committee (TBAC, aka the Goldman-JPM chaired supercommittee that really runs the world) presentation published as part of the Treasury's refunding data dump. These have informed us in the past about Goldman's view on floaters, as well as Credit Suisse's view on the massive and deteriorating shortage across "high quality collateral." This quarter was no different, only this time the indirect author of  the TBAC's section on fixed-income market liquidity was none other than Citi's Matt King, whose style is well known to all who frequent these pages simply because we cover his reports consistently. The topic: liquidity. Or rather the absolute lack thereof, despite what the HFT lobby would like.

This one is too ridiculous to not pass along. I’ve long written that desperate governments try to ‘control’ everything as they slide into insolvency. They impose capital controls, exchange controls, wage and price controls, gun controls, border controls, and more. But the government of Argentina has really taken this to another level. Their latest stunt? Manufacturing Viagra at a state-owned pharmaceuticals company... and giving it out for free to the people.  It’s the ultimate reminder of how absurd government control can be when things get really desperate. They reach a certain point where, after capital controls, gun controls, wage and price controls, etc., the only controls left to implement are people controls.