Archive - Jan 23, 2014

The conventional view of China and India sports not one but two pair of rose-colored glasses: Chindia (even the portmanteau word is chirpy) is the world's engine of growth, and this rapid economic growth is chipping away at structural political and social problems. Nice, especially from a distance. But on the ground, China and India (not Chindia--there is no such entity) are both powder kegs awaiting a spark for the same reason: systemic corruption in every nook and cranny of both nations. The conventional rose-colored view is that corruption will inevitably decline with modernization and economic growth. This is simply wrong on multiple levels...

As if the fact that the Privacy and Civil Liberties Oversight Board found the NSA's bulk telephone collection "has shown minimal value in safeguarding the nation from terrorism," the 238-page report concluded it was illegal in several ways and violates privacy. Coincidentally, on the day of the release of the 9/11 Commission-prompted report, Edward Snowden (in an online chat - below) stated, "It's not good for our country, it's not good for the world, and I wasn't going to stand by and watch it happen, no matter how much it cost me." Indeed, one wonders if this would have ever come to light; but now following these findings that the program is not authorized by the Patriot Act the panel may give ammunition to critics in Congress and fuel legal challenges presenting a problem for President Obama who said last week (instead of waiting for the report) that he would allow the program to continue.

The PBOC has injected around CNY 400 billion into China's banking system in the last week focused in the 7-day reverse-repo maturity. While this has been greeted with moderation of the spiking trend in ultra-short-dated funding costs, there is a problem still. With the CEG#1 Trust maturing on 12/31 coinciding with the farce that is the 'confess all mismatched sins' debacle that occurs every Chinese Lunar New Year, the need for liquidity through that maturity is becoming extreme (while shorter-dated not so much). 14-day repo is now at 7.2% - almost 300bps above 7-day repo (which matures before year-end). In fact, it seems those concerned about possible Chinese contagion effects are buying protection aggressively as 5Y CDS jumped over 5bps to 102bps - the widest in 7 months (since the credit crunch in the Summer). This is far from over...

If the extreme drought in the western half of the country keeps going, the food supply problems that we are experiencing right now are only going to be the tip of the iceberg.  The size of the U.S. cattle herd has dropped to a 61 year low, and organic food shortages are being reported all over the nation.  Surprisingly cold weather and increasing demand for organic food have both been a factor, but the biggest threat to the U.S. food supply is the extraordinary drought which has had a relentless grip on the western half of the country.  According to the U.S. Drought Monitor, drought conditions currently stretch from California all the way to the heart of Texas.  In fact, the worst drought in the history of the state of California is happening right now.  And considering the fact that the rest of the nation is extremely dependent on produce grown in California and cattle raised in the western half of the U.S., this should be of great concern to all of us.

With China's shadow-banking system turmoiling and data not at all supportive of the same kind of growth investors are hoping for, some were surprised when China's GDP magically turned out at the 7.7% expectations deemed acceptable by the government. As Xinhua reports, not all is as it seems. China's GDP amounted to 56.9 trillion yuan (9.3 trillion U.S. dollars) in 2013. However, the aggregate of the provincial GDP figures, which were independently calculated and released, was about 2 trillion yuan more than the 56.9-trillion-yuan figure arrived at by the NBS, even though three of the 31 localities that were yet to release the figures were not included. This has aroused suspicion (just as we saw with the PMI data in the past) that some growth-obsessed local officials have cooked the books.

As the saying goes, ‘desperate times call for desperate measures.’ The phrase is bandied about so frequently, it’s generally accepted truth. But I have to tell you that I fundamentally disagree with the premise. Desperate times, in fact, call for a complete reset in the way people think. Desperate times call for the most intelligent, effective, least destructive measures. But these sayings aren’t as catchy. This old adage has become a crutch – a way for policymakers to rationalize the idiotic measures they’ve put in place...

While it is becoming increasingly clear that tensions between Japan and China (and in fact most of the Asian nations) are escalating; the fact that Admiral Samuel Locklear - commander of US forces in the Pacific - believes "risk calculations are growing," as the two large powers have a disagreement but are not willing to talk to each other, shows this is more than just talk. As The Edmonton Journal reports, Washington's treat obligations to its ally Japan mean it could be sucked into a conflict.

It was the biggest robbery in the US until TARP.

Nouriel Roubini, Davos Speakers, Kyle Bass, Larry Edelson, Charles Nenner, James Dines, Jim Rogers, Marc Faber, Jim Rickards and Martin Armstrong Warn of Wider War

There are 2.3 million people living behind bars in the United States and the prison system cost the federal government $55 billion every year. Between 1990 and 2010, the number of privately operated prisons in the US increased 1600%... it seems crime does pay, but for whom is the question?

In a week that has been marked by astonishing mainstream media headlines, BFI Capital’s CEO Frank Suess happened to give an outstanding interview about the outlook for global currencies, gold and manipulation in the markets. These developments are significant and could mark a tipping point. Up until now, the currency and precious metals manipulation has been a topic associated with conspiracy theorists in the corners of the blogosphere. The interesting fact is that this news breaks out exactly at the time when most people are being trapped into the “economic recovery” news. With the markets hanging at the lips of the central bankers, it is fair to say that “the central banks are the markets.” Frank Suess points out that, for several decades now, central banks around the world, with the US Federal Reserve in the lead, haven’t allowed business and credit cycles to happen anymore. In fact, they have been fighting consistently every sign of recession with more money, resulting in a race to the bottom of world currencies. The effect of this on world currencies is that they are shuffling each other down in a see-saw pattern...

With toilet paper shortages, record high stock prices, a lack of staple food supply, and a black market currency hyperinflating its way into solving the toilet paper shortage; many continue to wonder why they should care about a Latin American country's collapse into socialist revolution. The answer, simply put, lies in the following map...

When it comes to staying relevant (and profitable) in today's rapidly changing technological world, one of the key requirements is constantly being one step ahead of the competition. Which, for tech stocks, implies investing significantly in research and development. So, off the top of one's head, when one thinks who invests more in R&D as a percent of revenue, say between Nokia - which failed to innovate fast enough and as a result got run over, and Apple - which is best known for its innovative (if NSA infiltration-riddled) products, one would be tempted to say Apple. However, the reality is quite the opposite. As the chart below shows, when plotting the R&D to sales ratio for the diametrically opposite Nokia and Apple, one sees a constant increase in research spending at Nokia on one hand, and a consistent decline at Apple, on the other.

While negotiations are apparently ongoing although Klitschko has vowed "To extend the camp in Kiev until demands are met" and called for a national strike, the escalating violence has seen the Ukrainian government take the next step... breaking out technological Big Brother by sending mass text messages to protestors warning them that they are being watched.

Remember: Your Government Loves You.