Archive - Oct 6, 2014

"...it is rather medieval. But what can you do? Even in 2014, we hardly have any way to combat this virus... There will certainly be Ebola patients from Africa who come to us in the hopes of receiving treatment. And they might even infect a few people here who may then die... I am more worried about the many people from India who work in trade or industry in west Africa... that really is the apocalyptic scenario."

"It's tiring," explains author Stephen King in this succinct interview, "to see the world looks more and more like George Orwell's vision in 1984 where war is a constant thing... it's just a little bit depressing."

The integrity of markets is clearly at risk. And we have long sought alternatives that offer much lower credit and counterparty risk. The time-honored alternative has been gold. As the chart below shows, gold has tracked the expansion in US debt pretty handily (the correlation between the two is a strong +0.86) and if one expects that relationship to resume (we do), then gold looks anomalously cheap relative to the rising level of US debt.

In June, ConvergEx's Nick Colas sized up the legal recreational marijuana market in Colorado by surveying several storeowners and their employees. Today he offers an update after circling back with these sources to get a grasp on the business 10 months into its legal tenure. On the whole, Colas notes that the marijuana business continues to be robust.  This Colorado experiment is growing into a mature market that offers a handsome stream of revenue to both businesses and the state - pricing has remained stable at about $40-$50 for an 1/8 ounce, and $300-$400 for an ounce (plus tax). Sure, there are a few headwinds like any startup industry endures, but this continues to be a fascinating case study of a new – and quite profitable – business.

From the end of August to mid-September long-term T-bond yields rose even as the Fed-balance-sheet predicted they would continue to fall. Since mid-September, though, gravity seems to be reasserting itself on yields as they have fallen nearly all the way back in line; and if history is any guide, suggests new lows are not far off.

Effectively G4 central banks have been "soaking up" government bonds forcing private investors to hold more corporate bonds, and as JPMorgan warns successive QE programs since 2009 have forced private non-bank investors increasingly more overweight credit. From essentially neutral in 2009, non-bank investors are implicitly overweight a record-high 17% which points to more elevated credit spreads than in previous cycles to compensate private non-bank investors from becoming increasingly overweight credit (and accepting the soaring liquidity risks). Is it any wonder Blackrock (and every other corporate bond manager) is freaking out about potential weakness and systemic risk "right under the regulators nose."

In recent months, this prognostication has been gaining traction that a second, more severe crash - one that reflected the level of debt - is inevitable. There are two primary camps amongst economists with regard to the economic direction that a crash will generate: inflationists and deflationists. The argument goes back and forth, yet there seems to be the misconception that one must be either an inflationist or deflationist. This is not at all the case.

Americans want guns without serial numbers. And apparently, they want to make them at home. On Wednesday, Cody Wilson’s libertarian non-profit Defense Distributed revealed the Ghost Gunner, a $1,200 computer-controlled (CNC) milling machine designed to let anyone make the aluminum body of an AR-15 rifle at home, with no expertise, no regulation, and no serial numbers. Since then, he’s sold more than 200 of the foot-cubed CNC mills—175 in the first 24 hours.

When the machinery of governance is ruled by the highest bidders, democracy is dead.

The single most important issue for understanding why the finacnial system is not healthy and why we’re set to have an even bigger crash than in 2008 has to do with one word…

The central bankers have truly been the markets best friends and Draghi and Kuroda-san have been taking over where Ms Yellen has all but left off, but even they can do little in the face of protest and dissent by various members of the global populace and the continuing stupidity and arrogance of our “democratically” elected representatives.

This may be excessively optimistic on my part, but there seems to be a slow change in the way the world thinks about reserve currencies. For a long time it was widely accepted that reserve currency status granted the provider of the currency substantial economic benefits. For much of my career I pretty much accepted the consensus, but as one starts to think more seriously about the components of the balance of payments, it is clear Keynes wad right in his call for a hybrid currency when he recognized that once the reserve currency was no longer constrained by gold convertibility, the world needed an alternative way to prevent destabilizing imbalances from developing. On the heels of Treasury Economist Kenneth Austin and former-Obama chief economist Jared Bernstein discussing the end of the USD as a reserve currency, Michael Pettis summarizes 10 reasons the USD's reserve status has become an 'exorbitant burden'.

Hope... less

Whereas two months ago Obama spent his 53rd birthday in the usual style, by playing a casual round of golf with his Hawaiian childhood buddies at Andrews AFB before escpaing to Camp David, tomorrow that other Cold War 2.0 nation leader, Vladimir Putin, will be celebrating his own birthday, the 62nd, in a way that is about as diametrically opposite as can be. As reported by RIA, the former KGB spy will spend the day in the Siberian taiga, a vast forested area in the northern regions of Russia covering hundreds of thousands of square miles, according to Presidential spokesman Dmitry Peskov told journalists on Monday.