Archive - Jan 2014

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.

With Russia offering $10 billion in funds to the troubled nation this morning, and Ukrainian capital markets in disarray over the anti-anti-Europe protests and ongoing riots, Stefan Karlsson offers an alternative take on the "people vs dictator" meme - especially in light of the fact that Yanuckovich is supported by a large part of the population (specifically in the eastern and southern parts of the country).

With record debt issuance funding record share buybacks and record wage disparity for executives, the "fruits of the rebound" in global asset markets (read - central-bank-inspired liquidity douche) have passed over a whole generation. As Bloomberg's Niraj Shah notes, the risk of young people facing long-term unemployment is rising as firms increase payouts to shareholders and executives rather than invest in new workers, the ILO has warned. Structurally high unemployment is the second-biggest concern this year, according to the World Economic Forum’s global risks 2014 report.

Quite a day...

• All-time record lows in many Emerging Market Currencies (TRY, ARS, VENZ (unof.) most)
• Nikkei 225 -3.75% - biggest drop in 7 months
• Emerging Market Stocks -3% - (4 month lows)
• USD Index -0.7% - biggest drop in 3 months (2014 lows)
• USDJPY -1.3% - biggest drop in 5 months
• AUDJPY -2.35% - biggest drop in 7 months (4 month lows)
• Dow -1.3% - biggest drop in 5 months (5-week lows)
• 30Y Treasury Yield -9bps - near biggest drop since April 2013 (2-month lows)
• Gold +2.3% - biggest gain in 3 months (2 month highs)
• VIX +1.8vols - biggest jump in 3 months (1 month highs)
• IG Credit +2.5bps - biggest jump in 5 months (1 month wides)
• HY Credit -$0.5 - biggest drop in 4 months (1 month lows)

It seems that without the safety net of Fed flows, the reality that bad news might just be bad news and event risk is a real risk just started to hit home. The deer is back...

Nearly two years ago, before the topic of (the great and constantly missing) Capex became a mainstream media mainstay, we said that as long as the Fed was actively engaged in manipulating the capital markets - and this was before the Fed launched its endless QEternity - the bulk of corporate cash would go not into investing for growth, i.e., capital spending and/or hiring, but dividends and (levered) stock buybacks. Nearly $1 trillion in stock buybacks later, and zero growth Capex, we were proven right, much to the chagrin of permabulls who said the capex spending spree is just around the corner again... and again... and. Of course, if this were to happen, it would promptly refute our fundamental thesis that the Fed's presence in the market results in the terminal misallocation of efficient corporate capital. We were not concerned. We are even less concerned now having just read an FT piece forecasting that "capital spending by US companies is expected to grow this year at its slowest pace for four years, in a sign of corporate caution over the outlook for global demand." And like that, dear permabuls, the key pillar beneath all "corporate growth" thesis was yanked. Again. Fear not. There is always 2015. Or 2016. You get it.

Despite his own admission that he is not a 'product guy', Carl Icahn extends his 'pitch' for investors to buy buy buy Apple stock from one of using their offshore capital (or borrowing against it) to buyback inglorious amounts of shares to how great the "wearables" business could be...

• *ICAHN: ULTRA HD REPRESENTS 'PROMISING MOMENT' FOR APPLE
• *ICAHN: APPLE HAS 'COMPELLING OPPORTUNITY' IN WEARABLE DEVICES
• *ICAHN: INVESTING IN APPLE IS HOW GOOD INVESTORS MAKE MONEY

So buy you dummy... oh and don;t worry because Icahn has your back, even if he knows that AAPL does not...

• *ICAHN SAYS TIM COOK IS NOT A 'FINANCE GUY'
• *ICAHN: NO 'IN DEPTH' KNOWLEDGE OF FINANCE ON APPLE BOARD

Apple is - according to Icahn - the most over-capitalized company in corporate history...

Just a week ago, Ben Bernanke stumbled when he almost admitted that "forward guidance worked in theory, but not in practice," and while the Fed is sticking to its guns with lower for longer "forward guidance" to replace "as much money as you can eat" quantitative easing; and the ECB promising moar for longer; the Bank of England's Mark Carney just threw them all under the bus by u-turning on his employment-based forward guidance strategy. Having previously established thresholds for his monetray policy guidance, as the FT reports, he has now ditched those plans (as we warned he might "lose his credibility" here) as the British economy is "in a different place" now. And still, we are supposed to trust these bankers to run the world? Perhaps most interesting is the FT changed its title on the story very quickly!