Archive - Jan 2014

Comedy hour comes early today, courtesy of Japan's PM Shinzo Abe who just started speaking on the topic of "reshaping the world" at Davos. Like we said: pure comedy.

While Edward Snowden's legacy has already been felt in official, government circle most recently with Obama's amusing, if completely meaningless, theatrical reformation of the NSA (so wait, the Utah's superstasi spy center is now closed, right?), it is now the private sector's turn. Moments ago, Verizon - in what is hopefully the first such action of many - provided an extensive "Transparency Report" in which it disclosed the "number of subpoenas, orders, and warrants we received from law enforcement in the United States last year. We also received emergency requests and National Security Letters. The vast majority of these various types of demands relate to our consumer customers; we receive relatively few demands regarding our enterprise customers." So regular retail customers are being actively spied on, but corporations are safe. Good to know.

The decay of the "build it and they will come" model of commercial real estate is gathering speed for a simple systemic reason: the decline is self-reinforcing in several critical ways. Before we start the analysis, let's ask a basic question: How much of the stuff and services purchased at retail outlets, malls, strip malls, etc. is absolutely necessary and how much is excess consumption? Conventional "Growth by any means" Cargo Cultists such as Paul Krugman never ask this basic question, because the answer (very little is essential, most is excess consumption) undermines the entire narrative that all growth is good, even the most marginal, unsustainable, wasteful and fiscally imprudent. I've captured the essence of retail in America with this photo:

Mundus Vult Decipi, Ergo Decipiatur

And sure enough, less than 24 hours later, here comes the now well-known Icahn Tweet-pump

Since tweeting about our large position in $AAPL on Aug 13, when the stock was 468 per share, we’ve kept buying shares of this ‘no brainer.’

— Carl Icahn (@Carl_C_Icahn) January 22, 2014

Venezuela can be proud: while the US stock market has gone exactly nowhere in 2014, the Caracas stock exchange of the socialist paradise has continued kicking ass and taking names, just today printing a fresh all time high.  However, as everyone knows, there are trade offs to soaring stock markets in all socialist countries, be they paradises or not. By now everyone knows that Venezuela has had a rather systemic issue when it comes to procuring toilet paper, and from what we understand, the local population is still forced at times to wipe with stock certificates. Alas, things are about to get worse. As a result of Maduro's recent policies which have Lenin, Stalin and Engels positive beaming from the grave, the country may soon add another shortage to its growing list of daily product in short, or no, supply. Food.

There were times when people knew their places and stayed in them, never budging and certainly never imagining that they could change their lives into something else.

The theme of this year's Davos meeting where the world's wealthiest and most powerful people meet to enjoy each other's company, a fawning media, and of course the best food and entertainment that money can buy, is social stability, class hatred, and how to fix a world torn by a record wealth inequality. An ambitious task to be sure, especially for the very people who have benefited the most from the record wealth transfer of the past 5 years. Still, while these true Robin Hoods of the modern gilded age are desperate for a few minutes of humanitarian TV exposure, or at least a soundbite or two, their advice to the peasants out there is quite clear: don't get too close. And just to make sure the appropriate distance of at least a few hundred meters to every member of the great unwashed class they are "saving" is maintained, here is the hotel in which the bleeding heart Davos billionaires are staying: a $170 million fortress surrounded by barbed wire, security cameras, motion sensor and even its own helipad.

Following last night's implementation of emergency rule in Thailand for a period of 60 days, where the ongoing clashes between protesters and the government mean the economy is likely set to grind to a halt at least judging by the constant downward revisions in the country's GDP, the default risk of Thailand just jumped to a fresh one year high, rising to 159 bps, or double where it was in May of this year (but still well below the 240bps hit at the peak of the European crisis in September 2011). However, since tensions do not appear to be getting resolved, expect this particular CDS to continue drifting higher, especially following news that the Thai leader of a pro-government group was shot last night.

Dispassionate update on digital currencies.

When it comes to the opinions of financial pundits and "experts", most can be chucked into the garbage heap of groupthink and consensus. However, one person whose opinion stands out is Elliott Management's Paul Singer. One of the most successful hedge fund managers has consistently stood against the grain of conventional wisdom over the past three decades and been handsomely reward, which is why his opinion is certainly one worth noting. Singer, together with Martin Wolf and several other panelists will be speaking at 45 minutes past the hour on a panel discussing one of the most pressing topics nearly 6 years after the Bear Stearns collapse: "Are Markets Safer Now." Watch their thoughts on the matter in the session live below.

Following the deaths of three protesters (two from gunshot wounds) after the government crackdown overnight instigated by the increasingly hard-line President Yanuckovich, the streets are becoming markedly more tense and violent. The uprising in Ukraine is not simply one of a youthful population dismayed at not joining Europe. Similar in vein to Thailand's protests, Ukrainians have become disgusted with the corruption in government (and increasingly enraged at Yanuckovich's repressive laws against the protesters). As Martin Armstrong warned recently, "welcome the ticking clock measuring how little time we have until this whole things just goes bust." As the following images of the war-torn-looking streets of Ukraine show, perhaps that clock is closer than many think...

There was more good news for the UK economy this morning; the unemployment rate dropped to 7.1% during the three months to December - the biggest ever quarterly increase in employment. This follows the IMF this week raising its (admittedkly terrible track record-based) forecast for the UK economy; it now expects it to grow 2.4% this year which is faster than any other major European economy. Nick Beecroft, Chairman of Saxo Capital Markets UK, is “optimistic” about Britain’s recovery, but has three concerns...

Things in the country whose central bank assets have climbed to ¥229 trillion, or 48 percent of the nation’s nominal gross domestic product, are about to get very interesting: on one hand, it will have no choice but to slow down monetization under its existing QE program. On the other, pernicious inflation is spreading doubts the BOJ will be able to boost QE in the near-future. What is a country stuck in a vortex between deflation and runaway inflation to do? "It may be too late to prevent long-term rates doing something crazy” should the BOJ hold off on tapering before inflation reaches the target, said Richard Koo, the chief economist in Tokyo at Nomura.

• Winter Storm Expected to Make Northeast Commutes Harder  (BBG)
•  Invasion of Spanish Builders Angers France Struggling to Compete  (BBG)
• Toronto mayor, caught ranting on video, admits drinking a 'little bit" (Reuters)
• IBM's Hardware Woes Accelerate in Fourth Quarter (WSJ)
• Sharp Divisions Come to Fore as Peace Talks on Syria Begin (NYT)
• Afghanistan cracks down on advertising in favor of U.S. troops (Reuters)
• Microsoft CEO Search Rattles Boards From Ford to Ericsson (BBG)
• Banks Sit Out Riskier Deals (WSJ)
• Netflix Seen Reporting U.S. Web Users Reach 33.1 Million (BBG)