Archive - Jan 2014

Have you seen the economic recovery? We haven’t either. But it is bound to be around here somewhere, because the National Bureau of Economic Research spotted it in June 2009, four and one-half years ago. It is a shy and reclusive recovery, like the “New Economy” and all those promised new economy jobs. I haven’t seen them either, but we know they are here, somewhere, because the economists said so. At a time when most Americans are running out of coping mechanisms, the US faces a possible financial collapse and a high rate of inflation from dollar depreciation as the Fed pours out newly created money in an effort to support the rigged financial markets. It remains to be seen whether the chickens can be kept from coming home to roost for another year.

From hashish to drinking cheap whiskey in Chiang Mai clubs, the following clip rounds up the 'best of' Marc Faber over the last few years...

• On the elites - "I am not sure the thinkers are in Davos"
• On the media - "you are an optimist, keep on dreaming... us foreigners just laugh"
• On solutions - "cut government expenditures by 50%; fire half the government... including the President"
• On Americans - "people in the western world have abandoned personal responsibility"
• On government - "who would have faith in the US administration, certainly not someone who thinks"
• On Gold - "not to own gold is to trust central banks, and that you don't want to do in your life"

Perhaps the most amusing and curious aspect of this entertaining summary of the Mississippi Bubble of 1720, the resulting European debt crisis (the first of many), how bubble frenzies are as old as paper money, the man behind both - convicted murderer and millionaire gambler, John Law, what happens when paper money's linkage to gold is broken, and how everyone loses their wealth and hyperinflation breaks out, is who the source is. The New York Fed. Perhaps the Fed-employed authors fail to grasp just what their institution does, or have a truly demonic sense of humor. In either case, the following "crisis chronicle" highlighting how banking worked then, how it works now, and how it will always "work", is a must read by all.

We are sure there is a joke in here somewhere but it is no laughing matter. Following a request for copies of 8 documents  of correspondence between Ireland's (former) finance minister and the nations' largest bank executives, the Irish minstry of finance has been forced to admit that it cannot find two out of the eight. The documents, previously 100% redacted, raises questions as to whether other documents have gone 'missing'. As RTE reports, the Department of Finance said it had carried out a widespread search for the documents and it was not clear why the original versions could not be located. Those darn leprechauns... We are sure, however, it has nothing to do with the Irish banks "picking bailout numbers out of their arses."

Despite telling us just yesterday that it would not take sides in the tensions in South Sudan...

*U.S. NOT TAKING SIDES IN S SUDAN: PSAKI

the US government is on the verge of deciding to... take sides. As Reuters reports, the United States is weighing targeted sanctions against South Sudan due to its leaders' failure to take steps to end a crisis that has brought the world's youngest nation to the brink of civil war. Africa, as we have discussed at length, remains the only region on earth with incremental debt capacity (and therefore growth in a Keynesian world) and so it is no surprise the US wants to get involved in yet another conflict.

This morning we showed several charts that "Market Bulls Should Consider", as the mainstream media, analysts and economists continue to become more ebullient as we enter the new year.  This weekend's "Things To Ponder" follows along with this contrarian thought process particularly as it appears that virtually all "bears" have now been forced into hibernation.

Treasury yields collapsed 10-12bps today with the largest decline since 9/18/11. Treasury yields in general slipped back to the lowest level in 3 weeks. The USD was slammed lower (except against CAD which pushed lower - down 2.5% on the week!). JPY strength was offset by AUD and the cross provided the ammo to lift equities back to day-session highs in the last hour (104 USDJPY was defended aggressively). Stocks broadly bounced immediately after the knnjerk selling off the NFP print, then leaked lower until 3pmET when a decidedly low volume meltup took NASDAQ and Russell back to almost unchanged on the year. Trannies outperformed, Dow underperformed (TRAN +0.65%, DOW -1% YTD). Silver and gold surged back into the green for the week with the latter closing above its 50DMA for the first time since October and its highest in a month. VIX tumbled to 12.2% as hedges were lifted and recoupled with the S&P.

Somehow, like it or not, the world turns. Today's hegemon becomes tomorrow's also-ran. Today's reserve currency becomes tomorrow's wallpaper. Today's cock o' the walk becomes tomorrow's dinner. Hey, we didn't create this system. We don't even especially like it. But that's just the way it is. Whether you already have made a fortune, or are trying to build one, you need to be very careful about what currency... or currencies...  your wealth in denominated in. From an economic point of view, the system (established by Richard Nixon in 1971) is loopy. The Chinese pretend they have good customers. Americans pretend they have good credit. And everyone pretends to get richer … based on promises to settle up sometime in the future. Instead of edging toward a reckoning, all major governments seem to want to make the situation worse.

The media is lying about the economy. They have been for years. Even the BLS now admits that its methodologies are either inefficient (read: DON’T work) or outright wrong.

The economy is Boom(er)-ing...

With the Fed once again in the late stages of an easing cycle (affectionately dubbed QE3), we find the 2s/5s curve steepening yet again, hitting its widest level in 30 months at more than 135 basis points on January 1. Given this curve’s uncanny track record, one can’t help but wonder if it will ring the 160 bell yet again when the Fed completes its final purchase operation of QE3. With tapering now upon us, and the end of QE3 almost in sight, one might even be tempted to sell a few 5s against twos in the hopes of catching that final 25 basis points of steepening. A closer examination of that trade, however, reveals that one might be better off doing just the opposite.

Blind faith in your leaders, or in anything, will get you killed.--Bruce Springsteen

Even if you don’t buy that QE and ZIRP will lead to a dollar collapse, you do have to admit that these Fed policies have severely brainwashed investors. The Federal Reserve is the boiler room operation that has pumped up the equities market by way of QE and ZIRP. You are investing in a pump-and-dump scam. And like in all such scams, you will lose. Clear enough for ya?

While BofAML's Macneil Curry remains a longer-term Treasury bear, in the near-term (and potentially medium-term) the evidence for a pause and corrective yield pull-back is too much to ignore. Given the momentum conditions, he notes, these levels are not going to give way without a fight - Treasur bears beware. He also fears a correction lower in EURUSD and USDJPY (JPY strength) but worries that gold has further to fall.

Proving once again that if you want something done wrong, and preferably at massive cost overruns, then just leave it to the government, moments ago news broke that the main IT contractor behind the embarrassment that is healthcare.gov - CGI Federal - has been fired. Who could possibly foresee this? Well, anyone who had actually done some diligence on the clusterfuck that is CGI Federal, and which as WaPo profiled some time ago, "is filled with executives from a company that mishandled at least 20 other government IT projects, including a flawed effort to automate retirement benefits for millions of federal workers, documents and interviews show." Make that 21. "A year before CGI Group acquired AMS in 2004, AMS settled a lawsuit brought by the head of the Federal Retirement Thrift Investment Board, which had hired the company to upgrade the agency’s computer system. AMS had gone $60 million over budget and virtually all of the computer code it wrote turned out to be useless, according to a report by a U.S. Senate committee." Sounds like the perfect people to hire in order to make a complete disaster out of the Obamacare portal - almost as if by design. But the best news? Obama's little tryst with CGI Federal cost US taxpayers only $292 million. As Vanity Fair revealed recently, "According to congressional testimony, CGI stands to be paid $292 million for its work on healthcare.gov."