Archive - Feb 13, 2014

Investors said Sayonara to the crucial 102.00 level for USDJPY tonight and while S&P 500 futures are leaking lower (down 7 points from their earlier highs), the Nikkei 225 has collapsed over 430 points and is pressing one-week lows. This is the lowest the Nikkei 225 has been relative to the Dow in 8 months. With the Nikkei at one-week lows, its now 700 points below the post-Yellen exuberance; and the broader TOPIX Index is down 4.25% from Tueaday's post-Yellen highs.

The German high court has ruled that children MUST take care of their parents even if they have not spoken to them in 27 years.

The entire social contract is collapsing.

The historical norm of children taking care of their parents was displaced with the New Deal where government stepped in to provide the safety-net. Now the high court has ruled that it is the child’s responsibility. So what are all these taxes for?

The world is now beginning to realize Japanese Prime Minister Shinzo Abe’s true intentions. With his controversial visit to the Yasukuni shrine, which memorializes war dead, including Class A war criminals such as Hideki Tojo, he is no longer hesitant to reveal his true nature: without question, the most conservative leader in Japan’s postwar history. By encouraging a spirit of nationalism, Abe is hoping to engender self-confidence and patriotism among the Japanese public. But what exactly is his future agenda?

One glimpse at the following chart and it's clear that the US economy has not reached the much-vaunted "escape velocity." As CNBC's Rick Santelli explains in this succinct summary of the quandary of GDP hopes, inventory-build fears, and extrapolation-dreams, "many of these programs, procedures, and plans offered by the Fed - or the government - actually work to jump-start the economy... but they can't reach sustainability." His simple analogy of the economy as a heart-rate in a chronically sick (if not dead) person and Fed juice as a defibrillator seems very fitting. As the chart below shows, the US economy is very much still on life-support.

The 'cash on the sidelines' myth has more lives than a cat. No matter how often the logical fallacy underlying it is pointed out, Wall Street continues to propagate it. Nevertheless, money and credit are of course extremely important factors in the analysis of asset markets. The below provides what are hopefully a few useful pointers as to which data one should keep an eye on in this context.

Having described Venezuela as "absolutely calm" today - when it was anything but; the fact that Venezuelan President Nicolas Maduro has the stones to accuse Agence France Press of "manipulating" news coverage is stunning.

*VENEZUELA ASKS INFO MINISTER TO TAKE ACTIONS AGAINST AFP NEWS

Furthermore, Maduro has taken a TV station off-air that competed with Telesur (the state-owned TV station). Of course, we should not worry as Maduro has explained the violence is all protesters' fault and that he will propose his "peace plan" tomorrow.

Spot gold prices are now up over 10% from the 2013 closing lows. At $1,304.75, gold is at 3-month highs and has crossed above the critical 200-day-moving average for the first time in over a year. Other precious metals are on the rise with Palladium up for the 8th day in a row (the longest streak since July), Platinum up 6 days in a row (long since July) and Silver up 10 days in a row breaking $20.50.

If an ice storm can cause this much panic in our major cities, what will a real crisis look like?  The biggest news story in the United States right now is the "historic ice storm" that is hammering the South.  Travel will be a nightmare, schools and businesses will be closed, and hundreds of thousands of people will lose power.  In fact, it is being projected that some people could be without power for up to a week.  But at the end of the day, the truth is that this ice storm is just an inconvenience.  Yes, the lives of millions of Americans will be disrupted for a few days, but soon the ice will melt and life will be back to normal.  Unfortunately, it doesn't take much for people to start behaving like crazed lunatics.  As you will see below, the winter weather is causing average Americans to ransack grocery stores, fight over food items and even pull guns on one another.  If this is how people will behave during a temporary weather emergency, how will they behave when we are facing a real disaster?

A month ago we explained in gory detail the growth of "click farms" where nothing is what it seems, and where social networking participants spend millions of dollars to appear more important, followed, prestigious, cool, or generally "liked" than they really are. The following excellent walk-through of just how the fraud works is concerning when the entire US stock market appears propped up by an ever-shrinking layer of "social media" and "cloud" faith that this time it's different and no Friendster or MySpace.

... our default is a Goldilocks scenario between now and the next FOMC meeting in mid-March. It means that bad macro news is good market news, and vice versa. If the next ISM manufacturing number (no one cares about ISM services) is a big jump upwards, the market goes down. Ditto for the February jobs number. If they’re weak, though, that’s more pressure on the Fed and another leg up for markets. Place your bets, ladies and gentlemen, the croupier is about to spin the roulette wheel. Pardon me if I sit this one out, though. My crystal ball is broken. If I’m right, what does this mean for the real world? It means an Entropic Ending to the story … disappointing, slow and uneven growth as far as the eye can see, but never negative growth, never an honest assignment of losses to clear the field or cull the herd. That’s not my vision of a good investment world, but who cares? I’ve got to live in the world as it is, even if it’s a long gray slog.

We Recommend That Everyone Stay Out Of Office Buildings  Until ...

At the heart of the European debt crisis is the euro, the currency that ties together 17 countries in an intimate manner. So when one country teeters on the brink of financial collapse, the entire continent is at risk. The following excellent mini-documentary visually explains how such a flawed system came to be... and what's next?

Cynic in me says it must be a data problem, that the computers got hacked, or something. But that’s wishful thinking.

While Europe, and the bulk of the Developed World is struggling to dig out of its unprecedented credit crunch (in which central banks are the only source of credit money which instead of entering the economy is stuck in the capital markets via the reserve pathway) and resulting deflation, the rest of the Emerging Market world is doing just fine. If by fine one means inflation at what Goldman calls, bordering on "extreme levels." This is shown in the chart below which breaks down the Y/Y change in broad prices across the main DM and EM countries, and which shows that when talking about inflation there are two worlds: the Emerging, where inflation is scorching, and Developing, where inflation is in a state of deep freeze.

It would appear there is one thing the USA is still exceptional at (given snowboarding is off the table)...