Archive - Feb 2014

"Gold will keep rising as long as US policy is exporting volatility—we see no imminent change in this situation under Janet Yellen’s Federal Reserve."

What are we to make of this sudden rash of banker suicides? Does this trail of dead bankers lead somewhere? Or could it be just a coincidence that so many bankers have died in such close proximity? We will be perfectly honest and admit that we do not know what is going on. But there are some common themes that seem to link at least some of these deaths together.

The "polar vortex" shock has arrived, only this time it is not in the form of another 12 inches of overnight snow accumulation but in the shape of household utility bills. A reader was kind enough to send us his just received ConEd bill for the month ended Februery 10. The result speaks for itself. It also speaks for where so much of US household disposable income will go in first quarter. Spoiler alert: not toward discretionary purchases.

Rates to remain low for longer.  Tapering exit strategy is high.  Sorry, folks,it was never QE-infinity despite its open-ended nature.

As goes GE so goes...? Not satisfied with the increasing offshoring of taxation (amid the Double Irish with a Dutch Sandwich and so on), US corporations are increasingly digging elsewhere in the vain hope of finding "revenue" to keep the shareholder dream alive. While GE is not alone in this, its latest move perfectly summarizes the farce that US accounting (and tax) regulations have become (and Immelt's angelic position advising Obama on jobs and the economy). As Reuters reports, GE is suing the Internal Revenue Service for a $658 million tax refund related to a tax loss the company claimed as it exited the reinsurance market more than a decade ago.

You know what’s it like, the driver stands there in front of the car that has just hit you up the back while looking at something happening down the street rather than checking on you hitting your breaks…and yet, he says “sorry, but you stopped too quickly, it wasn’t my bad driving”.

On February 13 a Norfolk Southern Railway train bound for New Jersey derailed in Vandergrift, Pennsylvania. About 3,500 to 4,500 gallons of crude oil spilled, although miraculously it somehow didn’t leak into nearby water supplies. The Federal Railroad Administration announced that it will investigate the crash. The episode is merely the latest in a series of derailments and will raise pressure on federal regulators to issue new safety rules. It is hard to imagine the National Transportation Safety Board (NTSB) not taking action soon as the problem has become too common to ignore. The big question is whether or not PHMSA will require and accelerate the phase out of DOT-111 cars, making reinforced cars mandatory. The House Transportation and Infrastructure Committee will hold a hearing on rail safety on February 26, an indication that after multiple train derailments and explosions, the issue is finally getting greater attention on Capitol Hill.

With exports up 9% but imports up a massive 25% YoY, Japan's Trade balance pushed to itslargest deficit on record. This is the 2nd largest drop in the trade balance on record - beaten only by March/April 2011 (the Tsunami and Fuskushima). The miracle of the J-Curve (the hoped for recovery in exports that will come any minute now from the devaluation of the currency) is simply non-existent!! We love the smell of GDP downward revisions in the morning... Foreigners sold Japanese stocks for the 4th week in a row for the first time in 16 months.

"They speak like Marx

Rule like Stalin

And live like Rockefellers

 While the people suffer"

Once the family/gang has carved out their turf, they then turn to controlling and exploiting the resoruces (either natural or human) inside of it. How different is today's President-Congress-Governor-Mayor-Worker relationship to the mafia's boss-soldiers-associates model? Is it simply ironic that the term "bankster" has become so ingrained? As Santiago Capital's Brent Johnson explains in this brief presentation... if you can keep your mind open, today's business leaders and politicians are no different as they run protection, extortion, control the flow of 'drugs', and manage 'crime'. Is it possible, he asks, that we are all collectivley empathizing and sympathizing (and in many cases defending) the very system and the very people that are holding us captive?

From five hours ago:

Another Natgas margin hike by the CME is almost guaranteed

— zerohedge (@zerohedge) February 19, 2014

And sure enough...

After being rebuffed by SnapChat last year to the tune of $3 billion, Facebook decided that growth at any price was all that matters by blowing more than 5 times as much on the purchase of privately-owned WhatsApp. For $16 billion ($4bn cash and $12bn stock), Facebook gets 320 million active WhatsApp users at a whopping $50 per user. Why whopping? Because a few days ago Rakuten bought Viber's 300 million users for $900 million, or about $3 a pop, and about ten times less than what Facebook just paid. Not surprisingly FB shareholders are not happy. The company, which allows users to send messages over the web for free (as opposed to traditional text messages which most Telcos are now offering for free also) "is on a path to connect 1 billion people," Zuckerberg said, adding that they are "adding 1 million people per day..." It seems, as we noted previously, that the real bubble is in private markets not public.

Ukraine and Thailand are in the midst of chaotic turmoil right now, characterized by riots and violent clashes between protestors and police. It reminds us of the old quote from Louis XVI upon being informed in 1789 that the French people had stormed the Bastille. “Is it a revolt?”, the King asked; “No, sire,” the duke replied, “It is a revolution.” History is packed with examples of how people rise up in the streets whenever economic conditions deteriorate. The French Revolution in 1789 is one famous example where the people finally reached their breaking points after nearly starving to death. In our system we award a tiny elite with the power to kill, steal, wage war, educate our children, and conjure unlimited quantities of paper money out of thin air. This is just plain silly. The real answer is within ourselves.

In summary: non-GAAP P/E of 259x, and GAAP P/E of Div/0, as GAAP Market Cap/Sales is a "conservative" 12.4x. Good luck with that growth. You are going to need it.