Archive - Feb 2014

President Obama’s state of the union pledge to “act with or without Congress” marks a milestone in presidential usurpation of Congressional authority. The concentration of power in the office of the president is yet one more negative consequence of our interventionist foreign policy. Once it became accepted practice for the president to disregard Congress in foreign affairs, it was only a matter of time before presidents would begin usurping Congressional authority in domestic matters...any member of Congress who ignores or facilitates presidential usurpation is being derelict in his Constitutional duty.

The number of Americans that renounced their citizenship was 221 percent higher in 2013 than it was in 2012.  That is a staggering figure, and it is symptomatic of a larger trend.  In recent years, a lot of really good people with very deep roots in this country have made the difficult decision to say goodbye to the United States permanently.  A few actually go to the trouble to renounce their citizenship, and that is mostly done for tax purposes.  But most willingly choose to leave America for other reasons.  Once upon a time, the United States was seen as "the land of opportunity" all over the globe and it seemed like everyone wanted to come here. But now that is all changing.  As we have abandoned the principles that this country was founded upon, our economy has gone steadily downhill.

... or else the following photo just tweeted by Marie-Antoinette Michelle Obama of White House canines dining on fine taxpayer-funded china might have seemed just a little inappropriate.

The chart below is very familiar to anyone who was observing the hourly turmoil in the European bond market in November of 2011, when Italian bonds crashed, when yields soared to record levels, and every downtick of the Euro could have been its last. What the chart may not show are the dramatic transformations in Italy's government that took place just as the Italian bond spread exploded, which saw the resignation of career-politician Sylvio Berlusconi literally days after yields soared, and the instatement of Goldman technocrat Mario Monti as Italy's next Prime Minister. In fact as some, certainly this website, had suggested the blow out in Italian yields was merely a grand plan orchestrated to usher in a new Italian government that would, with the support of yet another Goldman alum, the ECB's then brand new head Mario Draghi, unleash a new era in Italian life, supposedly one of austerity, and which would give the impression that Europe is being fixed all the while preserving the broken European monetary system for at least another year or two. In other words a grand conspiracy theory of a pre-planned bloodless coup.... And so, as lately so often happens, courtesy of the narrative by Alan Friedman of what really happened that summer, this too conspiracy theory has just become conspiracy fact.

Gold has risen 6 of the last 7 days, breaking back over $1,275 and closing at three-month highs as the last 3 days have seen stocks and precious metals bid. Silver is on a 7-day win streak holding above $20 for the last 3 days. Despite fading back from highs today, gold outperformed stocks and bonds (on a flat USD day) and gold remains the best-performing asset (+3.75%) from the December Taper.

"Government often NEEDS war because when the people get angry, they go after government.

In self-defense, government ALWAYS needs to blame some other country or group."

Last year we exposed the reasoning for the extremely predictable cyclicality in US macro-economic surprise data. Each year of the last few, the third quarter has exhibited unusual "strength" surprising 'economists' - thanks to government agencies executing their final budgets to use up all their allotments - only to stabilize in Q4 and the fade rapidly in Q1. 2013 was "different" as we had the government shutdown which threw the seasonal pattern off... but once the agencies were re-opened, the spice did flow and we got what is now clearly not a sustainable 'surprise' in growth but a lagged cyclical bounce. However, the lag introduced by the shutdown is now catching up to us - so it is different this time (2mo. lag) but the same...

"Equities are set to top and roll over," and BofAML's Macneil Curry remains bullish US Treasuries despite today's stability (so far) from recent stock gains. He remains negative on risk assets and believes US equities are posied for another leg lower (with perhaps tomorrow's Yellen testimony the un-taper punchbowl removal catalyst) and warns  bond bears that a break below 2.657% on the 10Y would indicate the downtrend in yields has resumed. Elsewhere Curry adds "gold is coming to life."

"I think Bitcoin will face serious challenges in the long run, although I believe such digital currencies could have a place in the economy in more well thought-through structures with values better linked to real assets."

Joseph Stiglitz, Nobel Laureate and Professor at Columbia University believes that the US economy was and still is sick. He believes that it will remain sick because of bad choices that have been made from 2008 onwards:

Just as we predicted it would happen, here it comes:

• OBAMACARE EMPLOYER MANDATE TO BE DELAYED FOR SOME COMPANIES

Specificaly, according Bloomberg, businesses with 50-99 workers have until 2016 before being penalized for not providing health-care coverage to full-time workers, according to final regulations released by Treasury.

US equity markets traded in a narrow range ahead of tomorrow's Yellen testimony with Trannies underperforming and Nasdaq outperforming. Cross-asset-class correlations picked up from their negligible levels on Friday as JPY (and increasingly 5Y bonds) are linked at the hip with stocks. The S&P cash tested almost up to 1,800 (but failed at 1799.94) then faded. Notably from the European close, equity handily outperformed credit markets - which ended closing near their wides of the day. Treasuries ended the day modestly bid (30y -2bps) but T-Bill yields are starting to reflect debt-ceiling concerns. The USD closed unch - drifting lower from overnight strength - but gold and silver rallied on the day (though faded of early highs). Late-day ramp efforts got the S&P green but failed to cross 1,800... and VIX decoupled on the ramp.

2013 is in the history books, and with it so are all those strategies that worked last year. As much can be seen in the performance of the marquee hedge fund names, whose performance so far in 2014, undoubtedly taking a cue from the market which in January was turmoiling over tapering and EM fears, is decidedly mixed, with about half generating negative returns, and the other just barely beating the flatline. Some notable exceptions: the woefully named Tulip Trend Fund which is already down -8.5% YTD, as well as the Keynes Leveraged Quantitative Strategies fund, down 2.9%, while on the other side Pershing Square is no longer Perishing up  4.1% through the end of the month, undoubtedly driven by the plunge of HLF in January, a move which may or may not last and likely depends on whether in the aftermath of AAPL, iCahn decides he has had enough of his game with Ackman as well.

Earlier today, the non-profit organization Better Markets did what so many others have only dreamed of doing - they sued JPMorgan. We wish them the best of luck, as in a "crony jsutice" system as corrupt as this one - perhaps best described, paradoxically enough by the fictional movie The International - where the same DOJ previously implicitly admitted it will not prosecute "systemically important" firms like JPM to the full extent of the law and instead merely lob one after another wrist slap at them to placate the peasantry, any hope for obtaining true justice is impossible.

Sad affairs have been heating up in the tiny Alpine republic in the center of the European Union. While Austria experiences record unemployment at record growth rates and tax revenues  have fallen behind optimistic projections, the looming bankruptcy of a mid-sized regional bank, Hypo Group Alpe Adria (HGAA), may propel the country to the disdained position of being the catalyst for a new round of bank failures due to interwoven banks risks on both the domestic and the international level. On Monday Austrian financial market authority FMA publicly said what the official Austria never wanted to hear as it is now confronted with a widening public discussion on a problem it had surrealstically hoped to brush under the carpet. Austria's banking woes look eerily similar to the failure of Creditanstalt in 1931 that was the fuse for the last European Kondratieff winter.