Archive - Mar 2014

When the drug-selling website Silk Road was shut down in October 2013, the event made international news. What didn’t make the news was how much the site’s purchasing clients were paying for the substances they were buying. Substance abuse comes with many costs. Emotional, health and career costs are just a few that we can name. However, Silk Road added yet another cost on top of its substance users’ problems: spending costs. For example, the buying price of heroin on Silk Road was nearly 2x greater than heroin’s average street price.

It was about a month ago when it was revealed that the infamous JPMorgan physical commodities group, plagued by both perpetual accusations of precious metal manipulation and legal charges most recently with FERC for $410 million that it had manipulated electricity markets, was in exclusive talks to be sold to Geneva-based Marcuria Group. It was also revealed that Blythe Masters, JPMorgan’s commodities chief, "probably won’t join Mercuria as part of the deal." Of course, we all learned the very next day that Ms. Masters - an affirmed commodities market manipulator - and soon to be out of a job, had shockingly intended to join the CFTC trading commission as an advisor, a decisions which was promptly reversed following an epic outcry on the internet. This is all great news, but one thing remained unclear: just who is this mysterious Swiss-based company that is about to leave Blythe without a job? Today, courtesy of Bloomberg we have the answer.

Having expressed her perspective of Russia Today's "whitewashed" coverage of Putin's invasion of Russia, Liz Wahl resigned live on air yesterday. This came on the heels of her colleague Abby Martin's recent comments voicing here disagreements with Russian policies on the same state-funded network. Russia Today has responded... "When a journalist disagrees with the editorial position of his or her organization, the usual course of action is to address those grievances with the editor...But when someone makes a big public show of a personal decision, it is nothing more than a self-promotional stunt."

What is it with this perennial fear the chief money printers have of falling prices? Not that we are likely to see it happen, but if it does, what of it? The problem is of course that when prices decline, the 'wrong' sectors of society actually benefit, while those whose bread is buttered by the inflation tax would no longer benefit at the expense of everybody else. But they never say that, do they? Has any central banker ever explained why he believes deflation to be a danger? No, we are just supposed to know/accept that it is. As Austrian economists have long explained, it is simply untrue that prices must rise for the economy to grow.

Big Bubble Brutally Bursts ... Bringing Bankruptcies, Bond Busts

Presented with no comment...

Smith & Wesson’s earnings report gave renewed momentum to a rally in gun-making stocks, which began amid a debate about firearms that followed the Sandy Hook Elementary School shooting 15 months ago. As Bloomberg notes, many gun enthusiasts have stocked up on weapons to avoid potential restrictions in response to the Sandy Hook incident, the second-deadliest mass killing at a school in U.S. history, and that has driven stocks like Sturm Ruger to handily outperform even the highest of high-beta momo indices like the Russell 2000. SWHC was up 16% after earnings - its biggest gain since the shooting - as it beat expectations once again.

Some readers may remember the price of Coca Cola being just 5c back in the early 1950s (for a 6.5oz glass)... meaning the US dollar has lost 93.8% against Coca Cola over the past six decades. Now, we are taught from the time we are children that "a little inflation is good..." And when central bankers tell us they’re targeting an inflation rate of 2% to 3%, that certainly doesn’t seem so bad. 2% is practically just a rounding error. But bear in mind a few things...

As Bill Clinton once famously stated; "What is....is" and while the current market "IS" within a bullish trend currently, it doesn't mean that this will always be the case.  This is why, as investors, we must modify Clinton's line to: "What is...is...until it isn't."  That thought is the foundation of this weekend's "Things To Ponder."  In order to recognize when market dynamics have changed for the worse, we must be aware of the risks that are currently mounting.

Amid a Russian spokesperson "hoping" tensions do not escalate into a new cold war with the US, China has come out (perhaps unsurprisingly) on Russia's side strongly condemning any sanctions:

"China has consistently opposed the easy use of sanctions in international relations, or using sanctions as a threat.”

The comments from China's Foreign Ministry reflect the country's close ties with Russia and confirm what Russia's ambassador to Canada noted, we "can always turn to China if the West follows through on threats of tougher sanctions," adding that "Western countries would largely be hurting themselves if they impose tougher sanctions."

The world and their pet rabbit was convinced yesterday that today's jobs number was both the most-important-number-in-the-world and didn't matter (because whether it beat or missed it was bullish for stocks). Seconds after the release that appeared to be true as JPY instantly dragged stocks to record highs (and the USD up and bonds and gold down). However, trumped by confirmation that the taper is continuing, Gazprom warnings, Lavrov threats, and finally reports of a Russian invasion, stocks leaked lower to Tuesday's ramp-day closing levels. Thanks to some last-minute JPY and VIX banging, S&P closed green for the 15th of last 16 NFPs. Despite intraday volatility, the USD ended the week unchanged, gold +1%, silver -1.5% and Treasuries +14bps or so (its worst week in 6 months!). Credit markets continue to be non-believers (with the high-yield bond ETF plunging this week). Critically, after last night's default in China, Iron Ore and Copper futures were crushed and we suspect Sunday night's Asia open could see more fireworks.

Despite stocks being at record highs, sell-side strategists proclaiming today's jobs report as great, and the Fed comfortable tapering in the face of transitory weather-related macro weakness, the following chart suggests all is not well... Echoing Irving Fisher, it appears we have reached a permanently high plateau in the duration of unemployment in America...

While the volatility of Bitcoin has been considerable, perhaps merely reflective of the early days of a revolution, the fact that the "value experts" at the Fed have pronounced:

• *DUDLEY SAYS BITCOIN 'IS NOT VERY GOOD STORE OF VALUE'
• *DUDLEY SAYS 'U.S. DOLLAR WINS' OVER BITCOIN ACROSS MANY METRICS

..raised an eyebrow or two on our furrowed brows. We thought a look at the following two charts since the inception of Bitcoin and the inception of the Fed would help clarify "value" stability...

Another month down, another month in which US consumers deleveraged by paying down their credit cards. Although that is not exactly correct: as we showed recently, the New Normal source of credit has nothing to do with revolving debt, or credit cards, or any other old normal notions, and everything to do with student debt, which is used for everything except paying for tuition. That, and car loans of course. Sure enough, in February, of the $13.7 billion in new loans created, $13.9 billion, or 102% of all, was there to fund student and car loans. And looking further back at the data over the past year, of the $172 billion in new consumer debt, a stunning 96% has gone to new student and car loans.

Geopolitical crises in Eastern Europe have been met with calls in the United States to use energy as a foreign policy tool. With U.S. Energy Secretary Ernest Moniz asking the industry to make a stronger case, however, it's domestic policies that may inhibit energy hegemony.