Archive - May 21, 2014

Last week we commented that based on TIC data, while "Belgium's" unprecedented Treasury buying spree continues, one country has been dumping US bonds at an unprecedented rate, and in March alone Russia sold a record $26 billion, or 20% of its holdings. So as Russia is selling a record amount of US paper, what is it buying? For the answer we go to Goldcore which tells us that "Russia Buys 900,000 Ounces Of Gold Worth $1.17 Billion In April."

It appears yet again that China's "strike first" anti-terrorism policy has failed as explosions have rocked Urumqi, the capital city of China's unrest-plagued Xinjiang Uyghur Autonomous region, killing (and injuring) multiple (but unknown) people. Social media suggests 2 SUVs entered the crowded market in the center of the city ploughing down onlookers, throwing explosives from the cars, before a blast was heard. One witness noted that the cars were painted with "uighur" language slogans. Flames and heavy smoke were seen nearby, police are on the scene and the 2 SUVs are being removed. There is no official death or injury count as of yet.

If you believe that the U.S. economy is heading in the right direction, you really need to read this article. As we look toward the second half of 2014, there are economic red flags all over the place.

China's HSBC Manufacturing PMI has now spent 3 years within 2 points of the crucial '50' demarcation between contraction and expansion but as the following chart shows, something seems 'odd' about the last few months apparent stability. Tonight China HSBC PMI printed a stunning 49.7 crushing the expectation of 48.3 (modestly above last month's 48.1) but still in contraction for the 5th month in a row (the longest contraction since Oct 2012). This was China's biggest spike in PMI in 9 months led by increases in new orders, production, and new export orders... but employment fell to new lows. Japan's Markit PMI also printed in 'contraction' territory for the 2nd month in a row - its first since Abenomics began.

"They are without a doubt the worst organization I have ever dealt with. Keep suing them America! They deserve it!!" is the way one Bank of America client described the bank and the current actions that many of the mortgage banking business are undertaking will not improve the situation. As Reuters reports, many of the 20 million homeowners in America are being held hostage on their mortgage modification process by an extra clause being added to the docs: they could not say or print or post anything negative about the provider, ever. These "gag orders" are becoming more frequent and Consumer law defenders are concerned, ""If your servicer screws up, you can't say anything about it... the homeowner has no defense."

A steep yield curve induces investors to borrow at cheap shorter rates and buy riskier assets to earn a spread.  Party on while the Fed provides the punch bowl.  Maybe this time the volatility will come even before the Fed eases off the pedal?

"I hope there are people who love the feature and post more," says Facebook's product manager excitedly about the new feature they just added. We suspect people will not... As The WSJ reports, starting Wednesday, the app has the ability to recognize music and television shows playing in the vicinity of users. Read that again... 'in the vicinity of users'. In other words, Facebook is unveiling its own NSA-style eavesdropping feature (on you and all your friends). Don't worry though... even if users decide not to share what they’re hearing or watching, Facebook will hold onto the data in anonymous form, keeping tabs on how many users watched particular shows. Sound familiar?

Russia’s seizure of Crimea has led to speculation that a major motivating factor was to acquire potentially vast energy resources in the Black and Azov Seas. But taking control of territory rich in oil and gas is different from being able to successfully pull those energy resources from the ground.

Princeton University paid four of its endowment managers a combined $9.2 million in 2013. As Bloomberg reports, this is a 46% increase from a year earlier and four times the increase Harvard University paid its top investors. We are sure they earned it - besides, last year was a difficult year for every asset manager eh (even as the endowment gained only 11.7% last year - average for large endowments? But as one apologist noted "It's easy to whack these guys," - yes it is! But while "it looks big in percentage terms, it’s a basis point or two compared to the endowment," - oh well that makes it ok then. Once again, it pays to be in the 'elite'.

On the surface, the economic atmosphere of the U.S. has appeared rather calm and uneventful. Stocks are up, employment isn’t great but jobs aren’t collapsing into the void (at least not openly), and the U.S. dollar seems to be going strong. Peel away the thin veneer, however, and a different financial horror show is revealed.  With the Ukraine crisis now escalating to fever pitch, BRIC nations are openly discussing the probability of “de-dollarization” in international summits, and the ultimate dumping of the dollar as the world reserve currency. The U.S. is in desperate need of a benefactor to purchase its ever rising debt and keep the system running. Strangely, a buyer with apparently bottomless pockets has arrived to pick up the slack that the Fed and the BRICS are leaving behind. But, who is this buyer? At first glance, it appears to be the tiny nation of Belgium. Clearly, this is impossible, and someone, somewhere, is using Belgium as a proxy in order to prop up the U.S. But who?

Instead of "defective", GM suggests its employees use the phrase "does not perform to design" according to just released documents in the GM recall probe. However, the internal presentation provides a glimpse into the internal thinking at GM as it suggests the following 69 words should not be used in a company memo... including "Hindenburg", "spontaneous combustion", and "Kevorkianesque."

Unions have been the real plague of society. There is not much they have not really destroyed... The problem is that the only way to pay these unions is to raise taxes. This is the poison pill that will destroy Western Society. This hunt for taxes will destroy the economy and will not save the day in the end game. Just do the math.

Sometimes a chart is worth a thousand words, and this is one. Real Median household income peaked way back in 1999 at $56,000 and by 2012 it was down 9% - an unprecedented decline. It goes without saying that Washington’s Keynesian ministrations on the money printing and national debt front didn’t much help. Yet the mainstream narrative blathers on that the business cycle expansion is back on track and that last month’s numbers were a tad better than the month before. The table below says that’s all Keynesian bread and circuses - the fleeting uptick interval between the serial bubbles and busts that our Washington overlords have condemned the people to endure.

U.S. demand for coal has fallen in recent years and export has become ever more important to domestic coal producers.  Asia is the obvious export target, but challenges abound.

With everyone focused on what is undisputedly the next mega credit bubble in the form of student loans, the topic of college education, and specifically its utility, has gotten much press coverage over the past month. As we summarized most recently two days ago, the key variables involved when calculating the costs and benefits revolve around whether one uses (generous amounts) of student loans and what area of specialization one picks. But according to a recent report published by the Center for Economic and Policy Research there is another, perhaps more important variable when it comes to getting the most out of one's college education: race.