Archive - Jun 10, 2014

Just when one thought US foreign policy couldn't sink any deeper into the hole of its embarrassment, it takes out a shovel and starts digging. Overnight, in what AP describes as a stunning assault that exposed Iraq's eroding central authority, Al Qaida-inspired militants from ISIS, or the Islamic State of Iraq and al-Sham, overran much of Mosul on Tuesday, seizing government buildings, pushing out security forces and capturing military vehicles as thousands of residents fled the second-largest city. But the worst news by far for the US is that as a result of the takeover of Mosul by ISIS forces, an unknown number, and at least one, US ultramodern Blackhawk and Kiowa helicopters parked at the Mosul airport, are now in, you guessed it, Al Qaeda hands.

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While The Tea Party had been relatively aggressive in the race, it is still quite shocking to the establishment that the second-highest House Republican just got unseated (despite outspending Brat by a ratio of 5-to-1) by a local tea-party-backed economics professor:

HOUSE MAJORITY LEADER CANTOR LOSES VIRGINIA REPUBLICAN PRIMARY
DAVID BRAT BEATS CANTOR IN VIRGINIA PRIMARY, AP REPORTS
TEA PARTY CHALLENGER BEATS SECOND-HIGHEST HOUSE REPUBLICAN: AP

Echoing Europe's dissatisfaction with the status quo, it appears the announcement of the death of the Tea Party was a little premature. Cantor was elected to Congress in 2000... looks like we have to add one to initial jobless claims this week. Meet the man who just crushed Eric Cantor...

In President Obama's speeches this year, a steady theme has been creating jobs and economic opportunity for Americans. Yet during the more than five years Mr. Obama has been in office, young people have been especially hard-hit by the slow and virtually jobless recovery. On a deeply human level, it's profoundly sad. The message to Obama - "The bottom line on labor: Make something less expensive and businesses will use more of it. Make something more expensive and businesses will use less of it."

As student loan bailouts rain down from Washington, we thought it may be useful to consider where the world's wealthiest University alumni are. As Private Wealth reports, following a survey of 70,000 millionaires around the world, eight of the top ten universities with the highest number of rich alumni are based in the U.S., with the U.K. home to the other two. Engineering degrees produced the most millionaires, although most engineering grads made money as entrepreneurs, the study revealed. MBAs, law, accounting, and finance degrees also led to financial success.

Financially speaking, Japan is fast becoming a Keynesian dystopia. Its entire economy is now hostage to a fiscal time bomb. Namely, government debt which already exceeds 240% of GDP and which is growing rapidly because even the recent traumatic increase in the sales tax from 5% to 8% does not come close to filling the fiscal gap. Moreover, even at today’s absurdly low and BOJ rigged bond rate of 0.6% nearly 25% of government revenue is absorbed by interest payments. Now comes the coup de grace, as Kyle Bass predicted, Japan’s savings rate has collapsed and its vaunted current account surplus is about ready to disappear.

Just how badly is Generation X doing? Bad enough to turn around the entire concept of middle-class prosperity in America - one where every next generation should do better than the preceding one - on its head. "Only one-third of Generation X households had more wealth than their parents held at the same age, even though most earn more, The Pew Charitable Trusts found." And there, in a nutshell, is your so-called recovery: two thirds of an entire generation - one which is in its prime working years - doing worse than the one before them!

Across the world, the number of people who say the economic situation in their country is "bad" is climbing - despite the much-vaunted recovery we all keep hearing about from politicians. It seems though, as Grant Williams explains in great detail, that the voice of the people is on the rise. This is a problem, because whilst the anti-EU bloc failed to get enough seats to derail the bureaucracy of Brussels, they did win enough to create some serious waves and make it far harder to railroad through policy the next time the wheels on the wagon start to wobble... and wobble it is. Shameless politicians who are willing to put aside technicalities such as the truth and a voting population that is tired of the status quo and looking for a change? The conscious uncouplings may have only just begun...

Looking across retailers with at least $1B in market cap, the top 20 of those with the highest concentration of activist investors has under-performed a leading retailing index.

Why have we turned our backs on the principles that this nation was founded upon? Many of those that founded this nation bled and died so that we could experience "life, liberty and the pursuit of happiness". And yet we have tossed their ideals aside as if they were so much rubbish. Our founders had experienced the tyranny of big government (the monarchy) and the tyranny of the big banks and feudal lords, and they wanted something very different for the citizens of the new republic that they were forming. Most people are under the illusion that the United States has a "capitalist economy" today, but that simply is not accurate. At best, we have a "mixed economy" that is becoming a little bit more socialist with each passing day. What we are doing right now is clearly not working. So why don't we go back and do the things that we were doing when we were extremely successful as a nation?

The recent decline in US yields appears to have run its course and given Citi's outlook for a better employment dynamic in the US, they expect yields to trend higher at this point. Citi's FX Technicals group remain of the bias that the normalization of labor markets (and the economy) will lead to a normalization in monetary policy and as a result significantly higher yields in the long run. Might the shock be that the Fed could be grudgingly tightening by late 2014/early 2015 (an equal time line to the 1994-2004 gap would suggest end November 2014) just as it was grudgingly easing by late 2007 despite being quite hawkish earlier that year? However, given the "treacherous market conditions" we suspect Citi's hoped-for normalization won't go quite as smoothly as The Fed hopes.

Day in, day out, we hear it... It's "the most unloved rally"; Stocks are in "the Rodney Dangerfield rally"; there's still all the "money on the sidelines." Well, it seems, judging by Investors Intelligence surveys of those "not bullish" (bearish or expecting a correction), that investors have never (ever) been more lovingly, respectfully, all-in with this rally... (but that's just the facts speaking - not the asset-gathering, always stay long, commission-snatching soundbites).

Why unrealistic valuations are a good way to set up a company for difficulties in later stage financing

Last Thursday, the European Central Bank (ECB) took the historically unprecedented step of lowering certain of its interest rates below 0%. In a report immediately following the announcement, Peak Prosperity's Chris Martenson likened the move to the policy equivalent of dropping a neutron bomb. In the days following, despite the ECB attempting to clarify its stance further, many questions still linger; most notably: What exactly will the implications of this negative interest rate (NIRP) policy be? Alasdair Macleod lays things out in black as white as much as is possible; explaining exactly what steps the ECB is undertaking, what the most probable ramifications will be, and where the highest degrees of risk now lie..."The ECB now finds itself on the cusp of this failure. Remember, there are some very big banks with gearing over 40-50 times. All you need is a fall in prices of 1%, 2%, or 3% for a few companies to go bust, and then those banks are no longer solvent. It is a nightmare scenario. It really is."