Archive - Jun 21, 2014

Ghandi was once asked, "What do you think about Western Civilization?" to which he famously replied "I think it's a good idea." He may as well have been talking about free market capitalism. Capital in the 21st Century has hit the world like a new teen idol sensation. Everybody is drinking the Kool-Aid and it's being held up as the most important book ever written on the subject of how runaway capitalism leads to wealth inequality. Paul Krugman of course, loves it. As does every head of state and political hack in the (formerly) free world. So let's do something different here and accept a core premise of Capital, and say that wealth inequality is increasing, and that it's a bad thing. Where the point is completely missed is in what causes it (ostensibly "free market capitalism") and what to do about it (increase government control, induce more inflation and raise taxes). The point of this essay is to assert that it is not unchecked capital or runaway free markets that cause increasing wealth inequality, but rather that the underlying monetary system itself is hard-coded by an inner temple of ruling elites in a way which creates that inequality.

Until this moment, mocking the administration's imploding foreign policy was largely a domestic issue, for the simple reason that foreigners were too busy annexing Crimea, taking over Kurdish oil fields, or repelling US-trained, if divided Al-Qaeda militants to spare time to troll the first lady. That changed this past week when none other than the Al-Qaeda extremist spinoff which in recent weeks has overrun half of Iraq, ISIS, and which as we reported managed to "confiscate" an unknown number of US-made Black Hawk helicopters and Humvees, decided to use the same outlet, Twitter, to not only mock Michelle Obama, but US foreign policy in Iraq. According to Al Arabiya, the Islamic State of Iraq and Syria (ISIS) has made a mockery of the U.S. first lady Michelle Obama through series of tweets accompanied by the hashtag: #bringbackourhumvee.

Any better ideas?

Perhaps the miserable failure of the bear case on global equities over the past 5 years has more to do with marketing the message than anything actually wrong with the arguments for higher volatility and lower asset prices. As a reminder, ConvergEx's Nick Colas notes the classic "4 P’s" of marketing are: Product, Price, Promotion, and Place (Distribution), pointing out that when it comes to getting the bear case out, it is clear which component is missing: Price. Stock markets that churn higher - as they do right now - simply make it too expensive to sit out the rally.  The “Product” and “Promotion” are both fine – you can read negative commentary in many reputable places and speak with very intelligent bears. That takes care of “Place” as well; it’s not hard to find cautionary investment opinions. The take-away from this approach is simple: calling the top may not be as hard as you think. The first 10% pullback may be enough to complete the 4 Ps. Until then, however, it’s just too hard a story to sell.

Few, if any, are expecting a dramatic move higher in the price of crude oil. But, could it be that oil prices are heading higher?

The bodies of hundreds of undocumented immigrants who died (usually from exposure in the 100-degree-plus heat) while crossing the Texas-Mexico border over the last few years have been discovered in mass graves in a South Texas cemetery, with remains found in trash bags, shopping bags, body bags, or no containers at all, according to The Corpus Christi Caller Times. The bodies are believed to have been buried by a local funeral home since 2005 in the Sacred Heart Burial Park in Brooks County. County officials said they paid the local funeral home $450 per body to handle the bodies (after officials discovered them in brush country) and County Judge Raul Ramirez said that was the practice for at least 16 years. "To me it’s just as shocking as the mass grave that you would picture in your head, and it’s just as disrespectful," exclaimed one of the discoverers, and Democratic state Sen. Juan “Chuy” Hinojosa called for the district’s attorney general to open a criminal investigation as "this is too serious of a wrongdoing."

This is a fascinating development... It seems that rallies are spreading throughout Germany protesting the corrupt and dying global status quo. One of the key targets of these groups is the U.S. Federal Reserve system, which as we have maintained, is the core cancer infecting the entire planet.

The vicious circle of central-bank inspired low volatility begetting increasing fragility (instead of 2004-2007's virtuous circle) is nowhere more clear that in the collapse of alpha generation opportunities and the implicit capitulation of every hedge fund, retail investor, and Goldman muppet to be all-in on stocks. Removing collateral, gating bond funds, and constant warnings that they bonds (not stocks) may be frothy has done nothing but herd an ever more brainwashed investing public into an ever more concentrated ownership of stocks. This, as Citi's Matt King explains, has distorted markets to no longer follow fundamentals (no matter what you are pitched on TV or by your broker). The bottom line - there is no Alpha, everyone is all-in Beta, and consensus is now so one-sided that Contagion is inevitable if any event occurs to rattle market's faith in the omnipotent ones (like a gold spike).

Fed economists say they don’t think inflation rates are rising. They think the most recent reading is a fluke. But why does anyone take them seriously? Prakash Loungani, an economist working for the IMF, undertook a study (published in 2001 in the International Journal of Forecasting); there were no surprises in it. “The record of failure to predict recessions is virtually unblemished,” he reported. That was in 2001. Surely, by 2014, the experts had managed to stain their pathetic record with some success? Nope. Loungani and a colleague, Hites Ahir, took another look. They examined 77 different national economies, of which 49 were in recession in 2009. In 2008, how many economic forecasters saw the recessions coming a year later? Go ahead, dear reader, take a guess. The answer is zero.

Coming to the understanding that the Status Quo is not sustainable is often a crooked path of overcoming programming, propaganda, denial and fear...

Britain's Ministry of Defence said this week it had scrambled Typhoon fighter jets after four separate groups of aircraft were detected in international airspace near the Baltics by NATO air defenses. The British jets intercepted seven Russian military aircraft that, as Reuters reports, did not file a flight plan and did not use their transponders, making them invisible to civilian air traffic control and a safety hazard to commercial air traffic. "The Russian aircraft were monitored by the RAF Typhoons and escorted on their way," noted the ministry. This follows an event last Thursday when Latvia said NATO fighters had scrambled a record four times after a total of 16 Russian military planes were spotted close to the country’s air space.

At the end of June, commemorative events will mark exactly 100 years since the assassination of Archduke Ferdinand in Sarajevo - a moment that would precipitate World War I. In the four days before war broke out, the Russian tsar and his cousin the German emperor -- "Willy" and "Nicky" as they nicknamed each other -- traded telegrams in a last-ditch bid to save peace, even as their army chiefs readied for battle.

Marx, for all his rhetoric on the working class, never started a single business or created a single job in his life. He didn’t work. He just sat around and wrote books about things he never experienced in first person. Four of his seven children died as a direct result of poverty from his failure to provide for his family.

So much for the Ukraine ultimatum. Just hours after fighting erupted on both sides of the Ukraine-Russian border to commemorate Ukraine's "ceasefire" proposal roundly mocked by the Kremlin, Russian forces in Siberia, the Urals and beyond were been put on combat-ready alert, Defense Minister Sergey Shoigu said after President Putin ordered surprise drills. "Over 65,000 troops, about 5,500 weapon units and vehicles, over 180 planes, and about 60 helicopters will be involved in the test.

With the Eurozone going to the extreme of negative interest rates and the IMF belatedly revising downwards their expectations of US economic growth, deflation is now the favored buzzword. It is time to untangle myth from reality and put deflation in context.