Archive - Jun 23, 2014

"...On June 28, 1914, a Slavic nationalist in Sarajevo murdered Archduke Franz Ferdinand, heir to the Austrian throne. The battle lines were drawn. Austria positioned itself against Serbia. Russia announced support of Serbia against Austria, Germany backed Austria, and France backed Russia. Military mobilization orders traversed Europe. The national and private finances that had helped build up shipping and weapons arsenals in the last years of the nineteenth century and the early years of the twentieth would spill into deadly battle. Wilson knew exactly whose help he needed. He invited Jack Morgan to a luncheon at the White House. The media erupted with rumors about the encounter. Though Wilson explained this did not signify the start of a series of talks with “men high in the world of finance,” rumors of a closer alliance between the president and Wall Street financiers persisted..." Woodrow Wilson and Jack Morgan’s collaboration to finance the Allies in the early days of the war - aside from its timeliness - provides one of the strongest examples of the intimate cooperation between the presidency and the highest levels of banking to drive American interests.

Overnight exuberance on China PMI (which was entirely opposite China's Beige Book results) sent stocks to record-er highs but Europe's dismal PMIs corrected that into the US open. Better-than-expected US data (which under the surface looked anything but) did absolutely nothing to spur exuberance in stocks and aside from a little weakness early, it appeared stocks and bonds forgot the weekend was over as they traded in extremely narrow ranges all day. Trannies were weak (biggest drop in 10 days). The USD ended down 0.15% (with modest JPY strength and AUD gains). Treasury yields closed +1-2bps (in a 3bps range). VIX rose for the 2nd day (back to 11). Gold and silver flatlined as copper popped and oil slipped. Of course, why waste a perfectly good Tuesday by closing green today...

At the heart of the last financial crisis, some compared CDS to buying home insurance on a neighbor's home and burning it down; it appears the USA has come a long way in the last few years. As NDTV reports, employees at The Orange County Register received a rather unusual request from their employer - Freedom Communications - writing to request workers' consent to take out life insurance policies on them.... But the beneficiary of each policy would not be the survivors or estate of the insured employee, but the Freedom Communications pension plan. Because such life insurance policies receive generous tax breaks, they are ideal investment vehicles for companies looking to set aside money to pay for pension plans. But in many cases, companies and banks can use the tax-free gains for whatever they choose, "Companies don't promise regulators they will use it for any specific purpose." Of course, it is the banks that are the biggest utilizers of this. Forget buybacks, just unleash some anthrax to really juice EPS this quarter?

Several months after it was revealed that Germany was able to only recover a miserable 5 tons of its gold in all of 2013 (under 10% of the 84 tons it was scheduled to repatriate), Germany appears to have given up entirely in its attempt to recover gold which simply is not there, and as Michael Krieger reports, citing Bloomberg, has decided to keep "it" (by "it" we don't mean the gold since that clearly has not been at the Fed for decades, but merely the paper promises of ownership: for more see China's gold rehypothecation scandal and how the unwind works) at the NY Fed after all. That is to say, in the "safe hands" of former Goldmanite Bill Dudley.

The popular story is that America was built by immigrants and that therefore everything about immigration is good and leads to a more successful society. However, in the 21st century, The USA is no longer sparsely populated, except in the regions that are typically hostile to settlement anywhere else in the world — places where there is no water, or too hot, or too cold, or too swampy. Currently, progressive America is pretending that the conditions of the 19th century still prevail here - boundless material resources and land for the taking - and that we can happily accommodate the overflow from our equally overpopulated neighbors, Mexico and the countries of Central America, any way they can manage to get here. It’s rather funny that the presumptive Democratic nominee for president in 2016 titled her current book Hard Choices, because that is the chief pretense of the party she represents. The last thing Hillary wants to do is take a stand on anything, other than her entitlement to live in the White House.

The NY Fed has been kind enough to just release a pic of the NY Fed's "Open Market Operations" team - i.e., its last line of defense tasked with preserving the American way of life - as it was first seen in the heat of World War II, some time in 1944. Because when one thinks of the veterans, one must not forget the men and women who quietly held it all together by BTFD.

It has been a while since Obama and Putin held one of their signature phone conversations purely for public theater and photo-op purposes. Moments ago, we learned that following weeks of silence, the world leaders had spoken earlier today, when first the Kremlin, the the White House, released details of the just conducted phone conversation.Topics discussed: Ukraine, Iraq, Syria. Also on the docket: the usual threats by Obama in the form of  "costs." No comment on today's disastrous performance by John Kerry in Egypt. Probably better that way.

Priceline announced last week that it will pay roughly 112x for OpenTable - the reservation app pioneer - even though its growth has stalled for two years, is assailed by numerous aggressive competitors (e.g. Yelp, GrubHub and numerous international players) and is not protected by any evident moat of technology or branding. The bottom-line is that the artificial attraction of massive capital and trading leverage  (through options) into rank speculation like the PCLN/OPEN deal here does not stimulate sustainable economic growth or a true rise in capitalist prosperity. It simply generates unearned rents for the 1% who have the financial assets and access to play in the Fed’s casino. One can't help but thnk of Dubai.

The deadline passed on June 16th for Ukraine's payment for gas already provided and upfront 'pre-payments' for ongoing deliveries. So what the Russian Energy Minister wants to know is how Ukraine took 3.8mcm on June 19th, 4.5mcm on June 20th, and 1mcm on June 21st. It appears Ukraine is claiming the gas supplies are reverse flow from Europe but this has not stopped Russia as The Pentagon reports more Russian troops at the Ukraine border and that they are preparing to send more tanks.

While California is by far the most vibrant market when it comes to the most expensive segment (at +6%, the highest in the nation), it is shambles when it also comes to the two lowest price buckets, both of which blow out any myth of a recovery for the "non-1%" out of the water, with a collapse of 40% in sales in the $0-100K range, and a 20% plunge in the prime $100-$250K market (the Median existing home price across the US in May was $213,400).

There has been no forward progress in US hourly compensation over the last half century. How it is possible that the world’s richest and most technologically advanced economy ever, operating during a 50-year period that included the invention of the Internet … the triumph of capitalism in China and Russia … and a landing on the moon – that is the most bountiful half-century in human history – failed to make its most important component parts better off. And at the bedrock level, we find the explanation: Fed policies are dangerous claptrap.

With the number of drone failures rising domestically and the likelihood of an exponential rise in drone strikes in Iraq imminent; the US federal court has decided now is the time to release the redacted memo justifying the use of unmanned drone strikes on US citizens. ...also recognized that "the realities of combat" render certain uses of force "necessary and appropriate," including against U.S. citizens who have become part of enemy forces-and that "due process analysis need not blink at those realities."

Less than 2 months ago we highlighted the effervescence of Dubai's equity markets when a "shell" of a company with no actual operations (but big plans) was 36x oversubscribed. We asked at the time if investors would ever learn... and it seems just weeks later, that a few are getting the joke. Dubai's General Financial Market Index is down 20.3% - a bear market - since just after that exuberant IPO hit the market. Is Dubai another leading indicator on the world's slowly rolling dissatisfaction with various asset classes?