Archive - Jun 2014

An overview of the price action in the FX market and a look at US 10-year yields.  No ride on an ideological hobbie horse or axe to grind.  Just trying to make sense of the price aciton

Once Central Banks get out of markets, and I know some critics think that once they get in they are here to stay, healthy volatility and actual price discovery should come back to asset classes. 

So what’s a Peeping Tom, anti-democratic, Constitution-trampling intelligence crony to do after leaving decades of “public service?” Move into the private sector and collect a fat paycheck from Wall Street, naturally. So what is Mr. Alexander charging for his expertise? He’s looking for $1 million per month. Yes, you read that right. That’s the rate that his firm, IronNet Cybersecurity Inc., pitched to Wall Street’s largest lobbying group the Securities Industry and Financial Markets Association (SIFMA)

Have you noticed that prices are going up rapidly?  If so, you are certainly not alone.  But Federal Reserve chair Janet Yellen, the Obama administration and the mainstream media would have us believe that inflation is completely under control and exactly where it should be.  Perhaps if the highly manipulated numbers that they quote us were real, everything would be fine.  But of course the way that the inflation rate is calculated has been changed more than 20 times since the 1970s, and at this point it bears so little relation to reality that it is essentially meaningless.  Anyone that has to regularly pay for food, water, gas, electricity or anything else knows that inflation is too high.  In fact, if inflation was calculated the same way that it was back in 1980, the inflation rate would be close to 10 percent right now.

The Kremlin said in a statement that al-Maliki informed Putin on Friday about his government’s steps to combat the “terrorist groups in the north of the country.” It added that the insurgency threatens security of the entire region. Putin confirmed Russia’s “full support for the Iraqi government’s action to quickly free the territory of the republic from terrorists,” the Kremlin said, adding that Putin and al-Maliki also discussed bilateral cooperation. Putin’s expression of support for the embattled Iraqi prime minister comes as al-Maliki’s rivals have mounted a campaign to force him out of office, with some angling for support from Western backers and regional heavyweights.

For over 5 years we have been explaining the hole that the fed has been digging (most ironically here). This morning's op-ed by Warsh and Druckenmiller highlights many of the problems but we leave it to Marc Faber to succinctly sum up the dilemma that the Fed faces (and by dilemma we mean, the plan) - "The more they print, the more inequality there is, the weaker the economy will become." Simply put, "it's a catastrophe," Faber told CNBC, "what the Fed has done is to lift asset prices, and the cost of living. In the meantime, the cost of living increases are higher than the wage increases. The typical American household income is going down in real terms." Recovery?

While the price analogs of the last few year's exuberance in US equity markets are enough to worry all but the most systemically bullish "believer"; we suspect the following article from the LA Times In the Spring of 1987 will raise a few hairs on the back of the neck of perpetually optimistic extrapolator... "One of the largest bullish factors is burgeoning worldwide liquidity..."

Yesterday, Ha-Joon Chang exposed the shortest economics textbook ever. Today the Cambridge University Economics professor uncovers everything you didn't know about economics (in 13 simple points)...

In a video leaked by someone who happened to be working out at the same hotel gym as President Obama, the world got a peak into the exercise routine of the most powerful man on earth. The President is surrounded by some of the best and smartest advisors in the country, but apparently none of them is a personal trainer, as his approach and technique leave a lot to be desired. But he is in luck, we're here to help...

For the last two decades Coach (COH) could do no wrong. Its aspirational handbags flew off the shelves at hefty prices, causing its sales to soar from $1.3 billion to $5.1 billion during the 10-years ending in fiscal 2013. Better still, its EPS soared by 6X, representing a 20% earnings growth rate over the same period. Greatest of all, its share price peaked at nearly $80 in 2012 after having opened the 21st century at $3 per share. Needless to say, the believers and speculators who got on board for the 27X gain in twelve years were fabulously rewarded, as was its founder and largest stockholder, Lew Frankfort, who became a billionaire along the way. So the capitalist dream is still working in America, right? Not exactly.

Meet RAMPART/BLARNEY/MYSTIC - the NSA's "unconventional special access program" partnering with international agencies to capture - but not collect (though there are exceptions) 'data' directly from the world's fiber-optice cables. The following map shows there is plenty of places to hop on the pipe and suck out as much information as they'd like but it's all good, as NSA notes in the leaked docs - "partnering with Foreign SIGINT partners to enable access to foreign intelligence" as the NSA shows "how to find target communication on a typical fiber optic cable."

Ever since an über-strong U.S. dollar crushed the export sector in the mid-1980s, the U.S. economy hasn’t looked quite the same. This is not a problem of the past however, as export growth already lags behind every one of the past ten expansions, even the 1980s, thanks to a drop in the first quarter. The chart below shows that exports are no longer distinct from other parts of the economy (nearly all of them) that haven’t measured up to a “normal,” credit-infused, post-World War II business cycle. Together with emerging global risks, it begs the question of whether sagging exports can drag the U.S. into recession.

Having been told by she-that-knows that low volatility is not a signal of complacency, it appears Citi's Matt King disagrees. Unlike 2004-2007's "virtuous" cycle of low vol begetting low vol, 2013-2014's lower volatility is leading to a decidedly "vicious" circle that will likely not end well for the Fed and the world's central banks' "financial stability" mandates.

Spend any time watching business media, and you could not help but notice the extreme amount of optimism about the financial markets. Despite weak economic data and geopolitical intrigue, the complacency and "bullishness" are at extreme levels. Considering that the markets have been primarily advancing on the back of continued flows of liquidity from the Federal Reserve combined with artificially suppressed interest rates; what do you think the impact on the financial markets will be? “Success breeds complacency. Complacency breeds failure. Only the paranoid survive.” - Andy Grove

It's Friday... which can mean only one thing., The entirely unrigged (but ridiculously ubiquitous) meltdown in VIX starting at 330ET to ensure whatever momentum ignition is left will get flushed higher and ensure higher highs in stocks... These are your "markets"... (just as we predicted this morning)