Archive - Aug 6, 2014

The worst possible approach is to give Putin more credibility at home... 

Despite Krugman's “Mission Accomplished” Announcement, the Giant Banks Are Worse Than Ever

Have you ever heard of the Office of Information and Regulatory Affairs, otherwise known as OIRA? OIRA was created in 1980, and shortly thereafter the Reagan administration greatly expanded its powers by signing an executive order that gave the office the authority to review all federal rules. Ever since then, it has been used to rewrite or entirely block regulations from almost every regulatory body imaginable. Simply put, this powerful organization operating in the shadows of America’s faux democracy is used by lobbyists and large corporate interests to further entrench the established oligarchic power structure.

Having discussed his view that the Ukraine government is at fault for worsening the conflict, Russia's Putin explained to Angela Merkel that a "rising civilian toll has created a humanitarian crisis in Ukraine." However, it was Defense Minister Sergei Shoigu's comments that "the world has changed and changed dramatically," demanding that his troops "must be in constant combat readiness," are the most disconcerting as his strong tone in the following clip appears to confirm Poland and NATO's fears.

A month ago, a Nicaraguan committee approved Chinese billionaire Wang Jing's project to create The Nicaraguan Canal. With a planned capacity to accommodate ships with loaded displacement of 400,000 tons (notably bigger than The Panama Canal), the proposed 278-kilometer-long canal that will run across the Nicaragua isthmus would probably change the landscape of the world's maritime trade. "The project is the largest infrastructure project ever in the history of man in terms of engineering difficulty, investment scale, workload and its global impact," Wang told reporters.

With Shanghai having limited retail exposure to high-yield bonds, and the Chinese corporate bond market has overtaken the United States as the world's biggest and is set to soak up a third of global company debt needs over the next five years, it is no wonder that, as Bloomberg reports, analysts fear "a prelude to a storm." Privately issued notes totaling 6.2 billion yuan ($1 billion) come due next quarter, the most since authorities first allowed such offerings from small- to medium-sized borrowers in 2012. This week a 4th issuer has faced a "payment crisis" and while officials are trying to expand financing for small companies (which account for 70% of China's economy, with debt-to-equity ratios exceeding 200%, this is nothing but more ponzi. As Goldman warns, it appears China's Minsky Moment is drawing near (as the hangover from Q1's credit impulse kicks in).

U.S. soft drink companies are increasingly shifting to "mini-cans" in an apparent strategy to help the poor obese people of the world manage caloric intake better. Mini-can sales are up 3% as the rest of the industry is in demise. All sounds great... However, as Reuters notes, the reality of the shift toward smaller cans "is almost the industry admitting that volume is not going to be growing very much." Simply put, it is one way that companies can drive higher prices and larger margins: Consumers may feel as though they’re buying a cheaper, smaller soda, but they are often paying more per fluid ounce. But do not fear, inflation is contained.

But... China's manufacturing PMIs said everything's great in the mal-investment capital of the world? It appears for all the record credit creation in China, none of it is spilling over into demand from its closest trading partners. Australian unemployment spiked to 6.4% - its highest since 2002, missing the 6.0% expectation by the greatest margin on record. No "qualified' economists believed the print would be above 6.1%. AUDJPY is getting battered which implicitly means S&P futures have legged lower...

“If I scare you this morning, and as a result you take action, then I will have accomplished my goal," is how Casey Research's Jeff Clark began a recent conference speech. But the reality is that he didn’t need to try to scare anyone. Sadly, the evidence is overwhelming and has already alarmed most investors; our greatest risk is not a bad investment but our political exposure. And yet most of these same investors do not see any need to stash bullion outside their home countries. They view international diversification as an extreme move. Many don’t even care if capital controls are instituted. We're convinced that this is the most common - and important - strategic investment error made today...

Is this stock market decline the "real deal"? (that is, the start of a serious correction of 10% or more) Or is it just another garden-variety dip in the long-running Bull market? Let’s start by looking for extremes that tend to mark the tops in Bull markets.

Irony aside, the growth of income (trough to peak) during so-called 'economic expansions' has changed... and President Obama's "recovery" is the worst of the lot...

Steve Forbes has had enough of the Federal Reserve and its "sinning" policies to undermine the dollar. In this brief interview with Birch Gold Group, the publisher and CEO of Forbes, Inc. exposes the damage that the central bank has created, "Bernanke was a disaster...has totally mucked up the credit markets." Blasting Janet Yellen "who needs to go to re-education camp," Forbes explains why he believes so strongly in the gold standard, and the one single scenario under which he would ever sell his gold.

There isn’t much work out there on exactly how much “House money” gamblers or investors are willing to lose before they know to walk away (or run). Fans of technical analysis know their Fibonacci retracement levels by heart – 24%, 38%, 50%, 62% and 100%. Those are the moves that signal the evaporation of house money confidence as investors sell into a declining market. There isn’t much statistical analysis that any of those percentage moves actually mean anything, but enough traders use these signposts that it makes them a useful construct nonetheless.   The only other guideposts I can think of relate to the magnitude of any near term market decline. One 5% down day is likely more damaging to investor confidence than a drip-drip-drip decline of 5% over a month or two. The old adage “Selling begets selling” feels true enough in markets with a lot of “House money” on the line. After all, you don’t want to have to walk home from the casino after arriving in a new Rolls-Royce. 

Last week President Obama explained "Africa also happens to be one of the continents where America is most popular," and added that the US is "deeply interested in working with Africa, not to extract natural resources alone." We suspect, one glance at the following map answers the why (so popular) and the what (aside from natural resources)...

Practically since the day Lehman went down in September 2008 Washington has been conducting a monumental farce. It has been pretending to up-root the causes of the thundering financial crisis which struck that month and to enact measures insuring that it would never happen again. In fact, however, official policy has done just the opposite. The Fed’s massive money printing campaign has perpetuated and drastically enlarged the Wall Street casino, making the pre-crisis gamblers in CDOs, CDS and other derivatives appear like pikers compared to the present momentum chasing madness. In a nutshell, the Fed’s prolonged regime of ZIRP and wealth effects based “puts” under risk assets has destroyed two-way markets.