Archive - Aug 2014

Fifty years ago yesterday, on August 7, 1964, Congress passed the now infamous Gulf of Tonkin resolution, which led to a massive escalation of America’s involvement in the Vietnam War. Without a formal declaration of war, the resolution permitted President Johnson to take “all necessary measures” to support South Vietnam, including armed forces. This resulted in 58,000 dead Americans and well over a million dead Vietnamese, both civilians and military personnel. Things clearly haven’t changed much when it comes to U.S. foreign policy. After all, how did Barack Obama celebrate the 50th anniversary? By bombing Iraq again of course.

When we first brought the market's attention to high-yield credit's flashing red warning, it was shrugged off as unimportant by most - stocks are rallying so who cares (even though we explained in detail why equity investors should care). Now that the mainstream media has all become high-yield bond experts we thought it worth considering how much worse this could get. As Barclays notes, for those keeping track, retail funds have thus far seen 22 consecutive days of redemptions for a total of $16.9bn in assets - the longest streak in history and while the effect of retail selling on valuations has not been negligible, it has also not been proportionate to the magnitude of the outflows (yet).

The latest sheer brilliance from Japan: in order to avoid dumping radioactive water into the Pacific, Japan has to... dump radioactive water into the Pacific.

Direct Edge wasn’t the only exchange, nor the first exchange, to do what it did, which was the creation of symbiotic relationships between exchanges and HFTs.  

Consumer spending was soft in July. BofA data shows retail sales ex autos, measured from spending on credit and debit cards, increased only 0.3% mom seasonally adjusted. This , BofA warns, sends a somewhat weak signal in advance of next week’s retail sales report. Crucially, while supply of credit is abundant, BofA's Michelle Meyer concludes demand is weak and this cautious consumer behavior suggests the positive effect on spending from wealth creation may be muted in this cycle.

18 months ago - before The Reserve Bank Of India went full gold-tard (raising duties and capital controls), 32-year-old Datta Phuge unleashed his $25,000 gold shirt on the world's women, proclaiming "I know I am not the best looking man in the world but surely no woman could fail to be dazzled by this shirt?" However, as RBI has lifted some gold restrictions (realizing the error of their ways after smuggling exploded), we introduce 45 year-old politician and textile magnate Pankaj Parakh... and his $250,000 gold shirt weighing 3.3 kilograms which took 20 people 3,200 hours to create. Now, if that doesn't get him laid (or shot) we don't know what will...

What does the future look like for fiat currencies? (e.g. the dollar, the euro, the yen, the pound...) In the case of the dollar (which operates similarly to the other major world currencies), we know that - since all are "loaned into existence" - all dollars are backed by an equivalent amount of debt. Debt upon which interest must be paid. As all outstanding debt must compound over time at the rate of its interest (at least), we come to this important conclusion: Our money system is designed to grow exponentially. And it requires ever more debt in order to do so.

“The point of a series of regional wars organized by the Americans, especially today’s catastrophe in Ukraine, centers on the U.S. securing control over all of north Eurasia” to bolster “its position against China. That’s how the U.S. military and oligarchs are trying to maintain leadership in the global competition with China....Task no. 1 is to block those threats to economic security that are now coming from the U.S., neutralize them by reducing the dependence of our external economic activity on the mercy of American politicians, whose aggressiveness threatens the entire world."

Presented with no comment...

Physical gold is migrating to the East (Russia, China) and, with it, power and influence. We see it with China and Russia progressively imposing their will, building consensus with a great many countries that wish to end American domination made possible by their capacity (privilege) of issuing the world reserve currency. The saying, “He who holds the (physical) gold makes the rules”, is truer than ever. The announcement of the creation of the BRICs development bank is just the first cornerstone in the new international monetary edifice. All we have to wait for is the first official announcement from the East of a new means of settlement of commercial trade based on one or more tangible assets, with gold. Afterwards, logically, an announcement of the convertibility of certain currencies into gold, or even the creation of a new currency that would be convertible to gold, should be made.

"This is a market that has been seriously overvalued for some time," exclaims Paul Tudor Jones,"and what we are seeing today is the piercing of the bubble..." adding that "Wall Street was uniformly unprepared for this kind of a drop." Of course Bill Griffeth asks should we buy this dip...

From a drone's perspective, the moment the US started war with The Islamic State...

In an effort to stop people entering the country, The BBC reports, Guinea said it was closing its borders. "We have provisionally closed the frontier between Guinea and Sierra Leone [and Liberia] because of all the news that we have received from there recently," Health Minister Remy Lamah told a news conference. Ironically, the latest outbreak is thought to have begun in Guinea, but Liberia and Sierra Leone are currently facing the highest frequency of new cases. It appears things are not going according to plan...

Overview of the price action in various currencies, S&P 500, Treasuries and the CRB Index

Empires are not the result of conscious thought; they happen when a group is large enough and powerful enough to impose itself on others. But empires are expensive. They are typically financed by theft and forced tribute. The imperial power conquers... steals... and then requires that its subjects pay “taxes” so that it can protect them. The US never got the hang of it. It conquers. But it loses money on each conquest. How does it sustain itself? With debt.