Archive - Aug 2014

The WTO is dying a slow and painful death and has neared the end of its life today.

A Tennessee doctor, working at the same Liberian clinic as Dr. Kent Brantly - the Ebola-infected American who was flown to Atlanta yesterday for treatment - has placed himself in quarantine as a "precaution for [his] family." As ABC reports, Alan Jamison, a retired pediatrician, returned home to Morristown, Tenn., after he was evacuated from Liberia by the aid group he was volunteering for, says he's "feeling well" and showing no sign of symptoms; and claims since landing in the US, he said he's had no physical contact with anyone. As Mark St.Cyr notes, the Ebola virus which has been separated from the U.S. populace by the fortune of geological positioning has not only arrived on our doorstep, but was flown in deliberately on its own personal G5. Many are asking questions of; why? But perhaps the more crucial question is 'what if?' The what if question was this: "What if they need to bring them back because they had no choice? What if the reason they need to get them into better facilities is for the worst of all reasons? i.e., It’s already here."

We are all Obama's "folks" now...

New normal diplomacy...

The world is no safer than it was when the War on Terror began. Some of the Middle East’s most brutal dictators were removed from power, but radical jihadists have filled the vacuum of authority. Men and women are still coming home in caskets draped with Old Glory, or they come home mentally and physically debilitated. And for what exactly? If Smedley Butler was correct, and war is a racket, then there was another measure of success at work. And it sure wasn’t the promotion of universal democratic values. If empire can’t bring that, then there isn’t much of a point outside of domination. In other words, somebody benefits from imperium, and it’s not the average voter. Sooner or later the jig is up.

Low volatility is being driven, in BofAML's view, by both fundamental and technical factors. Fundamentally, the volatility of real economic activity and inflation has fallen to near 20 year lows in what some are calling the Great Moderation 2.0. However, the recent further collapse in volatility is also explained by a feedback loop fueled by low conviction, low liquidity, low yields and low fear. Central bank policy has been the largest explanatory factor of both the fundamentals and technicals... and that has BofAML concerned about the risks of short-term volatility spikes exacerbated by market illiquidity.

Islamic State fighters seized control of Iraq's biggest dam, an oilfield and two more towns on Sunday after inflicting their first major defeat on Kurdish forces since sweeping through the region in June. Local officials said militants with the extremist group Islamic State took control of the towns of Zumar and Sinjar near the city of Mosul on Sunday, waging fierce clashes with Kurdish forces. The French news agency AFP quoted a United Nations spokesman saying 200,000 people have fled Sinjar and said there are grave concerns for their safety.

With China's Manufacturing PMI at cycle highs and Services PMI comfortably in expansion, everything must be ponies and unicorns among the world's most mal-invested credit-bubble-fueled populace. However, as we have pointed out, discrepancies abound in the data and now desperately sad anecdotal picture of a wretched working class in China are starting to emerge. As WantChinaTimes reports, 55-year-old Zhao Guangsheng poured flammable liquids on his body before lighting himself on fire and running into Xingtan city government's office lobby (in Hunan province). Poverty appears to be the reason for his self-immolation, aside from mental instability, as Zhao was unable to pay utility bills after being moved due to forced land acquisitions by the government.

No comment necessary...

Historically-informed investors are being given a hint of advance warning here, in the form of a strenuously overvalued market that now demonstrates a clear breakdown in internals. We observe these breakdowns in the form of surging credit spreads (junk bond yields versus Treasury yields of similar maturity), weakness in small capitalization stocks, and other measures. These divergences have actually been building for months, but rather quietly.

As John Kenneth Galbraith famously stated, "The process by which money is created is so simple the mind is repelled." As Peak Prosperity's Chris Martenson explains (as part of his excellent Crash Course), essentially, money is lent into existence though fractional reserve banking. The dollars you deposit at the bank? They turn into nearly 10x that amount as your bank subsequently makes loans using that money as collateral. As simple as the process is, nearly every American remains ignorant of it and its massive implications. At the heart of the matter is this: our money supply and its related debt obligations MUST continue expanding (thereby devaluing the purchasing power of each dollar ad infinitum) -- forever -- or the entire system collapses upon itself. Prepare to be repelled...

Despite the recent significant weakness in the broader European and US equity indices, European bank stocks are only just beginning to resume their larger downtrend (as the hopes of a Draghi put remained firm until the last few days of BES debacle). As such, BofA's Macenil Curry believes, they are likely to be the catalyst for the next leg of "risk off" and in that environment EURUSD should continue to suffer.

In recent weeks France has defied US demands not to build Mistrals for Russia, has questioned dollar imperialism and the Petrodollar, and has blasted the US banking regulator's fines as "accelerating the decline of the dollar." So it is likely not a huge surprise that ahead of the G-20 meeting of world leaders later in the year, The FT reports, France has gathered support to challenge US regulators imposing heavy penalties on foreign banks. Berlin, London and Rome have backed Paris in its push to have its concerns about so-called US extraterritoriality discussed when leaders of the world’s top 20 economies meet hoping to bring "more proportionality" to bank fines. With allies like this...

Dispassionate, non-conspiratorial rant , fact-based high level discussion of the sigificant drivers of the week ahead.

A day after Malaysian Airlines MH-17 was shot down on July 17 over east Ukraine (still to be determined by who thanks to epic amounts of fact-free propaganda) the new cold war between Russia and the US nearly heated up quite substantially, after a U.S. Air Force spy plane closely evaded an encounter with the Russian military on July 18 in what may potentially have escalated into a live fire tragedy that could have unleashed something far worse. According to CNN, the U.S. plane had been flying in international airspace, conducting an electronic eavesdropping mission on the Russian military, when the Russians took the unusual action of beginning to track it with land-based radar.  The Russians then sent at least one fighter jet into the sky to intercept the aircraft, the U.S. official said Saturday.