Archive - 2014

The Baltic Dry Index, a measure of commodity-shipping rates, has collapsed 39% in just the nine trading days of 2014. It has fallen from 2277 at the end of December 2013 to 1370 today (see chart). This key indicator of global economic health is a warning signal for the global economy in 2014. 

Day two of the bounce from the biggest market drop in months is here, driven once again by weak carry currencies, with the USDJPY creeping up as high as 104.50 overnight before retracing some of the gains, and of course, the virtually non-existant volume. Whatever the reason don't look now but market all time highs are just around the corner, and the Nasdaq is back to 14 year highs. Stocks traded higher since the get-go in Europe, with financials leading the move higher following reports that European banks will not be required in upcoming stress tests to adjust their sovereign debt holdings to maturity to reflect current values. As a result, peripheral bond yield spreads tightened, also benefiting from good demand for 5y EFSF syndication, where price guidance tightened to MS+7bps from initial MS+9bps. Also of note, Burberry shares in London gained over 6% and advanced to its highest level since July, after the company posted better than expected sales data. Nevertheless, the FTSE-100 index underperformed its peers, with several large cap stocks trading ex-dividend today. Going forward, market participants will get to digest the release of the latest Empire Manufacturing report, PPI and DoE data, as well as earnings by Bank of America.

It is a well-known fact that when it comes to ownership of rental properties in the US, Wall Street, and particularly Blackstone, has become the single largest landlord in the country. But what about undeveloped land? As summarized by Vizual-statistix, according to The Land Report published by Fay Ranches, the top 100 owners of US land collectively have 33 million acres in their private holdings.  This equates to about 1.5% of all USA land – that may seem like a small percentage, but it’s actually a massive area.  The chart below lays out the top 10 largest private landowners with the areas of Puerto Rico, Delaware, Rhode Island, and Washington, D.C. included for scale. As can be seen, all of the top 10 own a piece of the USA that is bigger than Rhode Island, and five have a piece that is at least as big as Delaware. John Malone, who is the largest land owner in the country with 2.2 million acres, owns private property the size of Puerto Rico.

It would appear that the government, via its mortgage-financing subs Fannie Mae and Freddie Mac, is providing yet another $50 to $100 million fillip to banks - but this time at the expense of their ignorance. As Reuters reports, the FBI is investigating "unsophisticated tradecraft," such as hand signals and special telephone ring tones, that some traders are conspiring to rig rates on large orders submitted by the GSEs - front running them in the interest rate swaps market. Of course, no one is surprised at yet another manipulation or malfeasance but the 'high-level-employee' whistleblower's exposure is perhaps not surprising since the size of 'hedging' orders from the mortgage-managers provides an incentive for front-running ahead of the trades - "GSEs frequently submit large interest-rate swap trades, making them easy targets for front running and lucrative targets for market manipulation."

Earlier we pointed out that mortgage origination at Wells Fargo - the bank's bread and butter - is crashing at an unprecedented pace, and as per the conference call, Q1 isn't looking any better. Naturally, it stood to reason that the bank would seek alternative business and product lines to supplant the declining revenue it used to generate when it would originate some $100 billion in mortgages every quarter, now half that number. However, not even in our wildest dreams did we predict just what this "alternative" product would be. Because, as the FT reports, Wells Fargo, the largest US bank by market cap, is currently exploring Bitcoin as just that revenue replacement source. Per the FT: "Wells’ anti-money laundering chief, Jim Richards, has launched a group to examine how it might safely offer Bitcoin-related services or banking arrangements to virtual currency entrepreneurs, according to people familiar with the initiative."

In the global war for energy supremacy, Russia has won another victory over the United States.

Stunning Hypocrisy

"The Fed's policies have actually led to a lot of problems around the world," Marc Faber begins his discussion with Bloomberg TV's Trish Regan, especially "people in the lower income groups [who] spend say 30% of their income on energy, transportation, and so forth, electricity and gasoline." The Gloom, Boom & Doom Report author goes on to discuss everything from how the Fed is creating a two-class system around the world, the inexorable growth of governments, buying votes, Bitcoin, interest rates, wealth taxes, and overall market valuations. "We are in a gigantic financial asset bubble," Faber explains, "everybody's bullish," but he sees a slowing global economy (as do we e.g. Baltic Dry Index); "[The bubble] could burst any day. I think we are very stretched." Faber is on fire...

The Chinese military, especially the navy, made great strides last year in improving its combat capabilities, enabling it to better defend the nation against threats to its sovereignty, according to analysts. As China Daily reports, less than a month after being named the head of China's Central Military Commission, President Xi Jinping asked PLA officers to adopt realistic combat criteria in military training. "It is the top priority for the military to be able to fight and win battles," he said during an inspection to the Guangzhou military theater of operations in December 2012. While some have suggested the rapidly expanding PLA navy is driving a seismic shift in Asia's military balance, Chinese experts have refuted such rhetoric, saying military moves by China are only aimed at creating improved self-defense by providing capabilities to match the other parties in the region.

 If you’re going to buy stocks… make sure you get PAID. 

With Islamic extremists raising their ominous-looking flags over Falluja and Ramadi again, it's not looking too good in Iraq (or the rest of the Middle East). Sure, Mark Firoe notes, Iraqi government forces may take back some territory they lost, but it's never a good sign when you have to shell your own country to maintain order. Confused at the proxy-wars, terrorists, statists, and just who the US is friends with? Have no fear, the following brief clip will explain it all...

Despite 'blaming' the drop in the cost of dry bulk shipping on Colombian coal restrictions, it seems increasingly clear that the 40% collapse in the Baltic Dry Index since the start of the year is more than just that. While this is the worst start to a year in over 30 years, the scale of this meltdown is only matched by the total devastation that occurred in Q3 2008. Of course, the mainstream media will continue to ignore this dour index until it decides to rise once again, but for now, 9 days in a row of plunging prices is yet another canary in the global trade coalmine and suggests what inventory stacking that occurred in Q3/4 2013 is anything but sustained.

Following last week's surprising passage of the preliminary approval to extend emergency unemployment claims, i.e. emergency jobless claims, for 3 months, when six republicans sided with democrats and gave approval to the original $6.4 billion legislation, there was an expectation that up to 1.4 million Americans would get their benefits extended once again (despite the so-called recovery in the economy, and the job market, instead of just all time high S&P500). Moments ago such hopes were dashed, when a Senate plan to restore long-term jobless benefits hit a wall Tuesday after Republicans withdrew their support amid complaints over cost and other issues.

If we have learned anything since the global financial crisis peaked in 2008, it is that preventing another one is a tougher job than most people anticipated. Not only does effective crisis prevention require overhauling our financial institutions through creative application of the principles of good finance; it also requires that politicians and their constituents have a shared understanding of these principles. Today, unfortunately, such an understanding is missing. “Firefighting is more glamorous than fire prevention.” Just as most people are more interested in stories about fires than they are in the chemistry of fire retardants, they are more interested in stories about financial crashes than they are in the measures needed to prevent them. That is not a recipe for a happy ending.

Just when you thought US foreign policy under John Kerry couldn't plumb new lows, here comes Israel, mocking... John Kerry.