Archive - Jan 19, 2015

During his State of the Union speech on Tuesday evening, Barack Obama is going to promise to make life better for middle class families.  Each January, he gets up there and tells us how the economy is “turning around” and to believe that much brighter days are right around the corner.  And yet things just continue to get even worse for the middle class.  The numbers that you are about to see will not be included in Obama’s State of the Union speech.  They don’t fit the “narrative” that Obama is trying to sell to the American people.  But all of these statistics are accurate.  They paint a picture of a middle class that is dying.

Since the creation of the Federal Reserve in 1913, the dollar has lost over 97 percent of its purchasing power, the US economy has been subjected to a series of painful Federal Reserve-created recessions and depressions, and government has grown to dangerous levels thanks to the Fed’s policy of monetizing the debt. Yet the Federal Reserve still operates under a congressionally-created shroud of secrecy. No wonder almost 75 percent of the American public supports legislation to audit the Federal Reserve.

As 2015 begins, policymakers around the world are faced with three fundamental choices: to strive for economic growth or accept stagnation; to work to improve stability or risk succumbing to fragility; and to cooperate or go it alone. The stakes could not be higher; 2015 promises to be a make-or-break year for the global community. The new networks of influence should be embraced and given space in the twenty-first century architecture of global governance. This is what I have called the “new multilateralism.”

The Fed's own favorite mouthpiece Jon Hilsenrath (for more see "On The New York Fed's Editorial Influence Over The WSJ"), just released a piece in which he claims, or rather his sources tell him, that the Fed is "on track to start raising short-term interest rates later this year, even though long-term rates are going in the other direction amid new investor worries about weak global growth, falling oil prices and slowing consumer price inflation." In other words, just like the ECB in 2011, the Fed which has hinted previously that it will hike rates just so it has "dry powder" to ease once the US economy falls into recession, will accelerate a full-blown recession in the US when it does - if indeed Hilsenrath's source is correct and not merely trying to push the USDJPY higher (for reference, see Reuters "exclusive" report on the Samsung takeover of Blackberry, denied by both parties within hours - hike some time this summer.

In what Yemen's information minister described as an "attempted coup" Shia Houthi rebels (backed by Hizbollah and Iran) have surrounded the Yemeni Presidential Palace putting them, as The Telegraph reports, in direct confrontation with al-Qaeda and the Yemen government. Amid hopes of a compromise deal or cease-fire in the conflict that has been under way since September when the Houthis swept into Sana'a, the latest reports are the nation has gone from bad to worse...

YEMENI PM SAID SURROUNDED BY HOUTHI MILITIAS, INFORMATION MINISTER SAYS GOVERNMENT HAS LOST CONTROL OVER COUNTRY -- CNN

Oil prices, interestingly, fell on the increasing tensions today - as we pre-suppose the market is pricing in a successful coup - and the ensuing pump-fest of supply (at any price - just give us revenues) will trump Yelemni tribes threats to cut off supply if the President is harmed.

The Argentine prosecutor who accused President Cristina Fernandez of orchestrating a cover-up in the investigation of Iran over the 1994 bombing of a Jewish community center has, according to AP, been found dead in his apartment, authorities said on Monday. As The Times of Israel reports, Alberto Nisman, 51, was discovered, by his mother, in a pool of blood in the bathroom on Sunday night with a gunshot wound to the head, hours before he was set to testify before lawmakers on his accusations of the cover-up. Coincidence we are sure, but police are investigating and Argentinian media reported that they had initially ruled the death a likely suicide but we note that The Clarin daily reported just a few days earlier that Nisman had told the newspaper, "I could end up dead because of this," and in a separate TV interview, had also been considering increasing his security detail.

On the heels of last week's downgrades by Fitch and Moody's to just above junk status, The Central Bank of Russia (CBR) has issued a statement that it will no longer use credit ratings from Standard & Poor’s, Fitch, or Moody’s that were assigned after March 1, 2014. All credit ratings will now be at the discretion of the Board of Directors of the Bank as regulators assess whether or not the ratings made after March are accurate. Sounds like Spain, Greece, and USA's previous derision over ratings agencies proclamations is heading east.

The fact that Central banks are now openly cutting interest rates to NEGATIVE should tell you how far along we are in terms of funding problems (at these rates, bond holders are PAYING the Government for the right to own bonds). From a baseball analogy we’re in the late 8^th, possibly early 9^th inning. 

The Bundesbank, Germany’s powerful central bank, announced very publicly this morning the further repatriation of some of it’s gold being held in foreign locations – namely in Paris and New York with the Bank of France and the Federal Reserve.

It appears the actions of the Swiss National Bank have prompted questions for all central banks as cash squirts away from the looming Euro crash (if France's Hollande is to be believed) to any and every other currency. As the Danish Krone rallied to its strongest in 10 years against the EUR in the last few days, worries over the currency breaking its peg have apparently prompted the Danish Central Bank into action:

• *DANISH CENTRAL BANK CUTS DEPOSIT RATE TO -0.2% FROM -0.05%

The immediate reaction was DKK weakness, but that has been completely unwound and follows worrying reassurances this week from Oestergaard that "Denmark's Krone peg to the Euro is secure."

What you are about to see has absolutely nothing to do with Dr Martin Luther King...

The precarious "game theory" equilibrium that worked for decades while OPEC was still a functioning cartel is unwinding before everyone's eyes. Just as Saudi Arabia accurately anticipated, the lower the price of crude goes, the more both OPEC members and their non-OPEC peers (especially shale companies funded by hundreds of billion in junk bonds) will have to produce in order to keep their budgeted revenues roughly in line (and keep creditors happy for the time being) in the process setting off an unprecedented wave of bankruptcies and production capacity declines, which take about 6-12 months after the price plunge to materialize. Case in point: the country formerly known as Iraq (and now better known as that region around the Tigris and the Euphrates that does not belong to ISIS) is pumping crude at a record pace and will continue to boost exports this year, its Oil Minister Adel Abdul Mahdi said.

A few days after the SNB shocked the world when it became the first central bank to pull out of its currency war with the ECB, leading to an epic defeat not only for the Swiss economy whose exports are now set to crash and various brokers and macro hedge funds who were short the Swissy (even as the SNB is nursing an epic balance sheet as as result of its failed 3+ year intervention), and following the latest Chinese snub of its overzealous stock gamblers, next up on the "shock and awe" bandwagon may be none other than the Bank of Japan (something we noted over the weekend in "Is The BoJ The Next SNB?"), where according to Reuters, any hopes for even more QE may be dashed after a ruling party lawmaker and one of the architects of Prime Minister Shinzo Abe's "Abenomics" policies said that the Bank of Japan "does not need to ease monetary policy further this year unless the economy is hit by a severe external shock."

Following last week's Swiss stock market massacre as a result of a central bank shocker, and last night's crack down by Chinese authorities, it almost appears as if the global powers are doing what they can to orchestrated a smooth, painless (as much as possible) bubble deflation. If so, what Draghi reveals in a few days may truly come as a surprise to all those- pretty much everyone - who anticipate a €500 billion QE announcement on Thursday.