Archive - Jan 2015

To most people it would be shocking that after $60 billion in litigation charges, i.e., the "cost of doing criminal business" for just the first 9 months of 2014 and a ridiculous $178 billion since Lehman the there would be those who are stunned that bonuses on Wall Street may take a hit as a result of all this rampant, and caught, criminality. Well, "those" exist. They are called bankers, the same group which in poll after poll heading into the end of 2014 predicted that this bonus season would be far better than what was paid out in 2013 (and most of which spent the money well in advance). Alas, that is not going to be the case.

People are becoming more critical of our current monetary system. In the past six years, central banks have promised us growth within six months’ time. They and the whole monetary and financial system have lost credibility. The banks’ profit to GDP is the highest in history in an economic environment where we have the highest amount of unemployment since WWII. There is something very wrong with the way the system works and this is all due to the overemphasis on trying to minimize the business cycle. The real conclusion of QE can only become visible if we experience the full business cycle. In Jakobsen's view, we have never been allowed to have a down cycle since 2008. But now, there is finally going to be a down cycle because central planners can’t print more money. As Jakobsen puts it: “Now is the time for the real economy to take over”.

"When you can control your strongest carnal appetite (the desire for food), you can then gain control of the other carnal appetites." -Bronner

If you worry about the size of the Fed's balance sheet you should be horrified by what is happening in Switzerland.

Why does one believe the word “catastrophe” was used by The Fed's Charlie Evans? Hmmmmm? After all, the very articulated and polished minutes of what members expressed to one another as to set the current policy was just made public. We thought the verbiage of choice was now “patient.” Unless... You know you’ve either lost, or in the process, of losing control of the markets ear. In our opinion, this is an unveiled showing of possible outright panic developing behind the proverbial curtain.

While in no way minimizing the terror that must have been extreme among the drivers and passengers of these 200 vehicles as they slowed, slid, and slammed into one another on I-94 (near Battle Creek, Michigan), one can't help but analogize to the two most crowded trades in the world right now and what happens when the traders' "liquidity" is the same as the drivers' "visibility."

Assume the news for next week has not already been written,  What should investors, or those monitoring the international political economy be watching?  Here is my list.  

Let’s focus on what happened in the lead up to the summer of 2011, right before the markets cratered on the back of everything that was going on in Europe and the downgrade of the US' credit rating by S&P. The leveraged loans index peaked at the start of the year and traded sideways up until that eventful August. This was a sign that something was not right in the credit markets; and equities pretty much followed the same pattern.  If we fast forward to today, we can see that the leveraged loans index peaked in July 2014, indicated by the red line in the graph, and has noticeably declined since; at the same time equities continued to move higher, a divergence which is a novelty in this bull market. Is this telling us something?  We believe so - it is a red flag for equities.

An Interview with WilliamBanzai7...

The profit margin is improving on different levels...

A day when over 700,000 people are said to have taken part in marches across France in Paris, Orleans, Nice, Pau, Toulouse and Nantes, following three days of deadly attacks in the Paris area to commemorate the victims' memories, there was another attack which may be tied to the Charlie Hebdo tragedy, this time by unknown assailants who launched an incendiary device on the building of German newspaper Hamburger Morgenpost shortly after 2am local time when nobody was in the building, and which, as Bloomberg reports, had in recent days reproduced the cartoons published by Charlie Hebdo. 

"This is why Putin is Public Enemy Number 1. It’s because he’s blocking the US pivot to Asia, strengthening anti-Washington coalitions, sabotaging US foreign policy objectives in the Middle East, creating institutions that rival the IMF and World Bank, transacting massive energy deals with critical US allies, increasing membership in an integrated, single-market Eurasian Economic Union, and attacking the structural foundation upon which the entire US empire rests, the dollar." Up to now, of course, Russia, Iran and Venezuela have taken the biggest hit from low oil prices; but what the Obama administration should be worried about is the second-order effects that will eventually show up...

"The median New York Stock Exchange (NYSE) stock is currently at a postwar record high P/E multiple, a record high relative to cash flow, and near a record high relative to book value!  As of June 2014, the median U.S. stock was priced at a post-war high at slightly more than 20 times earnings! Similarly, at about 15 times, the median stock is also currently priced at a record high relative to cash flow. Finally, the median price to book value ratio has only been higher than it is currently in two years since 1951 (in 1969 and in 1998 which were both followed by significant declines)!" - Jim Paulsen

France’s president, François Hollande, described the attack as an “act of exceptional barbarity.” But killing people is hardly exceptional – neither for the empire nor its enemies. It is routine. And great empires follow their well-trodden paths, too, no matter what mockery they encounter. That path leads in a familiar direction – freedom of speech is chilled. But we know of no instances in which foreign enemies put it on ice. Usually, it is the empire’s own bureaucrats, snoops and protectors who do the chilling. And that cooling is already under way.

Be afraid, be very afraid. While French Interior Minister Bernard Cazeneuve said Friday "The nation is relieved tonight," after the two standoffs concluded, as CNN reports, the French government's work is not over. French law enforcement officers have been told to erase their social media presence and to carry their weapons at all times because terror sleeper cells have been activated over the last 24 hours in the country, according to a French police source. Investigations continue into which terrorist group was ultimately responsible and, not be outdone in the fearmongery, The US State Department has issued a Worldwide Caution warning travelers, of the "continuing threat of terrorist actions and violence against U.S. citizens and interests throughout the world." Thank goodness we have the governments to protect us.