Archive - Feb 2, 2015

Two enterprising teenagers in NJ were going around their neighborhood advertising their snow-shoveling service right before the big storm hit. But in the New America where security trumps all else, a local resident called the police to report about the teens' "suspicious activity," who actually came out to investigate since, apparently running a snow-shoveling business is something that only criminal terrorists would do. Even when the police saw that it was just two harmless kids trying to earn some money, they forced them to stop (because in the Land of the Free, it seems you need a permit in order to offer to shovel snow for people). Just think about the lesson that’s being reinforced here: if you get off your ass, go out there, and try to take charge of your financial future, you’ll end up with nothing but a bunch of headaches, accusations, and unpleasant encounters with the government.

If you are an investor, your big concern should not be about stocks… but what happens when the bond bubble goes bust.

The Super-bowl halftime show the best concise index of how psychotic American culture is becoming from year to year, and the 2015 version signaled a complete break from reality, a nightmare of twerking robots in a hall of mirrors, as if America had utterly surrendered its tattered soul to some rogue motherboard pulsing deep within Dr. Evil’s subterranean palace of sin. Hence it is the perfect analog for understanding otherwise incomprehensible happenings such as the USA’s role in fomenting further chaos and mayhem in Ukraine.

The fundamental problem with real estate is cost.  The average household, whether renters or homeowners, is allocating too much of its income to housing.  As a result, public policies are likely to continue in the direction of more subsidies, such the Federal Reserve’s manipulation of long term rates, and more regulations, such as eviction and foreclosure prevention, and rent controls.  Real estate, could become a lot less “real” in the foreseeable future. As the market has witnessed since 2007, the Government could dictate the conditions of real estate ownership, even when it was not the lender.  Today, it is in full control. 

As the new Greek government begins 'reforming' the previous administration's austerity reforms and travels the length and breadth of Europe pitching its "we don't want more loans, we want debt reduction" ultimatum, Greek judges back at home have had their own moment of clarity in the new normal. The Greek Court of Auditors ruled on Monday that a decision by the previous government to cut the pensions of judges retroactively from August 2012 was unconstitutional and in violation of the European Convention of Human Rights... Well played judges.

Ya can't have any pudding...

The Baltic Dry Index dropped another 3% today to 590 - its first time below 600 since 1986 and not far from the all-time record low of 554 in July 1986. Of course, the absolute level is shrugged off by the over-supply-ists and the 'well fuel prices are down'-ists but the velocity of collapse (now over 60% in the last 3 months) suggests this far more than some 'blip' discrepancy between supply and demand - this is a structural convergence of massive mal-investment meets economic reality.

"It is clear that the stand-off between Greece and the eurozone is the greatest risk to the global economy," warns UK Chancellor George Osborne adding that he hopes Greece's new finance minister "acts responsibly," as Varoufakis toured Europe to discuss Greece's 'demands'. Mainstream media's attention, however, is not focused on this warning (remember, Greece is small and contained is the meme to pay attention to), but instead proclaimed Greece's pivot to Russia over when in fact, Tsipras words did anything but 'rule out' Russian aid as he said - specifically - "we are in substantial negotiations with our partners in Europe and those that have lent to us," adding that with regards Russia, "right now, there are no other thoughts on the table." Hardly the definitive "ruling out" that US media spins.

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The latest uptick in crude prices -  Ostensibly, triggered by a notable drop in the Baker Hughes rig count - will be one more head-fake, a false breakout. Keep in mind, oil drilling rigs and oil wells are not the same thing. Armored Wolf's Jon Brynjolfsson expects global inventories to continue to build until at least June. Drillers seem to be in denial, they fail to acknowledge that as long as inventories are building toward untenable levels, there will be extreme pressure on spot crude prices. What they don’t seem to realize is that absent a universal suppliers’ cartel (which OPEC clearly is not, because its members are autonomous, and many of the largest producers, including Norway, Russia, and US are not even members), high social break even prices incentivize individual producers to pump more, not less, oil at low prices!

It will be politics rather than economics (or Q€) that drives the shorter-term outlook in Greece. Goldman Sachs warns that the new Greek government’s position is turning more Eurosceptic and confrontational than most (and the market) had anticipated ahead of last weekend’s election. This increases the risk of a political miscalculation leading to an economic and financial accident and, possibly, Greek exit from the Euro area (“Grexit”) and while many assume European authorities have the 'tools' to address market dislocations arising from this event risk, Goldman expects significant market volatility. Rather stunningly, against this background, and in spite of Q€, recommends closing tactical pro-cyclical exposures in peripheral EMU spreads (Italy, Spain and Portugal) and equities (overweight Italy and Spain).

Virtually all of AAPL's cash growth in the December 31 quarter took place offshore, where its cash hoard rose from $137 billion to $158 billion (mostly thanks to the previously mentioned surge in Chinese iPhone purchases). How much of Apple's cash is domestic? As the following chart shows, a paltry $20 billion of AAPL's cash, or barely above 10%, is held domestically - one of the lowest levels in the past 4 years - and can be used for such corporate activities as stock buybacks and dividends.

In the latest in a long list of Social Media embarrassment's for the status quo administrations around the world, Will Stevens - spokesman for the US Embassy in Moscow - unleashed the following tweet...

President Obama's $4 trillion budget hinges on what Obama calls "middle-class economics," seeking tax breaks for many Americans while imposing increases on top earners, corporations and particularly the financial sector. Many have called it Robin-Hood Economics, and House Ways and Means Committee Chairman Paul Ryan accuses Obama of exploiting "envy economics." Probably the most controversial aspect is his recently announced six-year, $478 billion public-works program for highway, bridge and transit upgrades, half-financed with a one-time, 14 percent tax on U.S. companies' overseas profits.  As Ryan warned, Ryan said, "This top down redistribution doesn't work."