Archive - Feb 5, 2015

All you need to know about the rapidly changing situation in Greece.

according to the latest update from the 29 west coast ports that serve as the entry point of the bulk of Asia/Pac trade into and out of the US, things are about to get far worse for America's manucaturing base, because as RILA reported earlier, talks between the Pacific Maritime Association (PMA) representing port management, and the International Longshore and Warehouse Union (ILWU) officially broke down on Wendesday, and without an agreement, experts have suggested that nearly 30 west coast ports could be shut down within a week. As RILA reports, "a work slowdown during contract negotiations over the past seven months has already created logistic nightmares for American exporters, manufacturers and retailers dependent on an efficient supply chain. A complete shutdown would be catastrophic, with hundreds of thousands of jobs at risk if America’s supply chain grinds to a halt."

If there was a walk of shame for so-called Congressional “representatives,” this list would serve as an excellent starting point. Their actions serve as definitive proof that the vast majority of politicians are only in it for money and power. They could care less about “public service” or being statesmen. If that was truly their calling in life, they wouldn’t immediately turn around and join lobbying firms the moment they leave office. Yet all they do is cash in. That’s all they ever do. The most amazing part about this article is that “by law, ex-House members are required to wait one year before they can officially lobby lawmakers on the Hill.” Naturally, professional liars and thieves won’t let something as pedestrian as ethics or rules get in the way. If there’s one thing politicians are good at, it’s finding loopholes.

It's been an odd few days for Greece's new PM Alexis Tsipras. From being lambasted by Jeroen Dijsselbloem, shunned by Angela Merkel's henchmen, holding hands with Jean-Claude Juncker, and losing a key funding channel from Mario Draghi; Tsipras' anti-austerity platform has been 'supported' by Barack Obama and he has been invited for a visit to Russia by Vladimir Putin, and reminded that Russia is willing (and able) to provide financial aid if asked by finance minister Anton Siluanov. So headlines this evening from ekathimerini should not be entirely surprising that Putin and Tsipras have agreed to boost cooperation in the economy and energy, tourism, culture and transport sectors; and discussed the possible creation of a pipeline to carry natural gas from Russia to Europe via Turkey and Greece.

"...we’ll have to face a new world financial crisis in the next few years... the growing volume of debts and the unsteady development of the economies of the US, the EU, China and some other developing countries mean the situation is even worse than ahead of 2008."

Presented with little comment aside to ask (rhetorically of course), who is The Fed working for?

There is a bull market developing in gold and few are aware of it...

If you are not part of the solution, you are part of the problem an accomplice. The Troika’s willingness to turn Greece into a failed state first, as a side effect of its “rescue the French and German banks” operation, and now, as part of its German hegemony protection racket, is killing people and in the longer term will only accelerate the rise of extreme right wing elements in the Eurozone. Readers in the US know that the #BlackLivesMatter campaign has succeeded in bringing people of all races together to protest police brutality against African Americans. Given The ECB, IMF, and Germany's moves, perhaps it's time for #GreekLivesMatter to get as much attention.

• if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.
• As interest rates go more negative, market participants will have increasing incentives to make payments quickly and to receive payments in forms that can be collected slowly
• if interest rates go negative, the incentives reverse: people receiving payments will prefer checks (which can be held back from collection) to electronic transfers
• we may see an epochal outburst of socially unproductive—even if individually beneficial—financial innovation

The fact is, the die is cast. In a couple of weeks, Guitar Center will need to report its Christmas performance to its bondholders. If things do not look good, its bonds will be ripped apart like RadioShack’s. Here’s what this really means: it’s the end of big box retail, an irrational addiction to growth, and the scourge of unregulated structured finance. For a few years, unwise urban planning and unregulated banks created a new bubble in the American suburbs. The objective truth is that the growth of the last decade was financed by banking fraud, and that financial trickery of this sort only fools people in the short-term. Eventually, you must have a product people demand, sold by competent people who care about the business, financed in a way that makes sense.

With hopes that Bridge-gate was drifting into the back of potential voters' minds, New Jersey Governor Chris Christie (and members of his staff) face yet another Federal criminal investigation. Having previously dismissed the accusations as being "conspiratorial nonsense," it appears allegations that the governor and his staff broke the law when they quashed grand jury indictments against Christie supporters, are being taken a little more seriously now.

Deflation remains the enemy thanks to debt, deleveraging, demographics, tech disruption & default risks. US aggregate debt is today a staggering $58.0 trillion (327% of GDP); the number of people unemployed in the European Union is 23.6 million; Greece has spent 90 of the past 192 years in default or debt restructuring. 7 years on from the GFC... The massive policy response continues. Central bank victory means that lower rates, currencies, oil successfully boosts global GDP & PMI’s in Q2/Q3, allowing Fed hikes in Q4. Bond yields would soar in H1 on this outcome. Defeat, no recovery, and currency wars, debt default and deficit financing become macro realities.

In Part 1, we described the world’s economy as one that is based on energy. The design of the system is such that the economy can only grow; shrinkage tends to cause collapse. If this view of the situation is correct, then we need an ever-rising amount of inexpensive energy to keep the system going. We have gone from trying to grow the world economy on oil, to trying to grow the world economy on coal. Both of these approaches have “hit walls”.  Now we have practically nowhere to go.

We can certainly "hope" that the markets will continue to march endlessly higher. However, "hope" has never been an effective portfolio management strategy. Considering that the decline in oil prices is supposed to good for the consumer, even though personal spending declined in the most recently reported period, the decline in dividends will certainly have a negative effect on those depending on those dividends. The current detachment between spending and the stock market will likely be corrected rather harshly at some point.

"Central bank polices have ruptured the proper functioning of capital markets. Some investors myopically believe that 'money printing needs a home' and that it will end up in equities (the asset class with upside). However, such a belief needs to include a deep faith in the central bank’s abilities to navigate a soft landing. History is not on their side. Investors pouring into equities might be playing an epic game of chicken."