Archive - May 2015

One year ago China was well on its way to marking its territory in southern Africa, with a core military presence near the all important for global trade Cape of Good Hope which is the transit point for about 10% of global seaborne-traded oil. Fast forward to today when AFP reports that after securing Southen Africa, China is now in process of securing the second critical geopolitical area in Africa: the horn, which just happens to be right next to the infamous Bab el-Mandeb Strait located by the recently infamous country of Yemen, which in recent months has been overrun by US-armed Houthi Rebels.  According to AFP, China is negotiating a military base in the strategic port of Djibouti, the president said, raising the prospect of US and Chinese bases side-by-side in the tiny Horn of Africa nation.

While Crude and Copper get all the glory, the fact is, as we have detailed previously, Lumber prices are the most correlated with economic activity (ISM and GDP) of all industrial commodities. That is quickly becoming a major problem for the "Q1 was weather and now we get the epic bounceback" narrative writers.

They say it's not paranoia if they are really out to get you...

Explaining US equity prices in one simple chart...

Is it that we don’t care? Is it that we don’t see it? Is it that we are masochists? What is it about us that makes us so apathetic to the atrocities against our Constitutional rights? They are there for our protection and so, to we the people, they are assets that require maintenance but we are leaving them to be destroyed by the political elements. Even amongst well versed, well educated and very interested Americans there seems to be very little concern, judging by reaction, to the fact that our Constitutional rights are quite blatantly at this point, being taken away from us. Why is that not creating more of an agitated response??

Since the outcome of the primaries has already been largely pre-determined, and America will soon to be presented with the next dynastic iteration of the "Bush vs Clinton" false dilemma, here is how the key (non) question breaks down as of this moment: if the 2016 election were held today, for whom would you vote?

When Obama talks of a "massive fight" with Wall Street, is he referring to:

- the tens of billions in handouts handed to each and every bank, unleashing the age of socialized losses and privatized profits?
- the condification of the Too Big To Fail concept?
- presiding over a Department of "Justice" that openly admitted it would not prosecute certain bankers over fears of systemic collapse consequences, thus mathin up TBTF with Too Big To Prosecute?
- the implementation of Barney Frank which was supposed to rein in banks and instead had Citigroup lawyers and lobbysists write the language write the language in the Derivatives Swaps Out provision of the Omnibus bill as a result of $70.3 trillion in total Citigroup derivatives, which the bank knows will one day require another taxpayer bailout?

"Bitcoin represents a monumental paradigm shift that will transform the social, political and economic landscape," according to Paul Vigna and Michael J. Casey in this presentation. Since its advent, Bitcoin has gained a reputation for instability and illicit business; naysayers fear its power to eliminate jobs and upend the concept of a nation-state. Vigna and Casey show that cryptocurrencies can also bring good. For one, they remove the middleman from the financial system, giving the power to the people and safeguarding from the devastation of a 2008-type crash. They also promote financial equality; Bitcoin has already given the world’s unbanked - those marginalized billions who’ve never had a bank account - unprecedented access to the global economy.

...but what difference would it make...

The recovery economists are so sure is right around the corner never is. What we can reasonably assume here is that the economy was bumped in a manner not seen since the Great Recession, and that we still don’t know how that will be resolved. The inventory problem is enormous and it at least suggests far more humility about assured rebounds that have never yet arrived and to which are based on arguable figures that at best are backward facing.

We suspect, given the plethora of newly-minted immodest gurus in the investment world, the following "memory" of the 2010 flash-crash - from a seasoned modest trader - will be repeated many times as 2015 progresses.

In 2003, Kevin Flanagan was an information technology employee at Bank of America. They told him he was being replaced with foreign labor, and he was ordered to train his replacement. After he completed his assignment, he was laid off. Then he went to the parking lot and shot himself.  That's "free trade."

If the government does not like the way that you are raising your kids, they will come in and grab them at any time without giving any warning whatsoever.  Of course this is completely and totally unlawful, but it has been happening all over America.

The good news: companies are beating earnings estimates by the widest margin in four years. The bad news: this has very little to do with strong corporate earnings and quite a lot to do with buybacks and analysts cutting estimates. In fact, bottom-up EPS estimates fell by 8.2% in Q1, nearly double the 1-, 5-, and 10-year averages and the largest decline since 2009. Meanwhile, repurchase authorizations hit a record in April and are now set to climb to an all-time high in 2015, providing a wonderful frontrunning opportunity for everyone from retail investors to the SNB.

How five investment themes will evolve in the week ahead.