Archive - Sep 2015

Billionaires like Warren Buffett make fun of Gold, while ignoring the fact it has outperformed stocks ever since it was de-pegged from major currencies in 1967. This is part of a larger War on Cash implemented by the Central Banks.

Amid reports that Russia is building a substantial military presence in Syria, a worried John Kerry called Sergei Lavrov on Saturday. Here, according to the State Department, is what was said: "The secretary made clear that if such reports were accurate, these actions could further escalate the conflict, lead to greater loss of innocent life, increase refugee flows and risk confrontation with the anti-ISIL coalition operating in Syria."

Banks in the US and Europe are trying to develop a cashless transactions system. The concept is to establish a comprehensive ledger for a business or a person that records everything received and spent, and all of the assets held – mortgages, investment portfolios, debts, contractual financial obligations, and anything else of market value. There would be no need for cash because the ledger would tell you and anyone you were considering a transaction with how much is available and would be transactable at any specific moment. This is not a dreamy idea. Blythe Masters is leading a new business effort to develop a universal cashless system. Not only is she gathering significant investor interest, but the Federal Reserve and various US Government agencies have become keenly interested in the potential usefulness and efficiencies of a universal cashless system

Mario Draghi has no more magic bullets left...

Awareness about the concept of money is making a comeback. Gone are the decades in which the global citizenry was fooled to leave this subject to economists, governments and banks – a setup that has proven to end in disaster. The crisis in 2008 has spawned debate about what money is, where it comes from and where it should come from.

What are the most crowded trades currently (and hence where the next round of carnage is coming from)? Long the US Dollar? Short US Treasuries? Long VIX? Think again...

Every day, the world consumes 93 million barrels of oil, which is worth $4.2 billion. Oil is one of the world’s most basic necessities. At least for now, all modern countries rely on oil and its derivatives as the backbone of their economies. However, the price of oil can have significant swings. These changes in price can have profound implications depending on whether an economy is a net importer or net exporter of crude.

The destruction of honest financial markets by the Fed and other central banks has created a class of hedge fund hot shots that are truly hard to take. At length, both the epic bond bubble and the monumental stock bubble so recklessly fueled by the Fed and the other central banks after September 2008 will burst in response to the deflationary tidal wave now cresting. Needless to say, that eventuality will be the death knell for the risk parity trade. It will cause the volatility seeking algos to eat their own portfolios alive. Leon Cooperman and his momo chasing compatriots will soon be praying for an event as mild as October 1987.

China’s islanding building on the four-mile-long and two-mile-wide Subi Reef in the South China Sea has put The US in a tight spot. To protect its ally from China’s aggression, The US will be left with little choice but to constrain China by military means. However, the US won't directly engage China in the war in the foreseeable future, because the US dominates China with its superior naval and air force and the only way for China to level the playing field is to apply nuclear weapons. The nuclear nature of Sino-American warfare will make both the world no.1 and no.2 economy the fallen giants.  So there is a possibility that The US might use its oil weapon instead to strike at the core of China’s weakness - it’s huge dependence on oil import.

We are our own worst enemies...

"If the pace of FX intervention remains at USD86bn per month, we estimate that the PBoC could lose up to USD510bn of its reserves between June and December 2015, which would represent a nonnegligible decline of 14%."

The great problem with corporate capitalism is that publicly owned companies have short time horizons. As a consequence of the short-sightedness of reformers and Congress, the annual salaries of top executives were capped at $1 million. Amounts in excess are not deductible for the company as an expense. The exception is “performance-related” pay, which has no limit. The result is that the major part of executive pay comes in the form of performance bonuses. Performance means a rise in the price of the company’s shares. The gains in executive bonuses and shareholder capital gains were achieved by destroying the economic prospects of millions of Americans and by reducing the growth potential of the US economy. In the long-run this means the demise of the US as a world power...

Over the past 48 hours or so, we’ve seen what certainly appears to be visual confirmation of a non-negligible Russian military presence in Syria. Going into the weekend however, Russia had yet to confirm publicly that it had commenced military operations in the region despite the fact that it’s the next closest thing to common knowledge that at the very least, the Kremlin has provided logistical support and technical assistance for a period that probably spans two or more years. But on Friday, Vladimir Putin looks to have confirmed the scope of Russia’s military role, even if he stopped short of admitting that Russian troops are engaged in combat.