Archive - 2015

The last session in China on Friday provided an epic roller-coaster as exuberant retail BTFD'ers met their match with fading inflation and surging default risk concerns. The Monday session has opened to more of the same - with the Shanghai Composite opening down another 1.3% and erasing all the year's gains. As Shanghaio Daily reports, the Chinese property developer Kaisa Group Holdings (that we have discussed in detail here and who's next here) failed to repay a US$26 million bond coupon, making it the first Chinese property firm to default on dollar bonds.

It will be even more disruptive if some among them decide that the only reason for the failure of their collective delusion of grandeur is that they have not been deluded enough and that even more wild-eyed palliatives are therefore needed. Disruption on such a scale is not what the budding entrepreneur wants to contend with as he contemplates whether to risk both his capital and his reputation in launching or expanding a business, in ordering new equipment, or hiring new staff and so fostering a meaningful recovery. Disruption on such a scale is not something we should wish to inflict upon a system we have been both unable and unwilling to fully repair. Either way – damned if they do, damned if they don’t – disruption seems to be what we will get in the months ahead.

While in Manhattan overall, the number of non-primary residences is 29%; in some neighborhoods, favored by investors, such as Midtown, the share of nonprimary residences ranged as high as 44%. As The NY Times reports, however, the figures may be grossly underestimated, since the agency did not include apartment buildings that receive 421a tax exemptions, leaving out more recently built condos that are widely known to have high concentrations of foreign buyers, including One57 and 15 Central Park West. As one executive noted, "All you have to do is buy an apartment as a limited liability company and they can’t find you... It seems just ludicrous."

Currently there are a number of weak spots in the global financial edifice, in addition to the perennial problem children Argentina and Venezuela... The happy bubble in risk assets could presumably be derailed a bit if any of the possible worst case scenarios were to become manifest.

Sunday Humor?

The US 30-Year Treasury bond yield remains on track for new all-time lows in the weeks ahead, according to BofAML's MacNeil Curry, on the basis that crude oil prices will begin to stabilize. With the WTI curve at extreme contango, Curry suggests the downtrend is finished, and this is a very high probability location for a base to develop.

Every couple of years the same identical European drill repeats itself: 1) Greece makes loud noises as it approaches an election, 2) Europe says it couldn't care what the outcome is and that Greece should stay in the Euro but if it exits it won't be a disaster, 3) the ECB reminds everyone of the lie that it is not preparing for Plan B (it is) despite holding on to over €100 billion in "credibility-crushing" Greek bonds, 4) panicking Greek banks say the deposit outflow situation is completely under control (adding that "The Bank of Greece along with the European Central Bank are monitoring closely the developments and intervene whenever this is necessary," which is code word for far more familiar, five-letter word), and meanwhile 5) all non-Greek banks quietly start preparing for the worst case scenario. So far this time around, we had everything but step "5". We do now.

There is overwhelming evidence that the rampant money printing of the past decade or two has done nothing to generate sustainable growth in mainstream living standards and real wealth. Yet the monkeys keep rattling the cage, promising and demanding more ZIRP(and now N-ZIRP) and more fraudulent purchase of government debt with fiat credit congered by their printing presses. Consider some striking proof of failure...

NYPD cops were put on high alert Saturday night after ISIS released a propaganda video urging the killing of "intelligence officers, police officers, soldiers, and civilians" in the US, according to The NY Post. This was then further fear-mongered by Senator Diane Feinstein who said Sunday she believes there are terrorist sleeper cells in the U.S. that could carry out attacks similar to the ones in France - thoiugh not mentioning any specific threats. Of course, this heightened terror alert comes at the worst possible time, as AP confirms what we discussed previously, that NYC has seen a steep decline in the number of arrests amid a rumored work slowdown by NYPD cops on the heels of disillusionment with de Blasio.

The Fed likes to claim that it is trying to grow the economy or boost employment, but both claims are false.

Governments from Around the World ADMIT They Do It

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