Archive - Nov 1, 2012 - Story

In the prior post, we showed a presentation that looked at America from the perspective of a corporation and how it would be completely unsustainable. Luckily, there is little probability that America will ever have anything to do with S-Corp status, and far more likely end up as an agrarian Kolhoz. The reason: based on a Pew survey of America's youth, or those aged 18-29, more have a positive view response toward Socialism than they do toward Capitalism. We will leave it at that.

When Mary Meeker, formerly of pre-IPO bubble analyst fame, released her "USA, Inc." presentation last year, which assayed the US government as if it were a corporation, her conclusion was simple: the country is broke, and can not continue along the path it is on now. Fast forward to today, when the US debt balance is over $1 trillion higher, and the next edition of Mary Meeker's presentation which she released at last week's Ira Sohn conference. Her conclusion: the US is now broke-er than ever.

It seems like it was only yesterday that the US closed the book on Fiscal 2012 (technically, it was September 30), with a modest $16.066 trillion in debt. What was notable is that the monthly additions to the total debt balance toward the end of 2012 were getting smaller and smaller until the October incremental addition was a puny $50 billion (even though mysteriously the US ended up with a budget Surplus of $75 billion for the month). Turns out it was merely yet another political stall tactic to avoid the true face of America's debt peeking into the open public. Because as of several hours ago, the DTS announced the total debt as of October 31, or the first completed month of fiscal 2013. The number: $16.262 trillion. This means that in the month of October, when delaying displaying the true creditor plight of this country was no longer an option, Uncle Sam went to town, and raised $195 billion. This amounts to $6.3 billion per calendar (not work) day, and $262 million per calendar (not work) hour.

While New Yorkers living south of 34th Street have to live in cold and dark for an indefinite period of time (ConEd has been firm electricity will be restored by the weekend, it has been far more vague just which weekend it had in mind), the biggest devastataion from Sandy took place further south, primarily along the New Jersey coastline. In order to get a sense of the devastation that has taken place, we present images from the NOAA's satellite photo tracker, which shows aerial comparisons of the Jersey and Delaware coastline before and after. Because while one can contemplate navels in very broad terms if any wealth is created or destroyed due to Sandy breaking many windows at the macro level, any and all people who lived in the affected territories below will have a far more practical answer to this stupid question.

Given emerging data in 2012, it's becoming increasingly clear that the post-war automobile era in the United States is now in well-articulated decline. Accordingly, it makes sense to note the beginning of a long-term supertrend that is just getting started: the resurrection of America’s rail system. At Seattle’s historic King Street Station (a classic example of early 20th Century railroad architecture), a nasty looking dropped-tile ceiling – which hung above travellers for decades – was removed late last year to reveal ornate plasterwork as the building undergoes extensive renovation. These cosmetic (and structural) alterations are part of a wide-ranging upgrade to the entire Cascades passenger rail service that runs from Vancouver, British Columbia, to Eugene, Oregon. In Tacoma, for example, a new station will either be built or renovated, and part of the Cascades line will be re-routed from its current shoreline path more directly through that city. Elsewhere, bridges are being rebuilt, track is being upgraded, and other infrastructure improvements are underway as part of the $500 million program to resurrect more efficient, faster inter-city rail in the 466-mile Amtrak route through this part of the Pacific Northwest. These changes will not bring European-style high-speed rail to the United States. Indeed, in many similar projects across the country, top speeds of 125 mph will characterize new system capability, rather than the average speed actually maintained from city to city. However, the incremental improvements now underway will become the platform for the next phase of investment, as Americans are increasingly persuaded to limit their car ownership and make rail transport part of their lives once again.

Tired of idiotic "expert assessments" how the destruction in the aftermath of Sandy is good for the economy and "creates wealth" (just ask these people or these how much wealthier they feel with their house halfway still underwater, or with not a bite to eat)? Then read the following brief summary by David Rosenberg what the real and full impact of Rosie on the US will be: "the surprise for Q4? A negative GDP print."

When one thinks of dumpster diving in the "developed world", one usually starts with Greece, and ends with Spain (where this activity has been so pervasive, lately even the dumpsters have been on lock down). Certainly, Manhattan's Lower East Side is not one of the places that immediately comes to mind. Sadly, now that the city's more Bohmeian neighborhood has been without power and food for 3 days running, and the prospect of electricity being restored is still dim, the local residents have no choice but to do what their insolvent peers from across the Atlantic do every day (even as the capital markets fool themselves that all is well because Draghi said so). For a candid look at how the other part of Manhattan lives now, watch the clip below.

Today's entire stock market action was contained in the span of an hour starting with the open, following a series of economic data which, as was to be expected, couldn't possibly disappoint several days ahead of the election. Sure enough, after everything came in mostly in line or beat, ES ramped from its recent support level just north of 1400 to a high of about 1424, in no more than 60 minutes, and meandered there for the balance of the day where it also closed, on above average volume. What is interesting is that unlike yesterday, when the ramp took place in the overnight, ES-driven session, following which it fizzled all day, today it finally allowed retail investors to jump in alongside the first of the month capital flows. Needless to say, equities were once again in a vacuum of their own, with the EURUSD sliding, TSYs broadly unchanged, and that one time biggest driver of market upside, Apple, unable to stage any break out.

First, The Economist, now the man who owns the terminal that global finance uses each day to chat with one another, and occasionally to check the real time price of ESZ2 (if certainly not quite as much this year, and last, as desired). Mike Bloomberg's driving catalyst to chose the way he did? Climate change. Because to some it is the economy, to others: the number of cloudless sunny days in St Barts. The question for employees of Bain now: do they immediately disconnect their BBG terminals, or wait until next Wednesday.

After an almost uninterrupted period of decline over the last few years, US home prices now have some positive momentum. For one, the S&P/Case-Shiller index of property values in 20 cities has seen its highest increase in more than two years. In addition, JP Morgan CEO Jamie Dimon recently stated that his bank was seeing a surge in mortgage applications. And perhaps most importantly, the National Association of Realtors has reported that the nation’s inventory of homes on the market has dropped to its lowest level since March 2006, while the median home price is 11.3% higher than a year ago. These are definitely good signs for housing. But remember, nothing goes up or down in a straight line. Just like a stock market that suffers a serious crash, housing has been due for an upward correction. But it is a false premise to conflate ‘rebound’ with full blown ‘recovery’. The market could just as easily improve, then decline once again in a few months’ time. Positive data is great, but doesn’t necessarily portend long-term growth.

The plight of the infamous, and quite inflammable, Fisker Karma (not to mention its now defaulted battery vendor A123) has been extensively documented on these pages in the past. Today, we bring it up again, to observe a curious extra feature which its proud buyers may have been unaware of. It appears that, as Jalopnik reports, the car only free government loans with a 0% (or even negative) IRR hurdle rate could conceive, is now the first one to proudly announce it is the only one of its type that merrily burns down... while submerged underwater. We fully expect that the next generation of Fiskers will charge at least $995 for this non-optional standard feature. In other news, perhaps it is time for Karma to issue yet another comprehensive total recall of all of its cars due to "fire risk" - the last one seems to have missed a spark plug or two: they can say this is a recall for the risk of "burning down alive while fully submerged undewater."

Doping cyclists, UK banks which manipulate every possible thing they are involved with, and now embezzling one-time baseball millionaire greats with bloodied socks... Is nothing sacred anymore?

And for a second there we thought financial publications were supposed to at least pretend they are impartial. It appears that is not the case. Now we eagerly await to learn whom Playboy, the National Enquirer, and TMZ endorse...

It just is not Barclays' year. After being exposed (so far the only one) as a ringleader in a massive LIBOR-rigging scandal which cost Bob Diamond his job, yesterday the British bank added insult to injury, after the Federal Energy Regulatory Commission (FERC) fined it $470 million - the largest penalty ever levied by the energy regulator, and even larger than the bank's LIBOR fine - for getting caught doing what Enron got caught doing about a decade ago: manipulating California's electricity markets. Although while the former ended up being the biggest corporate bankruptcy at the time, led to the end of one of the nation's largest auditors and sparked a scandal so great it was all corporate America spoke for about for the next year, this time the news has come and gone, and nobody cares. Perhaps this is to be expected: in a time when none other than the central bank intervenes each and every day in every single market to preserve the "wealth effect", habituation to epic corporate manipulation of every imaginable kind is perfectly normal.

First it was news that Europe's weakest link may be broken following a Greek court doing the unthinkable, and actually enforcing the constitution, and now we learn that in addition to at least one definite defection from the Greek coalition government - PASOK (as reported earlier), the entire party is now on edge as its leader, former PM Evangelos Venizeloz seeks to quell a "rebellion" ahead of next week's vote which will hardly make the government any more popular in the eyes of the general population. From Kathimerini: "PASOK has plunged into turmoil as one MP and a prominent official quit the party following a fractious vote on the government’s privatization bill on Wednesday. The draft law paving the way for the sell-off of a number of utilities and ports passed narrowly and the failure of 17 PASOK MPs to support the legislation led to party leader Evangelos Venizelos, who failed to take part in the vote himself, calling an urgent meeting with his 33 lawmakers on Wednesday evening." Why is this relevant? Because two days ago, as reported, the third member of the ruling coalition: the Democratic Left, which mans 16 votes, announced it would vote against the Troika demands. This leaves the coalition with 160 votes on a matter in which it needs a majority. Should Pasok's 17 votes also be in danger of pulling out (assuming nobody from New Democracy votes no), then one can see why Greece may once again hold the fate of the Eurozone in its hands just as the US is voting for its next president and hardly needs more European drama.