Archive - Oct 17, 2013 - Story

When President Obama nominated Janet Yellen to be the next Chair of the Federal Reserve Board the praise he offered was similar to what had already poured in from around the country. In their assessments of Ms. Yellen's long career, Congressman, editors, and academics have underscored how her prescience and caution distinguish her from the reckless overconfidence that have plagued her male colleagues at the Federal Reserve. As proof of her wisdom supporters have pointed to speeches she delivered in 2005 and 2006 in which she supposedly issued clear warnings about the dangers then building in the frothy real estate markets.  Without any attempt at reasonable fact checking, these claims have been parroted by the media.  However, a brief review of the speeches in question reveals that she issued no such warnings at that time.

While Ben Bernanke would prefer not to discuss the barbarous relic, having noted in the past that "nobody really understands gold prices," it would seem his European brother-in-arms has a different opinion. When asked this week, by the ironically named Tekoa Da Silva, his thoughts on precious metals as reserve assets (and central banks around the world increasing their allocations), none other than the ECB head himself Mario Draghi explained "I never thought it wise to sell [gold], because for Central Banks this is a reserve of safety." But Draghi did not stop there, and perhaps enlightened by the farce in Washington this week, the unusually truthful central banker explained, "in the case of non-USD countries, it gives you good protection against fluctuations of the USD." Perhaps that is why China continues to import gold at a record pace? Oh, and don't fight the ECB...

Confirming our fears from a few days ago, the early numbers are in for Obamacare... and they are not good. Of course, listening to "bloggers" an be bad for your health, but it seems, very few of the million of "uninsured" have decided that it is as crucial as the "leader" has exclaimed. As Millard Brown Digital reports, fewer than 1% of those trying to register for health insurance under Obamacare have completed the enrollment process. The following inverted pyramid highlights the dismal reality of the Affordable Car Act so far...

It is only fitting that on the day the Stalingrad & Poorski 500 rises to a new record high, that that other centrally-planned catastrophe, the exploded Fukushima nuclear power plant, in the aftermath of Japan's Radioactivetyphoonado reports a completely different record: namely the level of beta radiation levels at Fukushima. Bloomberg notes that the nationalized utility Tepco, which has taken denial to a different superstring dimension altogether, has detected beta radiation levels of 400,000 becquerels per liter in a water sample taken yesterday from a monitoring well near storage tank area H4 at Fukushima Dai-Ichi nuclear plant. This was the highest reading on record. This number compares to Beta radiation levels of 61 Bq/L in the sample taken Oct. 16 and 90 Bq/L in the Oct. 15 sample.

From the seven stages of empire to the dollar crisis (and golden opportunity) Mike Maloney moves on to expose the system that is ultimately responsible for most of the inequality in the world today. As Mike explains, most people can feel deep down that something isn't quite right with the world economy, but few know what it is. Gone are the days where a family can survive on just one paycheck...every day it seems that things are more and more out of control, yet only one in a million understand why. Never in human history have so many been plundered by so few, and it's all accomplished through this...The Biggest Scam In The History Of Mankind.

The world’s developed countries face growth and employment shortfalls, while developing countries are confronting huge challenges in adapting to increasingly volatile capital flows while adjusting their growth patterns to sustain economic development. And yet America’s political dysfunction has come to marginalize these (and other) crucial issues. It is all very difficult to fathom. The threat of a default on US sovereign debt has been lifted – for now – but the deeper problem persists: For America’s Republicans and Democrats, negotiating a fiscal grand compromise appears to carry higher costs than playing a game of brinkmanship, even at the risk of default. Surely this involves a collective miscalculation of the longer-term costs.

While Santiago Capital's Brent Johnson believes "anything is possible," he warns "there's a catch." While it may be true for the individual (climb Everest, win a gold medal, walk on the moon), it is not true for the world at large because, as he so eloquently notes in this brief presentation, "the best thing we can learn from history is... that the world does not learn from history." And there is indeed plenty that is occurring once again - in oh-so-predictable cycles - that we have seen time and time again... and apparently choose to ignore the conclusion. As Johnson concludes, "you either believe in magic, or you believe in math."

We predicted (correctly) over a year ago that the Fed's balance sheet would reach the $4 trillion mark by the end of 2013. It took the world a few months to totally buy into the fact that all that matters is the flow from the Fed's POMO but, as the chart below so humbly suggests, with a 0.95 correlation (if its not causation, we're at least on the right path) in proclaiming that for every $3.25 billion printed by the Fed the S&P 500 index will rise by 1 point. Last week, we noted the 'dip' from Fed-based "fair-value" that the debt-ceiling debacle had driven in stocks and in just a few days, that 'pent-up-demand' has all but equalized stocks to the only valuation metric that matters - the S&P 500's Fed Level-Adjusted-Balance Sheet-Indicator-Aggregate...

Today there is a great sense of relief that has swept the nation as news flowed through the media that the government shutdown had come to an end.  After all, during the 16 days of the shutdown, there was great hardship inflicted on the average American as the stock market rose by 2.4%, government workers that were furloughed received a 2+ week paid vacation and interest rates fell from a peak of 2.65% on October 1st to 2.59% on October 17th.  Outside of the financial markets, which were never concerned of a "default," the reality is that the government shutdown did likely clip up to 0.5% off of 4th quarter's GDP.  While that clip to economic growth created by the government standoff is temporary - the ongoing persistant weakness of economic growth is another issue entirely.  This is the focus of this discussion. The most disturbing sentence uttered during the debt ceiling debate/government shut down, that should raise some concerns by both political parties, is: "We must increase our debt limit so that we can pay our bills."

There is nothing any of us can do at this point, except navigate the rapids as well as possible, and to stay out of the way of a dying empire, which is still very dangerous in its death throes.  We are actually very privileged to be alive and witnessing this next transition, to what we do not know just yet.  But what an honor to live at this time, not in ignorance but with an existential resolve to come out of it alive and much the wiser.

Desperate to know what the September payrolls, CPI or PPI really were, or when the October jobs reports is due out now that the government's random number generator is back up and running with the 16 day paid vacation for government apparatchiks is over? The BLS has just released a schedule which answers those and many other questions.

Last night, after more than two weeks of utterly embarrassing theater, the government in the Land of the Free inked a deal to kick the can down the road a few more months. And in doing so, they set a very dangerous precedent. As part of the bargain codified in HR 2775 (which President Obama signed into law), the Treasury Department is authorized to SUSPEND the debt ceiling. In other words, for all intents and purposes, there is now NO LIMIT government borrowing. This limitless borrowing authority will expire on February 7, 2014. But it sets the precedent that dismissing the debt ceiling is a perfectly viable course of action. Congress has effectively removed their handcuffs… so you can almost assuredly bet down the road that this provision will be extended, and ultimately become permanent.

If only bellwether stock IBM hadn't indicated that earnings hopes for global tech were in the toilet, the world could be celebrating a new Dow record too. What a day... with stocks flash-crashing (Wal-Mart), bond yields screaming lower (2nd biggest 2-day drop in yields in 17 months to 2-month lows), the USD collapsing to 9 month lows, gold (and silver) soaring by their 2nd most in 16 months, and stocks tractor-beaming up to the Fed's balance sheet year-end target of 1800 for the S&P 500; even the talking heads are lost in explaining the charade. The box that the Fed has put itself in is becoming obvious for all to see - there is no argument that this is 'fundamentals' and so the Fed knows it can never leave as the wedge between perception (prices) and reality (value) has grown too wide... Low volumes in stocks on an all-time high day hardly support anything but doubt as 'safety' is sought in bonds and bullion.

As RealtyTrac observes in its latest flipping report, while home-flipping among high-end homes, or those reserved exclusively for the New Normal aristocracy which buys and sells with reckless abandon almost exclusively on an all cash basis, is up 34% over the prior year with flipping on houses priced between $2 and $5 million was up a ridiculous 350%, overall flipping activity is finally starting to subside and in the third quarter was down by a third from Q3 and over 10% down from the the prior year. Not surprisingly, the bulk of the ultra-luxury flips were limited to New York and the four core California bubble markets. "More than three-fourths of all high-end flips were in five markets: the New York metro area and four coastal California markets — Los Angeles, San Francisco, San Jose and San Diego.  Flips on homes priced between $1 million and $2 million increased 42 percent year over year, while flips on homes priced between $2 million and $5 million increased 350 percent year over year."

As we tweeted earlier, the mainstream media now has its headline for tonight. As earnings look likely to be a disaster, and with nothing but a 3 month can kicked to the next farce in Washington, it is likely becoming just too plain to see for the world that US equities rise on the basis of one thing and one thing only, and the Fed speakers today confirmed that the un-Taper is off the table (as gold confirms).

*S&P 500 CLIMBS ABOVE INTRADAY RECORD TO 1,730.12