Archive - Oct 9, 2013 - Story

The study is called the Program for the International Assessment of Adult Competencies and it tested 166,000 people aged 16 to 65 in more than 20 countries.  It found that in math, reading and problem solving, American adults scored below the international average. We can’t say this is surprising, after all, the public allowed the big banks that destroyed the economy to gift themselves trillions in the aftermath of the financial crisis with barely a peep in response. You don’t have to be a problem solving genius to figure that one out.

With the FBI shutdown of the underground online drug marketplace Silk Road this week, IBTimes Lisa Mahapatra points out that its customers will have to shop elsewhere for their fix. However, unfortunately for some, this will mean paying up for their favorite brand of pharmaceutical. As the following infographic shows, the prices of marijuana and cocaine vary significantly across regions with the former more expensive on Silk Road and the latter cheaper.

"...The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value.

We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros.

The sooner the better."

- Ron Paul, 2006

Quick: which BRIC nation has the highest consumer loan default rate?

If you said China, India or Russia, you are wrong. Actually, if you said China you are probably right, but since absolutely all economic "data" in China is worthless, manipulated propaganda, only a retrospective post-mortem after the Chinese credit, housing, commodity, consumption bubbles have all burst will we know the answer. So excluding China, which country's consumers after a multi-year shopping spree funded entirely on credit, are suddenly suffering the epic hangover of soaring non-performing loans as they suddenly find themselves unable to even pay the interest on the debt? Just ask former billionaire Eike Batista whose OGX oil corporation is days away from filing bankruptcy. The answer, with 5.6% of all loans in default, above Russia, South Africa, Mexico, Turkey and India, is Brazil.

Even as Washington stares into a fiscal abyss of its own construction, there is one bright spot: the ongoing global popularity of the $100 bill. The U.S. Treasury/Federal Reserve launched their latest version of the venerable C-Note just this week, printing $350 billion worth over the last 12 months to meet anticipated robust worldwide demand. Given that $100 bills last about 15 years in circulation, ConvergEx's Nick Colas notes that these record amounts seem to indicate very strong worldwide demand for hard currency rather just replacing old stock. In the US, by contrast, the ‘Cashless economy’ is coming hard and fast.

At the time of publication, the United States government is shut down. That does not mean the gears of the state have come to a thankful halt. Over three-quarters of Washington’s global hegemony remains fully functional. Tax dollars are still being redistributed. Wars continue to be waged. The public at large is going about its day unbothered by the furlough of tens of thousands of government employees. For once, apathy has paid off. The only poor souls bemoaning the shutdown are the ones sitting at home. The United States government is not going away anytime soon. The same government workers kicked out of their day-job will go crawling back once given the green light. Being called the equivalent of worthless will be of no consideration. The paycheck is paramount to their dignity. They have our sympathy, but there would be more to share if the state didn’t thrive off the fat of the rubes.

"If the politicians lead us into a 'prioritization of payments' situation for Treasury Secretary Lew or an actual missed payment, there is nothing you can do to protect yourself from that!" are the ominous words that Kyle Bass uses to describe the farce that is rapidly approaching (and for now being ignored by stocks). Bass went on to pull no punches in his "disappointment" in JCPenney's performance (and dilution) coming as close as he can to saying "sell." But his piece de resistance was a dismal destruction of any silver lining for Puerto Rico and the significant implications that will have on Muni bonds in general.

Confused at the growing pile of unpaid food-stamps? Unsure just how many non-essential government-workers are still on furlough? Befuddled by the duration of the shutdown? Fear no more, the following interactive "Shutdown Clock" quantifies just how dismal US politics has become.

Unlike her predecessors, Janet Yellen has never had a youthful dalliance with hawkish monetary ideas. Before taking charge of the Fed both Alan Greenspan, and to a lesser extent Ben Bernanke, had advocated for the benefits of a strong currency and low inflation and had warned of the dangers of overly accommodative policy and unnecessary stimulus. (Both largely abandoned these ideals once they took the reins of power, but their urge to stimulate may have been restrained by a vestigial bias against the excesses of Keynesianism). Janet Yellen, who has been on the liberal/dovish end of the monetary spectrum for her entire professional career, has no such baggage. As a result, we can expect her to never waver in her belief that stimulus is the answer to every economic question.

Yeah, he actually said that, although his thoughts are subject to interpretation...

House Dems emerge from meeting with Pres Obama reaffiming determination to bring Govt shutdown to an end.

— Mark Knoller (@markknoller) October 9, 2013

As we noted last night, yesterday's move in US equity markets showed signs of investor panic and capitulation. BofAML points out that the inversion of the VIX to levels that have coincided with market lows for much of this year, the significant underperformance of recent outperformers (the NASDAQ Comp fell 2% and the Russell 2000 fell 1.72% vs an S&P500 decline of 1.23%), and pop in the ARMS Index all point to signs of capitulation. While this is encouraging from a technical perspective, as it says we are one step closer to completing the multi-week correction, they warn - it does not mean the correction is finished.

Not much comment necessary on a topic we have beaten to horse pulp in the past 2 weeks aside to note that this time is ironically different from 2011 as the inversion in the CDS curve is considerably more biased to a piling up of short-term default risk than in 2011.

It would appear the US government, in all its shutdown might, has made a decision. The State Department has issued a statement that the US "wants to see Egypt succeed," via an "inclusive, democratically elected civilian government," but in the meantime will be "recalibrating assistance to Egypt to best advance US interests." A translation of the political double-speak - it's a coup and we won't be sending any military aid or cash directly to the country anymore...

As headline after headline was regurgitated and used a momentum igniting ammo in stocks, the S&P managed to get back to post-Yellen-news highs before dumping into the close on the back the Fidelity "Sell" news. S&P futures closed perfectly at VWAP (and green) but the Russell and Nasdaq closed red. The Dow bounced off its 200DMA and set the lows for the day. USD strength across the board was not rotating into stocks or bonds or PMs as we suspect cash is the friend of the repo-angst deleveraging ahead. Copper and Oil are -2.3% on the week, Gold -0.4% and Silver remains positive +0.5% on the week. Treasury yields limped higher to +2bps or so on the week. VIX fell back on the day from spike high levels of 2013.