Archive - Jun 2013 - Story

"We’re getting to that point where either one of two things are going to happen; either central banks are going to stop all this [money printing], or the market is going to force them to stop it. It looks like we may be having a juncture of both... where the Fed is getting worried... and at the same time, the market is jumping in and saying, ‘Yes, it’s insane what you’re doing, and this has to end.’ And if it’s not ending now, it’s going to end sometime in the next year, because this cannot go on - it’s too insane."

"There are a lot of leveraged players who are now being forced to sell [gold]. Usually when you have this kind of forced liquidation, you’re getting closer to a bottom, maybe not the final bottom, but certainly close to a bottom."

With June turning out to be an ugly month across most financial markets, Hedge Funds are once again losing money. The losses come on top of the industry’s already weakening reputation thanks to back to back years of underperforming major benchmarks. To try to keep their investors from leaving, many funds are turning to promotions usually reserved for far less glamorous industries.

Looking at the demographics of households with less than $30,000 a year in income, it appears they are mostly headed by retired people. As Visualizing Economics notes, households with incomes below $30,000 are more likely to be located in rural and urban areas than the national average... and looking at the the poverty rate by county, very low income households (under $23,000 for a family of four) are concentrated in places like Mississippi, Texas, and South Dakota.

It was never going to be easy, but central banks in the world’s two largest economies – the United States and China – finally appear to be embarking on a path to policy normalization. Addicted to an open-ended strain of über monetary accommodation that was established in the depths of the Great Crisis of 2008-2009, financial markets are now gasping for breath. Ironically, because the traction of unconventional policies has always been limited, the fallout on real economies is likely to be muted. Breaking bad habits is hardly a painless experience for liquidity-addicted investors. But better now than later, when excesses in asset and credit markets would spawn new and dangerous distortions on the real side of the global economy. That is exactly what pushed the world to the brink in 2008-2009, and there is no reason why it could not happen again.

Whether you like it or not, America, the number of calories packed into fast-food eats are getting harder to ignore. McDonald’s, Subway and Panera Bread - and as of this week, Starbucks - have already begun voluntarily posting calorie counts on their menus, ahead of an anticipated federal mandate requiring all restaurants with more than 20 locations to do so. In the interest of openness and transparency, and as Marketwatch notes, assuming for a moment that you’re less worried about your waistline than about getting the most calories for the least amount of money, here are the highest-calorie menu items at 10 of the nation’s top fast-food restaurants offers the most bang for your buck.

If Obama was hoping for a warm reception upon his arrival in the second leg of his 3 nation African tour, in Johannesburg, to celebrate the life of South Africa's critically ill, 94 year old leader Nelson Mandela, he got quite a surprise when local police had to lob stun grenades at local protestors who had gathered at the world's once most famous apartheid ghetto, Soweto, where they chanted against US foreign policy, American drone strikes, US policy in Guantanamo and Iran and much more. They were hardly racist.

In the last two years, according to Intuit, Americans are reaching deeper into their pockets to cover family-related expenses. Given the current concerns over dis-inflationary pressures, we thought the following infographic might highlight just where that hidden liquidity-/credit-fueled inflation is leaking out.

The Way-Back Machine strikes again...

Something is way off: either the unemployment data is very much wrong and the real unemployment rate is far higher especially when normalized for the collapsing labor participation rate and the surge in part-time and temp workers, or the GDP calculation is incorrect and the economy is growing at a 4%+ rate. (It isn't). The scarier implication is that in addition to all other seasonally adjusted economic data points which have become painfully unreliable, daily Treasury tax receipts must also now be added to the docket of meaningless and corrupt data points. The question of just how the Treasury could explain a massive (and deficit boosting) cash discrepancy could only be answered if somehow the Fed is found to be parking cash directly into the Treasury's secret basement.

The key dynamic here is once the low-hanging fruit have all been plucked, it becomes much more difficult to achieve high growth rates. That cycle is speeding up, it seems; western nations took 100 years to rapidly industrialize and then slip into failed models of stagnation; Japan took only 40 years to cycle through to stagnation, and now China has picked the low-hanging fruit and reverted to financialization, diminishing returns and rapidly rising debt after a mere 30 years of rapid growth.... there is another dangerous dynamic in any systemic reform: the very attempt to reform an unstable, diminishing-return system often precipitates its collapse. The leadership recognizes the need for systemic reform, but changing anything causes the house of cards to collapse in a heap. This seems to describe the endgame in the USSR, where Gorbachev's relatively modest reforms unraveled the entire empire.

From Bill Gross: "In trying to be specific about which conditions would prompt a tapering of QE, the Fed tilted overrisked investors to one side of an overloaded and overlevered boat. Everyone was looking for lifeboats on the starboard side of the ship, and selling begat more selling, even in Treasuries. While the Fed’s move may ultimately be better understood or even praised, it no doubt induced market panic. Without the presence of a “Bernanke Put” or the promise of a continuing program of QE check writing, investors found the lifeboats dysfunctional. They could only sell to themselves and almost all of them had too much risk. A band somewhere on the upper deck began to play “Nearer, My God, to Thee.”"

A priest, a banker and a spook… not the start of a joke or a John LeCarre spy novel, but merely the latest addition to a long list of financial scandals involving the Vatican Bank. Yet despite its quasi comedian if convoluted plotline, the latest attempt to defraud the Catholic church will likely pale in comparison to the most infamous incident involving the Institute of Religious Works (or IOR) as the Vatican Bank is also known. That one involves one Roberto Calvi, the chairman of Banco Ambrosiano, who in 1982 was found hanging from London’s Blackfriars bridge, a short distance away from JPMorgan’s gold vault, his pockets stuffed will cash and bricks in what at the time was a presumed hit by the mafia taking revenge for funds lost through the collapse of Calvi’s bank – a bank in which the Vatican was a significant shareholder. This time, however, with plenty of living loose ends, we may finally get a glimpse into how deep the rabbit hole involving the legal, and more importantly illegal, (ab)use of Catholic funds really goes.

As the following chart from Perpe showing June performance, who needs money printing when one can generate gobs of "wealth effect" simply by centrally-planning the destruction of their economy, crushing the currency, and living constantly on the edge of a banana republic military coup. Presenting Venezuela: + 40.7% in June and +144% YTD... the occasional toilet paper shortage notwithstanding. Truly the shape of "wealth effects" to come.

At the end of the day, Friedman jettisoned the gold standard for a remarkable statist reason. Just as Keynes had been, he was afflicted with the economist’s ambition to prescribe the route to higher national income and prosperity and the intervention tools and recipes that would deliver it. The only difference was that Keynes was originally and primarily a fiscalist, whereas Friedman had seized upon open market operations by the central bank as the route to optimum aggregate demand and national income. The greatest untoward consequence of the closet statism implicit in Friedman’s monetary theories, however, is that it put him squarely in opposition to the vision of the Fed’s founders. As has been seen, Carter Glass and Professor Willis assigned to the Federal Reserve System the humble mission of passively liquefying the good collateral of commercial banks when they presented it. Consequently, the difference between a “banker’s bank” running a discount window service and a central bank engaged in continuous open market operations was fundamental and monumental. In short, the committee of twelve wise men and women unshackled by Friedman’s plan for floating paper dollars would always find reasons to buy government debt, thereby laying the foundation for fiscal deficits without tears.

Last week's liquidity crunch and market panic is a reminder that Beijing is playing a difficult game. Regardless of what happens next, the consensus expectations that China's economy will grow at roughly 7 percent over the next few years can be safely ignored. Growth driven by consumption, instead of trade and investment, is alone sufficient to grow China's GDP by 3 to 4 percent annually. But it is not clear that consumption can be sustained if investment growth levels are sharply reduced. If Beijing can successfully manage the employment consequences of decreased investment growth, perhaps it can keep consumption growing at current levels. But that's a tricky proposition. It's likely that the days of the super-powered Chinese economy are over. Instead, Beijing must content itself with grinding its way through the debt that has accumulated over the past decade.