Archive - Aug 8, 2013 - Story

There’s an interesting trend happening in America today. A trend characterized by old, authoritarian, formerly “highly respected” figures in society becoming so confused and concerned that the zeitgeist of the nation is moving away from them, that they are overcome by dementia and publicly lash out like spoiled children in increasingly irrational manner. Two of our favorite examples of such behavior are Senator John McCain and NYC Mayor Michael Bloomberg. Now we can add another character to the list, former CIA and NSA head Michael Hayden. Amongst other things, here is what he said about Snowden supporters: Nihilists, anarchists, activists, Lulzsec, Anonymous, twenty-somethings who haven’t talked to the opposite sex in five or six years.

The US Federal Reserve read somewhere that if people 'feel' wealthier, they'll borrow and spend more. Simple enough, all they had to do was to make people feel wealthier and when it comes to wealth in America, there’s no better barometer than the stock market. One can see that as the Federal Reserve printed more and more money, the stock market increased more and more as well. This made Ben Bernanke a happy man. Yes, Americans are now wealthier and now all the world has to do is wait for them to start their borrowing and spending engines. Except this hasn’t happened. It’s our view that as economic, political and social lives experience very little progress, governments and central banks will not only continue with their same failing policies, but they will actually implement more of these same failing policies.

With incomes stagnating in the US, French unemployment at record highs, and prices surging on premium and non-premium alcohol, the following headline is only in fitting with our series of 'wealth effect' data points:

France's Champagne Production Set To Rise 56% This Year

Of course, this is a projection from the always reliable French statistics agency, that as France24 notes, may forgotten to note the devastation caused throughout Bordeaux and Burgundy in July by an unseasonal hail storm. Still, there's always hope.

The following eight secular disruptive themes are what Goldman Sachs believe have the potential to reshape their categories and command greater investor attention in the coming years. Critically Goldman focuses on the impact of creative destruction - a term coined by the economist Joseph Schumpeter, which emphasized the fact that innovation constantly drives breeding of new leaders and replacement of the old. These eight themes - through product or business innovation - are poised to transform addressable markets or open up entirely new ones, offering growth insulated from the broader macro environment and creating value for their stakeholders.

The Russian Bear is stronger and more powerful than it has ever been before.  Sadly, most Americans don't understand this.  They still think of Russia as an "ex-superpower" that was rendered almost irrelevant when the Cold War ended.  And yes, when the Cold War ended Russia was in rough shape. Today, Russia is an economic powerhouse that is blessed with an abundance of natural resources.  Their debt to GDP ratio is extremely small, they actually run a trade surplus every year, and they have the second most powerful military on the entire planet.  Anyone that underestimates Russia at this point is making a huge mistake.  The Russian Bear is back, and today it is a more formidable adversary than it ever was at any point during the Cold War. Just check out the following statistics...

In a little under 90 seconds, the venerable "Gloom, Boom, and Doom"er draws a number of eery similarities between the fundamental and technical backdrop before 1987's equity market collapse and the current environment. With the 3rd Hindenburg Omen in 4 days suggesting anxiety is high, maybe he is on to something.

As David Stockman, Reagan's infamous Budget Director, writes in his bestseller, The Great Deformation: The Corruption Of Capitalism In America – "the last thing hedge funds do is hedge."  The hedge fund complex is "not so much a conventional industry as it is a giant moveable trade": Wall Street trading desks frequently morph into independent hedge fund partnerships, and senior hedge funds often sire “cubs” and then sons of cubs. The protean ability of this arrangement to spawn, fund, and replicate successful momentum trades cannot be overstated, and has "generated trillions of permanent momentum-chasing capital." Ultimately, he warns, "apologists for the Fed’s evisceration of the capital markets could not see... they had unleashed the financial furies in the violent momentum trading modus operandi of the hedge fund casino."

Traditionally, metals markets are supposed to be a solid fundamental signal of the physical and psychological health of our overall economy. Steady but uneventful commodities trade meant a generally healthy industrial base and consumption base. An extreme devaluation was a signal of deflation in consumer demand and a flight to currencies. Extreme price hikes meant a flight from normal assets and currencies in the wake of possible hyperinflation. This is how gold and silver markets were originally designed to function – however, welcome you to the wacky world of 2013, where bad financial news is met with the cheers of investors who believe stimulus will last forever, where foreign investors dump the U.S. dollar in bilateral trade while mainstream dupes argue that the Greenback is invincible, and where everyone and their uncle seems to be buying precious metals yet the official market value continues to plunge. The reason our entire fiscal system now operates in a backwards manner is due to one simple truth - every major indicator of our economy today is manipulated by our central bank...

The JGB market was completely unfazed by the news that the prime minister’s office was reconsidering the planned consumption tax hike. While the tax hike is unlikely to be changed; in BNP's view, the market’s lack of response to tail risk looks like proof that its function has been impaired by the BoJ’s massive buying. Even if the Abe regime is opting for financial repression to reduce the public debt, however, BNP warns that some degree of fiscal reform is needed to control the long-term interest rate. If the unfazed market is deemed to mean that fiscal reforms can be shelved without fear of a bond-yield spike as long as massive BoJ buying continues, serious problems could ensue.

Secure and free web-based email service provider Lavabit shut down today. What makes Lavabit different from countless other email providers who have shuttered over the years is that according to BoingBoing, Lavabit is the email service supposedly used by Edward Snowden. Which would explain the nebulous tone in the farewell letter posted on the company's front page by owner Ladar Levison. It also explains why Lavabit was shut down by the US government, although that was mostly inferred from the letter which due to legal limitations does not expound on the official reasons for the shut down - one can imagine. It certainly explains the following punchline in Levison's letter: "This experience has taught me one very important lesson: without congressional action or a strong judicial precedent, I would _strongly_ recommend against anyone trusting their private data to a company with physical ties to the United States."

We wholeheartedly agree.

That the U.S. trade deficit shrank to $34 billion in June is being presented as good news all around (no surprise there, as all news is presented as good news). The petroleum boom in the U.S. has pushed oil imports down by over $2 billion a month to $10 billion/month, and non-petroleum trade generated a deficit of $37 billion/month, down $5 billion. Slowing imports and modestly higher exports are being presented as reasons for stronger GDP growth going forward. Nice, except nobody is talking about the negative consequences of a shrinking trade deficit on U.S. corporate profits. The financial media doesn't talk about this because it doesn't understand the connection, which is based on Triffin's Paradox... All those counting on a weaker dollar and rising U.S. corporate profits will be doubly surprised.

While remaining unapologetically bullish US equities long-term, Guggenheim's Scott Minerd warns that historically, markets that have rallied as aggressively as U.S. equities since November 2012 (an increase of 25 percent), pause or correct to digest their advances. Also, earnings among U.S. companies have flattened and could turn negative within two to three quarters, meaning further upside can only come from multiple expansion. Of the 19 percent rise in stocks year-to-date, 16 percent has already come from multiple expansion. Finally, it appears GDP growth could be entering a soft patch as we work through a number of short-term issues such as the headwinds in housing, reduced growth in China, the full impact of the sequester, and the budget and debt ceiling debates that will take place in Washington in the third quarter – all of which will put downward pressure on stock prices. The near-term outlook for equities makes now a good time to consider the old Wall Street adage, "Nobody ever lost money by taking a profit."

Yesterday, it was HSBC. Today, the lucky respondent to JPM's polite gold 'procurement' request, is the second "fullest" New York commercial gold vault: Scotia Mocatta.

Equity markets gapped up at the cash open and the S&P regained 1,700 briefly, then dumped along with JPY strength on decent volume only to be rescued almost as fast after the European close (on JPY weakness) dragging the S&P back up to test 1,700 once again. Once 1,700 was regained, volume departed and until the last few minutes, stocks did nothing (ignoring JPY post-30Y Auction) with a drop at the close in the futures (but a green close to break the worst streak of 2013) The 3rd Hindenburg Omen in 4 days shows the level of anxiety in this volumeless levitation as highs/lows/advancers/decliners signal all is not well amid the major JPY-carry-unwind. Treasuries managed small gains on the day (and week) and while credit markets rallied modestly they remain notably underperforming in this afternoon's equity spike. As JPY weakened and dragged stocks higher, VIX also collapsed but going into the close, it was clear hedgers were active. Gold, Silver, and Copper all surged on the day, WTI dropped (helped by RINs dump to only 67c).

A massive 1,131 individuals renounced their US citizenship last quarter, according to data that has yet to be officially released (though we were able to procure an advanced copy). This is a huge jump. Compared to the same quarter last year in which 188 people renounced their US citizenship, this year’s number is over six times higher. Not to mention, it's 66.5% higher than last quarter's 679 renunciations. This brings the total number of renunciations so far this year to 1,810. While still embryonic, it’s difficult to ignore this trend– more and more people are starting to renounce their US citizenship.