Archive - Aug 2013 - Story

Citizens of India have been watching, in stunned amazement, as over the past month the local currency has lost an unprecedented 15% of its value, with a record plunge taking place just last night. And, as so often happens, the population habituated to a government "acting in its best interests" is asking itself - how could we have possibly known this was coming. The answer, as usually happens, was staring everyone right in the face. As Grant Williams shows in his latest "Things That Make You Go Hmm", the warnings came loud and clear, and were very explicit in the form of not one, not two, not ten, but many more sequentially imposed and escalating forms of capital controls by the Indian central bank that sought to prevent the conversion of paper into hard currency. Gold.

The current external environment and consequence of past policies are limiting options for EM nations (most specifically Indonesia and India). Citi believes the best they can do now is to smooth the (inevitable) macro adjustment (weaker FX, higher risk premiums, slower growth) through improved policy credibility (to curb volatility and overshooting) and find offsets to portfolio flows to ease the pressure. The 4 choices of various rocks and hard places do not hold much hope for anything but further FX devaluation. As Citi's Matt King points out, what goes up (in terms of Emerging Market central bank FX reserves) risks coming back down with a thud... and in case you were wondering why India, Turkey, and Indonesia were the most-hammered...

While most of the country is obsessing over Miley Cyrus, the Obama administration is preparing a military attack against Syria which has the potential of starting World War 3.  In fact, it is being reported that cruise missile strikes could begin "as early as Thursday".  The Obama administration is pledging that the strikes will be "limited", but what happens when the Syrians fight back?  What happens if they sink a U.S. naval vessel or they have agents start hitting targets inside the United States?  Then we would have a full-blown war on our hands. Could this be the beginning of a chain of events that could eventually lead to a massive global conflict with Russia and China on one side and the United States on the other?  Of course it will not happen immediately, but we fear that what is happening now is setting the stage for some really bad things... Let us hope that cooler heads prevail before things spin totally out of control.

Nigeria, Africa's top oil-producing nation, has a problem - too much money in its sovereign wealth fund and no idea what to do with it. Have no fear though, for as Reuters reports, Goldman Sachs, UBS, and Credit Suisse have kindly responded (to emails from long-lost cousins?) and will be allowed to managed 20% of Nigeria's $1 billion fund (which is meant to cushion against oil price shocks - good timing?) This should come as no surprise to Zero Hedge readers as we have been discussing Africa as the only place left in the world capable of incremental debt capacity (and therefore growth). There are consequences (the boom-bust cycle) to this politically-motivated capital inflow; but for now the Nigerian Sovereign Investment Authority (NSIA) states (in a reassuring manner) that the banks will invest "the fund's assets conservatively, with capital preservation in nominal terms being of primary importance," which 'nominally' fits with UBS managing their Treasury exposure and GS and CS their corporate debt exposures.

BREAKING: Obama: US has 'concluded' that Syrian government carried out chemical weapons attack.

— The Associated Press (@AP) August 28, 2013

The letter below was sent a short while ago by House Speaker John Boehner to the president, voicing the Republican's displeasure with the Commander In chief, and criticizing the level of consultation about a potential military strike as well as demanding a clear explanation of any mission in advance of its start. Sadly, since not even Obama is quite clear why his Wall Street-based advisors demand that the US rush head first into this deficit-boosting campaign (and whose primary purpose as we have been explaining for a month is to make the Untaper possible), we doubt Boehner will get a response. Separately, as the WSJ reports, 114 House lawmakers— 97 Republicans and only 17 Democrats— have signed a letter calling on Mr. Obama to seek congressional authorization before embarking on military action in Syria. We suspect that 17 would have been substantially greater if the president engaging in unauthorized war had a last name beginning with "Buh" and ending in "Oosh."

Earlier we showed one indicator of the US investor's (should they exist anymore) loss of interest in the Federal-Reserve-sponsored equity market - i.e. CNBC ratings at 20-year lows. In the interest of being more fair-and-balanced we present anther perspective... US equity trading volume in August of 2013 is the lowest on average in 16 years... and all-time highs, middle-east war, taper, weak macro, housing un-recovery, German elections, Asian FX crisis will do little to improve that risk-appetite for the retiring boomer army.

"Citigroup Global Markets Inc. is acting as underwriter of the offering. We and the Selling Stockholders have entered into an underwriting agreement with the underwriter. Subject to the terms and conditions of the underwriting agreement, the Selling Stockholders have agreed to sell to the underwriter, and the underwriter has agreed to purchase 39,075,771 shares of common stock at a price of $12.60 per share, which will result in $492,354,715 of aggregate proceeds to the Selling Stockholders before expenses. The underwriter is committed to purchase all the common shares offered by the Selling Stockholders if it purchases any shares."

Q. In what circumstances, if any, would the president have constitutional authority to bomb Iran without seeking a use-of-force authorization from Congress? (Specifically, what about the strategic bombing of suspected nuclear sites — a situation that does not involve stopping an IMMINENT threat?)

Obama:  The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation.

- Interview with Charlie Savage, December 20, 2007

With crude prices at multi-year highs and India promising to save its oil companies it is perhaps not entirely surprising that all the attention in this opposite world pushed the Energy sector (most notably the biggest names) to lead the market higher on low volumes today. Sadly, Chevron and Exxon accounted for 40 of the Dow's 48 point gain and the S&P energy sector gained an impressive 1.8% as the rest sat around close to unchanged (and Staples lower). Treasuries began selling off from the Asian open last night with the belly 6-7bps higher in yield on the day (-3-5bps on the week)... But 330RAMP was missing as all indices gave back considerable gains into the close with Trannies red (and S&P at its 100DMA again).

Since the Vietnam War, the United States has engaged in several military interventions. As the West looks ready to act against Syria, accused of using chemical weapons against its own citizens, WaPo presents 10 instances when America has intervened, sometimes without authorization from the United Nations.

This chart seems to sum up our fiscal challenges as well as anything else...

President Obama commemorates 50 years of "believing"... in jobs and freedom

Despite trillions of dollars of interventions and zero interest rates by the Federal Reserve, combined with numerous bailouts, supports and assistance from the Federal Government, the economy has yet to gain any real traction particularly on "Main Street."  Are we currently experiencing the second "Great Depression?"  That is a question that we can continue to debate currently, however, it will only be answered for certain when future historians judge this period. One thing is for sure.  With the lowest rate of annualized economic growth on record there is a problem currently that is not being adequately recognized. The depression may indeed be on "Main Street" once again with the only difference being that the "breadlines" are formed in the mailbox rather than on street corners. And while many are quick to dismiss comparisons to the Great Depression, there is one important difference: the rate of population growth which, as opposed to the depression era, has been on a steady and consistent decline since the 1950's.