Archive - Sep 2013 - Story

There is a reason why every fiat currency in the history of the world has eventually failed. At some point, those issuing fiat currencies always find themselves giving in to the temptation to wildly print more money. Today, the Fed finds itself faced with a scenario that is very similar to what the Weimar Republic was facing nearly 100 years ago. Like then, the U.S. economy is struggling and like the Weimar Republic, the U.S. government is absolutely drowning in debt.  Unfortunately, the Fed has decided to adopt the same solution that the Weimar Republic chose. The Fed is recklessly printing money out of thin air, and in the short-term some 'positive things' have come out of it. But quantitative easing worked for the Weimar Republic for a little while too.

The younger generation will ask of us, "what were you thinking?"

Somehow I caught the bug that "I am not really worth very much unless I have something more."

"I'm not going to sit on my laurels and say I was an executive making six figures and traveling the world,” 77-year-old Tom Palome says, "I tell people I demonstrate food and I do short-order cooking. I don’t mind saying it. What's important is that I can work today." As Bloomberg reports, the former vice president of marketing for Oral-B juggles two part-time jobs: one as a $10-an-hour food demonstrator at Sam’s Club, the other flipping burgers and serving drinks at a golf club grill for slightly more than minimum wage; a sad but all too real reflection of the new normal 'job' gains that our economists and politicians love to crow about. Why is he still working? Like most Americans, he didn't save enough for retirement (despite working hard his entire career). About 7.2 million Americans over 65 were employed last year, a 67% increase from a decade ago as 59% of households headed by people over 65 have no retirement assets.

As Wall Street, CNBC, and feckless politicians tout American energy independence from the miracle of shale oil, reality is already rearing its ugly head. Production grew by 24% over the first six months of 2012. Production has grown by only 7% over the first six months of 2013. That is a dramatic slowdown. The fact is that these wells deplete at an extremely rapid rate. Oil companies will always seek out the easiest to access oil first. They have already accessed the easy stuff. This explains the dramatic slowdown. Peak Bakken oil production will be below 1 million barrels per day. The last time we checked, we consumed 18 million barrels per day. We wonder when that energy independence will be achieved?

With some politicians arguing private prisons help states save money and other politicians arguing the system is rife with corruption, there can be no debate about this basic fact: The private prison system has surged in size since the U.S. began experimenting with private prisons in 1984. Between 1990 and 2009, the inmate population housed in private prisons grew by more than 1,600 percent. As the following infographic suggests the trends are not your friend in this case.

The hullabaloo over the Fed’s communications should be the least of our concerns. It’s outranked by actual policies, which seem to be once again destabilizing markets, encouraging reckless behaviors, perpetuating global imbalances and enriching the parasitic practitioners of so-called financial innovation at the expense of the middle class. On the other hand, Chairman Bernanke claims that clear communications are a key part of his approach, forward guidance being one example of how he manipulates the economy by telling us what to expect. And yet, it sure seems like the more he and his colleagues talk, the less we know about what they’ll do next. In light of this, the best explanation for the Fed’s surprising untaper last week appears to be from Vince Reinhart’s musings and inside information about the Fed. He offers a short but interesting history on the FOMC’s attempts to increase transparency, and then goes on to share some thoughts on how the decision making has evolved and why it tends to confuse us.

Four years after it filed for Chapter 11 bankruptcy protection, and was purchased from the depths of bankruptcy court hell by Fiat S.p.A., the circle (jerk) is complete, and thanks to lead underwriter JPM, the second coming of Chrysler, this time for sale to a whole new batch of gullible ROI chasers, is now a fact with the S-1 statement filing moments ago, in which the only cash transfer will be from the VEBA Trust to new shareholders and no new cash will go to the actual company. In other words, the UAW is selling to the general public.

UPDATE: Kenyan interior ministry tweets that authorities are in control of Westgate mall

As the dreadful Nairobi Mall attack/siege enters its third night with at least 69 dead, the Kenyan foreign minister has clarified one point:

BREAKING: Kenyan foreign minister tells Al Jazeera Nairobi mall attack the work of al-Qaeda, not al-Shabab

— Jared Keller (@jaredbkeller) September 23, 2013

Despite earlier reported condemnations from Al-Qaeda and an assumption that Al-Shabaab (who claimed responsibility), it appears the terrorists who just lost their Syria/Iraq leader are responsible.

Despite the best efforts to squeeze shorts from the European close (end of POMO), the afternoon session punctuated by Fed's Fisher notable comments pushed stocks back lower with the S&P joining the Dow in the all-FOMC-gains-gone club. Financials and Materials  (-1.5% from FOMC) are the worst performers since Bernanke did not say "Taper" and while stocks have given it all back, bonds remain at their highs (in price) and lows (in yield) from that un-announcement. Treasury yields dropped 2-3bps more today (still down 15-20bps depending on maturity) as growth hopes fade. JPY strength was trumped by EUR weakness today which pushed the USD higher from overnight opening lows (from China PMI and Merkel) but by the close the USD was unch. Gold and silver were holding positive until Fisher's comments and they slid to -0.5% or so. WTI dropped 1.2% to $103.50. The S&P had its 3rd down day in a row for the first time in 5 weeks (as momo names join the financials among the leaders lagging).

Many well-meaning commentators look back on the era of strong private-sector unions and robust U.S. trade surpluses with longing. The trade surpluses vanished for two reasons: global competition and to protect the dollar as the world's reserve currency. It is impossible for the U.S. to maintain the reserve currency and run trade surpluses. It's Hobson's Choice: if you run trade surpluses, you cannot supply the global economy with the currency flows it needs for trade, reserves, payment of debt denominated in the reserve currency and credit expansion. If you don't possess the reserve currency, you can't print money and have it accepted as payment. In other words, the U.S. must "export" U.S. dollars by running a trade deficit to supply the world with dollars to hold as reserves and to use to pay debt denominated in dollars. Other nations need U.S. dollars in reserve to back their own credit creation.

Democracy has regressed in 15 out of the 17 euro-area countries since 2008, according to the Economist Intelligence Unit’s democracy index, as economic policy was increasingly influenced by the ECB, the EU and the IMF, instead of elected politicians - something Nigel Farage has been vociferously concerned about.

While the commemoration of the 5 year anniversary of the start of the Great Financial Crisis is slowing but surely fading, another just as important anniversary is revealed when one goes back not 5 but 15 years into the past, specifically to September 23, 1998. On that day, the policy that came to define the New Normal more than any other, namely the bailout of those deemed Too Big To Fail, a/k/a throwing good (private or taxpayer) money after bad was enshrined by Wall Street as the official canon when faced with a situation where capitalism, namely failure, is seen as Too Dangerous To Succeed. This was first known as the Greenspan Put, subsequently the Bernanke Put, and its current iteration is best known as the Global Central Banker All-In Systemic Put. We sow the seeds of bailing out insolvent financial corporations to this day, when instead of making them smaller and breaking them up, they are rewarded by becoming even bigger, even more systemics, and even Too Bigger To Fail, and their employees are paid ever greater record bonuses.

Perhaps no sentence sums up the dismal reality investors face with the 'communications' strategy, the credibility, and the actions of the Federal Reserve, better than the following statement from Dallas Fed's Fisher:

• FED'S FISHER SAYS VOTE LAST WEEK NOT TO TAPER DID NOT REFLECT THE DISCUSSION AT THE POLICY-SETTING TABLE

It seems that we should therefore ignore each and every Fed whisperer and President (voting or non-voting) as only man counts... Et Tu Yellen...

Dubbed as a "game-changer" despite being around on devices for years (Motorola Atrix anyone); a 'paradigm' shift in mobile payment security; and a revolution in handheld devices by any and all investors bullish of the stocks; Appl's fingerprint-scanning TouchID is everything you want it to be - apart from secure. As Der Spiegel reports, the well-respected German hacker group Chaos Computer Club (CCC) has thrown a wrench in the works by bypassing the smartphone's much-heralded fingerprint scanner just two days after launch. The CCC, as the clip below illustrates, successfully bypassed the biometric security system, called TouchID, using "easy everyday means." A CCC spokesperson noted "It is plain stupid to use something that you can't change and that you leave everywhere every day as a security token," So, the question now is - will the NYPD demand everyone downgrade their phones?