Archive - 2013 - Story

There was a time in America when retail brawls only broke out around Thanksgiving dinner time (and increasingly earlier with every passing year). It appears that's no longer the case as the recent release of the Air Jordan 11s reveals. USA Today reports that following the release of Jordan 11 Retro Gamma Blue sneakers on Saturday, "the nation just about fell apart." One week ago, a crowd tore down a mall door just to get an advance ticket to buy the $185 Jordans. With the shoes now officially on sale, the world appears to be ending.

That yet another major retailer was hacked, as happened last week when Target announced that as many as 40 million credit and debit cards used from November 27 until December 15 at its stores  (one wonders why it took the retailer three weeks to realize/announce what was happening) had been "compromised", is no surprise. What was a big surprise is the action one major financial company took in response to the mega hack. The company in question was JPMorgan, and what it did was to tell customers whose debit cards had been used at Target stores during the period in question, that it was limiting use of their cards to cash withdrawals of $100 and purchases to $300 per day. However, what is perhaps most surprising is the sheer number of cards with spending caps: The new limit effects roughly 2 million accounts, or roughly 10% of Chase debit card accounts, according to a bank spokeswoman.

Compare and contrast.

CNN’s Jake Tapper: "I think the American people, honestly, want security over freedom."
Benjamin Franklin: "Any society that would give up a little liberty to gain a little security will deserve neither and lose both."

That right there demonstrates perfectly how far we have fallen culturally.

When the USS Ronald Reagan responded to the tsunami that struck Japan in March 2011, Navy sailors including Quartermaster Maurice Enis gladly pitched in with rescue efforts. But months later, while still serving aboard the aircraft carrier, he began to notice strange lumps all over his body. Testing revealed he'd been poisoned with radiation, and his illness would get worse. And his fiance and fellow Reagan quartermaster, Jamie Plym, who also spent several months helping near the Fukushima nuclear power plant, also began to develop frightening symptoms, including chronic bronchitis and hemorrhaging. They and 49 other U.S. Navy members who served aboard the Reagan and sister ship the USS Essex now trace illnesses including thyroid and testicular cancers, leukemia and brain tumors to the time spent aboard the massive ship, whose desalination system pulled in seawater that was used for drinking, cooking and bathing.

Perhaps it is because the prevalent theme of the past five years has been the ascent of central planning in the name of the Bernanke wealth effect, headed by Saint Ben himself, that has forced Americans to reassess, and moderate, their belief in "conventional" topics such as god, miracles and heaven. According to a new Harris Poll while a strong majority (74%) of U.S. adults do believe in God, this belief is in decline when compared to previous years as just over four in five (82%) expressed a belief in God in 2005, 2007 and 2009.

As an economist, it is getting more difficult to understand the logic underlying current monetary policy in the U.S. There are two main channels by which economists think monetary policy can influence growth and employment. The first is to lower interest rates to spur investment and consumption spending. The second is to induce inflation so real wages drop, spurring output and employment. Since 2008, the central bank has reduced interest rates to almost zero with little to show for it. Since the first channel has failed, only the second channel remains; however, inflation causes an “information extraction” problem.

Over the past several months, Bitcoins have soared in popularity, acceptance and price. Naturally, it was only a matter of time before Bitcoin crime followed. As reported here previously, earlier this month, the largest heist in the history of Bitcoin was pulled off when the illegal drug bazaar Sheep Marketplace was plundered, either by hackers or insiders, and about $100 million worth of the currency was stolen from customers. That was only the most recent heist however: the reality is that Bitcoin theft has been around for years. In June of 2011, a user named Allinvain was the victim of what is arguably the first recorded major Bitcoin theft. Since then Bitcoin crime has soared - but like all things Bitcoin, it’s difficult to understand exactly how digital theft works. What are you stealing, exactly? And once you’ve got it, what do you do with it?

Thanks to Bob "I don't get out of bed unless it's over 20" Pisani's daily diatribes about VIX (the so-called 'fear' index), we are supposed to rest assured that all is well in the ever-decreasing horizon world of equity markets. However, while VIX measures the expectations of 'normal' day to day moves in stocks, it does not offer any insight into market participants' perspectives on tail risks (or 'the big one'). CBOE's SKEW index does just that, based on the pricing differences between normal and fat-tail risk pricing in the options market, it provides a measure of the market's belief in extreme events... and for only the 4th time in history, it's flashing a big red warning signal of volatility ahead.

Every year, David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. The 89-page tour-de-force is a must-read this holiday season for perspective on where we have been and where we are going. From Krugman to the abuse of civil liberties, from gold to muni bankruptices, and from Student debt bubble to Cyprus and beyond, Collum covers it all.

The last few days have seen significant shifts in the term structure of US Treasury bonds; auctions have not gone well and despite the world's expectations for 'taper' to lead to a surge in rates, the long-end of the bond-market has rallied. While Goldman might believe the 'bond bubble' is starting to pop, the following 223 years of Treasury yields (through free-markets and centrally-planned) sheds some light on what the 'new normal' level of rates really represents because, as we noted previously, the world is so levered now that any 'reversion' in rates is simply unthinkable.

Having had a few days to reflect on the all-knowing Bernanke's words (and deeds), here are a few thoughts on what was said (and not said)...

With a wave of detente spilling over the Middle East, following the surprising US overture to calm relations with Syria and Iran just months after it nearly launched an offensive war in the country over a few fabricated YouTube clops Looks like Africa will be the next geopolitical hotspot. But while France is the figurehead leading the offensive over west Africa, focusing on Mali and the Central African Republic, where they are "peacekeeping" (with the support of US drones), east Africa appears set for a full-blown flare out, with the Sudan area emerging as the dominant zone of instability and future escalation. Which is perhaps why not only a US aircraft, but a UN helicopter, both came under fire in the Sudan over the past 24 hours in what is assured to generate an "appropriate" response by the US.

"The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland; a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank... sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world." - Carroll Quigley, member of the Council on Foreign Relations

It's no secret the US is facing a dilemma when it comes to its prison system. With the largest prison population and incarceration rate in the World, the US is facing severe overcrowding and more spending on prisons than education. What does the future hold for the US prison system?

"We simulated an adverse interest rate shock to estimate losses by bond funds from an instantaneous parallel shift in the yield curve of 100 basis points from current levels. We then compared the impact of such losses in today’s context to loss rates from a similar hypothetical scenario during the three previous periods of U.S. monetary policy tightening. Losses during each tightening cycle are calculated by averaging monthly estimated losses, where the Barclays Capital U.S. Aggregate Bond Index is used as a proxy for duration and mutual fund bond holdings are based on data from the Investment Company Institute. Figure 15 shows that losses could rise to nearly $200 billion, underscoring that current bond portfolios are vulnerable to a sudden, unanticipated rise in long-term rates."