Archive - 2013 - Story

Hours ago, China's lunar probe Chang'e-3, carrying the nation's first moon rover onboard, successfully landed on the moon, making it the first time China has sent a spacecraft to soft land on the surface of an extraterrestrial body, joining only the US and the former Soviet Union in accomplishing such a feat. Chang'e-3 is the world's first soft-landing of a probe on the moon in nearly four decades. The last such soft-landing was carried out by the Soviet Union in 1976. As Reuters reports, the Chang'e 3, a probe named after a lunar goddess in traditional Chinese mythology, is carrying the solar-powered Yutu, or Jade Rabbit buggy, which will dig and conduct geological surveys. China has been increasingly ambitious in developing its space programs, for military, commercial and scientific purposes. This is a teaser to China's next space ambition - building its own space station. In its most recent manned space mission in June, three astronauts spent 15 days in orbit and docked with an experimental space laboratory, part of Beijing's quest to build a working space station by 2020.

2013 was a year when Europe tried to reallign its primary source of natgas energy, from Gazpromia to Qatar, and failed. More importantly, it was a year in which Russia's Vladimir Putin undisputedly won every foreign relations conflict that involved Russian national interests, to the sheer humiliation of both John Kerry and Francois Hollande. However, it seems the former KGB spy had a Plan B in case things escalated out of control, one that fits with what we wrote a few days ago when we reported that "Russia casually announces it will use nukes if attacked." Namely, as Bloomberg reports citing Bild, Russia quietly stationed a double-digit number of SS-26 Stone, aka Iskander, tactical, nuclear-capable short-range missiles near the Polish border in a dramatic escalation to merely verbal threats issued as recently as a year ago.

As a general rule, extreme economic decline is almost always followed by extreme international conflict. Sometimes, these disasters can be attributed to the human survival imperative and the desire to accumulate resources during crisis. But most often, war amid fiscal distress is usually a means for the political and financial elite to distract the masses away from their empty wallets and empty stomachs. War galvanizes societies, usually under false pretenses. We're not talking about superficial “police actions” or absurd crusades to “spread democracy” to Third World enclaves that don’t want it. No, we're talking about REAL war: war that threatens the fabric of a culture, war that tumbles violently across people’s doorsteps. The reality of near-total annihilation is what oligarchs use to avoid blame for economic distress while molding nations and populations. Because of the very predictable correlation between financial catastrophe and military conflagration, it makes quite a bit of sense for Americans today to be concerned.

While it is arguable whether two instances of the same event are sufficient to indicate a pattern, when it comes to Europe under the New (feudal) Normal we are willing to make a generalizing extrapolation. Recall a week ago when we reported that hours after unleashing a campaign to hire 400 employees for its brand new megastore in the Mediterranean city Valencia, Ikea's servers in Spain promptly crashed after the company got at least 20,000 applicants (and possibly many more that would have registered had the system not experienced its Obamacare moment). The punchline here, of course, is not the dilapidated server infrastructure of Ikea - in a world in which nobody spends any growth CapEx any more that is to be expected - but that there were 20,000 applicants for what were effectively 400 minimum wage jobs, or, said otherwise: 50 candidates for each job. Hardly a ringing endorsement of the mythical recovery that Spain's premier Rajoy fabulates in people's minds on a daily basis. Needless to say, the 2% "success rate" of applicants means it is three times harder to get a minimum wage job in this European country than to get into Harvard. Today, we find the same 2% number in action once again, as if by magic, only this time relating to minimum wage job applicants in that other European basket case - Greece.

We've all read countless explanations of investor psychology in a general sense, but rarely does anyone put their name to a calamity, or at least their nom de plume. We recognise it when exuberance makes charts go vertically up or when stone cold fear pushes them ruthlessly down, but our ego inevitably makes us shy away admitting that we take part in any function of it - "that's those other sheep". We're merely unemotional observers, until we aren't. Is anyone going to admit they were buying in the final moments before the last bitcoin crash? Unfortunately, our brains are hard-wired to get us into investing trouble.

The last 2 years have seen the clearest indication of the health of Spain deteriorate at its fastest rate on record. In spite of constant reassurances from Rajoy et al. that recovery is here, as we noted here, it's not just unemployment that is dogging Spain; and now - having risen at a stunning 25.8 percentage points in the last 2 years, as Reuters reports, Spain's debt-to-GDP has hit 93.4% - the highest level in more than a century. Of course, we should not worry... Spain has reassured investors that sees the debt-to-GDP ratio peaking at 101% in 2015 and 2016, then it's plain-sailing to nirvana.. (and do not contradict them!)

Some of the most respected prognosticators in the financial world are warning that what is coming in 2014 and beyond is going to shake America to the core.  Many of the quotes that you are about to read are from individuals that actually predicted the subprime mortgage meltdown and the financial crisis of 2008 ahead of time.  So they have a track record of being right.  Does that guarantee that they will be right about what is coming in 2014?  Of course not.  In fact, as you will see below, not all of them agree about exactly what is coming next.  But without a doubt, all of their forecasts are quite ominous.  The following are quotes from Harry Dent, Marc Faber,  Mike Maloney, Jim Rogers and ten other respected economic experts about what they believe is coming in 2014 and beyond...

A month ago, regulators in Europe began their investigation into manipulation of the "London gold fixing" (and we explained the methods here). While the complete history of gold manipulation goes a lot deeper than just banging the close on this crucial benchmark (which goes back to first world war); the decision by Germany's financial regulator (BaFin) to probe Deutsche Bank signals greater concerns over the precious metals markets.  As The FT reports, BaFin has demanded emails and documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.

Over the course of the last few years we have vociferously exposed the growing inequalities and divergences between various elements of the status quo society. With even the President now seemingly inciting class warfare (which as we discussed here and here is becoming an increasingly  new normal "age warfare" issues); we roll out the wayback machine for 150 seconds of clarity from Doug Casey. With roughly half the American people net recipients of government support in some way (and work punished), Casey explains what happens when the entitled elect themselves (as Michael Burry so aptly noted "the party accelerates, and the brutal hangover is inevitable,") and the social and political consequences.

While fundamentals remain, for now, as useful as useful as having the only phone in the world; we demur to BofAML's technical analysis team for their short-term trading focus across various asset classes. In light of the only thing that matters, the Fed balance sheet (as Hugh Hendry so eloquently explained), BAML warns "beware the bear trap" in stocks...

With the recent deployment of China's air defenze zone, and the subsequent announcement of a comparable zone by South Korea which overlaps not only with China's own, but with that of Japan, it almost seems like a scenario designed to provoke an escalating conflict on the tiniest of provocations is actively being produced. A scenario such as the one US defense officials revealed today, when a guided missile cruiser operating in international waters in the South China Sea was forced to take evasive action last week to avoid a collision with a Chinese navy ship maneuvering nearby. Hold on: how can two massive ships, visible to the naked eye and certainly to radar from hundreds of miles away, "nearly collide"?

Wondering where all those JPY are going? Wonder no more... (and note the "deja vu")

One of these "forecasts" is wrong... do you believe in miracles?

"Twas the Friday before the Friday before Christmas..." and as the year end rapidly approaches the mainstream consensus is that 2014 will be another bouyant year for the stock market despite the impact of a potential Federal Reserve tapering.  The optimistic view is an easy one.  While it isn't popular, or fun, to look at the non-bullish view it is nonetheless important to consider the risks that could potentially lead to a larger than expected loss of investment capital.  There is one simple truth about financial markets and investing:  what goes up must come down.   It is the downside risk that is most damaging to long term investment returns.  Therefore, this week's "Things To Ponder" is a sampling of views and thoughts on what to watch out for as we enter the new year.

The small-cap-dominated Russell 2000 fell for the 2nd week in a row for its worst performance in 4 months (though bounced modestly off its 50DMA today). Stocks traded in a relatively tight range today - swinging around VWAP - following their only driver - JPY crosses, most of the day. NASDAQ 400 was rescued to ensure the headline-writers do not panic. Treasuries were flat to modestly better on the day but end the week mixed with 30Y -1bp and 5Y +5bps - collapsing the term structure to 6 week lows. Precious metals bounced to end the week +1%, which with the USD closing unchanged on the week, made them the outperformer across asset classes. VIX closed higher for the 4th day in a row (with the curve now its flattest in 28 months).