Archive - Jan 30, 2014 - Story

Mixed data from Japan did nothing to excite and while markets oscillated for a few hours after the US close (and subsequent pile-driver from AMZN), they are now unwinding most of the dead-cat-bounce seen during the US day-session. Japanese stocks are back at fresh 2-month lows with the Nikkei 225 under 15,000 (down over 400 points from day-session highs) and testing debt-ceiling lows. JPY strength has driven USDJPY back below 102.50 and therefore US futures are re-tumbling - down 14 points from US day-session highs. EM FX is drifting lower. With China about to dark for a week for lunar new year, this could get interesting very fast.

While we are sure it is hard to make ends meet on the minimum-wage-paying positions at fast food restaurants these days; the lengths that one McDonald's employee in Pittsburgh went to subsidize her income could be a little much. As CNN reports, Shantia Dennis, 26, would drop a handy baggy of heroin in drive-thru customers' boxes if they uttered the secret phrase "I'd like to order a toy" with their food order. Police recovered over 50 bags of heroin and a small amount of marijuana... brings a whole new meaning to the term "Happy Meal".

As we have discussed in the past, the large majority of American's live paycheck to paycheck.  American's do not lack for a vehicle to invest savings in for retirement (Roth IRA's, IRA's, 401k's, SEP's, etc.) but lack the ability to save. The problem that needs to be addressed is from the economic front.  With 92.8 million individuals excluded from the work force, 1 in 3 American's on some sort of Government assistance, stagnant wage growth over the last 5 years and 1 in 5 on food stamps, the issue is about employment rather than saving.  Solve the employment problem in America and the retirement savings dilemma will begin to resolve itself. It seemed to me that the entire point of the MyRA was really more of about getting "votes" than actually helping middle class American's substantially change their retirement futures.

Over a year after Shinzo Abe unveiled his devalue-the-currency three arrows plan to save his demographically-challenged and debt-riddled nation from a third lost decade... and aside from a stock market that soared as the currency collapsed - the Japanese people have little (or worse less) to show for it. As MarketWatch reports, Japan Automobile Manufacturers Association said Thursday that auto demand in Japan is expected to drop 9.8% in 2014 as the sales tax increase in April will dent consumer sentiment. The decline will be the first and sharpest drop in three years after auto demand remained nearly flat last year. It seems that 'recovery' will have to wait.

Hinting that the worst is yet to come, was none other than India's Central Bank governor Raghuram Rajan himself, who yesterday in an interview in Mumbai with Bloomberg TV India, said that "international monetary cooperation has broken down." Of course, when the Fed was monetizing $85 billion each and every month and stocks could only go up, nobody had a complaint about any cooperation, be it monetary or international. However, a 4% drop in the S&P from its all time high... and everyone begins to panic.

On the heels of the President's State of the Union address, in which he announced his new executive order to raise the minimum wage by nearly 40% for those employed by federal contractors, Barack Obama is now peddling said promises to the heartlands. While discussing the rightness or wrongness of such a move is frustrating, and we're sympathetic to those who earn $7.24/hour, a simple thought entered our minds once again; a thought that often crops up whenever we hear a politician make such a magnanimous and grandiose claim - how is this going to be paid for?

In a mere 140 seconds, Jim Grant explains to an almost stunned into silence Rick Santelli how we all "live in a valuation hall of mirrors" as the Fed manipulates everything. Thanks to it's "fingers and thumbs on the scales of finance," Grant continues, the Fed "insists on saving us from 'everyday low prices'" - what they call deflation - and by doing so it manufactures "redundant credit" which "does mischief" in and out of markets. Grant, ominously concludes, "there is no suspense as to how [this will] end... [it will] end badly."

Show this article to anyone that believes that the economy has actually improved in the last 5 years.  On Tuesday evening, the President once again attempted to convince all of us that things have gotten better while he has been in the White House.  He quoted a few figures, used some flowery language and made a whole bunch of new promises.  And even though he has failed to follow through on his promises time after time, millions upon millions of Americans continue to believe him.  To say that his credibility is "strained" would be a massive understatement.  No, things have not been getting better in America.  In fact, they continue to get even worse.  The following are 32 statistics that Obama neglected to mention during the State of the Union address...

The following infographic focuses on what is probably the key issue for current state of the physical gold-strapped market: which gold miners hold the most (physical, not paper) supply.

Since his appointment, the balance sheet of Ben Bernanke's Fed has exploded, stock prices have resurged to newerer highs, and home prices are breaking (bad) records once again. However, the following chart of sentiment towards the money-printer-in-chief by income bracket sums it all up... (despite Bernanke's "belief" that "Fed policy is a Main Street policy") Greenspan will be happy though, as Bernanke's disapproval rating is almost double that of his when he left office in 2006 (and approval rating considerably lower).

By now everyone is aware that come February, and those January electricity and heating bills arrive, a substantial portion of any discretionary income the average consumer may have had will go out the window, once again hitting the US economy where it hurts the most: the 70% of it that comprises consumption. And while the cold weather persists, there is little probability of a quick return to normalcy for natgas prices, which is where the CME comes in. Having hiked natgas margins by 20% six days ago - a move which did nothing - moments ago the mercantile exchange resorted to tactics which are all too familiar to gold bulls circa the summer of 2011 when the CME was hiking gold margin not by the day, but sometimes by the hour. Sure enough, here is the second natgas margin hike in one week, this one by 26%. It remains to be seen if this follow up attempt to spook speculators achieved much if anything.

"Just one more roll of the dice...?"

The problem is twofold. First, current accounts are a zero sum game, so future improvements in emerging market trade balances have to come at someone else’s expense. Second, we have had, over the past year, only modest growth in global trade; so if EM balances are to improve markedly, somebody’s will have to deteriorate. When the 1994-95 “tequila crisis” struck, the US current account deficit widened to allow for Mexico to adjust. The same thing happened in 1997 with the Asian crisis, in 2001 when Argentina blew, and in 2003 when SARS crippled Asia. In 1998, oil prices took the brunt of the adjustment as Russia hit the skids. In 2009-10, it was China’s turn to step up to the plate, with a stimulus-spurred import binge that meaningfully reduced its current account surplus. Which brings us to today and the question of who will adjust their growth lower (through a deterioration in their trade balances) to make some room for Argentina, Brazil, Turkey, South Africa, Indonesia...? There are really five candidates...

There is no point in trying to avert or prevent bubbles caused by monetary pumping by regulatory means. If one avenue for bubble formation is cut off, the newly created money will simply flow into another area. In fact, new bubbles almost always become concentrated in new sectors. If there were a genuine desire to keep the formation of bubbles in check, adopting sound money would be a sine qua non precondition. However, no-one who has any say in today's system has a desire to adopt sound money and give up on the failed centrally planned monetary system in favor of a genuine free market system. Our guess is that the booms and busts the current system inevitably produces will simply continue to grow larger and larger until there comes a denouement that can no longer be 'fixed'.

Did the Amazon bubble just pop? Unless Jeff Bezos announces he is working on a space station that just may be the case, because while the company missed both the top and bottom line, and guided lower  - traditionally a perfect trifecta to send the stock soaring afterhours - the stock is plunging some 10% after hours, even if it now has a true bargain-basement LTM PE of 672x.