Archive - Nov 2014 - Story

There’s an odd-looking building in South Mumbai in India that looks like it’s under construction, only that it’s finished and furnished. And by how much. Called the Antilia, after mythical island in the Atlantic, the building is famous not for its odd structures of extra high ceilings and protruding floors; it’s the second most expensive house today at $1 billion. Barring the Buckingham Palace, which is valued at $1.55 billion, it would have been our most expensive house in our list, as Forbes.com has named it in 2014. In fact, Forbes cited that it’s the first house (other than palaces) to breach the $1 billion range.

The last 3 weeks have seen stocks surge at their fastest pace in years (on dismally low volume) but CNN's Fear & Greed-o-meter only got back to "Neutral". The simple reason is... the components of the index have never been more bipolar - Extreme Greed in stocks and options and Extreme Fear in junk bonds. We wonder who will be proven too 'extreme'.

Sanctions are just another form of warfare, where the weapons can inflict destruction and pain, and be just as explosive.  Their history can be millennially traced back, some with success, others with failure and a boomerang effect.  One thing we can be sure of in modern times: sanctions will prove to yield long term ill will, in many cases providing multiplying seeds of vengeance and terrorism which we may not confront now but our children and their children certainly will.

Despite the powerful rally over the last several weeks that brought the US equity markets back to their all-time highs, treasury yields are up only slightly and are well below mid-September levels. Meanwhile, as Gavekal Capital notes, speculators are still carrying a hefty short position in 10-year treasury futures and options contracts, implying that yields have further to fall yet. Simply put, if history is a guide we are going to have to observe a massive change in positioning before yields make a low.

As noted over the past week there has been a massive shortage of precious metals - most notably silver which as of this moment is indefinitely unavailable at the US Mint - as a result of the tumble in the paper price, and following 8 days of sliding and negative 1 month GOFO rates, today the physical metal shortage surged, as can be seen by not only the first negative 6 month GOFO rate since last summer's much publicized gold shortage when China was gobbling up every piece of shiny yellow rock available for sale, but a 1 month GOFO of -0.1850%: the most negative it has been since 2001!

Between Q4 2011 and Q3 2014 Bank of America produced "Net Income" of $15.9 billion. However, the amount of added back "one-time, non-recurring" legal expenses is a stunning $28.9 billion: two of every three dollars, non-GAAP as they may be, comes from Bank of America engaging in criminal activity... and that's just the stuff it got caught for.  And now we can add another $400 million of evil bank misdeeds because there was no actual carbon-based person behind these crimes. And as everyone knows by now, actually goes to jail for financial crime upon crime upon crime. Which also means that BofA has spent some $29.4 billion in just the past three years, to keep its 229,500 employees, but most the executives, out of prison: an insane amount of $128,104.57 per person.

"The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better." - Ron Paul

Yesterday higher oil prices were the catalyst for higher stock prices. Today lower prices - after OPEC slashed growth expectations - were "unequivocally" positive for Americans and sent Trannies soaring.  Of course, it was Draghi's promise that there's more to come that sustained USDJPY's levitation and thus stocks. Treasury yields slid 2-4bps higher on the day as the USDollar surged to +1.2% on the week after Draghi's chatter slammed EURUSD below 1.24. Gold and silver were flat (despite USD strength) as oil prices dipped to $78. HY credit diverged notably after EU closed as managers appeared to protect bond positions into the jobs data. VIX pumped then dumped and cracked back to a 13 handle as stocks closed at record highs (right before the uncertainty of tomorrow's NFP).

What a difference a day makes...

Saudi Arabia’s move to cut the cost of its oil to US customers has injected fear into the oil markets, bringing the price of OPEC crude below $80 and suggesting to some observers that the cartel is preparing for a global price war.

Every now and then a person comes along who completely redefines the concept of "buying sight unseen." That someone is longtime Cape Coral resident William Wilson who, at a foreclosure auction on Monday, purchased the house on SE 19th Lane with rusted iron gates on each window and every entrance. Four dead-bolts were chained at the front door. He paid $96,000.  So far so good. He arrived the next morning to evaluate his purchase, trim the hedges and mow the lawn. What he found inside was a body.

Riot police clashed with demonstrators in the Belgian capital of Brussels on Thursday amid a massive protest against government plans to reform the country’s welfare system. This comes on the heels of violent French, Italian, and Spanish youth protests in recent weeks as the citizens of the non-Germanic European Union decry the 'austerity' they have been crushed by. What is odd, though, is externally, there has been 'no' austerity with debt loads rising for all these nations and debt/GDP at record highs for most. So where is the disconnect between a people under increasing financial pressure and a sovereign issuing more and more debt at will? The Telegraph has the stunning answer: an audit, published this morning, found that £109 billion out of a total of £117 billion spent by the EU in 2013 was "affected by material error”. Brussels accounts have not been given the all clear for 19 years running. In other words, Brussels 'embezzles' billions of euros per year, and blames it on austerity. Is it any wonder, Europe is burning?

It there is a better anecdote for everything the IMF stands for than the hedge fund of its former head, disgraced Dominique Strauss-Khan, going broke days after his partner, Thierry Leyne, 49, commits suicide in Tel Aviv under mysterious circumstances as reported previously, and subsequent revelations exposing at least one instance of fraud at the financial firm, we have yet to hear it.

Not paying attention to the symptoms, failing to diagnose the problem and not taking any defensive actions will ensure that investors fall victim to the full-blown effect of any 'illness'. Even minor colds can have a lasting impacting on portfolio performance over time, and making up previous losses has never been a prescription for long-term financial health. Is this a "suckers rally?" Maybe, but only time will tell. However, taking some action in portfolios to reduce risks, take some profits, and rebalance your allocation model is always a great way to prevent coming down with a "cold."