Archive - Jan 2014 - Story

Following the suicide bombings and the discovery of numerous explosive devices near Sochi - the site of the Winter Olympics - the US state department warned Americans of the potential for terrorism. As Reuters reports, in a 'travel warning' that the Olympics presented "an attractive target for terrorists," the department urged Americans to be vigilant about personal security at the Games, and flagged the possibility of petty crime, inadequate medical care and hotel shortages. Somewhat oddly, the state department also used the warning to highlight the fact that a Russian law, much criticized by rights groups, that would make it a crime to publicly promote the equality of gay, lesbian, bisexual and transgender people.

Thought the incredibly unpopular Obamacare health plan (the most epic disaster story was the woman who was touted as a success and then later kicked off her plan) had put most of its problems behind it? Think again. Yesterday, after the stock market close, health insurer Humana warned that the “risk mix” of those who have signed up for the program will be “more adverse than previously expected.” In plain english what this means is that only old and sick people are signing up, while younger generations with piles of student debt, a couch in their parents’ basements and no jobs decide to ride things out uninsured.

The fact that economic ignorance is widespread is really a big problem in our view. Unfortunately even what is broadly considered the economic mainstream thought is riddled with stuff that we think just doesn't represent good economics. Partly it is actually furthered by statist propaganda and obfuscation. For instance, the average citizen is not supposed to question the centrally planned monetary system, and neither is he supposed to actually understand how it works. Another glaring example is the still widespread idea that socialism – or rather, communism (i.e., full-scale socialism as opposed to its milder 'democratic' version) – would be "the best possible system of social and economic organization if only it were implemented correctly", or the variant "...if only human nature were different and we were morally more advanced than we actually are". The main problem with this train of thought is that it is actually completely wrong...

We have asked (and answered) this question a number of times in recent weeks. Ignoring for a moment the bubble-trajectory, hope-expectations, and investor sentiment, as ex-Morgan Stanley-ite Gerard Minack notes, equity markets in 2013 appeared to completely ignore macro fundamentals. For 2014, as we warned here, the dream of moar multiple expansion may be over. With the Fed desperate to convince the world that strong language is just as effective as 100s of billions of dollars in liquidity provision, we suspect the 'wedge' between hope and reality will compress (significantly)...

Perhaps the only good news in today's job report is that it is now in the past, because absent from some inexplicably respected so-called pundits doing the most idiotic thing imaginable, and saying to just ignore this report, there was absolutely nothing good one could say about the lowest monthly job gain since January 2011 (driven by temp and retail workers) at least until it is revised several times over the next 3 years when we ultimately learn that today's noisy jobs print was really a gain of 500K jobs. Of course by then, there will be far bigger problem to deal with. However, while December in the past, the future still remains. And it is here that we have some good and bad news. According to the just released Occupation Outlook Quarterly (OOQ) looking at the period from 2012 to 2022 released by the BLS, in the future the US will be in a significant need of jobs, which is good for all those worried that the economy is grinding to a halt, or those demoralized from not having a job for months on end and unsure if this will ever change. That's the good news. The bad news is that as in the case of today, the vast majority of future jobs will pay absolutely miserable salaries.

The following is a firsthand story of how and why a former US citizen - who kindly shared this information on condition of anonymity - decided to renounce his US citizenship

The December jobs report was an ugly mix of slowing employment growth and disappointing labor supply. JPMorgan's Mike Feroli doesn't mix his words in his brief report on today's ugly jobs data. While other 'economists' proclaimed we should "ignore it" or blamed it on the weather, Feroli notes for example, "It's hard to see how the weather -- or anything else -- was to blame for the 25,000 decrease in employment of accountants." But it his comments for the Fed that are most concerning as he worries, "the forward guidance decision could be even more difficult than the tapering call... lowering the unemployment threshold further would be doubling down on predicating policy on an arguably flawed statistic."

Have you seen the economic recovery? We haven’t either. But it is bound to be around here somewhere, because the National Bureau of Economic Research spotted it in June 2009, four and one-half years ago. It is a shy and reclusive recovery, like the “New Economy” and all those promised new economy jobs. I haven’t seen them either, but we know they are here, somewhere, because the economists said so. At a time when most Americans are running out of coping mechanisms, the US faces a possible financial collapse and a high rate of inflation from dollar depreciation as the Fed pours out newly created money in an effort to support the rigged financial markets. It remains to be seen whether the chickens can be kept from coming home to roost for another year.

From hashish to drinking cheap whiskey in Chiang Mai clubs, the following clip rounds up the 'best of' Marc Faber over the last few years...

• On the elites - "I am not sure the thinkers are in Davos"
• On the media - "you are an optimist, keep on dreaming... us foreigners just laugh"
• On solutions - "cut government expenditures by 50%; fire half the government... including the President"
• On Americans - "people in the western world have abandoned personal responsibility"
• On government - "who would have faith in the US administration, certainly not someone who thinks"
• On Gold - "not to own gold is to trust central banks, and that you don't want to do in your life"

Perhaps the most amusing and curious aspect of this entertaining summary of the Mississippi Bubble of 1720, the resulting European debt crisis (the first of many), how bubble frenzies are as old as paper money, the man behind both - convicted murderer and millionaire gambler, John Law, what happens when paper money's linkage to gold is broken, and how everyone loses their wealth and hyperinflation breaks out, is who the source is. The New York Fed. Perhaps the Fed-employed authors fail to grasp just what their institution does, or have a truly demonic sense of humor. In either case, the following "crisis chronicle" highlighting how banking worked then, how it works now, and how it will always "work", is a must read by all.

We are sure there is a joke in here somewhere but it is no laughing matter. Following a request for copies of 8 documents  of correspondence between Ireland's (former) finance minister and the nations' largest bank executives, the Irish minstry of finance has been forced to admit that it cannot find two out of the eight. The documents, previously 100% redacted, raises questions as to whether other documents have gone 'missing'. As RTE reports, the Department of Finance said it had carried out a widespread search for the documents and it was not clear why the original versions could not be located. Those darn leprechauns... We are sure, however, it has nothing to do with the Irish banks "picking bailout numbers out of their arses."

Despite telling us just yesterday that it would not take sides in the tensions in South Sudan...

*U.S. NOT TAKING SIDES IN S SUDAN: PSAKI

the US government is on the verge of deciding to... take sides. As Reuters reports, the United States is weighing targeted sanctions against South Sudan due to its leaders' failure to take steps to end a crisis that has brought the world's youngest nation to the brink of civil war. Africa, as we have discussed at length, remains the only region on earth with incremental debt capacity (and therefore growth in a Keynesian world) and so it is no surprise the US wants to get involved in yet another conflict.

This morning we showed several charts that "Market Bulls Should Consider", as the mainstream media, analysts and economists continue to become more ebullient as we enter the new year.  This weekend's "Things To Ponder" follows along with this contrarian thought process particularly as it appears that virtually all "bears" have now been forced into hibernation.

Treasury yields collapsed 10-12bps today with the largest decline since 9/18/11. Treasury yields in general slipped back to the lowest level in 3 weeks. The USD was slammed lower (except against CAD which pushed lower - down 2.5% on the week!). JPY strength was offset by AUD and the cross provided the ammo to lift equities back to day-session highs in the last hour (104 USDJPY was defended aggressively). Stocks broadly bounced immediately after the knnjerk selling off the NFP print, then leaked lower until 3pmET when a decidedly low volume meltup took NASDAQ and Russell back to almost unchanged on the year. Trannies outperformed, Dow underperformed (TRAN +0.65%, DOW -1% YTD). Silver and gold surged back into the green for the week with the latter closing above its 50DMA for the first time since October and its highest in a month. VIX tumbled to 12.2% as hedges were lifted and recoupled with the S&P.

Somehow, like it or not, the world turns. Today's hegemon becomes tomorrow's also-ran. Today's reserve currency becomes tomorrow's wallpaper. Today's cock o' the walk becomes tomorrow's dinner. Hey, we didn't create this system. We don't even especially like it. But that's just the way it is. Whether you already have made a fortune, or are trying to build one, you need to be very careful about what currency... or currencies...  your wealth in denominated in. From an economic point of view, the system (established by Richard Nixon in 1971) is loopy. The Chinese pretend they have good customers. Americans pretend they have good credit. And everyone pretends to get richer … based on promises to settle up sometime in the future. Instead of edging toward a reckoning, all major governments seem to want to make the situation worse.