Archive - Feb 2014 - Story

Sometimes, perhaps all too often; investors, traders, economists, and mainstream media anchors miss the forest and see only the trees (growing to the sky or crashing to the floor). To provide some context on the markets, we present the first of three posts of long-term chart series (and by long-term we mean more than a few decades of well-chosen trends) - stock, bond, gold, commodity, and US Dollar prices for the last 240 years...

Ever feel like it's all just one big con?

Mt.Gox has been the dominant Bitcoin exchange pretty much since the beginning. In its brief history, it has suffered several bad setbacks. There were plenty of reasons to give them a pass in the past, and many did. It was early. But not this time. Bitcoin is no longer in Phase 1 of its evolutionary cycle; Phase 2 for Bitcoin began in earnest back in November 2013, when the Senate Committee on Homeland Security and Governmental Affairs held its first hearings on the topic. Those hearings made it clear that, at least for the moment, no significant roadblocks would be put in place to prevent people from transacting with one another using the crypto-currency. Bitcoin is becoming serious, and serious means serious accountability.

While The White House crows of the falling unemployment rate (which everyone now knows is entirely useless as an indicator of anything), the rapid-drop in this indicator is a major headache for the Fed. While forward-guidance is crucial in replacing the "common knowledge" that the Fed remains easier-for-longer as bond-buying is tapered, despite it's dismissal by vice-chair Stan Fischer and BoE's Carney (and even an almost admission of its weakness by Bernanke), Yellen faces a market that is betting massively (actually in record size) that short-term rates will rise and Fed heads like Lacker shift to "more qualitative ways" of maintaining the punchbowl.

No-one knows for sure how big a problem China's economy will eventually face due to the massive credit and money supply growth that has occurred in recent years and no-one know when exactly it will happen either. There have been many dire predictions over the years, but so far none have come true. And yet, it is clear that there is a looming problem of considerable magnitude that won't simply go away painlessly. The greatest credit excesses have been built up after 2008, which suggests that there can be no comfort in the knowledge that 'nothing has happened yet'. Given China's importance to the global economy, it seems impossible for this not to have grave consequences for the rest of the world, in spite of China's peculiar attributes in terms of government control over the economy and the closed capital account.

With silver's best week in over six months and gold testing3-month highs, Citi's FX Technicals group believes gold continues to look constructive overall with a test of $1,361 and eventually $1,433 expected. Rather ominously, from a broad perspective, they would not be surprised to see an inverse correlation between gold and equities just as was exhibited throughout the last bullion bull market in the 1970's.

As the State of the Union address highlighted, both the Russia Federation and the United States have leaders that lean toward various degrees of autocratic government to achieve their agendas.  President Putin rules with an iron fist and treats the legislative branch as an afterthought to use as needed but otherwise ignores.  President Obama declares he will use executive action to get what he wants and quietly uses government agencies to intimidate and stifle his opposition in flagrant abuses of power.  Putin has dismantled the Russian free press and imprisoned vocal opponents.  The majority of the American press does Obama’s bidding for him while the administration puts movie makers in jail. 

Another day, another European nation is hit by violent riots as protests over the economy and corruption spilled over violently into the street, this time Bosnia where more than 150 people were wounded on Friday in the worst civil unrest in the country since the 1992-95 war. The reason: anger over the dire state of domestic politics, the economic collapse and especially the country's 40% unemployment rate. The Telegraph reports that angry protesters set fire to part of the presidential palace in Sarajevo, as well as government buildings in the capital Sarajevo, Tuzla and Zenica. At least 80 people were injured in Sarajevo and 10 in Zenica, authorities said. There were no immediate casualty figures from Tuzla, where the worst of the fighting was.

It is remarkable that, Marc Faber begins, despite the growth the US has enjoyed since the 1960s, the poverty rate has barely changed. Faber believes there are far more “poor” people today as a percentage of the population than there were in the 1960s, because lower middle-class and middle-class people have moved into the ranks of the poor. In his opinion, the increase in poverty rests on four pillars: cultural and social factors, educational issues, excessive debt, and government handouts, which encourage people not to work. Other factors include: international competition, which keeps wages down; and monetary policies, which create bubbles and impoverish the majority... “It’s pretty hard to tell what does bring happiness; poverty and wealth have both failed.”

A few short months after Putin cornered the US state department into a disastrous foreign relations dead end with the false flag Syrian escalation which achieved none of the predetermined nat-gas-to-Europe pipeline ambitions, instead alieanting the US from both staunch allies Saudi Arabia and Israel, the Russian president has just managed to inflict yet more pain on US foreign policy this time by infuriating (even more) a core US ally in Europe - Angela Merkel. Just two days after the phone recording of Victoria Nuland emerged in which she not only made it explicitly clear it was the US who was the puppetmaster behind the Ukranian opposition with the traditional CIA tractics as was expected all along, but also explained just how the US freels toward the EU with the now infamous "Fuck the EU" comment, Angela Merkel called the obscene remark "absolutely unacceptable."

It would appear hell hath no fury like a menstruating Japanese woman scorned... As The Daily Star reports, women in Tokyo are threatening a sex boycott against any man who votes for the front-runner in this weekend's critical Abenomics-vote-of-confidence gubernatorial election. The reason? Yoichi Masuzoe, a 65-year-old former political scientist, stated that it would not be proper to have women at the highest level of government because their menstrual cycle makes them irrational. All 16 candidates in the poll are men, with many of them aged in their 60s or older. But Masuzoe's comments about women, as well as other controversial remarks on taxing the elderly, have triggered a backlash.

Despite the short-term memory-losing recency-biased perspective that a 2-day rally in stocks has seemingly set in investors' minds, Citi's FX Technicals group remains concerned that the S&P 500 is stretched by historical standards. At this point, they add, the S&P is more stretched than in 2007 and a bit less stretched than 2000 with the line in the sand around 1,700.

While The White House's Jason Furman glistened in the after-glow of a falling unemployment rate this morning (and a very modestly improving labor-force-participation rate) despite dismal real job creation (which must be due to the weather - but is not!), we thought it perhaps of note that a very large segment of American - White men aged over 20 saw their labor force participation rate drop to a new record low.

Following our post yesterday which included the occasional F-bomb, the reaction was sharp and severe. So severe in fact that less than 24 hours later, Blythe Master has withdrawn from the CFTC. The culprit for Masters' resignation in just 24 hours? A very angry Twitter.

In his State of the Union address, the President of the United States laid the groundwork for a new government program he calls “MyRA” - allowing US taxpayers the ability to loan their retirement savings to the federal government (which, according to POTUS, carries ZERO risk). The President then hit the road, touting his one-of-a-kind program. The Treasury Secretary hit the newspapers, encouraging Americans to enroll. We can see this unfolding like a War Bonds campaign, appealing to Americans’ love of country to get them to loan their money to the government at sub-inflation yields. Meanwhile, the IRS is doing its part.