Archive - Mar 26, 2014 - Story

Cronyism for the super wealthy starts at the very top with the Federal Reserve System, which consists of topdown economic central planners who manipulate the money supply and hence interest rates for the benefit of the financial oligarch class. It then trickles down through lobbyist money into the halls of Washington D.C., and ultimately filters down to local governments and then the average person on the street gaming welfare or disability. As such, we now live in a culture of corruption and theft that is pervasive throughout society. As a new report finds, "You can’t reform welfare programs for the poor until you’ve gotten Daddy Warbucks off the dole. Voters will insist on that - as well they should."

With copper, iron-ore, soybeans, and nickel all tough to carry when you need liquidity from your commodity-financing deals; it appears the Chinese people have turned to more spectaculr methods of moving 'wealth'. As The South China Morning Post reports, just week after a man was stopped at the China-Hong-Kong border with 4 kilograms of gold in his shoes, customs officers caught a man smuggling more than 7000 diamonds in plastic bags in his underwear. The tell, officers noticed he was walking in a pculair manner.

Yes, Russia is guilty of meddling in Ukraine, but then again so are the United States and the European Union. The major difference is that far less was said and much less reported by the international media over the Americans’ and Europeans’ interference than of Russia’s actions and the reactions it caused.

Forget "iron fist", it appears Vladimir has found something better....

A Turkish court has ruled against Prime Minister Erdogan's unilateral decision to ban Twitter from the nation after the threatened leak of corruption allegations. As The FT reports, the Ankara district court imposed a stay on the measure after hearing arguments from the Turkish Bar Association that the ban was disproportionate and illegal. While government officials have agreed they would implement the court's ruling, so far there has been no change. Twitter has officially responded expressing concern at the ban and filing further petitions to have it lifted as rumors spread of a "spectacular leak" in the next few days ahead of Sunday's elections.

International discord over Ukraine does not bode well for the settlement of differences over the IMF’s future. Though the G7 is excluding Russia from its number, in retaliation for its action in Crimea, this does not amount to isolating Russia. There has been no suggestion that Russia be excluded from the G20. The USA and its allies have suspected that several other G20 members would not stand for it. This suspicion was confirmed yesterday when the BRICS foreign ministers, assembled at the international conference in The Hague, issued a statement condemning ‘the escalation of hostile language, sanctions and counter-sanctions’. They affirmed that the custodianship of the G20 belongs to all member-states equally and no one member-state can unilaterally determine its nature and character. In short, their statement read like a manifesto for a pluralist world in which no one nation, bloc or set of values would predominate.

The credit cycle is called a "cycle" because, unlike the business cycle (which the Fed has convinced investors no longer exists), it 'cycles'. At some point the re-leveraging of the balance sheet - remember more cash on the balance sheet but even morerer debt (as we noted here) - requires risk premia that outweigh even the biggest avalanche of yield-chasing free money. It appears, as Bloomberg's James Crombie notes, that point may be approaching as yield premiums for U.S. distressed debt hit a five-year high on March 25, according to Bank of America Merrill Lynch.

The King is dead... long live the QEeen?

Lately, much has been made about Unemployment and Labor Participation Rates here domestically in the United States. With unemployment steadily ticking down from 10% at it peak to just 6.5% today, many point to the improving economy as a reason that the Unemployment Rate has been steadily improving. While it makes for good political theater, the reality is that we are suffering from an employment crisis in this country not seen in nearly 3 decades.

President Obama denounced Russia's "brute force" in Ukraine during a speech in Brussels today, but it seems from the images and clips below that Russia cares little for words and is more about strategic actions for now. Russia now, reportedly, controls 51 Ukraine Navy ships and while Merkel is talking tough, she is careful not to be too aggressive in her call for escalation. After some de-escalation after the referendum, NATO (and increasingly social media) confirm that things are re-escalating as Russia tanks were being moved en masse across the nation to various borders.

Bitcoin tax rules finally came to the Land of the Free yesterday; and we have to imagine there are some not-too-happy campers today, if they even know about it. What’s most interesting about this new set of rules is what they might mean for gold. Imagine – paper currencies go into freefall. Gold soars. Anyone who bought gold early sees sizeable profits (in paper currency)... at which point the government steps in after the fact and sets up new tax rules to confiscate a substantial portion of those gains. Think it can’t happen? These Bitcoin rules certainly establish a precedent.

Looking ahead at the next couple of weeks, Citi's Stephen Englander sees multiple sources of risk which he does not think are fully priced in. Most of these risks appear to be asset market negative, involving higher US rates, more geopolitical disruption and downside economic shocks.

It appears that Walmart has admitted the potentially severe adverse impact a reduction in food stamp payments could have on its bottom line. This shouldn’t be a surprise to anyone as we have written about this many, many times. Most notably here McDonald’s Math: You Can’t Survive Working for Us. But now, we have further evidence of this disturbing economic trend straight from the horse’s mouth: Walmart. Simply put, Who’s paying for Wal-Mart’s addiction to paying its employees less than a living wage? You are.

Another year, another failure by Citigroup to i) pass the Fed's stress test and ii) be able to stop investing cash in such idiotic fundamental concepts as CapEx, and instead reward activist shareholders with increased dividends and buybacks. As the WSJ reports, Citigroup "failed to get Federal Reserve approval to reward investors with dividends and stock buybacks, a significant blow to Chief Executive Michael Corbat's effort to bolster the bank's reputation following a 2008 government rescue." Hardly surprising for a bank which effectively was wiped out in the crisis and which only survived thanks to the Fed-backed crammed-up, spinoff of billions of toxic assets into a bank bank, however certainly surprising for a bank that is supposed to be "fixed" five years into a "recovery." What's worse, the stock is now trading below the infamous $5 level on a pre-split adjustment level - the same split that was supposed to at least optically, give the impression that things at Citi are ok. Turns out optics is only half the answer.

30Y yields are now over 10bps below post-Yellen spike highs as growth-hope-driven US equities were monkey-hammered in another pump-and-dump deja vu day - with one difference - no late-day bounce to provide solace for the bulls. The Nasdaq and Russell 2000 are down over 3.5% from Yellen; Biotechs broke to new lows (down over 14% and below the 100DMA); momo names were slammed (FB) as King IPO's and lost over 15% on the day. The Nasdaq and Russell have joined the Dow in the red year-to-date, S&P and Trannies barely positive. The USD lost ground on the day after early strength. Gold, silver, and copper fell notably. VIX jumped from 2-month lows to back over 15%. USDJPY was sin charge all day - and broke below the key 102 level into the close.