Archive - Apr 25, 2014 - Story

Defending the nation's mass surveillance programs because "people were desperate to avoid another [9/11] attack," Hillary Clinton, speaking at University of Connecticut on Wednesday night, noted that a balance must be found to "make sure that we're not infringing on Americans' privacy, which is a valued, cherished personal belief that we have." But her most controversial comments were swved for Edward Snowden, as she though it "odd that he would flee," since, she noted, "we have all these protections for whistle-blowers, " and concluded rather cryptically that, "turning over a lot of that material... gave all kinds of information, not only to big countries, but to networks and terrorist groups and the like."

The last time the Russian "Doomsday Plane" was seen in the air doing its trademark loops at 27,000 feet telegraphing Vladimir Putin was somewhere nearby, was on March 31, just days after the formerly Ukrainian region was annexed by the Kremlin. Until today, when over the past 4 hours, the Tu-214 has been quietly circling in position just shy of Finland and the Baltics, where as it is known, NATO has been depositing hundreds of western soldiers in a "defensive" build up.

The 21st century is still young, but it has already presented the United States with a series of internal and external challenges. History tells us that when one hegemon is in decline, international relations become more complex and uncertainties increase the risks. We may be in such a period today.

In response to the verbal attacks pitched at him over thelast few days, Cliven Bundy has held a brief press conference to explain his perspective on 'slavery' and allegations of racism. Much as the world seems 'happy' to live a life of debt serfdom, Bundy notably remarked that he wonders if any of us are better off now "as slaves to charity and government subsided homes."

Kevin Hassett recently debated Thomas Piketty on his book, "Capital in the 21st Century". After presenting some interesting points on Piketty's work, Hassett reminds his audience, somehow ironically, that not just Marx, but also Joseph Schumpeter thought that capitalism was going to die. As he wrote in his voice "Capitalism" for the Encyclopaedia Britannica, Schumpeter was convinced that "the capitalist process by its very success tends to raise the economic and political positions of groups that are hostile to it."

As readers will recall from our recent preview of what equity performance this month was supposed to look like, at least based on historical data, April was supposed to be the best month of the year. Sadly for the bulls, it has been anything but. That's the good news. The bad news is that as most know the old saying "sell in May and go away", there is nothing but pain for the next six months

The Fed has launched everyday Americans and investors into uncharted economic territory... The Fed’s money-printing policies have driven the markets straight upward, lighting up a new post-crash asset bubble. Their constant price fixing creates, prolongs, and inflates the cycle of booms and busts... and since gold is the ultimate insurance policy against that type of uncertainty, it is very likely to benefit from the Fed’s policies. What's more, consuming ever more than it produces, the US has slipped into record debt levels. The national debt has hit the astounding sum of $17.5 trillion, surpassing America’s total GDP for the first time in 2012. As Grant Williams asks (rhetorically in this brief interview): does the Fed have all of this under control? Probably not... and that is why you need an "unsure-ance" policy.

This week saw yet another nail in the coffin of the 'hope-strewn housing-recovery escape-velocity growth engine of America' meme when new home sales collapsed. Homebuilder stocks, while volatile, have been trending lower recently (notably underperforming the S&P) as macro disappointments continue but, as Stone-McCarthy notes, it is the moves in lumber prices (the prime material used in home construction) that is of particular concern.

The American people are increasingly waking up to the fact that nothing ever seems to change in Washington D.C. no matter which political party is in power.  In fact, as you will see later on in this article, an all-time high 53 percent of all Americans believe that neither party "represents the American people". The mainstream media would have us believe that the Republicans and the Democrats are constantly fighting like cats and dogs, but the truth is that the Republicans want to take us to the same place that the Democrats want to take us - just a little more slowly perhaps. In the final analysis, it is hard to be optimistic about a political solution to any of our major problems in the near future.  Most of our politicians are deeply corrupt, the American people are incredibly angry and are deeply divided, and the vast majority of campaigns for federal office are won by the candidate that raises the most money.

Sentiment among CEOs, based on Bloomberg's excellent Orange Book index of their executive comments, had reached 14 month high levels in mid-April as everyone was optimistic about a post-weather pent-up-demand bounce in everything from car-buying to burger-flipping. As Bloomberg's Rich Yamarone notes, optimism was the most widespread in the housing, automotive and transportation industries. The last week has seen the ugly reality hit home as Sentiment collapsed at its fastest pace since the government shutdown and dropped to 5-month lows. Common pessimistic issues include: unfavorable currency exchange rates, higher-priced food and uncertainties in Russia and Ukraine.

Ralph Waldo Emerson once said “Doing well is the result of doing good. That’s what Capitalism is all about,” and nowhere is this description more embraced than on Wall Street. There, the idea of the meritocracy, where those that produce the most financial value get to take home the biggest rewards is almost a cliche  All of which begs the question, why do most hedge funds exist?  If Capitalism existed on Wall Street, and compensation was tied to the creation of economic value, most of the “absolute return industry” would go out of business. To understand why, we need to go back a decade.

The topic of the false recovery in the US housing market has seldom been far from these pages but it seems both the mainstream media and the actual businesses on the ground are seeing that extrapolating dead-cat-bounces and easy-money bubbles (once again) ends in tears. As WSJ reports, mortgage lending declined to the lowest level in 14 years in the first quarter as homeowners pulled back sharply from refinancing and house hunters showed little appetite for new loans, the latest sign of how rising interest rates have dented the housing recovery. The decline shows how the mortgage market is experiencing its largest shift in more than a decade as an era of generally falling interest rates that began in 2000 appears to have run its course... and the marginal potential refinancer has hit their limit.

This week's compilation of things to ponder is a veritable smorgasbord of topics that caught our attention this past week. From "The Limits of Growth" to "Peak Profits" and "The Next Bailout", plenty to ponder this weekend.

Does anyone miss Maria?

After a few days of exuberant dead-cat-bounce, that credit and treasury markets largely chose to ignore, Russian headlines sent USDJPY (and therefore US equities) dumping hard into the red for the week (and the month). Tuesday was the week's big short-squeeze winning day (as one would expect) and then it was all downhill. Away from stocks, the USD ended the week modestly lower (-0.15%); treasury yields were mixed with some more notable flattening (5Y ~unch, 30Y -8bps); and commodities were very volatile. Copper had its 2nd best week in 7 months, oil its 2nd worst week of the year as gold and silver beat stocks and the latter remains the year's winner. A late-day buying panic (because why wouldn't you ahead of potential WWIII!) was led by a VIX ramming which managed to get the S&P briefly green for the week but it faded quickly into the close.