Archive - Apr 28, 2014 - Story

As libertarianism begins to gain in popularity and seep into the youth culture, there is increasing pressure from certain strains of the movement to attempt to modify the theory and transform it into something that it is not.

While institutional investors and money managers have a very specific list of worries when it comes to their "financial concerns" such as Fear Of Missing Out (FOMO), monthly/quarterly performance and redemption requests, losing top traders, what the year end bonus will be, order fill slippage, being frontrun by HFT algos, what the Fed chairwoman may say any given day, whether it is 3:30pm or if it is a Tuesday, ordinary Americans have a far simpler list of concerns. According to a recent Gallup poll, the one thing that has most Americans very/moderately worried is "whether or not they have enough money for retirement."

After the initial crash in many of the commodities backing China's shadow-banking system's ponzi, levels recovered modestly as rumors were spread of bailouts, stimulus, and in fact the exact opposite of what the Chinese government had declared it was trying to do. That ended for Iron Ore this weekend when, as The FT reports, China announced plans to get tougher on loans for iron ore imports as concerns grow that steel mills are using import loans to stay afloat in defiance of policies to reduce overcapacity in heavily polluting and lossmaking industries. Iron Ore prices tumbled overnight, closing near the lowest levels since Sept 2012 as it appears the PBOC and CBRC are serious and set to implement the tougher rules on May 1st.

It doesn’t get any more Orwellian than this: Wall Street mega banks crash the U.S. financial system in 2008. Hundreds of thousands of financial industry workers lose their jobs. Then, beginning late last year, a rash of suspicious deaths start to occur among current and former bank employees.  Next we learn that four of the Wall Street mega banks likely hold over $680 billion face amount of life insurance on their workers, payable to the banks, not the families. We ask their Federal regulator for the details of this life insurance under a Freedom of Information Act request and we’re told the information constitutes “trade secrets.”

Angela Merkel has a favourite mantra to offer troubled euro-zone countries: they should copy Germany. As The Economist notes, she put it last autumn: "What we have done, everyone else can do." Fifteen years ago, so she says, her country was widely regarded as the sick man of Europe; then it opted for fiscal austerity, cut labour costs and embraced structural reforms, turning it into an economic powerhouse. However, there is another mantra Mrs Merkel likes to repeat to her colleagues: Europe accounts for 7% of the world’s population, 25% of GDP and 50% of social-welfare spending. The Economist, and George Soros believe, Germany’s current course will exacerbate that problem as Europe's biggest economy is backsliding on structural reforms (as she preaches pre-growth reforms but implements anti-growth ones).

If the economy really is "getting better", then why are nearly 50 million Americans dealing with food insecurity?  In 1854, Henry David Thoreau observed that "the mass of men lead lives of quiet desperation".  The same could be said of our time.  In America today, most people are quietly scratching and clawing their way from month to month.  Nine of the top ten occupations in the U.S. pay an average wage of less than $35,000 a year, but those that actually are working are better off than the millions upon millions of Americans that can't find jobs.  The level of employment in this nation has remained fairly level since the end of the last recession, and median household income has gone down for five years in a row.  Meanwhile, our bills just keep going up and the cost of food is starting to rise at a very frightening pace.  Family budgets are being squeezed tighter and tighter, and more families are falling out of the middle class every single day.  In fact, a new report by Feeding America (which operates the largest network of food banks in the country) says that 49 million Americans are "food insecure" at this point.  Approximately 16 million of them are children.  It is a silent epidemic of hunger that those living in the wealthy areas of the country don't hear much about.  But it is very real.

The average age at which U.S. retirees report retiring is 62, the highest Gallup has found since first asking Americans this question in 1991. While not a total surprise, given our previous discussion of the rise in employment that is so focused on the elder cohorts of society as they smash headlong into the realization that they have no retirement plan. As we pointed out here, the typical worker near retirement only has about 2 years of replacement income saved, or about 15 years short of the median lifespan post-retirement. What is perhaps more worrisome is the rapid rise that Gallup notes in the last few years, as we have pointed out in the past that in fact, over 60% of workers accumulated more debt than they contributed to retirement savings between 2010 and 2011.

Last month, Bank of America made a lot of noise about how they were going to buy back up to $5 billion worth of common shares. As CEO Brian Moynihan stated, “We have simplified our company and we have more than adequate capital to support our strategic plans. We are well positioned to return excess capital to our shareholders.” Needless to say, investors cheered the announcement, and BofA’s stock price rose nicely as a result. Fast forward 45 days… and boy what a difference reality makes.  Remember the lessons from Cyprus: last March, people went to bed on a Friday night thinking everything was just fine. The next morning they woke up to find that their entire banking system was insolvent and that the government had frozen their accounts.  Bottom line, just because they tell you the money’s there doesn’t mean the money’s there. Just because they tell you they’re well capitalized doesn’t mean they’re well capitalized.

In the second part of the series on the troubling repetition of financial crises, The FT's John Authers warns that while the 2008 financial crisis appears (judging my 'markets') to have been resolved; this has only sown the seeds of a further crisis. Bob Swarup, author of 'Money Mania', explains to John Authers how more needs to be done than such short-term fixes. Europe, for instance, Swarup notes is replaying the "tragedy of small decisions" that it went through in the 1920s as nations become ever more dependent and inter-connected and policy-makers around the world are faced with the uncomfortable reality of a highly complex world increasingly beyond the control of the fiscal and monetary policy manipulations.

The debate over Thomas Piketty’s new book Capital in the Twenty-First Century is as dumb as every other issue-set in the public arena these days - a product of failed mental models, historical blindness, hubris, and wishful thinking... We doubt that the Warren Buffets and Jamie Dimons of the world will see their wealth confiscated via some new policy of the Internal Revenue Service - e.g. the proposed “tax on wealth.” Rather, its more likely that they’ll be strung up on lampposts or dragged over three miles of pavement behind their own limousines. After all, the second leading delusion in our culture these days, after the wish for a something-for-nothing magic energy rescue remedy, is the idea that we can politically organize our way out of the epochal predicament of civilization that we face. Piketty just feeds that secondary delusion.

A lack of volatility in the markets is dangerous, according to Saxo Bank's Chief Economist Steen Jakobsen, who says we need to know why the danger will be with us for some time. In this brief clip he warns, "...the world seems to think there is a stable permanent equilibrium which doesn't make sense if you think about it, unemployment is still rising, debt to GDPs are still rising, the Crimea situation is increasing in tension, not decreasing, The US still has a lot of stuff to do on social security and welfare spending…for two or three years down the road, with no activity, the world will fall into not only deflation, but also a recession." Jakobsen predicts that, year on year, world growth will actually be "a big fat zero" and therefore the markets are drifting into dangerous territory.

We have often suggested that, if we wish to know what is coming politically, socially, and economically in jurisdictions such as the EU and US, we might have a look at countries like Argentina and Venezuela, as they are in a similar state of near-collapse (for the very same reasons as the EU and US) but are a bit further along in the historical pattern. Such a bellwether was seen in Argentina recently.

Carl Icahn's brilliant "activist" plan revealed in all its glory.

Some uncomfortable news for the airplane web provider after hours:

*AT&T SAYS IN-FLIGHT CONNECTIVITY SERVICE AVAILABLE LATE 2015

GOGO stocks are down 18%... Go Go Gadget "barriers to entry"

Owners of high-growth, high-beta stocks could not find a buyer for any of their crap today some mid-afternoon shenanigans between AUDJPY, VIX, and more utterly useless Russian headlines meant those same owners of high-growth, high-beta stocks were beating buyers away with a shitty stick. Pandora is a great example of the chaos (today's swings down 2%, up 4%, down 11%, then up 6%) as today's action in the so-called "market" was anything but human. The buying panic lifted the S&P, Dow, and Trannies briefly into the green for April but very late-day weakness left only the Trannies green for April.  We just hope the desperate BTFWWIII'ers didn't use up all their BTFTuesday ammo...