Archive - Apr 2014 - Story

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.

• Russia should withdraw all assets, accounts in dollars, euros from NATO countries to neutral ones
• Russia should start selling NATO member sovereign bonds before Russia’s foreign-currency accounts are frozen
• Central bank should reduce dollar assets, sell sovereign bonds of countries that support sanctions
• Russia should limit commercial banks’ FX assets to prevent speculation on ruble, capital outflows
• Central bank should increase money supply so that state cos., banks may refinance foreign loans
• Russia should use national currencies in trade with customs Union members, other non-dollar, non-euro partners

If the following news had been "sourced" by Ukraine news agencies, we would caveat it by saying it is almost certainly propaganda. However, since the source for this AP story appears to be "US officials", we will only assign a 98% probability to it being propaganda. Hot on the heels of our report that the Russian "Doomsday Plane" had been seen in the vicinity of the Baltic states, we learn of more Russian airborne acrobatics, this time involving Russian fighter jets which flew into Ukrainian airspace a "handful of times over the last 24 hours, in what one called a continued provocation of the heightened tensions in the region." One, of course, being a "US source" - the kind that was behind the original armed coup in the first place, so one should take this "news" on a somewhat salty basis too.

With 23 foreign central banks diversifying from US Dollars to Renminbi and the PBOC actively aiding numerous major financial hubs around the world with bilateral currency swap agreements, it seems yet another nail in the coffin of US dollar hegemony just got hit...

*PBOC AIMS TO SET UP GLOBAL PAYMENT SYSTEM FOR YUAN: SEC. NEWS
*PBOC TO MAKE GOLD, OIL FUTURES YUAN DENOMINATED: SEC. NEWS

Nothing lasts forever, no matter how much you believe...

While stocks have been fading every bounce so far - and credit markets are particularly weak - it seems the following headline sparked the most recent wave of selling:

*UKRAINE HAS INFORMATION THAT IT IS 'IN DANGER', LUBKIVSKY SAYS
*LUBKIVSKY SAYS INVASION IS POSSIBLE 'AT ANY MOMENT'

The Russell is the worst on the day but the Nasdaq is now at the day's lows, and all are negative for the week and April.

Measuring the cost of anything in currency can be misleading. As we know, inflation can be gamed by authorities to appear low, and supposedly low inflation is actually high inflation if wages are declining while prices rise. Priced in gold and stocks, wheat is near multi-decade lows. That may not last. Technically the trend has reversed, suggesting much higher prices--in dollars, gold or stocks--for wheat and indeed, by extension, for all food.

Thanks to the 'generosity' of their European overlords, the Greek government has been allowed to offer its long-suffering people a so-called "social dividend". As KeepTalkingGreece explains, the one time paid allowance between €500 and €1,000 funded with money from the primary surplus of 2013, is designed to be for the poor; but over 900 applicants with assets over €500,000 applied for the handout and several dozen with assets over €2,500,000 had the balls to apply. As he concludes, "can’t help but wonder whether we are indeed a society in such a moral decline."