Archive - May 2014 - Story

Unions have been the real plague of society. There is not much they have not really destroyed... The problem is that the only way to pay these unions is to raise taxes. This is the poison pill that will destroy Western Society. This hunt for taxes will destroy the economy and will not save the day in the end game. Just do the math.

Sometimes a chart is worth a thousand words, and this is one. Real Median household income peaked way back in 1999 at $56,000 and by 2012 it was down 9% - an unprecedented decline. It goes without saying that Washington’s Keynesian ministrations on the money printing and national debt front didn’t much help. Yet the mainstream narrative blathers on that the business cycle expansion is back on track and that last month’s numbers were a tad better than the month before. The table below says that’s all Keynesian bread and circuses - the fleeting uptick interval between the serial bubbles and busts that our Washington overlords have condemned the people to endure.

With everyone focused on what is undisputedly the next mega credit bubble in the form of student loans, the topic of college education, and specifically its utility, has gotten much press coverage over the past month. As we summarized most recently two days ago, the key variables involved when calculating the costs and benefits revolve around whether one uses (generous amounts) of student loans and what area of specialization one picks. But according to a recent report published by the Center for Economic and Policy Research there is another, perhaps more important variable when it comes to getting the most out of one's college education: race. 

Has there been an economic recovery? The statistical data clearly shows that this has been the case. However, the 100 million Americans that currently depend on some sort of social assistance to "make ends meet" are likely to disagree with that view.

Wednesday is the new Tuesday. From the moment equities closed yesterday, they rallied on another macro data-less day. The US open sparked another JPY-based run higher and then the pump-and-dump after FOMC cleared the way for VIX - which closed at its lowest in 9 months (on the day the FOMC warns of complacency concerns) - to lead stocks back to the week's highs. Credit was not as excited - just like Monday (before Tuesday's reality-check for stocks). Goldman took the shine off things late on by explaining to BTFD'ers that "there were no surprises" and stocks faded modestly. Treasury yields closed higher (2-3bps) but rallied post-FOMC. Gold down modestly, USD flat, and WTI crude up to almost $104.

While everyone tries very hard to read between the lines of the Fed minutes with the consensus conclusion being that suddenly (as opposed to previously?) the Fed is confused about what the best exit strategy is, with words such as reverse repos thrown around for dramatic impact even though this topic has been around for nearly a year, the reality is that there was absolutely nothing market moving or material in today's report (which furthermore reduced the use of the word "weather" from 15 instances in March to just 8 in April although no mentions of El Nino just yet). Here is Goldman's FOMC minutes post-mortem confirming just this. "BOTTOM LINE: The April FOMC minutes contained no major surprises. There was no news on the likely date of the first funds rate hike or the pace of subsequent hikes, and participants' views on the economic outlook were unchanged. Participants discussed the exit strategy and were in favor of further testing of policy tools, but no new policy decisions were made."

While we are no experts in either geography (did Iran and Kazakhstan just get a lot closer?) or inter-continental ballistic missile identification (was anyone else test-firing nuclear missiles last night), the skies over Iran were glowing last night with what the news agency astrological experts said was "according to previous experiences, guessed to be the final stages of a long-range ballistic missile launcher." This is good news, for Iran, but, according to the Russian Navy blog, they are preparing for another ICBM test-firing next week... so Norway might want to be on the look-out.

Fiat money is at base a form of indirect wealth transfer from those forced to hold the money to those issuing the money.

The knee-jerk reaction in JPY (which ran to 101.50 running stops) rippled across stocks (which ran to highs and took out stops), bonds (which ran to high yields of the day and took out stops), and gold (which ran to the week's lows and took out stops). But that did not last long. With the algos taking a back seat for a moment to real positioning, bonds are rallying, gold is up, the USD is down and equities are unch to down (Russell worst). Credit markets remain weak on the week and (just like Monday) unimpressed by equity's exuberance.

In a well-crafted 688 words published just 5 minutes after the minutes were exposed to the public, the Wall Street Journal's Jon Hilsenrath provides what bullish equity market believers might consider one of his more hawkish commentaries on what the Fed is really thinking. "Federal Reserve officials turned their attention to longer-run issues at their April policy meeting," he noted; adding that discussion of the Fed's "exit strategy" from low interest rates has heated up in recent weeks. His summation - lots of talk, no action... not what the bad-news-is-good-news crowd wants to hear.

These are the minutes from an FOMC meeting that raised economic assessments for the year the day that Q1 GDP printed at +0.1%. No big surprises from the minutes...

• *FED SAW NO INFLATION RISK IN FUELING JOB GROWTH, MINUTES SHOW
  
• *FOMC PARTICIPANTS SAW `NEARLY BALANCED' RISKS TO ECONOMY
  
• *A NUMBER OF FOMC PARTICIPANTS SAW POSSIBLE RISK IN WEAK HOUSING
  
• *SEVERAL FOMC PARTICIPANTS SAID LOW VOLATILITY MAY SIGNAL RISK

More of the same from the FOMC minutes - which have been carefully prescribed to reflect just enough confusion as to provide every stock bull (and bond bear) with just enough ammo to BTFD once more unto the breach. With 2 Fed speakers yesterday and 4 today, it seems the Fed is keen to interpret the minutes for everyone through the only tool they have left - communications... Volatility is a concern due to complacency; low rates have consequences; new normal terminal rate lower than historical norm; taper will proceed; doves more dovish, hawks more hawkish.

The teleprompter is still hot from all the Obama spit unleashed in his latest sincerely passionate denial that his administration knew anything, anything at all, about what is merely the latest scandal to rock the president, this time surrounding the Veterans Affairs fiasco, and already a brand new scandal is taking shape, this one Obama however will not be able to sweep as easily under the rug. The LA Times reports that the "Obama administration has quietly adjusted key provisions of its signature healthcare law to potentially make billions of additional taxpayer dollars available to the insurance industry if companies providing coverage through the Affordable Care Act lose money." In other words, yet another taxpayer funded bailout.

It's the same old story: in order to make its economy appear healthier than it is, India attempted to centrally-plan and force a country of 1.2 billion to stop buying gold, going against centuries of, pardon the pun, tradition. It failed, and the result was an epic surge in gold smuggling. So now, with a new government in place, India is considering lifting the world's most draconian gold capital controls since FDR issued Executive Order 6102. Will it? And what will that mean for the price of gold? Find out soon enough.

Historically, Warren Buffett has seemingly disagreed with his father Howard who called for "a return to a gold standard" and knew the great Austrian economic school economist Murray Rothbard. However, we suspect his recent startlingly crony-laden comments on Tim Geithner's new book would have made his dad roll over his grave... "Sensational... Tim's book will forever be the definitive work on what causes financial panics and what must be done to stem them when they occur."

More than half a decade after the collapse, and with talking heads proclaiming the recovery as strong as ever and the Fed remarking on the housing market's foundational pillar to that recovery, BlackRock's CEO Larry Fink has a few words of warning for the exuberant - the US housing market is "structurally more unsound" today that before the last financial crisis. As the data comes in weaker and weaker, despite hopes for a post-weather bounce, the fact that the US housing market is "more dependent on Fannie and Freddie than we were before the crisis," is a problem for the US taxpayer and - unlike Mel Watt's 'free credit for everyone' approach to expanding the GSE's role, Fink says with strong underwriting standards, ownership of affordable homes can again become a foundation for American families. So Watt's easy 'Subprime 2.0' or Fink's hard 'American Dream'.